1.1 (P19,756,428.31), Banque de L'Indochine et.

de Suez
(US$4,828,905.90 as of January 31, 1988), Manila Banking
G.R. No. 140944             April 30, 2008 Corporation (P84,199,160.46 as of February 28, 1989) and
State Investment House, Inc. (P6,280,006.21). Petitioner
manifested that Manila Bank, a major creditor of the Estate
RAFAEL ARSENIO S. DIZON, in his capacity as the was not included, as it did not file a claim with the probate
Judicial Administrator of the Estate of the deceased JOSE court since it had security over several real estate properties
P. FERNANDEZ, petitioner, forming part of the Estate.16
vs.
COURT OF TAX APPEALS and COMMISSIONER OF
INTERNAL REVENUE, respondents. However, on November 26, 1991, the Assistant Commissioner
for Collection of the BIR, Themistocles Montalban, issued
Estate Tax Assessment Notice No. FAS-E-87-91-
DECISION 003269,17 demanding the payment of P66,973,985.40 as
deficiency estate tax, itemized as follows:
NACHURA, J.:
Deficiency Estate Tax- 1987
Before this Court is a Petition for Review on Certiorari1 under
Rule 45 of the Rules of Civil Procedure seeking the reversal of Estate tax P31,868,
the Court of Appeals (CA) Decision2 dated April 30, 1999 which 25% surcharge- late filing 7,967,10
affirmed the Decision3 of the Court of Tax Appeals (CTA) dated
late payment 7,967,10
June 17, 1997.4
Interest 19,121,0
The Facts Compromise-non filing 25,000.0
non payment 25,000.0
On November 7, 1987, Jose P. Fernandez (Jose) died.
no notice of death 15.00
Thereafter, a petition for the probate of his will 5 was filed with
Branch 51 of the Regional Trial Court (RTC) of Manila (probate no CPA Certificate 300.00
court).[6] The probate court then appointed retired Supreme Total amount due & collectible P66,973,
Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner,
Atty. Rafael Arsenio P. Dizon (petitioner) as Special and
Assistant Special Administrator, respectively, of the Estate of In his letter19 dated December 12, 1991, Atty. Gonzales moved
Jose (Estate). In a letter7 dated October 13, 1988, Justice for the reconsideration of the said estate tax assessment.
Dizon informed respondent Commissioner of the Bureau of However, in her letter20 dated April 12, 1994, the BIR
Internal Revenue (BIR) of the special proceedings for the Commissioner denied the request and reiterated that the
Estate. estate is liable for the payment of P66,973,985.40 as
deficiency estate tax. On May 3, 1994, petitioner received the
Petitioner alleged that several requests for extension of the letter of denial. On June 2, 1994, petitioner filed a petition for
period to file the required estate tax return were granted by the review21 before respondent CTA. Trial on the merits ensued.
BIR since the assets of the estate, as well as the claims
against it, had yet to be collated, determined and identified. As found by the CTA, the respective parties presented the
Thus, in a letter8 dated March 14, 1990, Justice Dizon following pieces of evidence, to wit:
authorized Atty. Jesus M. Gonzales (Atty. Gonzales) to sign
and file on behalf of the Estate the required estate tax return In the hearings conducted, petitioner did not present
and to represent the same in securing a Certificate of Tax testimonial evidence but merely documentary
Clearance. Eventually, on April 17, 1990, Atty. Gonzales wrote evidence consisting of the following:
a letter9 addressed to the BIR Regional Director for San Pablo
City and filed the estate tax return10 with the same BIR
Regional Office, showing therein a NIL estate tax liability, Nature of Document (sic)
computed as follows: 1. Letter dated October 13, 1988 from Arsenio P.
the Commissioner of Internal Revenue inform
COMPUTATION OF TAX special proceedings for the settlement of the
records);
Conjugal Real Property (Sch. 1) P10,855,020.00
2. Petition for the probate of the will and iss
Conjugal Personal Property (Sch.2) 3,460,591.34 administration filed with the Regional Trial Cou
Taxable Transfer (Sch. 3) docketed as Sp. Proc. No. 87-42980 (pp. 107-1
Gross Conjugal Estate 14,315,611.34 3. Pleading entitled "Compliance" filed with
submitting the final inventory of all the propert
Less: Deductions (Sch. 4) 187,822,576.06 (p. 106, BIR records);
Net Conjugal Estate NIL 4. Attachment to Exh. "C" which is the detailed an
Less: Share of Surviving Spouse NIL. the properties of the deceased (pp. 89-105, BIR
Net Share in Conjugal Estate NIL 5. Claims against the estate filed by Equitable Ba
probate Court in the amount of P19,756,428.3
xxx
1988, together with the Annexes to the clai
Net Taxable Estate NIL. records);
Estate Tax Due NIL.11 6. Claim filed by Banque de L' Indochine et de Su
Court in the amount of US $4,828,905.90 as o
(pp. 262-265, BIR records);
On April 27, 1990, BIR Regional Director for San Pablo City,
Osmundo G. Umali issued Certification Nos. 2052[12] and 7. Claim of the Manila Banking Corporation (
2053[13] stating that the taxes due on the transfer of real and November 7, 1987 amounts to P65,158,023.54
personal properties[14] of Jose had been fully paid and said of February 28, 1989 at a total amount of P84,1
properties may be transferred to his heirs. Sometime in August with the demand letter from MBC's lawyer
1990, Justice Dizon passed away. Thus, on October 22, 1990, records);
the probate court appointed petitioner as the administrator of 8. Demand letter of Manila Banking Corporation p
the Estate.15 Ramos and Associates Law Offices addres
Hermanos, Inc., represented by Jose P. Fernan
Petitioner requested the probate court's authority to sell several in the total amount of P240,479,693.17 as of
properties forming part of the Estate, for the purpose of paying (pp. 186-187, BIR records);
its creditors, namely: Equitable Banking Corporation
 9. Claim of State Investment House, Inc. filed withrespondent's exhibits formed part of the BIR records of the
the RTC, Branch
case.24entitled "State
VII of Manila, docketed as Civil Case No. 86-38599
Investment House, Inc., Plaintiff, versus Maritime Company
Overseas, Inc. and/or Jose P. Fernandez, Defendants,"
Nevertheless,(pp. the
200-CTA did not fully adopt the assessment
215, BIR records); made by the BIR and it came up with its own computation of
10. Letter dated March 14, 1990 of Arsenio P. Dizon theaddressed
deficiencytoestate
Atty. tax, to wit:
Jesus M. Gonzales, (p. 184, BIR records);
11. Letter dated April 17, 1990 from J.M. Gonzales addressed Conjugal Real Property
to the P 5,06
Regional Director of BIR in San Pablo City (p. 183, BIR records);
Conjugal Personal Prop. 33,02
12. Estate Tax Return filed by the estate of the late Jose P. Gross
Fernandez
Conjugal Estate 38,08
through its authorized representative, Atty. Jesus M. Gonzales, for
Less:
Arsenio P. Dizon, with attachments (pp. 177-182, BIR records); Deductions 26,25
13. Certified true copy of the Letter of Administration issuedNetby
Conjugal
RTC Estate P 11,8
Manila, Branch 51, in Sp. Proc. No. 87-42980 appointing Atty. of Surviving Spouse
Less: Share 5,917
Rafael S. Dizon as Judicial Administrator of the estate of Jose P.
Fernandez; (p. 102, CTA records) and Net Share in Conjugal Estate P 5,91

14. Certification of Payment of estate taxes Nos. 2052 and Add:

2053,Capital/Paraphernal
both
dated April 27, 1990, issued by the Office of the Regional Director,– P44,652,813.66
Properties
Revenue Region No. 4-C, San Pablo City, with attachments (pp.
Less: Capital/Paraphernal Deductions 44,65
103-104, CTA records.).
Net Taxable Estate P 50,5
=====
Respondent's [BIR] counsel presented on June
26, 1995 one witness in the person of Alberto
Enriquez, who was one of the revenue examiners Estate Tax Due P 29,935,342.97
who conducted the investigation on the estate tax Add: 25% Surcharge for Late Filing 7,483
case of the late Jose P. Fernandez. In the course
Add: Penalties for-No notice of death 15.00
of the direct examination of the witness, he
identified the following: No CPA certificate 300.0
Total deficiency estate tax P 37,4
Documents/Signatures =====
1. Estate Tax Return prepared by the BIR;
exclusive of 20% interest from due date of its
2. Signatures of Ma. Anabella Abuloc and Alberto Enriquez, Jr.
payment until full payment thereof
appearing at the lower Portion of Exh. "1";
3. Memorandum for the Commissioner, dated July 19, 1991, prepared
[Sec. 283 (b), Tax Code of 1987].25
by revenue examiners, Ma. Anabella A. Abuloc, Alberto S. Enriquez
and Raymund S. Gallardo; Reviewed by Maximino V. Tagle
Thus, the CTA disposed of the case in this wise:
4. Signature of Alberto S. Enriquez appearing at the lower portion on
p. 2 of Exh. "2";
WHEREFORE, viewed from all the foregoing, the
5. Signature of Ma. Anabella A. Abuloc appearing at the lower
Courtportion
finds the petition unmeritorious and denies the
on p. 2 of Exh. "2"; same. Petitioner and/or the heirs of Jose P.
6. Signature of Raymund S. Gallardo appearing at the Lower Fernandez
portion are hereby ordered to pay to respondent
on p. 2 of Exh. "2"; the amount of P37,419,493.71 plus 20% interest from
the due date of its payment until full payment thereof
7. Signature of Maximino V. Tagle also appearing on p. 2 ofasExh. "2"; tax liability of the estate of Jose P.
estate
8. Summary of revenue Enforcement Officers Audit Report,Fernandez
dated Julywho died on November 7, 1987.
19, 1991;
Signature of Alberto Enriquez at the lower portion of Exh.SO
"3";ORDERED.
26
9.
10. Signature of Ma. Anabella A. Abuloc at the lower portion of Exh.
"3"; Aggrieved, petitioner, on March 2, 1998, went to the CA via a
petition for review.27
11. Signature of Raymond S. Gallardo at the lower portion of Exh. "3";
12. Signature of Maximino V. Tagle at the lower portion of Exh.
The CA's "3";
Ruling
13. Demand letter (FAS-E-87-91-00), signed by the Asst.
Commissioner for Collection for the Commissioner
On April 30,of Internal
1999, the CA affirmed the CTA's ruling. Adopting
Revenue, demanding payment of the amountinoffull the CTA's findings, the CA ruled that the petitioner's act
and of filing an estate tax return with the BIR and the issuance of
14. Assessment Notice FAS-E-87-91-00 BIR Certification Nos. 2052 and 2053 did not deprive the BIR
Commissioner of her authority to re-examine or re-assess the
said return filed on behalf of the Estate.28
The CTA's Ruling
On May 31, 1999, petitioner filed a Motion for
On June 17, 1997, the CTA denied the said petition for review. Reconsideration29 which the CA denied in its
Citing this Court's ruling in Vda. de Oñate v. Court of Resolution30 dated November 3, 1999.
Appeals,23 the CTA opined that the aforementioned pieces of
evidence introduced by the BIR were admissible in evidence.
Hence, the instant Petition raising the following issues:
The CTA ratiocinated:

1. Whether or not the admission of evidence which

Although the above-mentioned documents were not formally
were not formally offered by the respondent BIR by
offered as evidence for respondent, considering that
the Court of Tax Appeals which was subsequently
respondent has been declared to have waived the presentation
upheld by the Court of Appeals is contrary to the
thereof during the hearing on March 20, 1996, still they could
Rules of Court and rulings of this Honorable Court;
be considered as evidence for respondent since they were
properly identified during the presentation of respondent's
witness, whose testimony was duly recorded as part of the 2. Whether or not the Court of Tax Appeals and the
records of this case. Besides, the documents marked as Court of Appeals erred in recognizing/considering the
 estate tax return prepared and filed by respondent litigated de novo, party-litigants shall prove every minute
BIR knowing that the probate court appointed aspect of their cases. Indubitably, no evidentiary value can be
administrator of the estate of Jose P. Fernandez had given the pieces of evidence submitted by the BIR, as the rules
previously filed one as in fact, BIR Certification on documentary evidence require that these documents must
Clearance Nos. 2052 and 2053 had been issued in be formally offered before the CTA.34 Pertinent is Section 34,
the estate's favor; Rule 132 of the Revised Rules on Evidence which reads:

3. Whether or not the Court of Tax Appeals and the SEC. 34. Offer of evidence. — The court shall
Court of Appeals erred in disallowing the valid and consider no evidence which has not been formally
enforceable claims of creditors against the estate, as offered. The purpose for which the evidence is offered
lawful deductions despite clear and convincing must be specified.
evidence thereof; and
The CTA and the CA rely solely on the case of Vda. de Oñate,
4. Whether or not the Court of Tax Appeals and the which reiterated this Court's previous rulings in People v.
Court of Appeals erred in validating erroneous double Napat-a35 and People v. Mate36 on the admission and
imputation of values on the very same estate consideration of exhibits which were not formally offered during
properties in the estate tax return it prepared and filed the trial. Although in a long line of cases many of which were
which effectively bloated the estate's assets.31 decided after Vda. de Oñate, we held that courts cannot
consider evidence which has not been formally
The petitioner claims that in as much as the valid claims of offered,37 nevertheless, petitioner cannot validly assume that
creditors against the Estate are in excess of the gross estate, the doctrine laid down in Vda. de Oñate has already been
no estate tax was due; that the lack of a formal offer of abandoned. Recently, in Ramos v. Dizon,38 this Court, applying
evidence is fatal to BIR's cause; that the doctrine laid down the said doctrine, ruled that the trial court judge therein
in Vda. de Oñate has already been abandoned in a long line of committed no error when he admitted and considered the
cases in which the Court held that evidence not formally respondents' exhibits in the resolution of the case,
offered is without any weight or value; that Section 34 of Rule notwithstanding the fact that the same were not formally
132 of the Rules on Evidence requiring a formal offer of offered. Likewise, in Far East Bank & Trust Company v.
evidence is mandatory in character; that, while BIR's witness Commissioner of Internal Revenue,39 the Court made reference
Alberto Enriquez (Alberto) in his testimony before the CTA to said doctrine in resolving the issues therein. Indubitably, the
identified the pieces of evidence aforementioned such that the doctrine laid down in Vda. De Oñate still subsists in this
same were marked, BIR's failure to formally offer said pieces of jurisdiction. In Vda. de Oñate, we held that:
evidence and depriving petitioner the opportunity to cross-
examine Alberto, render the same inadmissible in evidence; From the foregoing provision, it is clear that for
that assuming arguendo that the ruling in Vda. de Oñate is still evidence to be considered, the same must be formally
applicable, BIR failed to comply with the doctrine's requisites offered. Corollarily, the mere fact that a particular
because the documents herein remained simply part of the BIR document is identified and marked as an exhibit does
records and were not duly incorporated in the court records; not mean that it has already been offered as part of
that the BIR failed to consider that although the actual the evidence of a party. In Interpacific Transit, Inc. v.
payments made to the Estate creditors were lower than their Aviles [186 SCRA 385], we had the occasion to make
respective claims, such were compromise agreements reached a distinction between identification of documentary
long after the Estate's liability had been settled by the filing of evidence and its formal offer as an exhibit. We said
its estate tax return and the issuance of BIR Certification Nos. that the first is done in the course of the trial and is
2052 and 2053; and that the reckoning date of the claims accompanied by the marking of the evidence as an
against the Estate and the settlement of the estate tax due exhibit while the second is done only when the party
should be at the time the estate tax return was filed by the rests its case and not before. A party, therefore, may
judicial administrator and the issuance of said BIR opt to formally offer his evidence if he believes that it
Certifications and not at the time the aforementioned will advance his cause or not to do so at all. In the
Compromise Agreements were entered into with the Estate's event he chooses to do the latter, the trial court is not
creditors.32 authorized by the Rules to consider the same.

On the other hand, respondent counters that the documents, However, in People v. Napat-a [179 SCRA 403]
being part of the records of the case and duly identified in a citing People v. Mate [103 SCRA 484], we relaxed
duly recorded testimony are considered evidence even if the the foregoing rule and allowed evidence not
same were not formally offered; that the filing of the estate tax formally offered to be admitted and considered by
return by the Estate and the issuance of BIR Certification Nos. the trial court provided the following requirements
2052 and 2053 did not deprive the BIR of its authority to are present, viz.: first, the same must have been
examine the return and assess the estate tax; and that the duly identified by testimony duly recorded and,
factual findings of the CTA as affirmed by the CA may no second, the same must have been incorporated in
longer be reviewed by this Court via a petition for review.33 the records of the case.40

The Issues From the foregoing declaration, however, it is clear that Vda.
de Oñate is merely an exception to the general rule. Being an
There are two ultimate issues which require resolution in this exception, it may be applied only when there is strict
case: compliance with the requisites mentioned therein; otherwise,
the general rule in Section 34 of Rule 132 of the Rules of Court
should prevail.
First. Whether or not the CTA and the CA gravely erred in
allowing the admission of the pieces of evidence which were
not formally offered by the BIR; and

Second. Whether or not the CA erred in affirming the CTA in

the latter's determination of the deficiency estate tax imposed
against the Estate.

The Court’s Ruling

The Petition is impressed with merit.

Under Section 8 of RA 1125, the CTA is categorically

described as a court of record. As cases filed before it are
In this case, we find that these requirements have not been Strict adherence to the said rule is not a trivial matter.
satisfied. The assailed pieces of evidence were presented and The Court in Constantino v. Court of Appeals ruled
marked during the trial particularly when Alberto took the that the formal offer of one's evidence is deemed
witness stand. Alberto identified these pieces of evidence in his waived after failing to submit it within a
direct testimony.41 He was also subjected to cross-examination considerable period of time. It explained that the
and re-cross examination by petitioner.42 But Alberto’s account court cannot admit an offer of evidence made
and the exchanges between Alberto and petitioner did not after a lapse of three (3) months because to do so
sufficiently describe the contents of the said pieces of evidence would "condone an inexcusable laxity if not non-
presented by the BIR. In fact, petitioner sought that the lead compliance with a court order which, in effect,
examiner, one Ma. Anabella A. Abuloc, be summoned to would encourage needless delays and derail the
testify, inasmuch as Alberto was incompetent to answer speedy administration of justice."
questions relative to the working papers. 43 The lead examiner
never testified. Moreover, while Alberto's testimony identifying Applying the aforementioned principle in this case, we
the BIR's evidence was duly recorded, the BIR documents find that the trial court had reasonable ground to
themselves were not incorporated in the records of the case. consider that petitioners had waived their right to
make a formal offer of documentary or object
A common fact threads through Vda. de evidence. Despite several extensions of time to make
Oñate and Ramos that does not exist at all in the instant case. their formal offer, petitioners failed to comply with their
In the aforementioned cases, the exhibits were marked at the commitment and allowed almost five months to lapse
pre-trial proceedings to warrant the pronouncement that the before finally submitting it. Petitioners' failure to
same were duly incorporated in the records of the case. Thus, comply with the rule on admissibility of evidence
we held in Ramos: is anathema to the efficient, effective, and
expeditious dispensation of justice.
In this case, we find and so rule that these
requirements have been satisfied. The exhibits in Having disposed of the foregoing procedural issue, we proceed
question were presented and marked during the to discuss the merits of the case.
pre-trial of the case thus, they have been
incorporated into the records. Further, Elpidio Ordinarily, the CTA's findings, as affirmed by the CA, are
himself explained the contents of these exhibits when entitled to the highest respect and will not be disturbed on
he was interrogated by respondents' counsel... appeal unless it is shown that the lower courts committed
gross error in the appreciation of facts.54 In this case, however,
xxxx we find the decision of the CA affirming that of the CTA tainted
with palpable error.
But what further defeats petitioner's cause on this
issue is that respondents' exhibits were marked and It is admitted that the claims of the Estate's aforementioned
admitted during the pre-trial stage as shown by the creditors have been condoned. As a mode of extinguishing an
Pre-Trial Order quoted earlier.44 obligation,55 condonation or remission of debt56 is defined as:

While the CTA is not governed strictly by technical rules of an act of liberality, by virtue of which, without
evidence,45 as rules of procedure are not ends in themselves receiving any equivalent, the creditor renounces the
and are primarily intended as tools in the administration of enforcement of the obligation, which is extinguished in
justice, the presentation of the BIR's evidence is not a mere its entirety or in that part or aspect of the same to
procedural technicality which may be disregarded considering which the remission refers. It is an essential
that it is the only means by which the CTA may ascertain and characteristic of remission that it be gratuitous, that
verify the truth of BIR's claims against the Estate.46 The BIR's there is no equivalent received for the benefit given;
failure to formally offer these pieces of evidence, despite CTA's once such equivalent exists, the nature of the act
directives, is fatal to its cause. 47 Such failure is aggravated by changes. It may become dation in payment when the
the fact that not even a single reason was advanced by the creditor receives a thing different from that stipulated;
BIR to justify such fatal omission. This, we take against the or novation, when the object or principal conditions of
BIR. the obligation should be changed; or compromise,
when the matter renounced is in litigation or dispute
Per the records of this case, the BIR was directed to present its and in exchange of some concession which the
evidence48 in the hearing of February 21, 1996, but BIR's creditor receives.57
counsel failed to appear.49 The CTA denied petitioner's motion
to consider BIR's presentation of evidence as waived, with a Verily, the second issue in this case involves the construction
warning to BIR that such presentation would be considered of Section 7958 of the National Internal Revenue Code59 (Tax
waived if BIR's evidence would not be presented at the next Code) which provides for the allowable deductions from the
hearing. Again, in the hearing of March 20, 1996, BIR's gross estate of the decedent. The specific question is whether
counsel failed to appear.50 Thus, in its Resolution51 dated the actual claims of the aforementioned creditors may be fully
March 21, 1996, the CTA considered the BIR to have waived allowed as deductions from the gross estate of Jose despite
presentation of its evidence. In the same Resolution, the the fact that the said claims were reduced or condoned through
parties were directed to file their respective memorandum. compromise agreements entered into by the Estate with its
Petitioner complied but BIR failed to do so.52 In all of these creditors.
proceedings, BIR was duly notified. Hence, in this case, we are
constrained to apply our ruling in Heirs of Pedro Pasag v. "Claims against the estate," as allowable deductions from the
Parocha:53 gross estate under Section 79 of the Tax Code, are basically a
reproduction of the deductions allowed under Section 89 (a) (1)
A formal offer is necessary because judges are (C) and (E) of Commonwealth Act No. 466 (CA 466), otherwise
mandated to rest their findings of facts and their known as the National Internal Revenue Code of 1939, and
judgment only and strictly upon the evidence offered which was the first codification of Philippine tax laws. Philippine
by the parties at the trial. Its function is to enable the tax laws were, in turn, based on the federal tax laws of the
trial judge to know the purpose or purposes for which United States. Thus, pursuant to established rules of statutory
the proponent is presenting the evidence. On the construction, the decisions of American courts construing the
other hand, this allows opposing parties to examine federal tax code are entitled to great weight in the
the evidence and object to its admissibility. Moreover, interpretation of our own tax laws.60
it facilitates review as the appellate court will not be
required to review documents not previously It is noteworthy that even in the United States, there is some
scrutinized by the trial court. dispute as to whether the deductible amount for a claim
against the estate is fixed as of the decedent's death which is
the general rule, or the same should be adjusted to reflect
post-death developments, such as where a settlement Branch 51 of the Regional Trial Court (RTC) of Manila (probate
between the parties results in the reduction of the amount court). The probate court then appointed retired Supreme
actually paid.61 On one hand, the U.S. court ruled that the Court Justice Arsenio P. Dizon (Justice Dizon) and petitioner,
appropriate deduction is the "value" that the claim had at the Atty. Rafael Arsenio P. Dizon (petitioner) as Special and
date of the decedent's death.62 Also, as held in Propstra v. Assistant Special Administrator, respectively, of the Estate of
U.S., 63 where a lien claimed against the estate was certain Jose (Estate). Petitioner alleged that several requests for
and enforceable on the date of the decedent's death, the fact extension of the period to file the required estate tax return
that the claimant subsequently settled for lesser amount did were granted by the BIR since the assets of the estate, as well
not preclude the estate from deducting the entire amount of the as the claims against it, had yet to be collated, determined and
claim for estate tax purposes. These pronouncements identified.
essentially confirm the general principle that post-death
developments are not material in determining the amount of ISSUES:
the deduction.

On the other hand, the Internal Revenue Service (Service) 1. Whether or not the CTA and the CA gravely erred in
opines that post-death settlement should be taken into allowing the admission of the pieces of evidence which were
consideration and the claim should be allowed as a deduction not formally offered by the BIR; and
only to the extent of the amount actually paid.64 Recognizing
the dispute, the Service released Proposed Regulations in 2. Whether the actual claims of the aforementioned creditors
2007 mandating that the deduction would be limited to the may be fully allowed as deductions from the gross estate of
actual amount paid.65 Jose despite the fact that the said claims were reduced or
condoned through compromise agreements entered into by the
Estate with its creditors Or Whether or not the CA erred in
In announcing its agreement with Propstra,66 the U.S. 5th Circuit
affirming the CTA in the latter's determination of the deficiency
Court of Appeals held:
estate tax imposed against the Estate.

We are persuaded that the Ninth Circuit's RULING:

decision...in Propstra correctly apply the Ithaca
Trust date-of-death valuation principle to enforceable
claims against the estate. As we interpret Ithaca 1. Yes. While the CTA is not governed strictly by technical
Trust, when the Supreme Court announced the date- rules of evidence, as rules of procedure are not ends in
of-death valuation principle, it was making a judgment themselves and are primarily intended as tools in the
about the nature of the federal estate tax specifically, administration of justice, the presentation of the BIR's evidence
that it is a tax imposed on the act of transferring is not a mere procedural technicality which may be disregarded
property by will or intestacy and, because the act on considering that it is the only means by which the CTA may
which the tax is levied occurs at a discrete time, i.e., ascertain and verify the truth of BIR's claims against the
the instance of death, the net value of the property Estate. The BIR's failure to formally offer these pieces of
transferred should be ascertained, as nearly as evidence, despite CTA's directives, is fatal to its cause
possible, as of that time. This analysis supports broad
application of the date-of-death valuation rule.67
2. Yes. The claims existing at the time of death are significant
We express our agreement with the date-of-death valuation to, and should be made the basis of, the determination of
rule, made pursuant to the ruling of the U.S. Supreme Court allowable deductions. Also, as held in Propstra v. U.S., where
in Ithaca Trust Co. v. United States.68 First. There is no law, nor a lien claimed against the estate was certain and enforceable
do we discern any legislative intent in our tax laws, which on the date of the decedent's death, the fact that the claimant
disregards the date-of-death valuation principle and particularly subsequently settled for lesser amount did not preclude the
provides that post-death developments must be considered in estate from deducting the entire amount of the claim for estate
determining the net value of the estate. It bears emphasis that tax purposes. This is called the date-of-death valuation rule.
tax burdens are not to be imposed, nor presumed to be
imposed, beyond what the statute expressly and clearly 1.2
imports, tax statutes being construed strictissimi juris against
the government.69 Any doubt on whether a person, article or
G.R. No. 118671             January 29, 1996
activity is taxable is generally resolved against
taxation.70 Second. Such construction finds relevance and
consistency in our Rules on Special Proceedings wherein the THE ESTATE OF HILARIO M. RUIZ, EDMOND RUIZ,
term "claims" required to be presented against a decedent's Executor, petitioner,
estate is generally construed to mean debts or demands of a vs.
pecuniary nature which could have been enforced against the THE COURT OF APPEALS (Former Special Sixth Division),
deceased in his lifetime, or liability contracted by the deceased MARIA PILAR RUIZ-MONTES, MARIA CATHRYN RUIZ,
before his death.71 Therefore, the claims existing at the time of CANDICE ALBERTINE RUIZ, MARIA ANGELINE RUIZ and
death are significant to, and should be made the basis of, the THE PRESIDING JUDGE OF THE REGIONAL TRIAL
determination of allowable deductions. COURT OF PASIG, respondents.

WHEREFORE, the instant Petition is GRANTED. Accordingly, DECISION

the assailed Decision dated April 30, 1999 and the Resolution
dated November 3, 1999 of the Court of Appeals in CA-G.R. PUNO, J.:
S.P. No. 46947 are REVERSED and SET ASIDE. The Bureau
of Internal Revenue's deficiency estate tax assessment against
the Estate of Jose P. Fernandez is hereby NULLIFIED. No This petition for review on certiorari seeks to annul and set
costs. aside the decision dated November 10, 1994 and the
resolution dated January 5, 1995 of the Court of Appeals in
CA-G.R. SP No. 33045.
SO ORDERED.
The facts show that on June 27, 1987, Hilario M.
Ruiz1 executed a holographic will naming as his heirs his only
son, Edmond Ruiz, his adopted daughter, private respondent
Dizon v CTA G.R. No. 140944 April 30, 2008 Maria Pilar Ruiz Montes, and his three granddaughters, private
respondents Maria Cathryn, Candice Albertine and Maria
FACTS: Angeline, all children of Edmond Ruiz. The testator
bequeathed to his heirs substantial cash, personal and real
properties and named Edmond Ruiz executor of his estate.2
On November 7, 1987, Jose P. Fernandez (Jose) died.
Thereafter, a petition for the probate of his will was filed with
On April 12, 1988, Hilario Ruiz died. Immediately thereafter, deductible from their share in the inheritance. The court,
the cash component of his estate was distributed among however, held in abeyance the release of the titles to
Edmond Ruiz and private respondents in accordance with the respondent Montes and the three granddaughters until the
decedent's will. For unbeknown reasons, Edmond, the named lapse of six months from the date of first publication of the
executor, did not take any action for the probate of his father's notice to creditors.8 The court stated thus:
holographic will.
xxx       xxx       xxx
On June 29, 1992, four years after the testator's death, it was
private respondent Maria Pilar Ruiz Montes who filed before After consideration of the arguments set forth thereon
the Regional Trial Court, Branch 156, Pasig, a petition for the by the parties the court resolves to allow
probate and approval of Hilario Ruiz's will and for the issuance Administrator Edmond M. Ruiz to take possession of
of letters testamentary to Edmond Ruiz,3 Surprisingly, Edmond the rental payments deposited with the Clerk of Court,
opposed the petition on the ground that the will was executed Pasig Regional Trial Court, but only such amount as
under undue influence. may be necessary to cover the expenses of
administration and allowances for support of Maria
On November 2, 1992, one of the properties of the estate — Cathryn Veronique, Candice Albertine and Maria
the house and lot at No. 2 Oliva Street, Valle Verde IV, Pasig Angeli, which are subject to collation and deductible
which the testator bequeathed to Maria Cathryn, Candice from the share in the inheritance of said heirs and
Albertine and Maria Angeline4 — was leased out by Edmond insofar as they exceed the fruits or rents pertaining to
Ruiz to third persons. them.

On January 19, 1993, the probate court ordered Edmond to As to the release of the titles bequeathed to petitioner
deposit with the Branch Clerk of Court the rental deposit and Maria Pilar Ruiz-Montes and the above-named heirs,
payments totalling P540,000.00 representing the one-year the same is hereby reconsidered and held in
lease of the Valle Verde property. In compliance, on January abeyance until the lapse of six (6) months from the
25, 1993, Edmond turned over the amount of P348,583.56, date of first publication of Notice to Creditors.
representing the balance of the rent after deducting
P191,416.14 for repair and maintenance expenses on the WHEREFORE, Administrator Edmond M. Ruiz is
estate.5 hereby ordered to submit an accounting of the
expenses necessary for administration including
In March 1993, Edmond moved for the release of P50,000.00 provisions for the support Of Maria Cathryn Veronique
to pay the real estate taxes on the real properties of the estate. Ruiz, Candice Albertine Ruiz and Maria Angeli Ruiz
The probate court approved the release of P7,722.00.6 before the amount required can be withdrawn and
cause the publication of the notice to creditors with
On May 14, 1993, Edmond withdrew his opposition to the reasonable dispatch.9
probate of the will. Consequently, the probate court, on May
18, 1993, admitted the will to probate and ordered the issuance Petitioner assailed this order before the Court of Appeals.
of letters testamentary to Edmond conditioned upon the filing Finding no grave abuse of discretion on the part of respondent
of a bond in the amount of P50,000.00. The letters judge, the appellate court dismissed the petition and sustained
testamentary were issued on June 23, 1993. the probate court's order in a decision dated November 10,
199410 and a resolution dated January 5, 1995.11
On July 28, 1993, petitioner Testate Estate of Hilario Ruiz, with
Edmond Ruiz as executor, filed an "Ex-Parte Motion for Hence, this petition.
Release of Funds." It prayed for the release of the rent
payments deposited with the Branch Clerk of Court. Petitioner claims that:
Respondent Montes opposed the motion and concurrently filed
a "Motion for Release of Funds to Certain Heirs" and "Motion
for Issuance of Certificate of Allowance of Probate Will." THE PUBLIC RESPONDENT COURT OF APPEALS
Montes prayed for the release of the said rent payments to COMMITTED GRAVE ABUSE OF DISCRETION
Maria Cathryn, Candice Albertine and Maria Angeline and for AMOUNTING TO LACK OR EXCESS OF
the distribution of the testator's properties, specifically the Valle JURISDICTION IN AFFIRMING AND CONFIRMING
Verde property and the Blue Ridge apartments, in accordance THE ORDER OF RESPONDENT REGIONAL TRIAL
with the provisions of the holographic will. COURT OF PASIG, BRANCH 156, DATED
DECEMBER 22, 1993, WHICH WHEN GIVEN DUE
COURSE AND IS EFFECTED WOULD: (1)
On August 26, 1993, the probate court denied petitioner's DISALLOW THE EXECUTOR/ADMINISTRATOR OF
motion for release of funds but granted respondent Montes' THE ESTATE OF THE LATE HILARIO M. RUIZ TO
motion in view of petitioner's lack of opposition. It thus ordered TAKE POSSESSION OF ALL THE REAL AND
the release of the rent payments to the decedent's three PERSONAL PROPERTIES OF THE ESTATE; (2)
granddaughters. It further ordered the delivery of the titles to GRANT SUPPORT, DURING THE PENDENCY OF
and possession of the properties bequeathed to the three THE SETTLEMENT OF AN ESTATE, TO CERTAIN
granddaughters and respondent Montes upon the filing of a PERSONS NOT ENTITLED THERETO; AND (3)
bond of P50,000.00. PREMATURELY PARTITION AND DISTRIBUTE
THE ESTATE PURSUANT TO THE PROVISIONS
Petitioner moved for reconsideration alleging that he actually OF THE HOLOGRAPHIC WILL EVEN BEFORE ITS
filed his opposition to respondent Montes's motion for release INTRINSIC VALIDITY HAS BEEN DETERMINED,
of rent payments which opposition the court failed to consider. AND DESPITE THE EXISTENCE OF UNPAID
Petitioner likewise reiterated his previous motion for release of DEBTS AND OBLIGATIONS OF THE ESTATE.12
funds.
The issue for resolution is whether the probate court, after
On November 23, 1993, petitioner, through counsel, admitting the will to probate but before payment of the estate's
manifested that he was withdrawing his motion for release of debts and obligations, has the authority: (1) to grant an
funds in view of the fact that the lease contract over the Valle allowance from the funds of the estate for the support of the
Verde property had been renewed for another year.7 testator's grandchildren; (2) to order the release of the titles to
certain heirs; and (3) to grant possession of all properties of
Despite petitioner's manifestation, the probate court, on the estate to the executor of the will.
December 22, 1993, ordered the release of the funds to
Edmond but only "such amount as may be necessary to cover On the matter of allowance, Section 3 of Rule 83 of the
the expenses of administration and allowances for support" of Revised Rules of Court provides:
the testator's three granddaughters subject to collation and
 Sec. 3. Allowance to widow and family. — The widow conditioned for the payment of said obligations within
and minor or incapacitated children of a deceased such time as the court directs.18
person, during the settlement of the estate, shall
receive therefrom under the direction of the court, In settlement of estate proceedings, the distribution of the
such allowance as are provided by law. estate properties can only be made: (1) after all the debts,
funeral charges, expenses of administration, allowance to the
Petitioner alleges that this provision only gives the widow and widow, and estate tax have been paid; or (2) before payment
the minor or incapacitated children of the deceased the right to of said obligations only if the distributees or any of them gives
receive allowances for support during the settlement of estate a bond in a sum fixed by the court conditioned upon the
proceedings. He contends that the testator's three payment of said obligations within such time as the court
granddaughters do not qualify for an allowance because they directs, or when provision is made to meet those obligations.19
are not incapacitated and are no longer minors but of legal
age, married and gainfully employed. In addition, the provision In the case at bar, the probate court ordered the release of the
expressly states "children" of the deceased which excludes the titles to the Valle Verde property and the Blue Ridge
latter's grandchildren. apartments to the private respondents after the lapse of six
months from the date of first publication of the notice to
It is settled that allowances for support under Section 3 of Rule creditors. The questioned order speaks of "notice" to creditors,
83 should not be limited to the "minor or incapacitated" children not payment of debts and obligations. Hilario Ruiz allegedly left
of the deceased. Article 18813 of the Civil Code of the no debts when he died but the taxes on his estate had not
Philippines, the substantive law in force at the time of the hitherto been paid, much less ascertained. The estate tax is
testator's death, provides that during the liquidation of the one of those obligations that must be paid before distribution of
conjugal partnership, the deceased's legitimate spouse and the estate. If not yet paid, the rule requires that the distributees
children, regardless of their age, civil status or gainful post a bond or make such provisions as to meet the said tax
employment, are entitled to provisional support from the funds obligation in proportion to their respective shares in the
of the estate.14 The law is rooted on the fact that the right and inheritance.20 Notably, at the time the order was issued the
duty to support, especially the right to education, subsist even properties of the estate had not yet been inventoried and
beyond the age of majority.15 appraised.

Be that as it may, grandchildren are not entitled to provisional It was also too early in the day for the probate court to order
support from the funds of the decedent's estate. The law the release of the titles six months after admitting the will to
clearly limits the allowance to "widow and children" and does probate. The probate of a will is conclusive as to its due
not extend it to the deceased's grandchildren, regardless of execution and extrinsic validity21 and settles only the question
their minority or incapacity.16 It was error, therefore, for the of whether the testator, being of sound mind, freely executed it
appellate court to sustain the probate court's order granting an in accordance with the formalities prescribed by
allowance to the grandchildren of the testator pending law.22 Questions as to the intrinsic validity and efficacy of the
settlement of his estate. provisions of the will, the legality of any devise or legacy may
be raised even after the will has been authenticated.23
Respondent courts also erred when they ordered the release
of the titles of the bequeathed properties to private The intrinsic validity of Hilario's holographic will was
respondents six months after the date of first publication of controverted by petitioner before the probate court in his Reply
notice to creditors. An order releasing titles to properties of the to Montes' Opposition to his motion for release of funds 24 and
estate amounts to an advance distribution of the estate which his motion for reconsideration of the August 26, 1993 order of
is allowed only under the following conditions: the said court.25 Therein, petitioner assailed the distributive
shares of the devisees and legatees inasmuch as his father's
Sec. 2. Advance distribution in special proceedings. will included the estate of his mother and allegedly impaired his
— Nothwithstanding a pending controversy or appeal legitime as an intestate heir of his mother. The Rules provide
in proceedings to settle the estate of a decedent, the that if there is a controversy as to who are the lawful heirs of
court may, in its discretion and upon such terms as it the decedent and their distributive shares in his estate, the
may deem proper and just, permit that such part of probate court shall proceed to hear and decide the same as in
the estate as may not be affected by the controversy ordinary cases.26
or appeal be distributed among the heirs or legatees,
upon compliance with the conditions set forth in Rule Still and all, petitioner cannot correctly claim that the assailed
90 of these Rules.17 order deprived him of his right to take possession of all the real
and personal properties of the estate. The right of an executor
And Rule 90 provides that: or administrator to the possession and management of the real
and personal properties of the deceased is not absolute and
can only be exercised "so long as it is necessary for the
Sec. 1. When order for distribution of residue made. payment of the debts and expenses of
— When the debts, funeral charges, and expenses of administration,"27 Section 3 of Rule 84 of the Revised Rules of
administration the allowance to the widow, and Court explicitly provides:
inheritance tax if any, chargeable to the estate in
accordance with law, have been paid, the court, on
the application of the executor or administrator, or of a Sec. 3. Executor or administrator to retain whole
person interested in the estate, and after hearing estate to pay debts, and to administer estate not
upon notice shall assign the residue of the estate to willed. — An executor or administrator shall have the
the persons entitled to the same, naming them and right to the possession and management of the real
the proportions or parts, to which each is entitled, and as well as the personal estate of the deceased so
such persons may demand and recover their long as it is necessary for the payment of the debts
respective shares from the executor or administrator, and expenses for administration.28
or any other person having the same in his
possession. If there is a controversy before the court When petitioner moved for further release of the funds
as to who are the lawful heirs of the deceased person deposited with the clerk of court, he had been previously
or as to the distributive shares to which each person granted by the probate court certain amounts for repair and
is entitled under the law, the controversy shall be maintenance expenses on the properties of the estate, and
heard and decided as in ordinary cases. payment of the real estate taxes thereon. But petitioner moved
again for the release of additional funds for the same reasons
No distribution shall be allowed until the payment of he previously cited. It was correct for the probate court to
the obligations above-mentioned has been made or require him to submit an accounting of the necessary
provided for, unless the distributees, or any of them, expenses for administration before releasing any further
give a bond, in a sum to be fixed by the court, money in his favor.
It was relevantly noted by the probate court that petitioner had properties of the deceased is not absolute and can only be
deposited with it only a portion of the one-year rental income exercised “so long as it is necessary for the payment of the
from the Valle Verde property. Petitioner did not deposit its debts and expenses of administration, He cannot unilaterally
succeeding rents after renewal of the lease.29 Neither did he assign to himself and possess all his parents’ properties and
render an accounting of such funds. the fruits thereof without first submitting an inventory and
appraisal of all real and personal properties of the deceased,
Petitioner must be reminded that his right of ownership over rendering a true account of his administration, the expenses of
the properties of his father is merely inchoate as long as the administration, the amount of the obligations and estat
estate has not been fully settled and partitioned. 30 As executor,
he is a mere trustee of his father's estate. The funds of the
estate in his hands are trust funds and he is held to the duties
and responsibilities of a trustee of the highest order.31 He 1.3
cannot unilaterally assign to himself and possess all his
parents' properties and the fruits thereof without first submitting
an inventory and appraisal of all real and personal properties of G.R. No. 181858               November 24, 2010
the deceased, rendering a true account of his administration,
the expenses of administration, the amount of the obligations KEPCO PHILIPPINES CORPORATION, Petitioner,
and estate tax, all of which are subject to a determination by vs.
the court as to their veracity, propriety and justness.32 COMMISSIONER OF INTERNAL REVENUE, Respondent.

IN VIEW WHEREOF, the decision and resolution of the Court DECISION

of Appeals in CA-G.R. SP No. 33045 affirming the order dated
December 22, 1993 of the Regional Trial Court, Branch 156, MENDOZA, J.:
Pasig in SP Proc. No. 10259 are affirmed with the modification
that those portions of the order granting an allowance to the
testator's grandchildren and ordering the release of the titles to This is a petition for review on certiorari1 under Rule 45 of the
the private respondents upon notice to creditors are annulled Rules of Court seeking reversal of the February 20, 2008
and set aside. Decision2 of the Court of Tax Appeals En Banc (CTA) in C.T.A.
EB No. 299, which ruled that "in order for petitioner to be
entitled to its claim for refund/issuance of tax credit certificate
Respondent judge is ordered to proceed with dispatch in the representing unutilized input VAT attributable to its zero-rated
proceedings below. sales for taxable year 2002, it must comply with the
substantiation requirements under the appropriate Revenue
SO ORDERED. Regulations."

Ruiz v CA (Taxation) Petitioner KEPCO Philippines Corporation (Kepco) is a VAT-

registered independent power producer engaged in the
Estate of Hilario Ruiz v CA G.R. No. 118671. January 29, 1996 business of generating electricity. It exclusively sells electricity
to National Power Corporation (NPC), an entity exempt from
FACTS: taxes under Section 13 of Republic Act No. 6395 (RA No.
6395).3

Hilario M. Ruiz executed a holographic will naming as his heirs Records show that on December 4, 2001, Kepco filed an
his only son, Edmond Ruiz, his adopted daughter, private application for zero-rated sales with the Revenue District Office
respondent Maria Pilar Ruiz Montes, and his three (RDO) No. 54 of the Bureau of Internal Revenue (BIR).
granddaughters, Kepco’s application was approved under VAT Ruling 64-01.
Accordingly, for taxable year 2002, it filed four Quarterly VAT
On April 12, 1988, Hilario Ruiz died. Returns declaring zero-rated sales in the aggregate amount of
₱3,285,308,055.85 itemized as follows:
On June 29, 1992, four years after the testator’s death, it was
private respondent Maria Pilar Ruiz Montes who filed before
the Regional Trial Court, Branch 156, Pasig, a petition for the Exhibit Quarter Zero-Rated Sales
probate and approval of Hilario Ruiz’s will and for the issuance Involved
of letters testamentary to Edmond Ruiz
B 1st Quarter ₱651,672,672.47
ISSUE: C 2nd Quarter 725,104,468.99
whether the probate court, after admitting the will to probate D 3rd Quarter 952,053,527.29
but before payment of the estate’s debts and obligations, has
the authority: (1) to grant an allowance from the funds of the E 4th Quarter 956,477,387.10
estate for the support of the testator’s grandchildren; (2) to
order the release of the titles to certain heirs; and (3) to grant
possession of all properties of the estate to the executor of the Total ₱3,285,308,055.854
will.

RULING: In the course of doing business with NPC, Kepco claimed

expenses reportedly sustained in connection with the
1. No. Be that as it may, grandchildren are not entitled to production and sale of electricity with NPC. Based on Kepco’s
provisional support from the funds of the decedent’s estate. calculation, it paid input VAT amounting to ₱11,710,868.86
The law clearly limits the allowance to “widow and children” attributing the same to its zero-rated sales of electricity with
and does not extend it to the deceased’s grandchildren, NPC. The table shows the purchases and corresponding input
regardless of their minority or incapacity. VAT it paid.

2. No. No distribution shall be allowed until the payment of the Exhibi Quarter
obligations above-mentioned has been made or provided for, Purchases Input VAT
t Involved
unless the distributees, or any of them, give a bond, in a sum
to be fixed by the court, conditioned for the payment of said B 1st Quarter ₱6,063,184.90 ₱606,318.49
obligations within such time as the court directs.
C 2nd Quarter 18,410,193.20 1,841,019.32

3. No. The right of an executor or administrator to the D 3rd Quarter 16,811,819.21 1,681,181.93
possession and management of the real and personal E 4th Quarter 75,823,491.20 7,582,349.12
 WHEREFORE, petitioner’s claim for refund is hereby
PARTIALLY GRANTED. Accordingly, respondent is
₱117,108,688.51 ₱11,710,868.86 5
ORDERED to REFUND petitioner the reduced amount of TWO
MILLION EIGHT HUNDRED NINETY THOUSAND FIVE
Thus, on April 20, 2004, Kepco filed before the Commissioner PESOS AND 96/100 (₱2,890,005.96) representing unutilized
of Internal Revenue (CIR) a claim for tax refund covering input value-added tax for taxable year 2002.
unutilized input VAT payments attributable to its zero-rated
sales transactions for taxable year 2002.6 Two days later, on SO ORDERED.15
April 22, 2004, it filed a petition for review before the CTA. The
case was docketed as C.T.A. Case No. 6965.7 Kepco moved for partial reconsideration, but the CTA Second
Division denied it in its June 28, 2007 Resolution.16
In its Answer,8 respondent CIR averred that claims for refund
were strictly construed against the taxpayer as it was similar to On appeal to the CTA En Banc,17 Kepco argued that the CTA
a tax exemption. It asserted that the burden to show that the Second Division erred in not considering ₱8,691,873.81 in
taxes were erroneous or illegal lay upon the taxpayer. Thus, addition to ₱2,890,005.96 as refundable tax credit for Kepco’s
failure on the part of Kepco to prove the same was fatal to its zero-rated sales to NPC for taxable year 2002.
cause of action because it was its duty to prove the legal basis
of the amount being claimed as a tax refund.
On February 20, 2008, the CTA En Banc dismissed the
petition18 and ruled that "in order for Kepco to be entitled to its
During the hearing, Kepco presented court-commissioned claim for refund/issuance of tax credit certificate representing
Independent Certified Public Accountant, Victor O. Machacon, unutilized input VAT attributable to its zero-rated sales for
who audited their bulky documentary evidence consisting of taxable year 2002, it must comply with the substantiation
official receipts, invoices and vouchers, to prove its claim for requirements under the appropriate Revenue Regulations, i.e.
refund of unutilized input VAT.9 Revenue Regulations 7-95."19 Thus, it concluded that "the
Court in Division was correct in disallowing a portion of
On February 26, 2007, the CTA Second Division ruled that out Kepco’s claim for refund on the ground that input taxes on
of the total declared zero-rated sales of ₱3,285,308,055.85, Kepco’s purchase of goods and services were not supported
Kepco was only able to properly substantiate by invoices and receipts printed with "TIN-VAT."20
₱1,451,788,865.52 as its zero-rated sales. After factoring, only
44.19% of the validly supported input VAT payments being CTA Presiding Justice Ernesto Acosta concurred with the
claimed could be considered.10 The CTA Division used the majority in finding that Kepco’s claim could not be allowed for
following computation in determining Kepco’s total allowable lack of proper substantiation but expressed his dissent on the
input VAT: denial of certain claims,21 to wit:

Substantiated zero-rated sales to NPC [I] dissent with regard to the denial of the amount
₱4,720,725.63 for nothing in the law allows the automatic
Divided by the total declared zero-rated sales invalidation of official receipts/invoices which were not
imprinted with "TIN-VAT;" and further reduction of petitioner’s
claim representing input VAT on purchase of goods not
Rate of substantiated zero-rated sales supported by invoices in the amount of ₱64,509.50 and input
VAT on purchase of services not supported by official receipts
in the amount of ₱256,689.98, because the law makes use of
Total Input VAT Claimed invoices and official receipts interchangeably. Both can validly
substantiate petitioner’s claim.22
Less:Disallowance
(a) Per verification of the independent CPA Hence, this petition alleging the following errors:

(b) Per Court’s verification ASSIGNMENT OF ERRORS

Validly Supported Input VAT I.

Multiply by Rate of Substantiated Zero-Rated Sales
THE COURT OF TAX APPEALS EN BANC GRAVELY
ABUSED ITS DISCRETION AMOUNTING TO LACK OR
Total Allowed Input VAT EXCESS OF JURISDICTION WHEN IT HELD THAT NON-
COMPLIANCE WITH THE INVOICING REQUIREMENT
SHALL RESULT IN THE AUTOMATIC DENIAL OF THE
The CTA Second Division likewise disallowed the CLAIM.
₱5,170,914.20 of Kepco’s claimed input VAT due to its failure
to comply with the substantiation requirement. Specifically, the II.
CTA Second Division wrote:
THE COURT OF TAX APPEALS EN BANC GRAVELY
[i]nput VAT on purchases supported by invoices or official ABUSED ITS DISCRETION AMOUNTING TO LACK OF
receipts stamped with TIN-VAT shall be disallowed because EXCESS OF JURISDICTION WHEN IT DISALLOWED
these purchases are not supported by "VAT Invoices" under PETITIONER’S CLAIM ON THE GROUND THAT ‘TIN-VAT’
the contemplation of the aforequoted invoicing requirement. To IS NOT IMPRINTED ON THE INVOICES AND OFFICIAL
be considered a "VAT Invoice," the TIN-VAT must be printed, RECEIPTS.
and not merely stamped. Consequently, purchases supported
by invoices or official receipts, wherein the TIN-VAT are not
printed thereon, shall not give rise to any input VAT. Likewise, III.
input VAT on purchases supported by invoices or official
receipts which are not NON-VAT are disallowed because these THE COURT OF TAX APPEALS EN BANC GRAVELY
invoices or official receipts are not considered as "VAT ABUSED ITS DISCRETION WHEN IT MADE A DISTINCTION
Invoices." Hence, the claims for input VAT on purchases BETWEEN INVOICES AND OFFICIAL RECEIPTS AS
referred to in item (e) are properly disallowed.13 SUPPORTING DOCUMENTS TO CLAIM FOR AN INPUT
VAT REFUND.23
Accordingly, the CTA Second Division partially granted
Kepco’s claim for refund of unutilized input VAT for taxable At the outset, the Court has noticed that although this petition
year 2002. The dispositive portion of the decision14 of the CTA is denominated as Petition for Review on Certiorari under Rule
Second Division reads: 45 of the Rules of Court, Kepco, in its assignment of errors,
impugns against the CTA En Banc grave abuse of discretion input VAT is made, the government would be refunding money
amounting to lack or excess of jurisdiction, which are grounds it did not collect.1avvphi1
in a petition for certiorari under Rule 65 of the Rules of Court.
Time and again, the Court has emphasized that there is a Further, the printing of the word "zero-rated" on the invoice
whale of difference between a Rule 45 petition (Petition for helps segregate sales that are subject to 10% (now 12%) VAT
Review on Certiorari) and a Rule 65 petition (Petition for from those sales that are zero-rated. Unable to submit the
Certiorari.) A Rule 65 petition is an original action that dwells proper invoices, petitioner Panasonic has been unable to
on jurisdictional errors of whether a lower court acted without substantiate its claim for refund.33
or in excess of its jurisdiction or with grave abuse of
discretion.24 A Rule 45 petition, on the other hand, is a mode of
appeal which centers on the review on the merits of a Following said ruling, Section 4.108-1 of RR 7-9534 neither
judgment, final order or award rendered by a lower court expanded nor supplanted the tax code but merely
involving purely questions of law.25 Thus, imputing jurisdictional supplemented what the tax code already defined and
errors against the CTA is not proper in this Rule 45 petition. discussed. In fact, the necessity of indicating "zero-rated" into
Kepco failed to follow the correct procedure. On this point VAT invoices/receipts became more apparent when the
alone, the Court can deny the subject petition outright. provisions of this revenue regulation was later integrated into
RA No. 9337,35 the amendatory law of the 1997 NIRC. Section
113, in relation to Section 237 of the 1997 NIRC, as amended
At any rate, even if the Court would disregard this procedural by RA No. 9337, now reads:
flaw, the petition would still fail.
SEC. 113. Invoicing and Accounting Requirements for VAT-
Kepco argues that the 1997 National Internal Revenue Code Registered Persons. -
(NIRC) does not require the imprinting of the word zero-rated
on invoices and/or official receipts covering zero-rated
sales.26 It claims that Section 113 in relation to Section 237 of (A) Invoicing Requirements. - A VAT-registered
the 1997 NIRC "does not mention the requirement of imprinting person shall issue:
the words ‘zero-rated’ to purchases covering zero-rated
transactions."27 Only Section 4.108-1 of Revenue Regulation (1) A VAT invoice for every sale, barter or
No. 7-95 (RR No. 7-95) "required the imprinting of the word exchange of goods or properties; and
‘zero-rated’ on the VAT invoice or receipt."28 "Thus, Section
4.108-1 of RR No. 7-95 cannot be considered as a valid (2) A VAT official receipt for every lease of
legislation considering the long settled rule that administrative goods or properties, and for every sale,
rules and regulations cannot expand the letter and spirit of the barter or exchange of services.
law they seek to enforce."29

(B) Information Contained in the VAT Invoice or VAT

The Court does not agree. Official Receipt. - The following information shall be
indicated in the VAT invoice or VAT official receipt:
The issue of whether the word "zero-rated" should be imprinted
on invoices and/or official receipts as part of the invoicing (1) A statement that the seller is a VAT-
requirement has been settled in the case of Panasonic registered person, followed by his taxpayer's
Communications Imaging Corporation of the Philippines vs. identification number (TIN);
Commissioner of Internal Revenue30 and restated in the later
case of J.R.A. Philippines, Inc. v. Commissioner.31 In the first
case, Panasonic Communications Imaging (2) The total amount which the purchaser
Corporation (Panasonic), a VAT-registered entity, was pays or is obligated to pay to the seller with
engaged in the production and exportation of plain paper the indication that such amount includes the
copiers and their parts and accessories. From April 1998 to value-added tax: Provided, That:
March 31, 1999, Panasonic generated export sales amounting
to US$12,819,475.15 and US$11,859,489.78 totaling (a) The amount of the tax shall be
US$24,678,964.93. Thus, it paid input VAT of ₱9,368,482.40 shown as a separate item in the
that it attributed to its zero-rated sales. It filed applications for invoice or receipt;
refund or tax credit on what it had paid. The CTA denied its
application. Panasonic’s export sales were subject to 0% VAT
(b) If the sale is exempt from value-
under Section 106(A)(2)(a)(1) of the 1997 NIRC but it did not
added tax, the term "VAT-exempt
qualify for zero-rating because the word "zero-rated" was not
sale" shall be written or printed
printed on Panasonic’s export invoices. This omission,
prominently on the invoice or
according to the CTA, violated the invoicing requirements of
receipt;
Section 4.108-1 of RR No. 7-95. Panasonic argued, however,
that "in requiring the printing on its sales invoices of the word
‘zero-rated,’ the Secretary of Finance unduly expanded, (c) If the sale is subject to zero
amended, and modified by a mere regulation (Section 4.108-1 percent (0%) value-added tax, the
of RR No. 7-95) the letter and spirit of Sections 113 and 237 of term "zero-rated sale" shall
the 1997 NIRC, prior to their amendment by R.A. be written or printed prominently on
9337."32 Panasonic stressed that Sections 113 and 237 did not the invoice or receipt;
necessitate the imprinting of the word "zero-rated" for its zero-
rated sales receipts or invoices. The BIR integrated this (d) If the sale involves goods,
requirement only after the enactment of R.A. No. 9337 on properties or services some of
November 1, 2005, a law that was still inexistent at the time of which are subject to and some of
the transactions. Denying Panasonic’s claim for refund, the which are VAT zero-rated or VAT-
Court stated: exempt, the invoice or receipt shall
clearly indicate the breakdown of
Section 4.108-1 of RR 7-95 proceeds from the rule-making the sale price between its taxable,
authority granted to the Secretary of Finance under Section exempt and zero-rated
245 of the 1977 NIRC (Presidential Decree 1158) for the components, and the calculation of
efficient enforcement of the tax code and of course its the value-added tax on each portion
amendments. The requirement is reasonable and is in accord of the sale shall be shown on the
with the efficient collection of VAT from the covered sales of invoice or receipt: Provided, That
goods and services. As aptly explained by the CTA’s First the seller may issue separate
Division, the appearance of the word "zero-rated" on the face invoices or receipts for the taxable,
of invoices covering zero-rated sales prevents buyers from exempt, and zero-rated
falsely claiming input VAT from their purchases when no VAT components of the sale.
was actually paid. If, absent such word, a successful claim for
 (3) The date of transaction, quantity, unit and official receipts39 and so there is no reason for the denial of
cost and description of the goods or its ₱4,720,725.63 claim of input tax.40
properties or nature of the service; and
In this regard, Internal Revenue Regulation 7-95 (Consolidated
(4) In the case of sales in the amount of one Value-Added Tax Regulations) is clear. Section 4.108-1
thousand pesos (P1,000) or more where the thereof reads:
sale or transfer is made to a VAT-registered
person, the name, business style, if any, Only VAT registered persons are required to print their TIN
address and taxpayer identification number followed by the word "VAT" in their invoice or receipts and this
(TIN) of the purchaser, customer or client. shall be considered as a "VAT" Invoice. All purchases covered
by invoices other than ‘VAT Invoice’ shall not give rise to any
(C) Accounting Requirements. - Notwithstanding the input tax.
provisions of Section 233, all persons subject to the
value-added tax under Sections 106 and 108 shall, in Contrary to Kepco’s allegation, the regulation specifically
addition to the regular accounting records required, requires the VAT registered person to imprint TIN-VAT on its
maintain a subsidiary sales journal and subsidiary invoices or receipts. Thus, the Court agrees with the CTA
purchase journal on which the daily sales and when it wrote: "[T]o be considered a ‘VAT invoice,’ the TIN-
purchases are recorded. The subsidiary journals shall VAT must be printed, and not merely stamped. Consequently,
contain such information as may be required by the purchases supported by invoices or official receipts, wherein
Secretary of Finance. the TIN-VAT is not printed thereon, shall not give rise to any
input VAT. Likewise, input VAT on purchases supported by
xxxx invoices or official receipts which are NON-VAT are disallowed
because these invoices or official receipts are not considered
SEC. 237. Issuance of Receipts or Sales or Commercial as ‘VAT Invoices.’"41
Invoices. - All persons subject to an internal revenue tax shall,
for each sale and transfer of merchandise or for services Kepco further argues that under Section 113(A) of the 1997
rendered valued at Twenty-five pesos (₱25.00) or more, issue NIRC, invoices and official receipts are used interchangeably
duly registered receipts or sale or commercial invoices, for purposes of substantiating input VAT.42 Hence, it claims that
prepared at least in duplicate, showing the date of transaction, the CTA should have accepted its substantiation of input VAT
quantity, unit cost and description of merchandise or nature of on (1) ₱64,509.50 on purchases of goods with official receipts
service: Provided, however, That where the receipt is issued to and (2) ₱256,689.98 on purchases of services with invoices.43
cover payment made as rentals, commissions, compensation
or fees, receipts or invoices shall be issued which shall show The Court is not persuaded.
the name, business style, if any, and address of the purchaser,
customer or client.
Under the law, a VAT invoice is necessary for every sale,
barter or exchange of goods or properties while a VAT official
The original of each receipt or invoice shall be issued to the receipt properly pertains to every lease of goods or properties,
purchaser, customer or client at the time the transaction is and for every sale, barter or exchange of services.44 In
effected, who, if engaged in business or in the exercise of Commissioner of Internal Revenue v. Manila Mining
profession, shall keep and preserve the same in his place of Corporation,45 the Court distinguished an invoice from a
business for a period of three (3) years from the close of the receipt, thus:
taxable year in which such invoice or receipt was issued, while
the duplicate shall be kept and preserved by the issuer, also in
his place of business, for a like period. A "sales or commercial invoice" is a written account of goods
sold or services rendered indicating the prices charged therefor
or a list by whatever name it is known which is used in the
The Commissioner may, in meritorious cases, exempt any ordinary course of business evidencing sale and transfer or
person subject to an internal revenue tax from compliance with agreement to sell or transfer goods and services.
the provisions of this Section. [Emphases supplied]
A "receipt" on the other hand is a written acknowledgment of
Evidently, as it failed to indicate in its VAT invoices and the fact of payment in money or other settlement between
receipts that the transactions were zero-rated, Kepco failed to seller and buyer of goods, debtor or creditor, or person
comply with the correct substantiation requirement for zero- rendering services and client or customer.
rated transactions.
In other words, the VAT invoice is the seller’s best proof of the
Kepco then argues that non-compliance of invoicing sale of the goods or services to the buyer while the VAT
requirements should not result in the denial of the taxpayer’s receipt is the buyer’s best evidence of the payment of goods or
refund claim. Citing Atlas Consolidated Mining & Development services received from the seller. Even though VAT invoices
Corporation vs. Commissioner of Internal Revenue,36 it claims and receipts are normally issued by the supplier/seller alone,
that a party who fails to issue VAT official receipts/invoices for the said invoices and receipts, taken collectively, are
its sales should only be imposed penalties as provided under necessary to substantiate the actual amount or quantity of
Section 264 of the 1997 NIRC.37 goods sold and their selling price (proof of transaction), and the
best means to prove the input VAT payments (proof of
The Court has read the Atlas decision, and has not come payment).46 Hence, VAT invoice and VAT receipt should not be
across any categorical ruling that refund should be allowed for confused as referring to one and the same thing. Certainly,
those who had not complied with the substantiation neither does the law intend the two to be used alternatively.
requirements. It merely recited "Section 263" which provided
for penalties in case of "Failure or refusal to Issue Receipts or Although it is true that the CTA is not strictly governed by
Sales or Commercial Invoices, Violations related to the Printing technical rules of evidence,47 the invoicing and substantiation
of such Receipts or Invoices and Other Violations." It does not requirements must, nevertheless, be followed because it is the
categorically say that the claimant should be refunded. At any only way to determine the veracity of Kepco’s claims. Verily,
rate, Section 264 (formerly Section 263)38 of the 1997 NIRC the CTA En Banc correctly disallowed the input VAT that did
was not intended to excuse the compliance of the substantive not meet the required standard of substantiation.
invoicing requirement needed to justify a claim for refund on
input VAT payments.
The CTA is devoted exclusively to the resolution of tax-related
issues and has unmistakably acquired an expertise on the
Furthermore, Kepco insists that Section 4.108.1 of Revenue subject matter. In the absence of abuse or reckless exercise of
Regulation 07-95 does not require the word "TIN-VAT" to be authority,48 the CTA En Banc’s decision should be upheld.
imprinted on a VAT-registered person’s supporting invoices
The Court has always decreed that tax refunds are in the After petitioner presented its evidence, respondent did not,
nature of tax exemptions which represent a loss of revenue to despite notice, proffer any opposition to it. He was eventually
the government. These exemptions, therefore, must not rest on declared to have waived his right to present evidence.1avvphi1
vague, uncertain or indefinite inference, but should be granted
only by a clear and unequivocal provision of law on the basis of By Decision of February 23, 2007,2 the CTA First Division,
language too plain to be mistaken. Such exemptions must be conceding that petitioner’s transactions fall under the
strictly construed against the taxpayer, as taxes are the classification of zero-rated sales, nevertheless denied
lifeblood of the government.49 petitioner’s claim "for lack of substantiation," disposing as
follows:
WHEREFORE, the petition is DENIED.
In reiteration, considering that the subject revenues pertain to
SO ORDERED. gross receipts from services rendered by petitioner, valid VAT
official receipts and not mere sales invoices should have been
JOSE CATRAL MENDOZA submitted in support thereof. Without proper VAT official
receipts, the foreign currency payments received by petitioner
from services rendered for the four (4) quarters of taxable year
2002 in the sum of US$1,102,315.48 with the peso equivalent
of ₱56,898,744.05 cannot qualify for zero-rating for VAT
1.4 purposes. Consequently, the claimed input VAT payments
allegedly attributable thereto in the amount of ₱1,801,826.82
cannot be granted. It is clear from the provisions of Section
G.R. No. 182364               August 3, 2010
112 (A) of the NIRC of 1997 that there must be zero-rated or
effectively zero-rated sales in order that a refund of input VAT
AT&T COMMUNICATIONS SERVICES PHILIPPINES, could prosper.
INC., Petitioner,
vs.
x x x x3 (emphasis and underscoring supplied)
COMMISSIONER OF INTERNAL REVENUE, Respondent.

The CTA First Division, relying on Sections 1064 and 1085 of

DECISION
the Tax Code, held that since petitioner is engaged in sale of
services, VAT Official Receipts should have been presented in
CARPIO MORALES, J.: order to substantiate its claim of zero-rated sales, not
VAT invoices which pertain to sale of goods or properties.
AT&T Communications Services Philippines, Inc. (petitioner) is
a domestic corporation primarily engaged in the business of On petition for review, the CTA En Banc, by Decision of
providing information, promotional, supportive and liaison February 18, 2008,6 affirmed that of the CTA First Division.
services to foreign corporations such as AT&T Petitioner’s motion for reconsideration having been denied by
Communications Services International Inc., AT&T Solutions, Resolution of April 2, 2008, the present petition for review was
Inc., AT&T Singapore, Pte. Ltd.,, AT&T Global filed.
Communications Services, Inc. and Acer, Inc., an enterprise
registered with the Philippine Economic Zone Authority
The petition is impressed with merit.
(PEZA).

A taxpayer engaged in zero-rated transactions may apply for

Under Service Agreements forged by petitioner with the above-
tax refund or issuance of tax credit certificate for unutilized
named corporations, remuneration is paid in U.S. Dollars and
input VAT, subject to the following requirements: (1) the
inwardly remitted in accordance with the rules and regulations
taxpayer is engaged in sales which are zero-rated (i.e., export
of the Bangko Sentral ng Pilipinas (BSP).
sales) or effectively zero-rated; (2) the taxpayer is VAT-
registered; (3) the claim must be filed within two years after the
For the calendar year 2002, petitioner incurred input VAT when close of the taxable quarter when such sales were made; (4)
it generated and recorded zero-rated sales in connection with the creditable input tax due or paid must be attributable to such
its Service Agreements in the peso equivalent of sales, except the transitional input tax, to the extent that such
₱56,898,744.05. Petitioner also incurred input VAT from input tax has not been applied against the output tax; and (5) in
purchases of capital goods and other taxable goods and case of zero-rated sales under Section 106 (A) (2) (a) (1) and
services, and importation of capital goods. (2), Section 106 (B) and Section 108 (B) (1) and (2), the
acceptable foreign currency exchange proceeds thereof have
Despite the application of petitioner’s input VAT against its been duly accounted for in accordance with BSP rules and
output VAT, an excess of unutilized input VAT in the amount of regulations.7
₱2,050,736.69 remained. As petitioner’s unutilized input VAT
could not be directly and exclusively attributed to either of its Commissioner of Internal Revenue v. Seagate Technology
zero-rated sales or its domestic sales, an allocation of the input (Philippines)8 teaches that petitioner, as zero-rated seller,
VAT was made which resulted in the amount of ₱1,801,826.82 hence, directly and legally liable for VAT, can claim a refund or
as petitioner’s claim attributable to its zero-rated sales. tax credit certificate.

On March 26, 2004, petitioner filed with the Commissioner of Zero-rated transactions generally refer to the export sale of
Internal Revenue (respondent) an application for tax refund goods and supply of services. The tax rate is set at zero. When
and/or tax credit of its excess/unutilized input VAT from zero- applied to the tax base, such rate obviously results in no tax
rated sales in the said amount of ₱1,801,826.82.1 chargeable against the purchaser. The seller of such
transactions charges no output tax but can claim a refund or a
To prevent the running of the prescriptive period, petitioner tax credit certificate for the VAT previously charged by
subsequently filed a petition for review with the Court of Tax suppliers. x x x
Appeals (CTA) which was docketed as CTA Case No. 6907
and lodged before its First Division. Applying the destination principle to the exportation of
goods, automatic zero rating is primarily intended to be
In support of its claim, petitioner presented documents enjoyed by the seller who is directly and legally liable for the
including its Summary of Zero-Rated Sales (Exhibit "DD") with VAT, making such seller internationally competitive by allowing
corresponding supporting documents; VAT invoices on which the refund or credit of input taxes that are attributable to export
were stamped "zero-rated" and bank credit advices (Exhibits sales. (emphasis and underscoring supplied)
"EE-1" to "EE-56"); copies of Service Agreements (Exhibits "N"
to "Q"); and report of the commissioned certified public
accountant (Exhibit "AA" to "AA-22").
Revenue Regulation No. 3-88 amending Revenue Regulation WHEREFORE, the petition is GRANTED. The Decision of
No. 5-87 provides the requirements in claiming tax February 18, 2008 of the Court of Tax Appeals En
credits/refunds: Banc is REVERSED and SET ASIDE. Let the case
be REMANDED to the Court of Tax Appeals First Division for
Sec. 2. Section 16 of Revenue Regulations 5-87 is hereby the determination of petitioner’s tax credit/refund.
amended to read as follows: x x x
SO ORDERED.
(c) Claims for tax credits/refunds – Application for Tax
Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) CONCHITA CARPIO MORALES
shall be filed with the Revenue District Office of the city or
municipality where the principal place of business of the
applicant is located or directly with the Commissioner,
Attention: VAT Division.
1.5
A photocopy of the purchase invoice or receipt evidencing
the value added tax paid shall be submitted together with the G.R. No. 172378               January 17, 2011
application. The original copy of the said invoice/receipt,
however shall be presented for cancellation prior to the SILICON PHILIPPINES, INC., (Formerly INTEL PHILIPPINES
issuance of the Tax Credit Certificate or refund. x x x MANUFACTURING, INC.), Petitioner,
(emphasis and underscoring supplied) vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
Section 113 of the Tax Code does not create a distinction
between a sales invoice and an official receipt. DECISION

Sec. 113. Invoicing and Accounting Requirements for VAT- DEL CASTILLO, J.:

Registered Persons. –
The burden of proving entitlement to a refund lies with the
(A) Invoicing Requirements. – A VAT-registered claimant.
person shall, for every sale, issue an invoice or
receipt. In addition to the information required under
This Petition for Review on Certiorari under Rule 45 of the
Section 237, the following information shall be
Rules of Court seeks to set aside the September 30, 2005
indicated in the invoice or receipt:
Decision1 and the April 20, 2006 Resolution2 of the Court of
Tax Appeals (CTA) En Banc.
(1) A statement that the seller is a VAT-
registered person, followed by his taxpayer’s
Factual Antecedents
identification number (TIN); and

Petitioner Silicon Philippines, Inc., a corporation duly organized

(2) The total amount which the purchaser
and existing under and by virtue of the laws of the Republic of
pays or is obligated to pay to the seller with
the Philippines, is engaged in the business of designing,
the indication that such amount includes the
developing, manufacturing and exporting advance and large-
value-added tax. (emphasis, italics and
scale integrated circuit components or "IC’s."3 Petitioner is
underscoring supplied)
registered with the Bureau of Internal Revenue (BIR) as a
Value Added Tax (VAT) taxpayer 4 and with the Board of
Section 110 of the 1997 Tax Code in fact provides: Investments (BOI) as a preferred pioneer enterprise.5

Section 110. Tax Credits – On May 21, 1999, petitioner filed with the respondent
Commissioner of Internal Revenue (CIR), through the One-
A. Creditable Input Tax. – Stop Shop Inter-Agency Tax Credit and Duty Drawback Center
of the Department of Finance (DOF), an application for
credit/refund of unutilized input VAT for the period October 1,
(1) Any input tax evidenced by a VAT invoice or official 1998 to December 31, 1998 in the amount of ₱31,902,507.50,
receipt issued in accordance with Section 113 hereof on broken down as follows:
the following transactions shall be creditable against the output
tax:
Amoun
(b) Purchase of services on which a value-added tax has Tax Paid on Imported/Locally Purchased ₱ 15,1
actually been paid. (emphasis, italics and underscoring Capital Equipment
supplied) Total VAT paid on Purchases per Invoices 16,732
Received During the Period for which
this Application is Filed
Parenthetically, to determine the validity of petitioner’s claim as
to unutilized input VAT, an invoice would suffice provided the Amount of Tax Credit/Refund Applied For ₱ 31,9
requirements under Sections 113 and 237 of the Tax Code are
met.1avvphi1 Proceedings before the CTA Division

Sales invoices are recognized commercial documents to On December 27, 2000, due to the inaction of the respondent,
facilitate trade or credit transactions. They are proofs that a petitioner filed a Petition for Review with the CTA Division,
business transaction has been concluded, hence, should not docketed as CTA Case No. 6212. Petitioner alleged that for the
be considered bereft of probative value.9 Only the 4th quarter of 1998, it generated and recorded zero-rated
preponderance of evidence threshold as applied in ordinary export sales in the amount of ₱3,027,880,818.42, paid to
civil cases is needed to substantiate a claim for tax refund petitioner in acceptable foreign currency and accounted for in
proper.10 accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas;7 and that for the said period, petitioner
IN FINE, the Court finds that petitioner has complied with the paid input VAT in the total amount of ₱31,902,507.50,8 which
substantiation requirements to prove entitlement to refund/tax have not been applied to any output VAT.9
credit. The Court is not a trier of facts, however, hence the
need to remand the case to the CTA for determination and To this, respondent filed an Answer10 raising the following
computation of petitioner’s refund/tax credit. special and affirmative defenses, to wit:
 8. The petition states no cause of action as it does not it failed to show that the goods imported/purchased are indeed
allege the dates when the taxes sought to be capital goods as defined in Section 4.106-1 of RR No. 7-95.21
refunded/credited were actually paid;
The CTA Division denied both motions in a Resolution 22 dated
9. It is incumbent upon herein petitioner to show that it August 10, 2004. It noted that:
complied with the provisions of Section 229 of the Tax
Code as amended; [P]etitioner’s request for Permit to Adopt Computerized
Accounting Documents such as Sales Invoice and Official
10. Claims for refund are construed strictly against the Receipt was approved on August 31, 2001 while the period
claimant, the same being in the nature of exemption involved in this case was October 31, 1998 to December 31,
from taxes (Commissioner of Internal Revenue vs. 1998 x x x. While it appears that petitioner was previously
Ledesma, 31 SCRA 95; Manila Electric Co. vs. issued a permit by the BIR Makati Branch, such permit was
Commissioner of Internal Revenue, 67 SCRA 35); only limited to the use of computerized books of account x x x.
It was only on August 31, 2001 that petitioner was permitted to
11. One who claims to be exempt from payment of a generate computerized sales invoices and official receipts
particular tax must do so under clear and [provided that the BIR Permit Number is printed] in the header
unmistakable terms found in the statute (Asiatic of the document x x x.
Petroleum vs. Llanes, 49 Phil. 466; Union Garment
Co. vs. Court of Tax Appeals, 4 SCRA 304); xxxx

12. In an action for refund, the burden is upon the Thus, petitioner’s contention that it is not required to show its
taxpayer to prove that he is entitled thereto, and BIR permit number on the sales invoices runs counter to the
failure to sustain the same is fatal to the action for requirements under the said "Permit." This court also wonders
refund. Furthermore, as pointed out in the case of why petitioner was issuing computer generated sales invoices
William Li Yao vs. Collector (L-11875, December 28, during the period involved (October 1998 to December 1998)
1963), amounts sought to be recovered or credited when it did not have an authority or permit. Therefore, we are
should be shown to be taxes which are erroneously or convinced that such documents lack probative value and
illegally collected; that is to say, their payment was an should be treated as inadmissible, incompetent and immaterial
independent single act of voluntary payment of a tax to prove petitioner’s export sales transaction.
believed to be due and collectible and accepted by
the government, which had therefor become part of xxxx
the State moneys subject to expenditure and perhaps
already spent or appropriated; and
ACCORDINGLY, the Motion for Reconsideration and the
Supplemental Motion for Reconsideration filed by petitioner as
13. Taxes paid and collected are presumed to have well as the Motion for Partial Reconsideration of respondent
been made in accordance with the law and are hereby DENIED for lack of merit. The pronouncement in
regulations, hence not refundable.11 the assailed decision is REITERATED.

On November 18, 2003, the CTA Division rendered a SO ORDERED 23

Decision12 partially granting petitioner’s claim for refund of
unutilized input VAT on capital goods. Out of the amount of
₱15,170,082.00, only ₱9,898,867.00 was allowed to be Ruling of the CTA En Banc
refunded because training materials, office supplies, posters,
banners, T-shirts, books, and other similar items purchased by Undaunted, petitioner elevated the case to the CTA En
petitioner were not considered capital goods under Section Banc via a Petition for Review,24 docketed as EB Case No. 23.
4.106-1(b) of Revenue Regulations (RR) No. 7-95
(Consolidated Value-Added Tax Regulations).13 With regard to On September 30, 2005, the CTA En Banc issued the assailed
petitioner’s claim for credit/refund of input VAT attributable to Decision25 denying the petition for lack of merit. Pertinent
its zero-rated export sales, the CTA Division denied the same portions of the Decision read:
because petitioner failed to present an Authority to Print (ATP)
from the BIR;14 neither did it print on its export sales invoices
the ATP and the word "zero-rated."15 Thus, the CTA Division This Court notes that petitioner raised the same issues which
disposed of the case in this wise: have already been thoroughly discussed in the assailed
Decision, as well as, in the Resolution denying petitioner's
Motion for Partial Reconsideration.
WHEREFORE, in view of the foregoing the instant petition for
review is hereby PARTIALLY GRANTED. Respondent is
ORDERED to ISSUE A TAX CREDIT CERTIFICATE in favor With regard to the first assigned error, this Court reiterates
of petitioner in the reduced amount of P9,898,867.00 that, the requirement of [printing] the BIR permit to print on the
representing input VAT on importation of capital goods. face of the sales invoices and official receipts is a control
However, the claim for refund of input VAT attributable to mechanism adopted by the Bureau of Internal Revenue to
petitioner's alleged zero-rated sales in the amount of safeguard the interest of the government.
P16,732,425.50 is hereby DENIED for lack of merit.
This requirement is clearly mandated under Section 238 of the
SO ORDERED.16 1997 National Internal Revenue Code, which provides that:

Not satisfied with the Decision, petitioner moved for SEC. 238. Printing of Receipts or Sales or Commercial
reconsideration.17 It claimed that it is not required to secure an Invoice. – All persons who are engaged in business shall
ATP since it has a "Permit to Adopt Computerized Accounting secure from the Bureau of Internal Revenue an authority to
Documents such as Sales Invoice and Official Receipts" from print receipts or sales or commercial invoices before a printer
the BIR.18 Petitioner further argued that because all its finished can print the same.
products are exported to its mother company, Intel
Corporation, a non-resident corporation and a non-VAT The above mentioned provision seeks to eliminate the use of
registered entity, the printing of the word "zero-rated" on its unregistered and double or multiple sets of receipts by striking
export sales invoices is not necessary.19 at the very root of the problem — the printer (H. S. de Leon,
The National Internal Revenue Code Annotated, 7th Ed., p.
On its part, respondent filed a Motion for Partial 901). And what better way to prove that the required permit to
Reconsideration20 contending that petitioner is not entitled to a print was secured from the Bureau of Internal Revenue than to
credit/refund of unutilized input VAT on capital goods because show or print the same on the face of the invoices. There can
be no other valid proof of compliance with the above provision
than to show the Authority to Print Permit number [printed] on (1) whether the CTA En Banc erred in denying
the sales invoices and official receipts. petitioner’s claim for credit/ refund of input VAT
attributable to its zero-rated sales in the amount of
With regard to petitioner’s failure to print the word "zero-rated" ₱16,732,425.00 due to its failure:
on the face of its export sales invoices, it must be emphasized
that Section 4.108-1 of Revenue Regulations No. 7-95 (a) to show that it secured an ATP from the
specifically requires that all value-added tax registered persons BIR and to indicate the same in its export
shall, for every sale or lease of goods or properties or services, sales invoices; and
issue duly registered invoices which must show the word "zero-
rated" [printed] on the invoices covering zero-rated sales. (b) to print the word "zero-rated" in its export
sales invoices.29
It is not enough that petitioner prove[s] that it is entitled to its
claim for refund by way of substantial evidence. Well settled in (2) whether the CTA En Banc erred in ruling that only
our jurisprudence [is] that tax refunds are in the nature of tax the amount of ₱9,898,867.00 can be classified as
exemptions and as such, they are regarded as in derogation of input VAT paid on capital goods.30
sovereign authority (Commissioner of Internal Revenue vs.
Ledesma, 31 SCRA 95). Thus, tax refunds are construed in
strictissimi juris against the person or entity claiming the Petitioner’s Arguments
same (Commissioner of Internal Revenue vs. Procter &
Gamble Philippines Manufacturing Corporation, 204 SCRA Petitioner posits that the denial by the CTA En Banc of its
377; Commissioner of Internal Revenue vs. Tokyo Shipping claim for refund of input VAT attributable to its zero-rated sales
Co., Ltd., 244 SCRA 332). has no legal basis because the printing of the ATP and the
word "zero-rated" on the export sales invoices are not required
In this case, not only should petitioner establish that it is under Sections 113 and 237 of the National Internal Revenue
entitled to the claim but it must most importantly show proof of Code (NIRC).31 And since there is no law requiring the ATP
compliance with the substantiation requirements as mandated and the word "zero-rated" to be indicated on the sales
by law or regulations. invoices,32 the absence of such information in the sales
invoices should not invalidate the petition33 nor result in the
outright denial of a claim for tax credit/refund.34 To support its
The rest of the assigned errors pertain to the alleged errors of position, petitioner cites Intel Technology Philippines, Inc. v.
the First Division: in finding that the petitioner failed to comply Commissioner of Internal Revenue,35 where Intel’s failure to
with the substantiation requirements provided by law in proving print the ATP on the sales invoices or receipts did not result in
its claim for refund; in reducing the amount of petitioner’s tax the outright denial of its claim for tax credit/refund. 36 Although
credit for input vat on importation of capital goods; and in the cited case only dealt with the printing of the ATP, petitioner
denying petitioner’s claim for refund of input vat attributable to submits that the reasoning in that case should also apply to the
petitioner’s zero-rated sales. printing of the word "zero-rated."37 Hence, failure to print of the
word "zero-rated" on the sales invoices should not result in the
It is petitioner’s contention that it has clearly established its denial of a claim.
right to the tax credit or refund by way of substantial evidence
in the form of material and documentary evidence and it would As to the claim for refund of input VAT on capital goods,
be improper to set aside with haste the claimed input VAT on petitioner insists that it has sufficiently proven through
capital goods expended for training materials, office supplies, testimonial and documentary evidence that all the goods
posters, banners, t-shirts, books and the like because Revenue purchased were used in the production and manufacture of its
Regulations No. 7-95 defines capital goods as to include even finished products which were sold and exported.38
those goods which are indirectly used in the production or sale
of taxable goods or services.
Respondent’s Arguments
Capital goods or properties, as defined under Section 4.106-
1(b) of Revenue Regulations No. 7-95, refer "to goods or To refute petitioner’s arguments, respondent asserts that the
properties with estimated useful life greater than one year and printing of the ATP on the export sales invoices, which serves
which are treated as depreciable assets under Section 29 (f), as a control mechanism for the BIR, is mandated by Section
used directly or indirectly in the production or sale of taxable 238 of the NIRC;39 while the printing of the word "zero-rated"
goods or services." on the export sales invoices, which seeks to prevent
purchasers of zero-rated sales or services from claiming non-
existent input VAT credit/refund,40 is required under RR No. 7-
Considering that the items (training materials, office supplies, 95, promulgated pursuant to Section 244 of the NIRC.41 With
posters, banners, t-shirts, books and the like) purchased by regard to the unutilized input VAT on capital goods, respondent
petitioner as reflected in the summary were not duly proven to counters that petitioner failed to show that the goods it
have been used, directly or indirectly[,] in the production or purchased/imported are capital goods as defined in Section
sale of taxable goods or services, the same cannot be 4.106-1 of RR No. 7-95. 42
considered as capital goods as defined above[. Consequently,]
the same may not x x x then [be] claimed as such.
Our Ruling
WHEREFORE, in view of the foregoing, this instant Petition for
Review is hereby DENIED DUE COURSE and hereby The petition is bereft of merit.
DISMISSED for lack of merit. This Court's Decision of
November 18, 2003 and Resolution of August 10, 2004 are Before us are two types of input VAT credits. One is a
hereby AFFIRMED in all respects. credit/refund of input VAT attributable to zero-rated sales under
Section 112 (A) of the NIRC, and the other is a credit/refund of
SO ORDERED.26 input VAT on capital goods pursuant to Section 112 (B) of the
same Code.
Petitioner sought reconsideration of the assailed Decision but
the CTA En Banc denied the Motion27 in a Resolution28 dated Credit/refund of input VAT on zero-rated sales
April 20, 2006.
In a claim for credit/refund of input VAT attributable to zero-
Issues rated sales, Section 112 (A)43 of the NIRC lays down four
requisites, to wit:
Hence, the instant Petition raising the following issues for
resolution: 1) the taxpayer must be VAT-registered;
 2) the taxpayer must be engaged in sales which are Similarly, failure to print the word "zero-rated" on the sales
zero-rated or effectively zero-rated; invoices or receipts is fatal to a claim for credit/refund of input
VAT on zero-rated sales.
3) the claim must be filed within two years after the
close of the taxable quarter when such sales were In Panasonic Communications Imaging Corporation of the
made; and Philippines (formerly Matsushita Business Machine
Corporation of the Philippines) v. Commissioner of Internal
4) the creditable input tax due or paid must be Revenue,54 we upheld the denial of Panasonic’s claim for tax
attributable to such sales, except the transitional input credit/refund due to the absence of the word "zero-rated" in its
tax, to the extent that such input tax has not been invoices. We explained that compliance with Section 4.108-1 of
applied against the output tax. RR 7-95, requiring the printing of the word "zero rated" on the
invoice covering zero-rated sales, is essential as this regulation
proceeds from the rule-making authority of the Secretary of
To prove that it is engaged in zero-rated sales, petitioner Finance under Section 24455 of the NIRC.
presented export sales invoices, certifications of inward
remittance, export declarations, and airway bills of lading for
the fourth quarter of 1998. The CTA Division, however, found All told, the non-presentation of the ATP and the failure to
the export sales invoices of no probative value in establishing indicate the word "zero-rated" in the invoices or receipts are
petitioner’s zero-rated sales for the purpose of claiming fatal to a claim for credit/refund of input VAT on zero-rated
credit/refund of input VAT because petitioner failed to show sales. The failure to indicate the ATP in the sales invoices or
that it has an ATP from the BIR and to indicate the ATP and receipts, on the other hand, is not. In this case, petitioner failed
the word "zero-rated" in its export sales invoices.44 The CTA to present its ATP and to print the word "zero-rated" on its
Division cited as basis Sections 113,45 23746 and 23847 of the export sales invoices. Thus, we find no error on the part of the
NIRC, in relation to Section 4.108-1 of RR No. 7-95.48 CTA in denying outright petitioner’s claim for credit/refund of
input VAT attributable to its zero-rated sales.
We partly agree with the CTA.
Credit/refund of input VAT on capital goods
Printing the ATP on the invoices or receipts is not required
Capital goods are defined under Section 4.106-1(b) of RR No.
7-95
It has been settled in Intel Technology Philippines, Inc. v.
Commissioner of Internal Revenue49 that the ATP need not be
reflected or indicated in the invoices or receipts because there To claim a refund of input VAT on capital goods, Section 112
is no law or regulation requiring it.50 Thus, in the absence of (B)56 of the NIRC requires that:
such law or regulation, failure to print the ATP on the invoices
or receipts should not result in the outright denial of a claim or 1. the claimant must be a VAT registered person;
the invalidation of the invoices or receipts for purposes of
claiming a refund.51 2. the input taxes claimed must have been paid on
capital goods;
ATP must be secured from the BIR
3. the input taxes must not have been applied against
But while there is no law requiring the ATP to be printed on the any output tax liability; and
invoices or receipts, Section 238 of the NIRC expressly
requires persons engaged in business to secure an ATP from 4. the administrative claim for refund must have been
the BIR prior to printing invoices or receipts. Failure to do so filed within two (2) years after the close of the taxable
makes the person liable under Section 26452 of the NIRC. quarter when the importation or purchase was made.

This brings us to the question of whether a claimant for Corollarily, Section 4.106-1 (b) of RR No. 7-95 defines capital
unutilized input VAT on zero-rated sales is required to present goods as follows:
proof that it has secured an ATP from the BIR prior to the
printing of its invoices or receipts.
"Capital goods or properties" refer to goods or properties with
estimated useful life greater that one year and which are
We rule in the affirmative. treated as depreciable assets under Section 29 (f),57 used
directly or indirectly in the production or sale of taxable goods
Under Section 112 (A) of the NIRC, a claimant must be or services.
engaged in sales which are zero-rated or effectively zero-rated.
To prove this, duly registered invoices or receipts evidencing Based on the foregoing definition, we find no reason to deviate
zero-rated sales must be presented. However, since the ATP from the findings of the CTA that training materials, office
is not indicated in the invoices or receipts, the only way to supplies, posters, banners, T-shirts, books, and the other
verify whether the invoices or receipts are duly registered is by similar items reflected in petitioner’s Summary of Importation of
requiring the claimant to present its ATP from the BIR. Without Goods are not capital goods. A reduction in the refundable
this proof, the invoices or receipts would have no probative input VAT on capital goods from ₱15,170,082.00 to
value for the purpose of refund. In the case of Intel, we ₱9,898,867.00 is therefore in order.
emphasized that:
WHEREFORE, the Petition is hereby DENIED. The assailed
It bears reiterating that while the pertinent provisions of the Tax Decision dated September 30, 2005 and the Resolution dated
Code and the rules and regulations implementing them require April 20, 2006 of the Court of Tax Appeals En Banc are hereby
entities engaged in business to secure a BIR authority to print AFFIRMED.
invoices or receipts and to issue duly registered invoices or
receipts, it is not specifically required that the BIR authority to
print be reflected or indicated therein. Indeed, what is important SO ORDERED.
with respect to the BIR authority to print is that it has been
secured or obtained by the taxpayer, and that invoices or
receipts are duly registered.53 (Emphasis supplied)
1.6
Failure to print the word "zero-rated" on the sales invoices is
fatal to a claim for refund of input VAT1awphi1
G.R. No. 172087               March 15, 2011
PHILIPPINE AMUSEMENT AND GAMING CORPORATION shall be in lieu of all kinds of taxes, levies, fees or
(PAGCOR), Petitioner, assessments of any kind, nature or description,
vs. levied, established, or collected by any municipal,
THE BUREAU OF INTERNAL REVENUE (BIR), represented provincial or national government authority.
herein by HON. JOSE MARIO BUÑAG, in his official
capacity as COMMISSIONER OF INTERNAL (b) Others: The exemption herein granted for
REVENUE, Public Respondent, earnings derived from the operations
JOHN DOE and JANE DOE, who are persons acting for, in conducted under the franchise, specifically
behalf, or under the authority of Respondent. Public and from the payment of any tax, income or
Private Respondents. otherwise, as well as any form of charges,
fees or levies, shall inure to the benefit of
DECISION and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the
PERALTA, J.: Corporation or operator has any contractual
relationship in connection with the operations
of the casino(s) authorized to be conducted
For resolution of this Court is the Petition for Certiorari and under this Franchise and to those receiving
Prohibition1 with prayer for the issuance of a Temporary compensation or other remuneration from
Restraining Order and/or Preliminary Injunction, dated April 17, the Corporation as a result of essential
2006, of petitioner Philippine Amusement and Gaming facilities furnished and/or technical services
Corporation (PAGCOR), seeking the declaration of nullity of rendered to the Corporation or operator.
Section 1 of Republic Act (R.A.) No. 9337 insofar as it amends
Section 27 (c) of the National Internal Revenue Code of 1997,
by excluding petitioner from exemption from corporate income The fee or remuneration of foreign entertainers
tax for being repugnant to Sections 1 and 10 of Article III of the contracted by the Corporation or operator in
Constitution. Petitioner further seeks to prohibit the pursuance of this provision shall be free of any tax.
implementation of Bureau of Internal Revenue (BIR) Revenue
Regulations No. 16-2005 for being contrary to law. (3) Dividend Income. − Notwithstanding any provision
of law to the contrary, in the event the Corporation
The undisputed facts follow. should declare a cash dividend income corresponding
to the participation of the private sector shall, as an
incentive to the beneficiaries, be subject only to a final
PAGCOR was created pursuant to Presidential Decree (P.D.) flat income rate of ten percent (10%) of the regular
No. 1067-A2 on January 1, 1977. Simultaneous to its creation, income tax rates. The dividend income shall not in
P.D. No. 1067-B3 (supplementing P.D. No. 1067-A) was issued such case be considered as part of the beneficiaries'
exempting PAGCOR from the payment of any type of tax, taxable income; provided, however, that such
except a franchise tax of five percent (5%) of the gross dividend income shall be totally exempted from
revenue.4 Thereafter, on June 2, 1978, P.D. No. 1399 was income or other form of taxes if invested within six (6)
issued expanding the scope of PAGCOR's exemption.5 months from the date the dividend income is received
in the following:
To consolidate the laws pertaining to the franchise and powers
of PAGCOR, P.D. No. 18696 was issued. Section 13 thereof (a) operation of the casino(s) or investments
reads as follows: in any affiliate activity that will ultimately
redound to the benefit of the Corporation; or
Sec. 13. Exemptions. — x x x any other corporation with whom the
Corporation has any existing arrangements
(1) Customs Duties, taxes and other imposts on in connection with or related to the
importations. - All importations of equipment, vehicles, operations of the casino(s);
automobiles, boats, ships, barges, aircraft and such
other gambling paraphernalia, including accessories (b) Government bonds, securities, treasury
or related facilities, for the sole and exclusive use of notes, or government debentures; or
the casinos, the proper and efficient management and
administration thereof and such other clubs, (c) BOI-registered or export-oriented
recreation or amusement places to be established corporation(s).7
under and by virtue of this Franchise shall be exempt
from the payment of duties, taxes and other imposts,
including all kinds of fees, levies, or charges of any PAGCOR's tax exemption was removed in June 1984 through
kind or nature. P.D. No. 1931, but it was later restored by Letter of Instruction
No. 1430, which was issued in September 1984.
Vessels and/or accessory ferry boats imported or to
be imported by any corporation having existing On January 1, 1998, R.A. No. 8424,8 otherwise known as
contractual arrangements with the Corporation, for the the National Internal Revenue Code of 1997, took effect.
sole and exclusive use of the casino or to be used to Section 27 (c) of R.A. No. 8424 provides that government-
service the operations and requirements of the owned and controlled corporations (GOCCs) shall pay
casino, shall likewise be totally exempt from the corporate income tax, except petitioner PAGCOR, the
payment of all customs duties, taxes and other Government Service and Insurance Corporation, the Social
imposts, including all kinds of fees, levies, Security System, the Philippine Health Insurance Corporation,
assessments or charges of any kind or nature, and the Philippine Charity Sweepstakes Office, thus:
whether National or Local.
(c) Government-owned or Controlled Corporations, Agencies
(2) Income and other taxes. - (a) Franchise Holder: or Instrumentalities. - The provisions of existing special general
No tax of any kind or form, income or otherwise, as laws to the contrary notwithstanding, all corporations, agencies
well as fees, charges, or levies of whatever nature, or instrumentalities owned and controlled by the Government,
whether National or Local, shall be assessed and except the Government Service and Insurance Corporation
collected under this Franchise from the Corporation; (GSIS), the Social Security System (SSS), the Philippine
nor shall any form of tax or charge attach in any way Health Insurance Corporation (PHIC), the Philippine Charity
to the earnings of the Corporation, except a Franchise Sweepstakes Office (PCSO), and the Philippine Amusement
Tax of five percent (5%)of the gross revenue or and Gaming Corporation (PAGCOR), shall pay such rate of tax
earnings derived by the Corporation from its operation upon their taxable income as are imposed by this Section upon
under this Franchise. Such tax shall be due and corporations or associations engaged in similar business,
payable quarterly to the National Government and industry, or activity.9
With the enactment of R.A. No. 933710 on May 24, 2005, WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND
certain sections of the National Internal Revenue Code of 1997 VOID AB INITIO FOR BEING REPUGNANT TO THE EQUAL
were amended. The particular amendment that is at issue in PROTECTION [CLAUSE] EMBODIED IN SECTION 1,
this case is Section 1 of R.A. No. 9337, which amended ARTICLE III OF THE 1987 CONSTITUTION.
Section 27 (c) of the National Internal Revenue Code of 1997
by excluding PAGCOR from the enumeration of GOCCs that II
are exempt from payment of corporate income tax, thus:
WHETHER OR NOT RA 9337, SECTION 1 (C) IS NULL AND
(c) Government-owned or Controlled Corporations, Agencies VOID AB INITIO FOR BEING REPUGNANT TO THE NON-
or Instrumentalities. - The provisions of existing special general IMPAIRMENT [CLAUSE] EMBODIED IN SECTION 10,
laws to the contrary notwithstanding, all corporations, ARTICLE III OF THE 1987 CONSTITUTION.
agencies, or instrumentalities owned and controlled by the
Government, except the Government Service and Insurance
Corporation (GSIS), the Social Security System (SSS), the III
Philippine Health Insurance Corporation (PHIC), and the
Philippine Charity Sweepstakes Office (PCSO), shall pay such WHETHER OR NOT RR 16-2005, SECTION 4.108-3,
rate of tax upon their taxable income as are imposed by this PARAGRAPH (H) IS NULL AND VOID AB INITIO FOR BEING
Section upon corporations or associations engaged in similar BEYOND THE SCOPE OF THE BASIC LAW, RA 8424,
business, industry, or activity. SECTION 108, INSOFAR AS THE SAID REGULATION
IMPOSED VAT ON THE SERVICES OF THE PETITIONER
Different groups came to this Court via petitions AS WELL AS PETITIONER’S LICENSEES OR
for certiorari and prohibition11 assailing the validity and FRANCHISEES WHEN THE BASIC LAW, AS INTERPRETED
constitutionality of R.A. No. 9337, in particular: BY APPLICABLE JURISPRUDENCE, DOES NOT IMPOSE
VAT ON PETITIONER OR ON PETITIONER’S LICENSEES
OR FRANCHISEES.14
1) Section 4, which imposes a 10% Value Added Tax
(VAT) on sale of goods and properties; Section 5,
which imposes a 10% VAT on importation of goods; The BIR, in its Comment15 dated December 29, 2006,
and Section 6, which imposes a 10% VAT on sale of counters:
services and use or lease of properties, all contain a
uniform proviso authorizing the President, upon the I
recommendation of the Secretary of Finance, to raise
the VAT rate to 12%. The said provisions were SECTION 1 OF R.A. NO. 9337 AND SECTION 13 (2) OF P.D.
alleged to be violative of Section 28 (2), Article VI of 1869 ARE BOTH VALID AND CONSTITUTIONAL
the Constitution, which section vests in Congress the PROVISIONS OF LAWS THAT SHOULD BE
exclusive authority to fix the rate of taxes, and of HARMONIOUSLY CONSTRUED TOGETHER SO AS TO
Section 1, Article III of the Constitution on due GIVE EFFECT TO ALL OF THEIR PROVISIONS WHENEVER
process, as well as of Section 26 (2), Article VI of the POSSIBLE.
Constitution, which section provides for the "no
amendment rule" upon the last reading of a bill;
II
2) Sections 8 and 12 were alleged to be violative of
Section 1, Article III of the Constitution, or the SECTION 1 OF R.A. NO. 9337 IS NOT VIOLATIVE OF
guarantee of equal protection of the laws, and Section SECTION 1 AND SECTION 10, ARTICLE III OF THE 1987
28 (1), Article VI of the Constitution; and CONSTITUTION.

3) other technical aspects of the passage of the law, III

questioning the manner it was passed.
BIR REVENUE REGULATIONS ARE PRESUMED VALID
On September 1, 2005, the Court dismissed all the petitions AND CONSTITUTIONAL UNTIL STRICKEN DOWN BY
and upheld the constitutionality of R.A. No. 9337.12 LAWFUL AUTHORITIES.

On the same date, respondent BIR issued Revenue The Office of the Solicitor General (OSG), by way of
Regulations (RR) No. 16-2005,13 specifically identifying Manifestation In Lieu of Comment,16 concurred with the
PAGCOR as one of the franchisees subject to 10% VAT arguments of the petitioner. It added that although the State is
imposed under Section 108 of the National Internal Revenue free to select the subjects of taxation and that the inequity
Code of 1997, as amended by R.A. No. 9337. The said resulting from singling out a particular class for taxation or
revenue regulation, in part, reads: exemption is not an infringement of the constitutional limitation,
a tax law must operate with the same force and effect to all
persons, firms and corporations placed in a similar situation.
Sec. 4. 108-3. Definitions and Specific Rules on Selected Furthermore, according to the OSG, public respondent BIR
Services. — exceeded its statutory authority when it enacted RR No. 16-
2005, because the latter's provisions are contrary to the
xxxx mandates of P.D. No. 1869 in relation to R.A. No. 9337.

(h) x x x The main issue is whether or not PAGCOR is still exempt from
corporate income tax and VAT with the enactment of R.A. No.
Gross Receipts of all other franchisees, other than those 9337.
covered by Sec. 119 of the Tax Code, regardless of how their
franchisees may have been granted, shall be subject to the After a careful study of the positions presented by the parties,
10% VAT imposed under Sec.108 of the Tax Code. This this Court finds the petition partly meritorious.
includes, among others, the Philippine Amusement and
Gaming Corporation (PAGCOR), and its licensees or Under Section 1 of R.A. No. 9337, amending Section 27 (c) of
franchisees. the National Internal Revenue Code of 1977, petitioner is no
longer exempt from corporate income tax as it has been
Hence, the present petition for certiorari. effectively omitted from the list of GOCCs that are exempt from
it. Petitioner argues that such omission is unconstitutional, as it
PAGCOR raises the following issues: is violative of its right to equal protection of the laws under
Section 1, Article III of the Constitution:
I
Sec. 1. No person shall be deprived of life, liberty, or property HON. R. DIAZ. I . . . (inaudible) natin yong lotto?
without due process of law, nor shall any person be denied the
equal protection of the laws. CHAIRMAN ENRILE. Pati PAGCOR tinanggal upon request.

In City of Manila v. Laguio, Jr.,17 this Court expounded the CHAIRMAN JAVIER. Yeah, Philippine Insurance Commission.
meaning and scope of equal protection, thus:
CHAIRMAN ENRILE. Philippine Insurance --- Health, health
Equal protection requires that all persons or things similarly ba. Yon ang request ng Chairman, I will accept. (laughter) Pag-
situated should be treated alike, both as to rights conferred and Pag-ibig yon, maliliit na sa tao yon.
responsibilities imposed. Similar subjects, in other words,
should not be treated differently, so as to give undue favor to
some and unjustly discriminate against others. The guarantee HON. ROXAS. Mr. Chairman, I wonder if in the revenue
means that no person or class of persons shall be denied the gainers if we factored in an amount that would reflect the VAT
same protection of laws which is enjoyed by other persons or and other sales taxes---
other classes in like circumstances. The "equal protection of
the laws is a pledge of the protection of equal laws." It limits CHAIRMAN ENRILE. No, we’re talking of this measure only.
governmental discrimination. The equal protection clause We will not --- (discontinued)
extends to artificial persons but only insofar as their property is
concerned. HON. ROXAS. No, no, no, no, from the --- arising from the
exemption. Assuming that when we release the money into the
xxxx hands of the public, they will not use that to --- for wallpaper.
They will spend that eh, Mr. Chairman. So when they spend
Legislative bodies are allowed to classify the subjects of that---
legislation. If the classification is reasonable, the law may
operate only on some and not all of the people without violating CHAIRMAN ENRILE. There’s a VAT.
the equal protection clause. The classification must, as an
indispensable requisite, not be arbitrary. To be valid, it must HON. ROXAS. There will be a VAT and there will be other
conform to the following requirements: sales taxes no. Is there a quantification? Is there an
approximation?
1) It must be based on substantial distinctions.
CHAIRMAN JAVIER. Not anything.
2) It must be germane to the purposes of the law.
HON. ROXAS. So, in effect, we have sterilized that entire
3) It must not be limited to existing conditions only. seven billion. In effect, it is not circulating in the economy
which is unrealistic.
4) It must apply equally to all members of the class.18
CHAIRMAN ENRILE. It does, it does, because this is taken
It is not contested that before the enactment of R.A. No. 9337, and spent by government, somebody receives it in the form of
petitioner was one of the five GOCCs exempted from payment wages and supplies and other services and other goods. They
of corporate income tax as shown in R.A. No. 8424, Section 27 are not being taken from the public and stored in a vault.
(c) of which, reads:
CHAIRMAN JAVIER. That 7.7 loss because of tax exemption.
(c) Government-owned or Controlled Corporations, Agencies That will be extra income for the taxpayers.
or Instrumentalities. - The provisions of existing special or
general laws to the contrary notwithstanding, all corporations, HON. ROXAS. Precisely, so they will be spending it.21
agencies or instrumentalities owned and controlled by the
Government, except the Government Service and Insurance The discussion above bears out that under R.A. No. 8424, the
Corporation (GSIS), the Social Security System (SSS), the exemption of PAGCOR from paying corporate income tax was
Philippine Health Insurance Corporation (PHIC), the Philippine not based on a classification showing substantial distinctions
Charity Sweepstakes Office (PCSO), and the Philippine which make for real differences, but to reiterate, the exemption
Amusement and Gaming Corporation (PAGCOR), shall pay was granted upon the request of PAGCOR that it be exempt
such rate of tax upon their taxable income as are imposed by from the payment of corporate income tax.
this Section upon corporations or associations engaged in
similar business, industry, or activity.19
With the subsequent enactment of R.A. No. 9337, amending
R.A. No. 8424, PAGCOR has been excluded from the
A perusal of the legislative records of the Bicameral enumeration of GOCCs that are exempt from paying corporate
Conference Meeting of the Committee on Ways on Means income tax. The records of the Bicameral Conference Meeting
dated October 27, 1997 would show that the exemption of dated April 18, 2005, of the Committee on the Disagreeing
PAGCOR from the payment of corporate income tax was due Provisions of Senate Bill No. 1950 and House Bill No. 3555,
to the acquiescence of the Committee on Ways on Means to show that it is the legislative intent that PAGCOR be subject to
the request of PAGCOR that it be exempt from such tax.20 The the payment of corporate income tax, thus:
records of the Bicameral Conference Meeting reveal:

THE CHAIRMAN (SEN. RECTO). Yes, Osmeña, the

HON. R. DIAZ. The other thing, sir, is we --- I noticed we proponent of the amendment.
imposed a tax on lotto winnings.

SEN. OSMEÑA. Yeah. Mr. Chairman, one of the reasons why

CHAIRMAN ENRILE. Wala na, tinanggal na namin yon. we're even considering this VAT bill is we want to show the
world who our creditors, that we are increasing official
HON. R. DIAZ. Tinanggal na ba natin yon? revenues that go to the national budget. Unfortunately today,
Pagcor is unofficial.
CHAIRMAN ENRILE. Oo.
Now, in 2003, I took a quick look this morning, Pagcor had a
HON. R. DIAZ. Because I was wondering whether we covered net income of 9.7 billion after paying some small taxes that
the tax on --- Whether on a universal basis, we included a tax they are subjected to. Of the 9.7 billion, they claim they
on cockfighting winnings. remitted to national government seven billion. Pagkatapos,
there are other specific remittances like to the Philippine Sports
Commission, etc., as mandated by various laws, and then
CHAIRMAN ENRILE. No, we removed the --- about 400 million to the President's Social Fund. But all in all,
their net profit today should be about 12 billion. That's why I am THE CHAIRMAN (SEN. RECTO). No. We are just amending
questioning this two billion. Because while essentially they that section with regard to the exemption from income tax
claim that the money goes to government, and I will of Pagcor.
accept that just for the sake of argument. It does not pass
through the appropriation process. And I think that at least xxxx
if we can capture 35 percent or 32 percent through the
budgetary process, first, it is reflected in our official
income of government which is applied to the national REP. NOGRALES. Mr. Chairman, Mr. Chairman. Mr.
budget, and secondly, it goes through what is Chairman.
constitutionally mandated as Congress appropriating and
defining where the money is spent and not through a THE CHAIRMAN (REP. LAPUS). Congressman Nograles.
board of directors that has absolutely no accountability.
REP. NOGRALES. Just a point of inquiry from the Chair. What
REP. PUENTEBELLA. Well, with all due respect, Mr. exactly are the functions of Pagcor that are VATable? What will
Chairman, follow up lang. we VAT in Pagcor?

There is wisdom in the comments of my good friend from THE CHAIRMAN (REP. LAPUS). This is on own income tax.
Cebu, Senator Osmeña. This is Pagcor income tax.

SEN. OSMEÑA. And Negros. REP. NOGRALES. No, that's why. Anong i-va-Vat natin sa
kanya. Sale of what?
REP. PUENTEBELLA. And Negros at the same time ay
Kasimanwa. But I would not want to put my friends from the xxxx
Department of Finance in a difficult position, but may we know
your comments on this knowing that as Senator Osmeña just REP. VILLAFUERTE. Mr. Chairman, my question is, what are
mentioned, he said, "I accept that that a lot of it is going to we VATing Pagcor with, is it the . . .
spending for basic services," you know, going to most, I think,
supposedly a lot or most of it should go to government
spending, social services and the like. What is your comment REP. NOGRALES. Mr. Chairman, this is a secret agreement or
on this? This is going to affect a lot of services on the the way they craft their contract, which basis?
government side.
THE CHAIRMAN (SEN. RECTO). Congressman Nograles,
THE CHAIRMAN (REP. LAPUS). Mr. Chair, Mr. Chair. the Senate version does not discuss a VAT on Pagcor but
it just takes away their exemption from non-payment of
income tax.22
SEN. OSMEÑA. It goes from pocket to the other, Monico.

Taxation is the rule and exemption is the exception.23 The

REP. PUENTEBELLA. I know that. But I wanted to ask them, burden of proof rests upon the party claiming exemption to
Mr. Senator, because you may have your own pre-judgment on prove that it is, in fact, covered by the exemption so
this and I don't blame you. I don't blame you. And I know you claimed.24 As a rule, tax exemptions are construed strongly
have your own research. But will this not affect a lot, the against the claimant.25 Exemptions must be shown to exist
disbursements on social services and other? clearly and categorically, and supported by clear legal
provision.26
REP. LOCSIN. Mr. Chairman. Mr. Chairman, if I can add to
that question also. Wouldn't it be easier for you to explain to, In this case, PAGCOR failed to prove that it is still exempt from
say, foreign creditors, how do you explain to them that if there the payment of corporate income tax, considering that Section
is a fiscal gap some of our richest corporations has [been] 1 of R.A. No. 9337 amended Section 27 (c) of the National
spared [from] taxation by the government which is one rich Internal Revenue Code of 1997 by omitting PAGCOR from the
source of revenues. Now, why do you save, why do you spare exemption. The legislative intent, as shown by the discussions
certain government corporations on that, like Pagcor? So, in the Bicameral Conference Meeting, is to require PAGCOR to
would it be easier for you to make an argument if everything pay corporate income tax; hence, the omission or removal of
was exposed to taxation? PAGCOR from exemption from the payment of corporate
income tax. It is a basic precept of statutory construction that
REP. TEVES. Mr. Chair, please. the express mention of one person, thing, act, or consequence
excludes all others as expressed in the familiar maxim
THE CHAIRMAN (REP. LAPUS). Can we ask the DOF to expressio unius est exclusio alterius.27 Thus, the express
respond to those before we call Congressman Teves? mention of the GOCCs exempted from payment of corporate
income tax excludes all others. Not being excepted, petitioner
PAGCOR must be regarded as coming within the purview of
MR. PURISIMA. Thank you, Mr. Chair. the general rule that GOCCs shall pay corporate income tax,
expressed in the maxim: exceptio firmat regulam in casibus
Yes, from definitely improving the collection, it will help us non exceptis.28
because it will then enter as an official revenue although
when dividends declare it also goes in as other PAGCOR cannot find support in the equal protection clause of
income. (sic) the Constitution, as the legislative records of the Bicameral
Conference Meeting dated October 27, 1997, of the Committee
xxxx on Ways and Means, show that PAGCOR’s exemption from
payment of corporate income tax, as provided in Section 27 (c)
REP. TEVES. Mr. Chairman. of R.A. No. 8424, or the National Internal Revenue Code of
1997, was not made pursuant to a valid classification based on
substantial distinctions and the other requirements of a
xxxx reasonable classification by legislative bodies, so that the law
may operate only on some, and not all, without violating the
THE CHAIRMAN (REP. LAPUS). Congressman Teves. equal protection clause. The legislative records show that the
basis of the grant of exemption to PAGCOR from corporate
REP. TEVES. Yeah. Pagcor is controlled under Section 27, income tax was PAGCOR’s own request to be exempted.
that is on income tax. Now, we are talking here on value-
added tax. Do you mean to say we are going to amend it Petitioner further contends that Section 1 (c) of R.A. No. 9337
from income tax to value-added tax, as far as Pagcor is is null and void ab initio for violating the non-impairment clause
concerned? of the Constitution. Petitioner avers that laws form part of, and
is read into, the contract even without the parties expressly As pointed out by the OSG, R.A. No. 9337 itself exempts
saying so. Petitioner states that the private parties/investors petitioner from VAT pursuant to Section 7 (k) thereof, which
transacting with it considered the tax exemptions, which inure reads:
to their benefit, as the main consideration and inducement for
their decision to transact/invest with it. Petitioner argues that Sec. 7. Section 109 of the same Code, as amended, is hereby
the withdrawal of its exemption from corporate income tax by further amended to read as follows:
R.A. No. 9337 has the effect of changing the main
consideration and inducement for the transactions of private
parties with it; thus, the amendatory provision is violative of the Section 109. Exempt Transactions. - (1) Subject to the
non-impairment clause of the Constitution. provisions of Subsection (2) hereof, the following transactions
shall be exempt from the value-added tax:
Petitioner’s contention lacks merit.
xxxx
The non-impairment clause is contained in Section 10, Article
III of the Constitution, which provides that no law impairing the (k) Transactions which are exempt under international
obligation of contracts shall be passed. The non-impairment agreements to which the Philippines is a signatory or under
clause is limited in application to laws that derogate from prior special laws, except Presidential Decree No. 529.37
acts or contracts by enlarging, abridging or in any manner
changing the intention of the parties.29 There is impairment if a Petitioner is exempt from the payment of VAT, because
subsequent law changes the terms of a contract between the PAGCOR’s charter, P.D. No. 1869, is a special law that grants
parties, imposes new conditions, dispenses with those agreed petitioner exemption from taxes.
upon or withdraws remedies for the enforcement of the rights
of the parties.30 Moreover, the exemption of PAGCOR from VAT is supported
by Section 6 of R.A. No. 9337, which retained Section 108 (B)
As regards franchises, Section 11, Article XII of the (3) of R.A. No. 8424, thus:
Constitution31 provides that no franchise or right shall be
granted except under the condition that it shall be subject to [R.A. No. 9337], SEC. 6. Section 108 of the same Code (R.A.
amendment, alteration, or repeal by the Congress when the No. 8424), as amended, is hereby further amended to read as
common good so requires.32 follows:

In Manila Electric Company v. Province of Laguna, 33 the Court SEC. 108. Value-Added Tax on Sale of Services and Use or
held that a franchise partakes the nature of a grant, which is Lease of Properties. —
beyond the purview of the non-impairment clause of the
Constitution.34 The pertinent portion of the case states:
(A) Rate and Base of Tax. — There shall be levied, assessed
and collected, a value-added tax equivalent to ten percent
While the Court has, not too infrequently, referred to tax (10%) of gross receipts derived from the sale or exchange of
exemptions contained in special franchises as being in the services, including the use or lease of properties: x x x
nature of contracts and a part of the inducement for carrying on
the franchise, these exemptions, nevertheless, are far from
being strictly contractual in nature. Contractual tax exemptions, xxxx
in the real sense of the term and where the non-impairment
clause of the Constitution can rightly be invoked, are those (B) Transactions Subject to Zero Percent (0%) Rate. — The
agreed to by the taxing authority in contracts, such as those following services performed in the Philippines by VAT-
contained in government bonds or debentures, lawfully entered registered persons shall be subject to zero percent (0%) rate;
into by them under enabling laws in which the government,
acting in its private capacity, sheds its cloak of authority and
xxxx
waives its governmental immunity. Truly, tax exemptions of this
kind may not be revoked without impairing the obligations of
contracts. These contractual tax exemptions, however, are not (3) Services rendered to persons or entities whose exemption
to be confused with tax exemptions granted under franchises. under special laws or international agreements to which the
A franchise partakes the nature of a grant which is beyond the Philippines is a signatory effectively subjects the supply of
purview of the non-impairment clause of the Constitution. such services to zero percent (0%) rate;
Indeed, Article XII, Section 11, of the 1987 Constitution, like its
precursor provisions in the 1935 and the 1973 Constitutions, is x x x x38
explicit that no franchise for the operation of a public utility
shall be granted except under the condition that such privilege
As pointed out by petitioner, although R.A. No. 9337
shall be subject to amendment, alteration or repeal by
introduced amendments to Section 108 of R.A. No. 8424 by
Congress as and when the common good so requires.35
imposing VAT on other services not previously covered, it did
not amend the portion of Section 108 (B) (3) that subjects to
In this case, PAGCOR was granted a franchise to operate and zero percent rate services performed by VAT-registered
maintain gambling casinos, clubs and other recreation or persons to persons or entities whose exemption under special
amusement places, sports, gaming pools, i.e., basketball, laws or international agreements to which the Philippines is a
football, lotteries, etc., whether on land or sea, within the signatory effectively subjects the supply of such services to 0%
territorial jurisdiction of the Republic of the Philippines.36 Under rate.
Section 11, Article XII of the Constitution, PAGCOR’s franchise
is subject to amendment, alteration or repeal by Congress
Petitioner's exemption from VAT under Section 108 (B) (3) of
such as the amendment under Section 1 of R.A. No. 9377.
R.A. No. 8424 has been thoroughly and extensively discussed
Hence, the provision in Section 1 of R.A. No. 9337, amending
in Commissioner of Internal Revenue v. Acesite (Philippines)
Section 27 (c) of R.A. No. 8424 by withdrawing the exemption
Hotel Corporation.39 Acesite was the owner and operator of the
of PAGCOR from corporate income tax, which may affect any
Holiday Inn Manila Pavilion Hotel. It leased a portion of the
benefits to PAGCOR’s transactions with private parties, is not
hotel’s premises to PAGCOR. It incurred VAT amounting to
violative of the non-impairment clause of the Constitution.
₱30,152,892.02 from its rental income and sale of food and
beverages to PAGCOR from January 1996 to April 1997.
Anent the validity of RR No. 16-2005, the Court holds that the Acesite tried to shift the said taxes to PAGCOR by
provision subjecting PAGCOR to 10% VAT is invalid for being incorporating it in the amount assessed to PAGCOR. However,
contrary to R.A. No. 9337. Nowhere in R.A. No. 9337 is it PAGCOR refused to pay the taxes because of its tax-exempt
provided that petitioner can be subjected to VAT. R.A. No. status. PAGCOR paid only the amount due to Acesite minus
9337 is clear only as to the removal of petitioner's exemption VAT in the sum of ₱30,152,892.02. Acesite paid VAT in the
from the payment of corporate income tax, which was already amount of ₱30,152,892.02 to the Commissioner of Internal
addressed above by this Court. Revenue, fearing the legal consequences of its non-payment.
In May 1998, Acesite sought the refund of the amount it paid PAGCOR in casino operations, it is exempting PAGCOR
as VAT on the ground that its transaction with PAGCOR was from being liable to indirect taxes.
subject to zero rate as it was rendered to a tax-exempt entity.
The Court ruled that PAGCOR and Acesite were both exempt The manner of charging VAT does not make PAGCOR
from paying VAT, thus: liable to said tax.

xxxx It is true that VAT can either be incorporated in the value of the
goods, properties, or services sold or leased, in which case it is
PAGCOR is exempt from payment of indirect taxes computed as 1/11 of such value, or charged as an additional
10% to the value. Verily, the seller or lessor has the option to
It is undisputed that P.D. 1869, the charter creating PAGCOR, follow either way in charging its clients and customer. In the
grants the latter an exemption from the payment of taxes. instant case, Acesite followed the latter method, that is,
Section 13 of P.D. 1869 pertinently provides: charging an additional 10% of the gross sales and rentals. Be
that as it may, the use of either method, and in particular, the
first method, does not denigrate the fact that PAGCOR is
Sec. 13. Exemptions. — exempt from an indirect tax, like VAT.

xxxx VAT exemption extends to Acesite

(2) Income and other taxes. - (a) Franchise Holder: No tax of Thus, while it was proper for PAGCOR not to pay the 10% VAT
any kind or form, income or otherwise, as well as fees, charges charged by Acesite, the latter is not liable for the payment of it
or levies of whatever nature, whether National or Local, shall as it is exempt in this particular transaction by operation of law
be assessed and collected under this Franchise from the to pay the indirect tax. Such exemption falls within the former
Corporation; nor shall any form of tax or charge attach in any Section 102 (b) (3) of the 1977 Tax Code, as amended (now
way to the earnings of the Corporation, except a Franchise Tax Sec. 108 [b] [3] of R.A. 8424), which provides:
of five (5%) percent of the gross revenue or earnings derived
by the Corporation from its operation under this Franchise.
Such tax shall be due and payable quarterly to the National Section 102. Value-added tax on sale of services.- (a) Rate
Government and shall be in lieu of all kinds of taxes, levies, and base of tax - There shall be levied, assessed and
fees or assessments of any kind, nature or description, levied, collected, a value-added tax equivalent to 10% of gross
established or collected by any municipal, provincial, or receipts derived by any person engaged in the sale of services
national government authority. x x x; Provided, that the following services performed in the
Philippines by VAT registered persons shall be subject to 0%.
(b) Others: The exemptions herein granted for earnings
derived from the operations conducted under the franchise xxxx
specifically from the payment of any tax, income or otherwise,
as well as any form of charges, fees or levies, shall inure to the (3) Services rendered to persons or entities whose exemption
benefit of and extend to corporation(s), association(s), under special laws or international agreements to which the
agency(ies), or individual(s) with whom the Corporation or Philippines is a signatory effectively subjects the supply of
operator has any contractual relationship in connection with the such services to zero (0%) rate (emphasis supplied).
operations of the casino(s) authorized to be conducted under
this Franchise and to those receiving compensation or other The rationale for the exemption from indirect taxes provided for
remuneration from the Corporation or operator as a result of in P.D. 1869 and the extension of such exemption to entities or
essential facilities furnished and/or technical services rendered individuals dealing with PAGCOR in casino operations are best
to the Corporation or operator. elucidated from the 1987 case of Commissioner of Internal
Revenue v. John Gotamco & Sons, Inc., where the absolute
Petitioner contends that the above tax exemption refers only to tax exemption of the World Health Organization (WHO) upon
PAGCOR's direct tax liability and not to indirect taxes, like the an international agreement was upheld. We held in said case
VAT. that the exemption of contractee WHO should be implemented
to mean that the entity or person exempt is the contractor itself
We disagree. who constructed the building owned by contractee WHO, and
such does not violate the rule that tax exemptions are personal
because the manifest intention of the agreement is to exempt
A close scrutiny of the above provisos clearly gives PAGCOR the contractor so that no contractor's tax may be shifted to the
a blanket exemption to taxes with no distinction on whether the contractee WHO. Thus, the proviso in P.D. 1869, extending the
taxes are direct or indirect. We are one with the CA ruling that exemption to entities or individuals dealing with PAGCOR in
PAGCOR is also exempt from indirect taxes, like VAT, as casino operations, is clearly to proscribe any indirect tax, like
follows: VAT, that may be shifted to PAGCOR.40

Under the above provision [Section 13 (2) (b) of P.D. 1869], Although the basis of the exemption of PAGCOR and Acesite
the term "Corporation" or operator refers to PAGCOR. from VAT in the case of The Commissioner of Internal
Although the law does not specifically mention PAGCOR's Revenue v. Acesite (Philippines) Hotel Corporation was
exemption from indirect taxes, PAGCOR is undoubtedly Section 102 (b) of the 1977 Tax Code, as amended, which
exempt from such taxes because the law exempts from taxes section was retained as Section 108 (B) (3) in R.A. No.
persons or entities contracting with PAGCOR in casino 8424,41 it is still applicable to this case, since the provision
operations. Although, differently worded, the provision clearly relied upon has been retained in R.A. No. 9337.421avvphi1
exempts PAGCOR from indirect taxes. In fact, it goes one step
further by granting tax exempt status to persons dealing with
PAGCOR in casino operations. The unmistakable conclusion is It is settled rule that in case of discrepancy between the basic
that PAGCOR is not liable for the P30, 152,892.02 VAT and law and a rule or regulation issued to implement said law, the
neither is Acesite as the latter is effectively subject to zero basic law prevails, because the said rule or regulation cannot
percent rate under Sec. 108 B (3), R.A. 8424. (Emphasis go beyond the terms and provisions of the basic law.43 RR No.
supplied.) 16-2005, therefore, cannot go beyond the provisions of R.A.
No. 9337. Since PAGCOR is exempt from VAT under R.A. No.
9337, the BIR exceeded its authority in subjecting PAGCOR to
Indeed, by extending the exemption to entities or individuals 10% VAT under RR No. 16-2005; hence, the said regulatory
dealing with PAGCOR, the legislature clearly granted provision is hereby nullified.
exemption also from indirect taxes. It must be noted that the
indirect tax of VAT, as in the instant case, can be shifted or
passed to the buyer, transferee, or lessee of the goods, WHEREFORE, the petition is PARTLY GRANTED. Section 1
properties, or services subject to VAT. Thus, by extending the of Republic Act No. 9337, amending Section 27 (c) of the
tax exemption to entities or individuals dealing with National Internal Revenue Code of 1997, by excluding
petitioner Philippine Amusement and Gaming Corporation from In response, petitioner filed his Answer12 raising the following
the enumeration of government-owned and controlled special and affirmative defenses, to wit:
corporations exempted from corporate income tax is valid and
constitutional, while BIR Revenue Regulations No. 16-2005 4. Petitioner’s alleged claim for refund is subject to
insofar as it subjects PAGCOR to 10% VAT is null and void for administrative investigation by the Bureau;
being contrary to the National Internal Revenue Code of 1997,
as amended by Republic Act No. 9337.
5. Petitioner must prove that it paid VAT input taxes
for the period in question;
No costs.
6. Petitioner must prove that its sales are export sales
SO ORDERED. contemplated under Sections 106(A) (2) (a), and
108(B) (1) of the Tax Code of 1997;
DIOSDADO M. PERALTA
7. Petitioner must prove that the claim was filed within
1.7 the two (2) year period prescribed in Section 229 of
the Tax Code;
G.R. No. 184823               October 6, 2010
8. In an action for refund, the burden of proof is on the
taxpayer to establish its right to refund, and failure to
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
sustain the burden is fatal to the claim for refund; and
vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.
9. Claims for refund are construed strictly against the
claimant for the same partake of the nature of
DECISION
exemption from taxation.13

DEL CASTILLO, J.:
Trial ensued, after which, on January 4, 2008, the Second
Division of the CTA rendered a Decision partially granting
A taxpayer is entitled to a refund either by authority of a statute respondent’s claim for refund/credit. Pertinent portions of the
expressly granting such right, privilege, or incentive in his Decision read:
favor, or under the principle of solutio indebiti requiring the
return of taxes erroneously or illegally collected. In both cases,
For a VAT registered entity whose sales are zero-rated, to
a taxpayer must prove not only his entitlement to a refund but
validly claim a refund, Section 112 (A) of the NIRC of 1997, as
also his compliance with the procedural due process as non-
amended, provides:
observance of the prescriptive periods within which to file the
administrative and the judicial claims would result in the denial
of his claim. SEC. 112. Refunds or Tax Credits of Input Tax. –

This Petition for Review on Certiorari under Rule 45 of the (A) Zero-rated or Effectively Zero-rated Sales. – Any VAT-
Rules of Court seeks to set aside the July 30, 2008 registered person, whose sales are zero-rated or effectively
Decision1 and the October 6, 2008 Resolution2 of the Court of zero-rated may, within two (2) years after the close of the
Tax Appeals (CTA) En Banc. 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
Factual Antecedents
input tax, to the extent that such input tax has not been applied
against output tax: x x x
Respondent Aichi Forging Company of Asia, Inc., a corporation
duly organized and existing under the laws of the Republic of
Pursuant to the above provision, petitioner must comply with
the Philippines, is engaged in the manufacturing, producing,
the following requisites: (1) the taxpayer is engaged in sales
and processing of steel and its by-products.3 It is registered
which are zero-rated or effectively zero-rated; (2) the taxpayer
with the Bureau of Internal Revenue (BIR) as a Value-Added
is VAT-registered; (3) the claim must be filed within two years
Tax (VAT) entity4 and its products, "close impression die steel
after the close of the taxable quarter when such sales were
forgings" and "tool and dies," are registered with the Board of
made; and (4) the creditable input tax due or paid must be
Investments (BOI) as a pioneer status.5
attributable to such sales, except the transitional input tax, to
the extent that such input tax has not been applied against the
On September 30, 2004, respondent filed a claim for output tax.
refund/credit of input VAT for the period July 1, 2002 to
September 30, 2002 in the total amount of ₱3,891,123.82 with
The Court finds that the first three requirements have been
the petitioner Commissioner of Internal Revenue (CIR),
complied [with] by petitioner.
through the Department of Finance (DOF) One-Stop Shop
Inter-Agency Tax Credit and Duty Drawback Center.6
With regard to the first requisite, the evidence presented by
petitioner, such as the Sales Invoices (Exhibits "II" to "II-262,"
Proceedings before the Second Division of the CTA
"JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is
engaged in sales which are zero-rated.
On even date, respondent filed a Petition for Review7 with the
CTA for the refund/credit of the same input VAT. The case was
The second requisite has likewise been complied with. The
docketed as CTA Case No. 7065 and was raffled to the
Certificate of Registration with OCN 1RC0000148499 (Exhibit
Second Division of the CTA.
"C") with the BIR proves that petitioner is a registered VAT
taxpayer.
In the Petition for Review, respondent alleged that for the
period July 1, 2002 to September 30, 2002, it generated and
In compliance with the third requisite, petitioner filed its
recorded zero-rated sales in the amount of
administrative claim for refund on September 30, 2004 (Exhibit
₱131,791,399.00,8 which was paid pursuant to Section 106(A)
"N") and the present Petition for Review on September 30,
(2) (a) (1), (2) and (3) of the National Internal Revenue Code of
2004, both within the two (2) year prescriptive period from the
1997 (NIRC);9 that for the said period, it incurred and paid input
close of the taxable quarter when the sales were made, which
VAT amounting to ₱3,912,088.14 from purchases and
is from September 30, 2002.
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 ₱3,891,123.82.11
As regards, the fourth requirement, the Court finds that there Section 114 of the 1997 NIRC, and We quote, to wit:
are some documents and claims of petitioner that are baseless
and have not been satisfactorily substantiated. SEC. 114. Return and Payment of Value-added Tax. –

xxxx (A) In General. – Every person liable to pay the value-added

tax imposed under this Title shall file a quarterly return of the
In sum, petitioner has sufficiently proved that it is entitled to a amount of his gross sales or receipts within twenty-five (25)
refund or issuance of a tax credit certificate representing days following the close of each taxable quarter prescribed for
unutilized excess input VAT payments for the period July 1, each taxpayer: Provided, however, That VAT-registered
2002 to September 30, 2002, which are attributable to its zero- persons shall pay the value-added tax on a monthly basis.
rated sales for the same period, but in the reduced amount of
₱3,239,119.25, computed as follows: [x x x x ]

Amount of Claimed Input VAT ₱ 3,891,123.82

Based on the above-stated provision, a taxpayer has twenty
Less: five (25) days from the close of each taxable quarter within
Exceptions as found by the ICPA 41,020.37 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
Net Creditable Input VAT ₱ 3,850,103.45
Section 114 of the 1997 NIRC, respondent has until October
Less: 25, 2002 within which to file its quarterly return for its gross
Output VAT Due 610,984.20 sales or receipts [with] which it complied when it filed its VAT
Excess Creditable Input VAT ₱ 3,239,119.25
Quarterly Return on October 20, 2002.

In relation to this, the reckoning of the two-year period provided

WHEREFORE, premises considered, the present Petition for under Section 229 of the 1997 NIRC should start from the
Review is PARTIALLY GRANTED. Accordingly, respondent is payment of tax subject claim for refund. As stated above,
hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT respondent filed its VAT Return for the taxable third quarter of
CERTIFICATE in favor of petitioner [in] the reduced amount of 2002 on October 20, 2002. Thus, respondent's administrative
THREE MILLION TWO HUNDRED THIRTY NINE and judicial claims for refund filed on September 30, 2004 were
THOUSAND ONE HUNDRED NINETEEN AND 25/100 filed on time because AICHI has until October 20, 2004 within
PESOS (₱3,239,119.25), representing the unutilized input VAT which to file its claim for refund.
incurred for the months of July to September 2002.
In addition, We do not agree with the petitioner's contention
SO ORDERED.14 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
Dissatisfied with the above-quoted Decision, petitioner filed a simultaneous filing of the administrative and judicial claims for
Motion for Partial Reconsideration,15 insisting that the refund. What is controlling is that both claims for refund must
administrative and the judicial claims were filed beyond the be filed within the two-year prescriptive period.
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 In sum, the Court En Banc finds no cogent justification to
refund/credit on September 30, 2004 was beyond the two-year disturb the findings and conclusion spelled out in the assailed
period, which expired on September 29, 2004.16 He cited as January 4, 2008 Decision and March 13, 2008 Resolution of
basis Article 13 of the Civil Code,17 which provides that when the CTA Second Division. What the instant petition seeks is for
the law speaks of a year, it is equivalent to 365 days. In the Court En Banc to view and appreciate the evidence in their
addition, petitioner argued that the simultaneous filing of the own perspective of things, which unfortunately had already
administrative and the judicial claims contravenes Sections been considered and passed upon.
112 and 229 of the NIRC.18 According to the petitioner, a prior
filing of an administrative claim is a "condition WHEREFORE, the instant Petition for Review is hereby
precedent"19 before a judicial claim can be filed. He explained DENIED DUE COURSE and DISMISSED for lack of merit.
that the rationale of such requirement rests not only on the Accordingly, the January 4, 2008 Decision and March 13, 2008
doctrine of exhaustion of administrative remedies but also on Resolution of the CTA Second Division in CTA Case No. 7065
the fact that the CTA is an appellate body which exercises the entitled, "AICHI Forging Company of Asia, Inc. petitioner vs.
power of judicial review over administrative actions of the Commissioner of Internal Revenue, respondent" are hereby
BIR. 20 AFFIRMED in toto.

The Second Division of the CTA, however, denied petitioner’s SO ORDERED.22

Motion for Partial Reconsideration for lack of merit. Petitioner
thus elevated the matter to the CTA En Banc via a Petition for
Petitioner sought reconsideration but the CTA En
Review.21
Banc denied23 his Motion for Reconsideration.

Ruling of the CTA En Banc

Issue

On July 30, 2008, the CTA En Banc affirmed the Second

Hence, the present recourse where petitioner interposes the
Division’s Decision allowing the partial tax refund/credit in favor
issue of whether respondent’s judicial and administrative
of respondent. However, as to the reckoning point for counting
claims for tax refund/credit were filed within the two-year
the two-year period, the CTA En Banc ruled:
prescriptive period provided in Sections 112(A) and 229 of the
NIRC.24
Petitioner argues that the administrative and judicial claims
were filed beyond the period allowed by law and hence, the
Petitioner’s Arguments
honorable Court has no jurisdiction over the same. In addition,
petitioner further contends that respondent's filing of the
administrative and judicial [claims] effectively eliminates the Petitioner maintains that respondent’s administrative and
authority of the honorable Court to exercise jurisdiction over judicial claims for tax refund/credit were filed in violation of
the judicial claim. 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
We are not persuaded.
September 30, 2004 was beyond the two-year period, which
expired on September 29, 2004.27
Petitioner further argues that the CTA En Banc erred in Sentral ng Pilipinas (BSP): Provided, further, That where the
applying Section 114(A) of the NIRC in determining the start of taxpayer is engaged in zero-rated or effectively zero-rated sale
the two-year period as the said provision pertains to the and also in taxable or exempt sale of goods or properties or
compliance requirements in the payment of VAT.28 He asserts services, and the amount of creditable input tax due or paid
that it is Section 112, paragraph (A), of the same Code that cannot be directly and entirely attributed to any one of the
should apply because it specifically provides for the period transactions, it shall be allocated proportionately on the basis
within which a claim for tax refund/ credit should be made.29 of the volume of sales. (Emphasis supplied.)

Petitioner likewise puts in issue the fact that the administrative The CTA En Banc, on the other hand, took into consideration
claim with the BIR and the judicial claim with the CTA were Sections 114 and 229 of the NIRC, which read:
filed on the same day.30 He opines that the simultaneous filing
of the administrative and the judicial claims contravenes SEC. 114. Return and Payment of Value-Added Tax. –
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 (A) In General. – Every person liable to pay the value-added
administrative remedies and the fact that the CTA is an tax imposed under this Title shall file a quarterly return of the
appellate body exercising judicial review over administrative amount of his gross sales or receipts within twenty-five (25)
actions of the CIR.32 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.
Respondent’s Arguments
Any person, whose registration has been cancelled in
For its part, respondent claims that it is entitled to a accordance with Section 236, shall file a return and pay the tax
refund/credit of its unutilized input VAT for the period July 1, due thereon within twenty-five (25) days from the date of
2002 to September 30, 2002 as a matter of right because it cancellation of registration: Provided, That only one
has substantially complied with all the requirements provided consolidated return shall be filed by the taxpayer for his
by law.33 Respondent likewise defends the CTA En Banc in principal place of business or head office and all branches.
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 xxxx
read together with Section 114(A) of the same Code.34
SEC. 229. Recovery of tax erroneously or illegally collected. –
As to the alleged simultaneous filing of its administrative and
judicial claims, respondent contends that it first filed an No suit or proceeding shall be maintained in any court for the
administrative claim with the One-Stop Shop Inter-Agency Tax recovery of any national internal revenue tax hereafter alleged
Credit and Duty Drawback Center of the DOF before it filed a to have been erroneously or illegally assessed or collected, or
judicial claim with the CTA.35 To prove this, respondent points of any penalty claimed to have been collected without
out that its Claimant Information Sheet No. 4970236 and BIR authority, or of any sum alleged to have been excessively or in
Form No. 1914 for the third quarter of 2002,37 which were filed any manner wrongfully collected, until a claim for refund or
with the DOF, were attached as Annexes "M" and "N," credit has been duly filed with the Commissioner; but such suit
respectively, to the Petition for Review filed with the or proceeding may be maintained, whether or not such tax,
CTA.38 Respondent further contends that the non-observance penalty or sum has been paid under protest or duress.
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 In any case, no such suit or proceeding shall be filed after the
important is that both claims are filed within the two-year expiration of two (2) years from the date of payment of the tax
prescriptive period.39 In support thereof, respondent cites or penalty regardless of any supervening cause that may arise
Commissioner of Internal Revenue v. Victorias Milling Co., after payment: Provided, however, That the Commissioner
Inc.40 where it was ruled that "[i]f, however, the [CIR] takes time may, even without written claim therefor, refund or credit any
in deciding the claim, and the period of two years is about to tax, where on the face of the return upon which payment was
end, the suit or proceeding must be started in the [CTA] before made, such payment appears clearly to have been erroneously
the end of the two-year period without awaiting the decision of paid. (Emphasis supplied.)
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 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
Our Ruling the close of the taxable quarter when the sales were made.43

The petition has merit. The pivotal question of when to reckon the running of the two-
year prescriptive period, however, has already been resolved
Unutilized input VAT must be claimed within two years after the in Commissioner of Internal Revenue v. Mirant Pagbilao
close of the taxable quarter when the sales were made Corporation,44 where we ruled that Section 112(A) of the NIRC
is the applicable provision in determining the start of the two-
In computing the two-year prescriptive period for claiming a year period for claiming a refund/credit of unutilized input VAT,
refund/credit of unutilized input VAT, the Second Division of and that Sections 204(C) and 229 of the NIRC are inapplicable
the CTA applied Section 112(A) of the NIRC, which states: as "both provisions apply only to instances of erroneous
payment or illegal collection of internal revenue taxes."45 We
explained that:
SEC. 112. Refunds or Tax Credits of Input Tax. –
The above proviso [Section 112 (A) of the NIRC] clearly
(A) Zero-rated or Effectively Zero-rated Sales – Any VAT- provides in no uncertain terms that unutilized input VAT
registered person, whose sales are zero-rated or effectively payments not otherwise used for any internal revenue tax
zero-rated may, within two (2) years after the close of the due the taxpayer must be claimed within two years
taxable quarter when the sales were made, apply for the reckoned from the close of the taxable quarter when the
issuance of a tax credit certificate or refund of creditable input relevant sales were made pertaining to the input VAT
tax due or paid attributable to such sales, except transitional regardless of whether said tax was paid or not. As the CA
input tax, to the extent that such input tax has not been applied aptly puts it, albeit it erroneously applied the aforequoted Sec.
against output tax: Provided, however, That in the case of 112 (A), "[P]rescriptive period commences from the close of
zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and the taxable quarter when the sales were made and not from
Section 108 (B)(1) and (2), the acceptable foreign currency the time the input VAT was paid nor from the time the official
exchange proceeds thereof had been duly accounted for in receipt was issued." Thus, when a zero-rated VAT taxpayer
accordance with the rules and regulations of the Bangko 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 any unutilized creditable input VAT, albeit the erroneous,
of the unutilized creditable input VAT. The reckoning frame illegal, or wrongful payment angle does not enter the equation.
would always be the end of the quarter when the pertinent
sales or transaction was made, regardless when the input VAT xxxx
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 Considering the foregoing discussion, it is clear that Sec. 112
September 30, 1996, any claim for unutilized creditable input (A) of the NIRC, providing a two-year prescriptive period
VAT refund or tax credit for said quarter prescribed two years reckoned from the close of the taxable quarter when the
after September 30, 1996 or, to be precise, on September 30, relevant sales or transactions were made pertaining to the
1998. Consequently, MPC’s claim for refund or tax credit filed creditable input VAT, applies to the instant case, and not
on December 10, 1999 had already prescribed. to the other actions which refer to erroneous payment of
taxes.46 (Emphasis supplied.)
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable 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
To be sure, MPC cannot avail itself of the provisions of either claiming refund/credit of unutilized input VAT. To be clear,
Sec. 204(C) or 229 of the NIRC which, for the purpose of Section 112 of the NIRC is the pertinent provision for the
refund, prescribes a different starting point for the two-year refund/credit of input VAT. Thus, the two-year period should be
prescriptive limit for the filing of a claim therefor. Secs. 204(C) reckoned from the close of the taxable quarter when the sales
and 229 respectively provide: were made.

Sec. 204. Authority of the Commissioner to Compromise, The administrative claim was timely filed
Abate and Refund or Credit Taxes. – The Commissioner may –
Bearing this in mind, we shall now proceed to determine
xxxx whether the administrative claim was timely filed.

(c) Credit or refund taxes erroneously or illegally received or Relying on Article 13 of the Civil Code,47 which provides that a
penalties imposed without authority, refund the value of year is equivalent to 365 days, and taking into account the fact
internal revenue stamps when they are returned in good that the year 2004 was a leap year, petitioner submits that the
condition by the purchaser, and, in his discretion, redeem or two-year period to file a claim for tax refund/ credit for the
change unused stamps that have been rendered unfit for use period July 1, 2002 to September 30, 2002 expired on
and refund their value upon proof of destruction. No credit or September 29, 2004.48
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 We do not agree.
tax or penalty: Provided, however, That a return filed showing
an overpayment shall be considered as a written claim for In Commissioner of Internal Revenue v. Primetown Property
credit or refund. Group, Inc.,49 we said that as between the Civil Code, which
provides that a year is equivalent to 365 days, and the
xxxx Administrative 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
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – priori.50 Thus:
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 Both Article 13 of the Civil Code and Section 31, Chapter VIII,
of any penalty claimed to have been collected without Book I of the Administrative Code of 1987 deal with the same
authority, of any sum alleged to have been excessively or in subject matter – the computation of legal periods. Under the
any manner wrongfully collected without authority, or of any Civil Code, a year is equivalent to 365 days whether it be a
sum alleged to have been excessively or in any manner regular year or a leap year. Under the Administrative Code of
wrongfully collected, until a claim for refund or credit has been 1987, however, a year is composed of 12 calendar months.
duly filed with the Commissioner; but such suit or proceeding Needless to state, under the Administrative Code of 1987, the
may be maintained, whether or not such tax, penalty, or sum number of days is irrelevant.
has been paid under protest or duress.
There obviously exists a manifest incompatibility in the manner
In any case, no such suit or proceeding shall be filed after the of
expiration of two (2) years from the date of payment of the tax
or penalty regardless of any supervening cause that may arise computing legal periods under the Civil Code and the
after payment: Provided, however, That the Commissioner Administrative Code of 1987. For this reason, we hold that
may, even without a written claim therefor, refund or credit any Section 31, Chapter VIII, Book I of the Administrative Code of
tax, where on the face of the return upon which payment was 1987, being the more recent law, governs the computation of
made, such payment appears clearly to have been erroneously legal periods. Lex posteriori derogat priori.
paid.
Applying Section 31, Chapter VIII, Book I of the Administrative
Notably, the above provisions also set a two-year prescriptive Code of 1987 to this case, the two-year prescriptive period
period, reckoned from date of payment of the tax or penalty, for (reckoned from the time respondent filed its final adjusted
the filing of a claim of refund or tax credit. Notably too, both return on April 14, 1998) consisted of 24 calendar months,
provisions apply only to instances of erroneous payment computed as follows:
or illegal collection of internal revenue taxes.

Year 1 1st calendar month April 15, 1998 to May 14, 1

MPC’s creditable input VAT not erroneously paid
2nd calendar month May 15, 1998 to June 14, 1
For perspective, under Sec. 105 of the NIRC, creditable input
3rd calendar month June 15, 1998 to July 14, 1
VAT is an indirect tax which can be shifted or passed on to the
buyer, transferee, or lessee of the goods, properties, or 4th calendar month July 15, 1998 to August 14
services of the taxpayer. The fact that the subsequent sale or
transaction involves a wholly-tax exempt client, resulting in a 5th calendar month August 15, 1998 to Septem
zero-rated or effectively zero-rated transaction, does not,
standing alone, deprive the taxpayer of its right to a refund for 6th calendar month September 15, 1998 to Oct
 7th calendar month act on
October 15, 1998 to November 14,the application for tax refund/credit, the remedy of the
1998
taxpayer is to appeal the inaction of the CIR to CTA within 30
8th calendar month days. 14, 1998
November 15, 1998 to December
9th calendar month December 15, 1998 to January 14, 1999
In this case, the administrative and the judicial claims were
10th calendar month simultaneously
January 15, 1999 to February 14, 1999 filed on September 30, 2004. Obviously,
respondent did not wait for the decision of the CIR or the lapse
11th calendar month February 15, 1999 to Marchof14,
the1999
120-day period. For this reason, we find the filing of the
judicial claim with the CTA premature.
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar month April 15, 1999 to May 14, Respondent’s
1999 assertion that the non-observance of the 120-
day period is not fatal to the filing of a judicial claim as long as
14th calendar month May 15, 1999 to June 14, both
1999the administrative and the judicial claims are filed within
the two-year prescriptive period52 has no legal basis.
15th calendar month June 15, 1999 to July 14, 1999
16th calendar month July 15, 1999 to August 14, 1999is nothing in Section 112 of the NIRC to support
There
respondent’s view. Subsection (A) of the said provision states
17th calendar month August 15, 1999 to September 14, 1999
that "any VAT-registered person, whose sales are zero-rated
18th calendar month or effectively
September 15, 1999 to October 14, 1999zero-rated may, within two years after the close of
the taxable quarter when the sales were made, apply for the
19th calendar month October 15, 1999 to November
issuance14, of
1999
a tax credit certificate or refund of creditable input
tax due or paid attributable to such sales." The phrase "within
20th calendar month November 15, 1999 to December
two (2) 14,
years1999
x x x apply for the issuance of a tax credit
certificate or refund" refers to applications for refund/credit filed
21st calendar month December 15, 1999 to January 14, 2000
with the CIR and not to appeals made to the CTA. This is
22nd calendar month apparent
January 15, 2000 to February in the first paragraph of subsection (D) of the same
14, 2000
provision, which states that the CIR has "120 days from the
23rd calendar month February 15, 2000 to March 14, 2000 of complete documents in support of the
submission
application filed in accordance with Subsections (A) and (B)"
24th calendar month March 15, 2000 to April 14, 2000which to decide on the claim.
within

We therefore hold that respondent's petition (filed on April 14, In fact, applying the two-year period to judicial claims would
2000) was filed on the last day of the 24th calendar month from render nugatory Section 112(D) of the NIRC, which already
the day respondent filed its final adjusted return. Hence, it was provides for a specific period within which a taxpayer should
filed within the reglementary period.51 appeal the decision or inaction of the CIR. The second
paragraph of Section 112(D) of the NIRC envisions two
Applying this to the present case, the two-year period to file a scenarios: (1) when a decision is issued by the CIR before the
claim for tax refund/credit for the period July 1, 2002 to lapse of the 120-day period; and (2) when no decision is made
September 30, 2002 expired on September 30, 2004. Hence, after the 120-day period. In both instances, the taxpayer has
respondent’s administrative claim was timely filed. 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.
The filing of the judicial claim was premature
With regard to Commissioner of Internal Revenue v. Victorias
However, notwithstanding the timely filing of the administrative Milling, Co., Inc.53 relied upon by respondent, we find the same
claim, we inapplicable as the tax provision involved in that case is
Section 306, now Section 229 of the NIRC. And as already
are constrained to deny respondent’s claim for tax refund/credit discussed, Section 229 does not apply to refunds/credits of
for having been filed in violation of Section 112(D) of the NIRC, input VAT, such as the instant case.
which provides that:
In fine, the premature filing of respondent’s claim for
SEC. 112. Refunds or Tax Credits of Input Tax. – refund/credit of input VAT before the CTA warrants a dismissal
inasmuch as no jurisdiction was acquired by the CTA.
xxxx
WHEREFORE, the Petition is hereby GRANTED. The assailed
(D) Period within which Refund or Tax Credit of Input Taxes July 30, 2008 Decision and the October 6, 2008 Resolution of
shall be Made. – In proper cases, the Commissioner shall the Court of Tax Appeals are hereby REVERSED and SET
grant a refund or issue the tax credit certificate for creditable ASIDE. The Court of Tax Appeals Second Division is
input taxes within one hundred twenty (120) days from the date DIRECTED to dismiss CTA Case No. 7065 for having been
of submission of complete documents in support of the prematurely filed.
application filed in accordance with Subsections (A) and (B)
hereof. SO ORDERED.

In case of full or partial denial of the claim for tax refund or tax 1.8
credit, or the failure on the part of the Commissioner to act on
the application within the period prescribed above, the
G.R. No. 163653               July 19, 2011
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 COMMISSIONER OF INTERNAL REVENUE, Petitioner,
unacted claim with the Court of Tax Appeals. (Emphasis vs.
supplied.) FILINVEST DEVELOPMENT CORPORATION, Respondent.

Section 112(D) of the NIRC clearly provides that the CIR has x - - - - - - - - - - - - - - - - - - - - - - -x
"120 days, from the date of the submission of the complete
documents in support of the application [for tax refund/credit]," G.R. No. 167689
within which to grant or deny the claim. In case of full or partial
denial by the CIR, the taxpayer’s recourse is to file an appeal
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
before the CTA within 30 days from receipt of the decision of
vs.
the CIR. However, if after the 120-day period the CIR fails to
FILINVEST DEVELOPMENT CORPORATION, Respondent.
DECISION FAC a portion of its rights and interest in the Project worth
₱500.7 million, FDC eventually reported a net loss of
PEREZ, J.: ₱190,695,061.00 in its Annual Income Tax Return for the
taxable year 1996.11
Assailed in these twin petitions for review on certiorari filed
pursuant to Rule 45 of the 1997 Rules of Civil Procedure are On 3 January 2000, FDC received from the BIR a Formal
the decisions rendered by the Court of Appeals (CA) in the Notice of Demand to pay deficiency income and documentary
following cases: (a) Decision dated 16 December 2003 of the stamp taxes, plus interests and compromise
then Special Fifth Division in CA-G.R. SP No. 72992;1 and, (b) penalties,12 covered by the following Assessment Notices, viz.:
Decision dated 26 January 2005 of the then Fourteenth (a) Assessment Notice No. SP-INC-96-00018-2000 for
Division in CA-G.R. SP No. 74510.2 deficiency income taxes in the sum of ₱150,074,066.27 for
1996; (b) Assessment Notice No. SP-DST-96-00020-2000 for
deficiency documentary stamp taxes in the sum of
The Facts ₱10,425,487.06 for 1996; (c) Assessment Notice No. SP-INC-
97-00019-2000 for deficiency income taxes in the sum of
The owner of 80% of the outstanding shares of respondent ₱5,716,927.03 for 1997; and (d) Assessment Notice No. SP-
Filinvest Alabang, Inc. (FAI), respondent Filinvest Development DST-97-00021-2000 for deficiency documentary stamp taxes
Corporation (FDC) is a holding company which also owned in the sum of ₱5,796,699.40 for 1997.13 The foregoing
67.42% of the outstanding shares of Filinvest Land, Inc. (FLI). deficiency taxes were assessed on the taxable gain
On 29 November 1996, FDC and FAI entered into a Deed of supposedly realized by FDC from the Deed of Exchange it
Exchange with FLI whereby the former both transferred in executed with FAI and FLI, on the dilution resulting from the
favor of the latter parcels of land appraised at Shareholders’ Agreement FDC executed with RHPL as well as
₱4,306,777,000.00. In exchange for said parcels which were the "arm’s-length" interest rate and documentary stamp taxes
intended to facilitate development of medium-rise residential imposable on the advances FDC extended to its affiliates.14
and commercial buildings, 463,094,301 shares of stock of FLI
were issued to FDC and FAI.3 As a result of the exchange, On 3 January 2000, FAI similarly received from the BIR a
FLI’s ownership structure was changed to the extent reflected Formal Letter of Demand for deficiency income taxes in the
in the following tabular précis, viz.: sum of ₱1,477,494,638.23 for the year 1997.15 Covered by
Assessment Notice No. SP-INC-97-0027-2000,16 said
Number and Percentage of Number deficiency
of tax was also assessed on the taxable gain
purportedly realized by FAI from the Deed of Exchange it
Stockholder Shares Held Prior to the Additional Shares
executed with FDC and FLI.17 On 26 January 2000 or within
Exchange Issued the reglementary period of thirty (30) days from notice of the
assessment, both FDC and FAI filed their respective requests
for reconsideration/protest, on the ground that the deficiency
FDC 2,537,358,000 67.42% 42,217,000 income and documentary stamp taxes assessed by the BIR
were bereft of factual and legal basis.18 Having submitted the
FAI 0 0 420,877,000 relevant supporting documents pursuant to the 31 January
2000 directive from the BIR Appellate Division, FDC and FAI
filed on 11 September 2000 a letter requesting an early
OTHERS 1,226,177,000 32.58% 0 resolution of their request for reconsideration/protest on the
ground that the 180 days prescribed for the resolution thereof
under Section 228 of the NIRC was going to expire on 20
September 2000.19

3,763,535,000 100% 463,094,301 In view of the failure of petitioner Commissioner of Internal

Revenue (CIR) to resolve their request for
reconsideration/protest within the aforesaid period, FDC and
FAI filed on 17 October 2000 a petition for review with the
On 13 January 1997, FLI requested a ruling from the Bureau of Court of Tax Appeals (CTA) pursuant to Section 228 of the
Internal Revenue (BIR) to the effect that no gain or loss should 1997 NIRC. Docketed before said court as CTA Case No.
be recognized in the aforesaid transfer of real properties. 6182, the petition alleged, among other matters, that as
Acting on the request, the BIR issued Ruling No. S-34-046-97 previously opined in BIR Ruling No. S-34-046-97, no taxable
dated 3 February 1997, finding that the exchange is among gain should have been assessed from the subject Deed of
those contemplated under Section 34 (c) (2) of the old National Exchange since FDC and FAI collectively gained further
Internal Revenue Code (NIRC)4 which provides that "(n)o gain control of FLI as a consequence of the exchange; that
or loss shall be recognized if property is transferred to a correlative to the CIR's lack of authority to impute theoretical
corporation by a person in exchange for a stock in such interests on the cash advances FDC extended in favor of its
corporation of which as a result of such exchange said person, affiliates, the rule is settled that interests cannot be demanded
alone or together with others, not exceeding four (4) persons, in the absence of a stipulation to the effect; that not being
gains control of said corporation."5 With the BIR’s reiteration of promissory notes or certificates of obligations, the instructional
the foregoing ruling upon the 10 February 1997 request for letters as well as the cash and journal vouchers evidencing
clarification filed by FLI,6 the latter, together with FDC and FAI, said cash advances were not subject to documentary stamp
complied with all the requirements imposed in the ruling.7 taxes; and, that no income tax may be imposed on the
prospective gain from the supposed appreciation of FDC's
On various dates during the years 1996 and 1997, in the shareholdings in FAC. As a consequence, FDC and FAC both
meantime, FDC also extended advances in favor of its prayed that the subject assessments for deficiency income and
affiliates, namely, FAI, FLI, Davao Sugar Central Corporation documentary stamp taxes for the years 1996 and 1997 be
(DSCC) and Filinvest Capital, Inc. (FCI).8 Duly evidenced by cancelled and annulled.20
instructional letters as well as cash and journal vouchers, said
cash advances amounted to ₱2,557,213,942.60 in 19969 and On 4 December 2000, the CIR filed its answer, claiming that
₱3,360,889,677.48 in 1997.10 On 15 November 1996, FDC the transfer of property in question should not be considered
also entered into a Shareholders’ Agreement with Reco tax free since, with the resultant diminution of its shares in FLI,
Herrera PTE Ltd. (RHPL) for the formation of a Singapore- FDC did not gain further control of said corporation. Likewise
based joint venture company called Filinvest Asia Corporation calling attention to the fact that the cash advances FDC
(FAC), tasked to develop and manage FDC’s 50% ownership extended to its affiliates were interest free despite the interest
of its PBCom Office Tower Project (the Project). With their bearing loans it obtained from banking institutions, the CIR
equity participation in FAC respectively pegged at 60% and invoked Section 43 of the old NIRC which, as implemented by
40% in the Shareholders’ Agreement, FDC subscribed to Revenue Regulations No. 2, Section 179 (b) and (c), gave him
₱500.7 million worth of shares in said joint venture company to "the power to allocate, distribute or apportion income or
RHPL’s subscription worth ₱433.8 million. Having paid its deductions between or among such organizations, trades or
subscription by executing a Deed of Assignment transferring to business in order to prevent evasion of taxes." The CIR
justified the imposition of documentary stamp taxes on the for the taxable year 1997, plus 20% delinquency interest
instructional letters as well as cash and journal vouchers for computed from February 16, 2000 until full payment thereof is
said cash advances on the strength of Section 180 of the NIRC REVERSED and SET ASIDE and, a new one entered
and Revenue Regulations No. 9-94 which provide that loan annulling Assessment Notice No. SP-INC-97-00019-2000
transactions are subject to said tax irrespective of whether or imposing deficiency income tax on petitioner for taxable year
not they are evidenced by a formal agreement or by mere 1997. No pronouncement as to costs.30
office memo. The CIR also argued that FDC realized taxable
gain arising from the dilution of its shares in FAC as a result of With the denial of its partial motion for reconsideration of the
its Shareholders' Agreement with RHPL.21 same 11 December 2002 resolution issued by the CTA,31 the
CIR also filed the petition for review docketed before the CA as
At the pre-trial conference, the parties filed a Stipulation of CA-G.R. No. 74510. In essence, the CIR argued that the CTA
Facts, Documents and Issues22 which was admitted in the 16 reversibly erred in cancelling the assessment notices: (a) for
February 2001 resolution issued by the CTA. With the further deficiency income taxes on the exchange of property between
admission of the Formal Offer of Documentary Evidence FDC, FAI and FLI; (b) for deficiency documentary stamp taxes
subsequently filed by FDC and FAI23 and the conclusion of the on the documents evidencing FDC's cash advances to its
testimony of Susana Macabelda anent the cash advances FDC affiliates; and (c) for deficiency income tax on the gain FDC
extended in favor of its affiliates,24 the CTA went on to render purportedly realized from the increase of the value of its
the Decision dated 10 September 2002 which, with the shareholdings in FAC.32 The foregoing petition was, however,
exception of the deficiency income tax on the interest income denied due course and dismissed for lack of merit in the herein
FDC supposedly realized from the advances it extended in assailed decision dated 26 January 2005 33 rendered by the
favor of its affiliates, cancelled the rest of deficiency income CA's then Fourteenth Division, upon the following findings and
and documentary stamp taxes assessed against FDC and FAI conclusions, to wit:
for the years 1996 and 1997,25 thus:
1. As affirmed in the 3 February 1997 BIR Ruling No.
WHEREFORE, in view of all the foregoing, the court finds the S-34-046-97, the 29 November 1996 Deed of
instant petition partly meritorious. Accordingly, Assessment Exchange resulted in the combined control by FDC
Notice No. SP-INC-96-00018-2000 imposing deficiency income and FAI of more than 51% of the outstanding shares
tax on FDC for taxable year 1996, Assessment Notice No. SP- of FLI, hence, no taxable gain can be recognized from
DST-96-00020-2000 and SP-DST-97-00021-2000 imposing the transaction under Section 34 (c) (2) of the old
deficiency documentary stamp tax on FDC for taxable years NIRC;
1996 and 1997, respectively and Assessment Notice No. SP-
INC-97-0027-2000 imposing deficiency income tax on FAI for 2. The instructional letters as well as the cash and
the taxable year 1997 are hereby CANCELLED and SET journal vouchers evidencing the advances FDC
ASIDE. However, [FDC] is hereby ORDERED to PAY the extended to its affiliates are not subject to
amount of ₱5,691,972.03 as deficiency income tax for taxable documentary stamp taxes pursuant to BIR Ruling No.
year 1997. In addition, petitioner is also ORDERED to PAY 116-98, dated 30 July 1998, since they do not partake
20% delinquency interest computed from February 16, 2000 the nature of loan agreements;
until full payment thereof pursuant to Section 249 (c) (3) of the
Tax Code.26
3. Although BIR Ruling No. 116-98 had been
subsequently modified by BIR Ruling No. 108-99,
Finding that the collective increase of the equity participation of dated 15 July 1999, to the effect that documentary
FDC and FAI in FLI rendered the gain derived from the stamp taxes are imposable on inter-office memos
exchange tax-free, the CTA also ruled that the increase in the evidencing cash advances similar to those extended
value of FDC's shares in FAC did not result in economic by FDC, said latter ruling cannot be given retroactive
advantage in the absence of actual sale or conversion thereof. application if to do so would be prejudicial to the
While likewise finding that the documents evidencing the cash taxpayer;
advances FDC extended to its affiliates cannot be considered
as loan agreements that are subject to documentary stamp tax,
the CTA enunciated, however, that the CIR was justified in 4. FDC's alleged gain from the increase of its
assessing undeclared interests on the same cash advances shareholdings in FAC as a consequence of the
pursuant to his authority under Section 43 of the NIRC in order Shareholders' Agreement it executed with RHPL
to forestall tax evasion. For persuasive effect, the CTA referred cannot be considered taxable income since, until
to the equivalent provision in the Internal Revenue Code of the actually converted thru sale or disposition of said
United States (IRC-US), i.e., Sec. 482, as implemented by shares, they merely represent unrealized increase in
Section 1.482-2 of 1965-1969 Regulations of the Law of capital.34
Federal Income Taxation.27
Respectively docketed before this Court as G.R. Nos. 163653
Dissatisfied with the foregoing decision, FDC filed on 5 and 167689, the CIR's petitions for review on certiorari
November 2002 the petition for review docketed before the CA assailing the 16 December 2003 decision in CA-G.R. No.
as CA-G.R. No. 72992, pursuant to Rule 43 of the 1997 Rules 72992 and the 26 January 2005 decision in CA-G.R. SP No.
of Civil Procedure. Calling attention to the fact that the cash 74510 were consolidated pursuant to the 1 March 2006
advances it extended to its affiliates were interest-free in the resolution issued by this Court’s Third Division.
absence of the express stipulation on interest required under
Article 1956 of the Civil Code, FDC questioned the imposition The Issues
of an arm's-length interest rate thereon on the ground, among
others, that the CIR's authority under Section 43 of the NIRC: In G.R. No. 163653, the CIR urges the grant of its petition on
(a) does not include the power to impute imaginary interest on the following ground:
said transactions; (b) is directed only against controlled
taxpayers and not against mother or holding corporations; and,
(c) can only be invoked in cases of understatement of taxable THE COURT OF APPEALS ERRED IN REVERSING THE
net income or evident tax evasion.28 Upholding FDC's position, DECISION OF THE COURT OF TAX APPEALS AND IN
the CA's then Special Fifth Division rendered the herein HOLDING THAT THE ADVANCES EXTENDED BY
assailed decision dated 16 December 2003,29 the decretal RESPONDENT TO ITS AFFILIATES ARE NOT SUBJECT TO
portion of which states: INCOME TAX.35

WHEREFORE, premises considered, the instant petition is In G.R. No. 167689, on the other hand, petitioner proffers the
hereby GRANTED. The assailed Decision dated September following issues for resolution:
10, 2002 rendered by the Court of Tax Appeals in CTA Case
No. 6182 directing petitioner Filinvest Development I
Corporation to pay the amount of ₱5,691,972.03 representing
deficiency income tax on allegedly undeclared interest income
 THE HONORABLE COURT OF APPEALS partnership, a trust, an estate, or a
COMMITTED GRAVE ABUSE OF DISCRETION IN corporation or association, irrespective of the
HOLDING THAT THE EXCHANGE OF SHARES OF place where organized, where operated, or
STOCK FOR PROPERTY AMONG FILINVEST where its trade or business is conducted,
DEVELOPMENT CORPORATION (FDC), FILINVEST and regardless of whether domestic or
ALABANG, INCORPORATED (FAI) AND FILINVEST foreign, whether exempt or taxable, or
LAND INCORPORATED (FLI) MET ALL THE whether affiliated or not.
REQUIREMENTS FOR THE NON-RECOGNITION
OF TAXABLE GAIN UNDER SECTION 34 (c) (2) OF (2) The terms "trade" or "business" include
THE OLD NATIONAL INTERNAL REVENUE CODE any trade or business activity of any kind,
(NIRC) (NOW SECTION 40 (C) (2) (c) OF THE NIRC. regardless of whether or where organized,
whether owned individually or otherwise, and
II regardless of the place where carried on.

THE HONORABLE COURT OF APPEALS (3) The term "controlled" includes any kind of
COMMITTED REVERSIBLE ERROR IN HOLDING control, direct or indirect, whether legally
THAT THE LETTERS OF INSTRUCTION OR CASH enforceable, and however exercisable or
VOUCHERS EXTENDED BY FDC TO ITS exercised. It is the reality of the control which
AFFILIATES ARE NOT DEEMED LOAN is decisive, not its form or mode of exercise.
AGREEMENTS SUBJECT TO DOCUMENTARY A presumption of control arises if income or
STAMP TAXES UNDER SECTION 180 OF THE deductions have been arbitrarily shifted.
NIRC.
(4) The term "controlled taxpayer" means
III any one of two or more organizations,
trades, or businesses owned or controlled
THE HONORABLE COURT OF APPEALS GRAVELY directly or indirectly by the same interests.
ERRED IN HOLDING THAT GAIN ON DILUTION AS
A RESULT OF THE INCREASE IN THE VALUE OF (5) The term "group" and "group of controlled
FDC’S SHAREHOLDINGS IN FAC IS NOT taxpayers" means the organizations, trades
TAXABLE.36 or businesses owned or controlled by the
same interests.
The Court’s Ruling
(6) The term "true net income" means, in the
While the petition in G.R. No. 163653 is bereft of merit, we find case of a controlled taxpayer, the net income
the CIR’s petition in G.R. No. 167689 impressed with partial (or as the case may be, any item or element
merit. affecting net income) which would have
resulted to the controlled taxpayer, had it in
the conduct of its affairs (or, as the case may
In G.R. No. 163653, the CIR argues that the CA erred in be, any item or element affecting net
reversing the CTA’s finding that theoretical interests can be income) which would have resulted to the
imputed on the advances FDC extended to its affiliates in 1996 controlled taxpayer, had it in the conduct of
and 1997 considering that, for said purpose, FDC resorted to its affairs (or, as the case may be, in the
interest-bearing fund borrowings from commercial banks. particular contract, transaction, arrangement
Since considerable interest expenses were deducted by FDC or other act) dealt with the other members or
when said funds were borrowed, the CIR theorizes that interest members of the group at arm’s length. It
income should likewise be declared when the same funds were does not mean the income, the deductions,
sourced for the advances FDC extended to its affiliates. or the item or element of either, resulting to
Invoking Section 43 of the 1993 NIRC in relation to Section the controlled taxpayer by reason of the
179(b) of Revenue Regulation No. 2, the CIR maintains that it particular contract, transaction, or
is vested with the power to allocate, distribute or apportion arrangement, the controlled taxpayer, or the
income or deductions between or among controlled interest controlling it, chose to make (even
organizations, trades or businesses even in the absence of though such contract, transaction, or
fraud, since said power is intended "to prevent evasion of taxes arrangement be legally binding upon the
or clearly to reflect the income of any such organizations, parties thereto).
trades or businesses." In addition, the CIR asseverates that the
CA should have accorded weight and respect to the findings of
the CTA which, as the specialized court dedicated to the study (B) SCOPE AND PURPOSE. - The purpose of
and consideration of tax matters, can take judicial notice of US Section 44 of the Tax Code is to place a controlled
income tax laws and regulations.37 taxpayer on a tax parity with an uncontrolled taxpayer,
by determining, according to the standard of an
uncontrolled taxpayer, the true net income from the
Admittedly, Section 43 of the 1993 NIRC38 provides that, "(i)n property and business of a controlled taxpayer. The
any case of two or more organizations, trades or businesses interests controlling a group of controlled taxpayer are
(whether or not incorporated and whether or not organized in assumed to have complete power to cause each
the Philippines) owned or controlled directly or indirectly by the controlled taxpayer so to conduct its affairs that its
same interests, the Commissioner of Internal Revenue is transactions and accounting records truly reflect the
authorized to distribute, apportion or allocate gross income or net income from the property and business of each of
deductions between or among such organization, trade or the controlled taxpayers. If, however, this has not
business, if he determines that such distribution, been done and the taxable net income are thereby
apportionment or allocation is necessary in order to prevent understated, the statute contemplates that the
evasion of taxes or clearly to reflect the income of any such Commissioner of Internal Revenue shall intervene,
organization, trade or business." In amplification of the and, by making such distributions, apportionments, or
equivalent provision39 under Commonwealth Act No. allocations as he may deem necessary of gross
466,  Sec. 179(b) of Revenue Regulation No. 2 states as
40
income or deductions, or of any item or element
follows: affecting net income, between or among the
controlled taxpayers constituting the group, shall
Determination of the taxable net income of controlled taxpayer. determine the true net income of each controlled
– (A) DEFINITIONS. – When used in this section – taxpayer. The standard to be applied in every case is
that of an uncontrolled taxpayer. Section 44 grants no
(1) The term "organization" includes any right to a controlled taxpayer to apply its provisions at
kind, whether it be a sole proprietorship, a will, nor does it grant any right to compel the
 Commissioner of Internal Revenue to apply its advances: (a) were extended to give FLI, FAI, DSCC and FCI
provisions. financial assistance for their operational and capital
expenditures; and, (b) were all temporarily in nature since they
(C) APPLICATION – Transactions between controlled were repaid within the duration of one week to three months
taxpayer and another will be subjected to special and were evidenced by mere journal entries, cash vouchers
scrutiny to ascertain whether the common control is and instructional letters."47
being used to reduce, avoid or escape taxes. In
determining the true net income of a controlled Even if we were, therefore, to accord precipitate credulity to the
taxpayer, the Commissioner of Internal Revenue is CIR's bare assertion that FDC had deducted substantial
not restricted to the case of improper accounting, to interest expense from its gross income, there would still be no
the case of a fraudulent, colorable, or sham factual basis for the imputation of theoretical interests on the
transaction, or to the case of a device designed to subject advances and assess deficiency income taxes thereon.
reduce or avoid tax by shifting or distorting income or More so, when it is borne in mind that, pursuant to Article 1956
deductions. The authority to determine true net of the Civil Code of the Philippines, no interest shall be due
income extends to any case in which either by unless it has been expressly stipulated in writing. Considering
inadvertence or design the taxable net income in that taxes, being burdens, are not to be presumed beyond
whole or in part, of a controlled taxpayer, is other than what the applicable statute expressly and clearly
it would have been had the taxpayer in the conduct of declares,48 the rule is likewise settled that tax statutes must be
his affairs been an uncontrolled taxpayer dealing at construed strictly against the government and liberally in favor
arm’s length with another uncontrolled taxpayer.41 of the taxpayer.49 Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies with
As may be gleaned from the definitions of the terms peculiar strictness to tax laws and the provisions of a taxing act
"controlled" and "controlled taxpayer" under paragraphs (a) (3) are not to be extended by implication.50 While it is true that
and (4) of the foregoing provision, it would appear that FDC taxes are the lifeblood of the government, it has been held that
and its affiliates come within the purview of Section 43 of the their assessment and collection should be in accordance with
1993 NIRC. Aside from owning significant portions of the law as any arbitrariness will negate the very reason for
shares of stock of FLI, FAI, DSCC and FCI, the fact that FDC government itself.51
extended substantial sums of money as cash advances to its
said affiliates for the purpose of providing them financial In G.R. No. 167689, we also find a dearth of merit in the CIR's
assistance for their operational and capital expenditures insistence on the imposition of deficiency income taxes on the
seemingly indicate that the situation sought to be addressed by transfer FDC and FAI effected in exchange for the shares of
the subject provision exists. From the tenor of paragraph (c) of stock of FLI. With respect to the Deed of Exchange executed
Section 179 of Revenue Regulation No. 2, it may also be seen between FDC, FAI and FLI, Section 34 (c) (2) of the 1993
that the CIR's power to distribute, apportion or allocate gross NIRC pertinently provides as follows:
income or deductions between or among controlled taxpayers
may be likewise exercised whether or not fraud inheres in the Sec. 34. Determination of amount of and recognition of gain or
transaction/s under scrutiny. For as long as the controlled loss.-
taxpayer's taxable income is not reflective of that which it
would have realized had it been dealing at arm's length with an
uncontrolled taxpayer, the CIR can make the necessary xxxx
rectifications in order to prevent evasion of taxes.
(c) Exception – x x x x
Despite the broad parameters provided, however, we find that
the CIR's powers of distribution, apportionment or allocation of No gain or loss shall also be recognized if property is
gross income and deductions under Section 43 of the 1993 transferred to a corporation by a person in exchange for shares
NIRC and Section 179 of Revenue Regulation No. 2 does not of stock in such corporation of which as a result of such
include the power to impute "theoretical interests" to the exchange said person, alone or together with others, not
controlled taxpayer's transactions. Pursuant to Section 28 of exceeding four persons, gains control of said corporation;
the 1993 NIRC,42 after all, the term "gross income" is Provided, That stocks issued for services shall not be
understood to mean all income from whatever source derived, considered as issued in return of property.
including, but not limited to the following items: compensation
for services, including fees, commissions, and similar items; As even admitted in the 14 February 2001 Stipulation of Facts
gross income derived from business; gains derived from submitted by the parties,52 the requisites for the non-
dealings in property;" interest; rents; royalties; dividends; recognition of gain or loss under the foregoing provision are as
annuities; prizes and winnings; pensions; and partner’s follows: (a) the transferee is a corporation; (b) the transferee
distributive share of the gross income of general professional exchanges its shares of stock for property/ies of the transferor;
partnership.43 While it has been held that the phrase "from (c) the transfer is made by a person, acting alone or together
whatever source derived" indicates a legislative policy to with others, not exceeding four persons; and, (d) as a result of
include all income not expressly exempted within the class of the exchange the transferor, alone or together with others, not
taxable income under our laws, the term "income" has been exceeding four, gains control of the transferee.53 Acting on the
variously interpreted to mean "cash received or its equivalent", 13 January 1997 request filed by FLI, the BIR had, in fact,
"the amount of money coming to a person within a specific acknowledged the concurrence of the foregoing requisites in
time" or "something distinct from principal or the Deed of Exchange the former executed with FDC and FAI
capital."44 Otherwise stated, there must be proof of the actual by issuing BIR Ruling No. S-34-046-97.54 With the BIR's
or, at the very least, probable receipt or realization by the reiteration of said ruling upon the request for clarification filed
controlled taxpayer of the item of gross income sought to be by FLI,55 there is also no dispute that said transferee and
distributed, apportioned or allocated by the CIR. transferors subsequently complied with the requirements
provided for the non-recognition of gain or loss from the
Our circumspect perusal of the record yielded no evidence of exchange of property for tax, as provided under Section 34 (c)
actual or possible showing that the advances FDC extended to (2) of the 1993 NIRC.56
its affiliates had resulted to the interests subsequently
assessed by the CIR. For all its harping upon the supposed Then as now, the CIR argues that taxable gain should be
fact that FDC had resorted to borrowings from commercial recognized for the exchange considering that FDC's controlling
banks, the CIR had adduced no concrete proof that said funds interest in FLI was actually decreased as a result thereof. For
were, indeed, the source of the advances the former provided said purpose, the CIR calls attention to the fact that, prior to
its affiliates. While admitting that FDC obtained interest-bearing the exchange, FDC owned 2,537,358,000 or 67.42% of FLI's
loans from commercial banks,45 Susan Macabelda - FDC's 3,763,535,000 outstanding capital stock. Upon the issuance of
Funds Management Department Manager who was the sole 443,094,000 additional FLI shares as a consequence of the
witness presented before the CTA - clarified that the subject exchange and with only 42,217,000 thereof accruing in favor of
advances were sourced from the corporation's rights offering in FDC for a total of 2,579,575,000 shares, said corporation’s
1995 as well as the sale of its investment in Bonifacio Land in controlling interest was supposedly reduced to 61%.03 when
1997.46 More significantly, said witness testified that said
reckoned from the transferee's aggregate 4,226,629,000 On the other hand, insofar as documentary stamp taxes on
outstanding shares. Without owning a share from FLI's initial loan agreements and promissory notes are concerned, Section
3,763,535,000 outstanding shares, on the other hand, FAI's 180 of the NIRC provides follows:
acquisition of 420,877,000 FLI shares as a result of the
exchange purportedly resulted in its control of only 9.96% of Sec. 180. Stamp tax on all loan agreements, promissory notes,
said transferee corporation's 4,226,629,000 outstanding bills of exchange, drafts, instruments and securities issued by
shares. On the principle that the transaction did not qualify as a the government or any of its instrumentalities, certificates of
tax-free exchange under Section 34 (c) (2) of the 1993 NIRC, deposit bearing interest and others not payable on sight or
the CIR asseverates that taxable gain in the sum of demand. – On all loan agreements signed abroad wherein the
₱263,386,921.00 should be recognized on the part of FDC and object of the contract is located or used in the Philippines; bill
in the sum of ₱3,088,711,367.00 on the part of FAI.57 of exchange (between points within the Philippines), drafts,
instruments and securities issued by the Government or any of
The paucity of merit in the CIR's position is, however, evident its instrumentalities or certificates of deposits drawing interest,
from the categorical language of Section 34 (c) (2) of the 1993 or orders for the payment of any sum of money otherwise than
NIRC which provides that gain or loss will not be recognized in at sight or on demand, or on all promissory notes, whether
case the exchange of property for stocks results in the control negotiable or non-negotiable, except bank notes issued for
of the transferee by the transferor, alone or with other circulation, and on each renewal of any such note, there shall
transferors not exceeding four persons. Rather than isolating be collected a documentary stamp tax of Thirty centavos
the same as proposed by the CIR, FDC's 2,579,575,000 (₱0.30) on each two hundred pesos, or fractional part thereof,
shares or 61.03% control of FLI's 4,226,629,000 outstanding of the face value of any such agreement, bill of exchange,
shares should, therefore, be appreciated in combination with draft, certificate of deposit or note: Provided, That only one
the 420,877,000 new shares issued to FAI which represents documentary stamp tax shall be imposed on either loan
9.96% control of said transferee corporation. Together FDC's agreement, or promissory notes issued to secure such loan,
2,579,575,000 shares (61.03%) and FAI's 420,877,000 shares whichever will yield a higher tax: Provided however, That loan
(9.96%) clearly add up to 3,000,452,000 shares or 70.99% of agreements or promissory notes the aggregate of which does
FLI's 4,226,629,000 shares. Since the term "control" is clearly not exceed Two hundred fifty thousand pesos (₱250,000.00)
defined as "ownership of stocks in a corporation possessing at executed by an individual for his purchase on installment for
least fifty-one percent of the total voting power of classes of his personal use or that of his family and not for business,
stocks entitled to one vote" under Section 34 (c) (6) [c] of the resale, barter or hire of a house, lot, motor vehicle, appliance
1993 NIRC, the exchange of property for stocks between FDC or furniture shall be exempt from the payment of documentary
FAI and FLI clearly qualify as a tax-free transaction under stamp tax provided under this Section.
paragraph 34 (c) (2) of the same provision.
When read in conjunction with Section 173 of the 1993
Against the clear tenor of Section 34(c) (2) of the 1993 NIRC, NIRC,63 the foregoing provision concededly applies to "(a)ll
the CIR cites then Supreme Court Justice Jose Vitug and CTA loan agreements, whether made or signed in the Philippines,
Justice Ernesto D. Acosta who, in their book Tax Law and or abroad when the obligation or right arises from Philippine
Jurisprudence, opined that said provision could be inapplicable sources or the property or object of the contract is located or
if control is already vested in the exchangor prior to used in the Philippines." Correlatively, Section 3 (b) and
exchange.58 Aside from the fact that that the 10 September Section 6 of Revenue Regulations No. 9-94 provide as follows:
2002 Decision in CTA Case No. 6182 upholding the tax-
exempt status of the exchange between FDC, FAI and FLI was Section 3. Definition of Terms. – For purposes of these
penned by no less than Justice Acosta himself,59 FDC and FAI Regulations, the following term shall mean:
significantly point out that said authors have acknowledged
that the position taken by the BIR is to the effect that "the law
would apply even when the exchangor already has control of (b) 'Loan agreement' – refers to a contract in writing where one
the corporation at the time of the exchange."60 This was of the parties delivers to another money or other consumable
confirmed when, apprised in FLI's request for clarification thing, upon the condition that the same amount of the same
about the change of percentage of ownership of its outstanding kind and quality shall be paid. The term shall include credit
capital stock, the BIR opined as follows: facilities, which may be evidenced by credit memo, advice or
drawings.
Please be informed that regardless of the foregoing, the
transferors, Filinvest Development Corp. and Filinvest The terms 'Loan Agreement" under Section 180 and
Alabang, Inc. still gained control of Filinvest Land, Inc. The "Mortgage' under Section 195, both of the Tax Code, as
term 'control' shall mean ownership of stocks in a corporation amended, generally refer to distinct and separate instruments.
by possessing at least 51% of the total voting power of all A loan agreement shall be taxed under Section 180, while a
classes of stocks entitled to vote. Control is determined by the deed of mortgage shall be taxed under Section 195."
amount of stocks received, i.e., total subscribed, whether for
property or for services by the transferor or transferors. In "Section 6. Stamp on all Loan Agreements. – All loan
determining the 51% stock ownership, only those persons who agreements whether made or signed in the Philippines, or
transferred property for stocks in the same transaction may be abroad when the obligation or right arises from Philippine
counted up to the maximum of five (BIR Ruling No. 547-93 sources or the property or object of the contract is located in
dated December 29, 1993.61 the Philippines shall be subject to the documentary stamp tax
of thirty centavos (₱0.30) on each two hundred pesos, or
At any rate, it also appears that the supposed reduction of fractional part thereof, of the face value of any such
FDC's shares in FLI posited by the CIR is more apparent than agreements, pursuant to Section 180 in relation to Section 173
real. As the uncontested owner of 80% of the outstanding of the Tax Code.
shares of FAI, it cannot be gainsaid that FDC ideally controls
the same percentage of the 420,877,000 shares issued to its In cases where no formal agreements or promissory notes
said co-transferor which, by itself, represents 7.968% of the have been executed to cover credit facilities, the documentary
outstanding shares of FLI. Considered alongside FDC's stamp tax shall be based on the amount of drawings or
61.03% control of FLI as a consequence of the 29 November availment of the facilities, which may be evidenced by
1996 Deed of Transfer, said 7.968% add up to an aggregate of credit/debit memo, advice or drawings by any form of check or
68.998% of said transferee corporation's outstanding shares of withdrawal slip, under Section 180 of the Tax Code.
stock which is evidently still greater than the 67.42% FDC
initially held prior to the exchange. This much was admitted by Applying the aforesaid provisions to the case at bench, we find
the parties in the 14 February 2001 Stipulation of Facts, that the instructional letters as well as the journal and cash
Documents and Issues they submitted to the CTA.62 Inasmuch vouchers evidencing the advances FDC extended to its
as the combined ownership of FDC and FAI of FLI's affiliates in 1996 and 1997 qualified as loan agreements upon
outstanding capital stock adds up to a total of 70.99%, it stands which documentary stamp taxes may be imposed. In keeping
to reason that neither of said transferors can be held liable for with the caveat attendant to every BIR Ruling to the effect that
deficiency income taxes the CIR assessed on the supposed it is valid only if the facts claimed by the taxpayer are correct,
gain which resulted from the subject transfer.
we find that the CA reversibly erred in utilizing BIR Ruling No. "1.11. On November 15, 1996, FDC entered into a
116-98, dated 30 July 1998 which, strictly speaking, could be Shareholders’ Agreement (‘SA’) with Reco Herrera
invoked only by ASB Development Corporation, the taxpayer Pte. Ltd. (‘RHPL’) for the formation of a joint venture
who sought the same. In said ruling, the CIR opined that company named Filinvest Asia Corporation (‘FAC’)
documents like those evidencing the advances FDC extended which is based in Singapore (pars. 1.01 and 6.11,
to its affiliates are not subject to documentary stamp tax, to wit: Petition, pars. 1 and 7, Answer).

On the matter of whether or not the inter-office memo covering 1.12. FAC, the joint venture company formed by FDC
the advances granted by an affiliate company is subject to and RHPL, is tasked to develop and manage the 50%
documentary stamp tax, it is informed that nothing in ownership interest of FDC in its PBCom Office Tower
Regulations No. 26 (Documentary Stamp Tax Regulations) Project (‘Project’) with the Philippine Bank of
and Revenue Regulations No. 9-94 states that the same is Communications (par. 6.12, Petition; par. 7, Answer).
subject to documentary stamp tax. Such being the case, said
inter-office memo evidencing the lendings or borrowings which 1.13. Pursuant to the SA between FDC and RHPL,
is neither a form of promissory note nor a certificate of the equity participation of FDC and RHPL in FAC was
indebtedness issued by the corporation-affiliate or a certificate 60% and 40% respectively.
of obligation, which are, more or less, categorized as
'securities', is not subject to documentary stamp tax imposed
under Section 180, 174 and 175 of the Tax Code of 1997, 1.14. In accordance with the terms of the SA, FDC
respectively. Rather, the inter-office memo is being prepared subscribed to ₱500.7 million worth of shares of stock
for accounting purposes only in order to avoid the co-mingling representing a 60% equity participation in FAC. In
of funds of the corporate affiliates.1avvphi1 turn, RHPL subscribed to ₱433.8 million worth of
shares of stock of FAC representing a 40% equity
participation in FAC.
In its appeal before the CA, the CIR argued that the foregoing
ruling was later modified in BIR Ruling No. 108-99 dated 15
July 1999, which opined that inter-office memos evidencing 1.15. In payment of its subscription in FAC, FDC
lendings or borrowings extended by a corporation to its executed a Deed of Assignment transferring to FAC a
affiliates are akin to promissory notes, hence, subject to portion of FDC’s right and interests in the Project to
documentary stamp taxes.64 In brushing aside the foregoing the extent of ₱500.7 million.
argument, however, the CA applied Section 246 of the 1993
NIRC65 from which proceeds the settled principle that rulings, 1.16. FDC reported a net loss of ₱190,695,061.00 in
circulars, rules and regulations promulgated by the BIR have its Annual Income Tax Return for the taxable year
no retroactive application if to so apply them would be 1996."71
prejudicial to the taxpayers.66 Admittedly, this rule does not
apply: (a) where the taxpayer deliberately misstates or omits Alongside the principle that tax revenues are not intended to
material facts from his return or in any document required of be liberally construed,72 the rule is settled that the findings and
him by the Bureau of Internal Revenue; (b) where the facts conclusions of the CTA are accorded great respect and are
subsequently gathered by the Bureau of Internal Revenue are generally upheld by this Court, unless there is a clear showing
materially different from the facts on which the ruling is based; of a reversible error or an improvident exercise of
or (c) where the taxpayer acted in bad faith.67 Not being the authority.73 Absent showing of such error here, we find no
taxpayer who, in the first instance, sought a ruling from the strong and cogent reasons to depart from said rule with
CIR, however, FDC cannot invoke the foregoing principle on respect to the CTA's finding that no deficiency income tax can
non-retroactivity of BIR rulings. be assessed on the gain on the supposed dilution and/or
increase in the value of FDC's shareholdings in FAC which the
Viewed in the light of the foregoing considerations, we find that CIR, at any rate, failed to establish. Bearing in mind the
both the CTA and the CA erred in invalidating the assessments meaning of "gross income" as above discussed, it cannot be
issued by the CIR for the deficiency documentary stamp taxes gainsaid, even then, that a mere increase or appreciation in the
due on the instructional letters as well as the journal and cash value of said shares cannot be considered income for taxation
vouchers evidencing the advances FDC extended to its purposes. Since "a mere advance in the value of the property
affiliates in 1996 and 1997. In Assessment Notice No. SP- of a person or corporation in no sense constitute the ‘income’
DST-96-00020-2000, the CIR correctly assessed the sum of specified in the revenue law," it has been held in the early case
₱6,400,693.62 for documentary stamp tax, ₱3,999,793.44 in of Fisher vs. Trinidad,74 that it "constitutes and can be treated
interests and ₱25,000.00 as compromise penalty, for a total of merely as an increase of capital." Hence, the CIR has no
₱10,425,487.06. Alongside the sum of ₱4,050,599.62 for factual and legal basis in assessing income tax on the increase
documentary stamp tax, the CIR similarly assessed in the value of FDC's shareholdings in FAC until the same is
₱1,721,099.78 in interests and ₱25,000.00 as compromise actually sold at a profit.
penalty in Assessment Notice No. SP-DST-97-00021-2000 or
a total of ₱5,796,699.40. The imposition of deficiency interest WHEREFORE, premises considered, the CIR's petition for
is justified under Sec. 249 (a) and (b) of the NIRC which review on certiorari in G.R. No. 163653 is DENIED for lack of
authorizes the assessment of the same "at the rate of twenty merit and the CA’s 16 December 2003 Decision in G.R. No.
percent (20%), or such higher rate as may be prescribed by 72992 is AFFIRMED in toto. The CIR’s petition in G.R. No.
regulations", from the date prescribed for the payment of the 167689 is PARTIALLY GRANTED and the CA’s 26 January
unpaid amount of tax until full payment. 68 The imposition of the 2005 Decision in CA-G.R. SP No. 74510 is MODIFIED.
compromise penalty is, in turn, warranted under Sec. 25069 of
the NIRC which prescribes the imposition thereof "in case of
each failure to file an information or return, statement or list, or Accordingly, Assessment Notices Nos. SP-DST-96-00020-
keep any record or supply any information required" on the 2000 and SP-DST-97-00021-2000 issued for deficiency
date prescribed therefor. documentary stamp taxes due on the instructional letters as
well as journal and cash vouchers evidencing the advances
FDC extended to its affiliates are declared valid.
To our mind, no reversible error can, finally, be imputed
against both the CTA and the CA for invalidating the
Assessment Notice issued by the CIR for the deficiency The cancellation of Assessment Notices Nos. SP-INC-96-
income taxes FDC is supposed to have incurred as a 00018-2000, SP-INC-97-00019-2000 and SP-INC-97-0027-
consequence of the dilution of its shares in FAC. Anent FDC’s 2000 issued for deficiency income assessed on (a) the "arms-
Shareholders’ Agreement with RHPL, the record shows that length" interest from said advances; (b) the gain from FDC’s
the parties were in agreement about the following factual Deed of Exchange with FAI and FLI; and (c) income from the
antecedents narrated in the 14 February 2001 Stipulation of dilution resulting from FDC’s Shareholders’ Agreement with
Facts, Documents and Issues they submitted before the RHPL is, however, upheld.
CTA,70 viz.:
SO ORDERED.
JOSE PORTUGAL PEREZ ISSUED INCREASED
Associate Justice

2.1 ₱648,127,000.0
ORDINARY ₱ 74,755,000.00
0
G.R. No. 169103               March 16, 2011
GROUP 114,936,000.00 744,164,000.00
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
MANILA BANKERS' LIFE INSURANCE
CORPORATION, Respondent.
₱763,063,000.0
TOTAL ₱ 818,919,000.00
DECISION 0

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari1 filed by the

Commissioner of Internal Revenue (CIR) of the April 29, 2005 GRAND
₱1,581,982,000.0
Decision2 and July 27, 2005 Resolution3 of the Court of TOTAL/TAX
0
Appeals in CA-G.R. SP No. 70600, which upheld the April 4, BASE
2002 Decision4 of the Court of Tax Appeals (CTA) in CTA
Case No. 6189.
TAX RATE P0.50/200.00
The facts as found by the CTA and Court of Appeals are
undisputed. TAX DUE ₱ 3,954,955.00

Respondent Manila Bankers’ Life Insurance Corporation is a

duly organized domestic corporation primarily engaged in the LESS: TAX ₱ 2,308,505.74
life insurance business.5 PAID

On May 28, 1999, petitioner Commissioner of Internal

Revenue issued Letter of Authority No. 0000207056 authorizing
a special team of Revenue Officers to examine the books of DEFICIENCY
₱ 1,646,499.26
accounts and other accounting records of respondent for DST - BASIC
taxable year "1997 & unverified prior years."7
- 20%
On December 14, 1999, based on the findings of the Revenue 680,231.64
INTEREST
Officers, the petitioner issued a Preliminary Assessment
Notice8 against the respondent for its deficiency internal
revenue taxes for the year 1997. The respondent agreed to all -
the assessments issued against it except to the amount of 25,000.00
SURCHARGE
₱2,351,680.90 representing deficiency documentary stamp
taxes on its policy premiums and penalties. 9

Thus, on January 4, 2000, the petitioner issued against the TOTAL

respondent a Formal Letter of Demand10 with the ASSESSMEN ₱ 2,351,680.9015
corresponding Assessment Notices attached,11 one of which
T
was Assessment Notice No. ST-DST2-97-0054-
200012 pertaining to the documentary stamp taxes due on
respondent’s policy premiums:

Documentary Stamp Tax on Policy Premiums The amount of ₱818,919,000.00 comprises the increases in
the sum assured for the respondent’s ordinary insurance – the
Assessment No. ST-DST2-97-0054-2000 "Money Plus Plan" (₱74,755,000.00), and group insurance
(₱744,164,000.00).16
Tax Due 3,954,955.00
On February 3, 2000, the respondent filed its Letter of
Protest17 with the Bureau of Internal Revenue (BIR) contesting
Less: Tax Paid 2,308,505.74 the assessment for deficiency documentary stamp tax on its
insurance policy premiums. Despite submission of documents
on April 3, 2000,18 as required by the BIR in its March 20,
Tax Deficiency 1,646,449.26 200019 letter, the respondent’s Protest was not acted upon by
the BIR within the 180-day period given to it by Section 228 of
the 1997 National Internal Revenue Code (NIRC) within which
Add: 20% Int./a 680,231.64 to rule on the protest. Hence, on October 26, 2000, the
respondent filed a Petition for Review with the CTA for the
cancellation of Assessment Notice No. ST-DST2-97-0054-
Recommended Compromise 2000. The respondent invoked the CTA’s March 30, 1993
Penalty-Late Payment _____ 25,000.00 ruling in the similar case of Lincoln Philippine Life Insurance
Company, Inc. (now Jardine-CMA Life Insurance Company,
Inc.) v. Commissioner of Internal Revenue,20 wherein the CTA
Total Amount Due 2,351,680.9013 held that the tax base to be used in computing the
documentary stamp tax is the value at the time the instrument
is issued because the documentary stamp tax is levied and
paid only once, which is at the time the taxable document is
The tax deficiency was computed by including the increases in issued.
the life insurance coverage or the sum assured by some of
respondent’s life insurance plans14:
On April 4, 2002, the CTA granted the respondents’ Petition 25% surcharge for late payment and 20% annual interest,
with the dispositive portion as follows: sustained30 on the following arguments:

WHEREFORE, in the light of all the foregoing, respondent A.

Commissioner of Internal Revenue is hereby ORDERED to
CANCEL and WITHDRAW Assessment Notice No. ST-DST2- THE APPLICABLE PROVISIONS OF THE NIRC AT THE
97-0054-2000 dated January 4, 2000 in the amount of TIME THE ASSESSMENT FOR DEFICIENCY
₱2,351,680.90 representing deficiency documentary stamp DOCUMENTARY STAMP TAX WAS ISSUED PROVIDE THAT
taxes for the taxable year 1997.21 DOCUMENTARY STAMP TAX IS COLLECTIBLE NOT ONLY
ON THE ORIGINAL POLICY BUT ALSO UPON RENEWAL
The CTA, applying the Tax Code Provisions then in force, held OR CONTINUANCE THEREOF.
that:
B.
[T]he documentary stamp tax on life insurance policies is
imposed only once based on the amount insured at the time of THE AMOUNT INSURED BY THE POLICY AT THE TIME OF
actual issuance of such policies. The documentary stamp tax ITS ISSUANCE NECESSARILY INCLUDED THE
which is in the nature of an excise tax is imposed on the ADDITIONAL SUM AS A RESULT OF THE EXERCISE OF
document as originally issued. Therefore, any subsequent THE OPTION UNDER THE "GUARANTEED CONTINUITY"
increase in the insurance coverage resulting from policies CLAUSE IN RESPONDENT’S INSURANCE POLICIES.
which have been subjected to the documentary stamp tax at
the time of their issuance, is no longer subject to the
documentary stamp tax.22 C.

Aggrieved by the decision, the petitioner went to the Court of THE "GUARANTEED CONTINUITY" CLAUSE OFFERS TO
Appeals on a Petition for Review23 docketed as CA-G.R. SP THE INSURED AN OPTION TO AVAIL OF THE RIGHT TO
No. 70600 on the ground that: RENEW OR CONTINUE THE POLICY. IF AND WHEN THE
INSURED AVAILS OF SUCH OPTION AND SUCH
GUARANTEED CONTINUITY CLAUSE TAKES EFFECT, THE
THE TAX COURT ERRED IN RULING THAT INCREASES IN INSURER IS LIABLE FOR DEFICIENCY DOCUMENTARY
THE COVERAGE OR THE SUM ASSURED BY AN EXISTING STAMP TAX CORRESPONDING TO THE INCREASE OF
INSURANCE POLICY IS NOT SUBJECT TO THE THE INSURANCE COVERAGE.
DOCUMENTARY STAMP TAX. (DST).24
D.
On April 29, 2005, the Court of Appeals sustained the
cancellation of Assessment Notice No. ST-DST2-97-0054-
2000 in its Decision, the decretal portion of which reads: SECTION 198 OF THE 1997 NIRC CLEARLY STATES THAT
THE DOCUMENTARY STAMP TAX IS IMPOSABLE UPON
RENEWAL OR CONTINUANCE OF ANY POLICY OF
WHEREFORE, all considered and finding no merit in the INSURANCE OR THE RENEWAL OR CONTINUANCE OF
herein appeal, judgment is hereby rendered upholding the April ANY CONTRACT BY ALTERING OR OTHERWISE, AT THE
4, 2002, CTA Decision in CTA Case No. 6189 entitled "Manila SAME RATE AS THAT IMPOSED ON THE ORIGINAL
Bankers’ Life Insurance Corporation, Petitioner, versus INSTRUMENT.31
Commissioner of Internal Revenue, Respondent.25
As can be gleaned from the facts, the deficiency documentary
The Court of Appeals, in upholding the decision of the CTA, stamp tax was assessed on the increases in the life insurance
said that the subject of the documentary stamp tax is the coverage of two kinds of policies: the "Money Plus Plan," which
issuance of the instrument representing the creation, change is an ordinary term life insurance policy; and the group life
or cessation of a legal relationship.26 It further held that insurance policy. The increases in the coverage of the life
because the legal status or nature of the relationship embodied insurance policies were brought about by the premium
in the document has no bearing at all on the tax, the fulfillment payments made subsequent to the issuance of the policies.
of suspensive conditions incorporated in the respondent’s The Money Plus Plan is a 20-year term ordinary life insurance
policies, as claimed by the petitioner, would still not give rise to plan with a "Guaranteed Continuity Clause" which allowed the
new documentary stamp tax payments.27 policy holder to continue the policy after the 20-year term
subject to certain conditions. Under the plan, the policy holders
The petitioner asked for reconsideration of the above Decision paid their premiums in five separate periods, with the premium
and cited this Court’s March 19, 2002 Decision in payments, after the first period premiums, to be made only
Commissioner of Internal Revenue v. Lincoln Philippine Life upon reaching a certain age. The succeeding premium
Insurance Company, Inc.,28 the very same case the respondent payments translated to increases in the sum assured. Thus,
invoked before the CTA. The petitioner argued that in Lincoln, the petitioner believed that since the documentary stamp tax
this Court reversed both the CTA and the Court of Appeals and was affixed on the policy based only on the first period
sustained the validity of the deficiency documentary stamp tax premiums, then the succeeding premium payments should
imposed on the increase in the sum insured even though no likewise be subject to documentary stamp tax. In the case of
new policy was issued because the increase, by reason of the respondent’s group insurance, the deficiency documentary
"Automatic Increase Clause," was already definite at the time stamp tax was imposed on the premiums for the additional
the policy was issued. members to already existing and effective master policies. The
petitioner concluded that any additional member to the group
On July 27, 2005, the Court of Appeals sustained its ruling, of employees, who were already insured under the existing
and stated that the Lincoln Case was not applicable because mother policy, should similarly be subjected to documentary
the increase in the sum assured in Lincoln’s insurance policy stamp tax.32
was definite and determinable at the time such policy was
issued as the automatic increase clause, which allowed for the The resolution of this case hinges on the validity of the
increase, formed an integral part of the policy; whereas in the imposition of documentary stamp tax on increases in the
respondent’s case, "the tax base of the disputed deficiency coverage or sum assured by existing life insurance policies,
assessment was not [a] definite or determinable increase in the even without the issuance of new policies.
sum assured."29
In view of the fact that the assessment for deficiency
The petitioner is now before us praying for the nullification of documentary stamp tax covered the taxable year 1997, the
the Court of Appeals’ April 29, 2005 Decision and July 27, relevant and applicable legal provisions are those found in the
2005 Resolution and to have the assessment for deficiency 1977 National Internal Revenue Code (Tax Code) as
documentary stamp tax on respondent’s policy premiums, plus amended,33 to wit:
Section 173. Stamp Taxes Upon Documents, Loan insured without the need of a new policy. As Lincoln paid
Agreements, Instruments and Papers. — Upon documents, documentary stamp taxes only on the initial sum assured, the
instruments, loan agreements and papers, and upon CIR issued a deficiency documentary stamp tax assessment
acceptances, assignments, sales and transfers of the for the year 1984, the year the clause took effect. Both the
obligation, right or property incident thereto, there shall be CTA and the Court of Appeals found no basis for the deficiency
levied, collected and paid for, and in respect of the transaction assessment. As discussed above, however, this Court
so had or accomplished, the corresponding documentary reversed both lower courts and sustained the CIR’s
stamp taxes prescribed in the following sections of this Title, by assessment.
the person making, signing, issuing, accepting, or transferring
the same wherever the document is made, signed, issued, This Court ruled that the increase in the sum assured brought
accepted, or transferred when the obligation or right arises about by the "automatic increase" clause incorporated
from Philippine sources or the property is situated in the in Lincoln’s Junior Estate Builder Policy was still subject to
Philippines, and the same time such act is done or transaction documentary stamp tax, notwithstanding that no new policy
had: Provided, That whenever one party to the taxable was issued, because the date of the effectivity of the increase,
document enjoys exemption from the tax herein imposed, the as well as its amount, were already definite and determinable
other party who is not exempt shall be the one directly liable for at the time the policy was issued. As such, the tax base under
the tax. 34 Section 183, which is "the amount fixed in the policy," is "the
figure written on its face and whatever increases will take effect
Section 183. Stamp Tax on Life Insurance Policies. — On all in the future by reason of the ‘automatic increase
policies of insurance or other instruments by whatever name clause.’" 40 This Court added that the automatic increase
the same may be called, whereby any insurance shall be made clause was "in the nature of a conditional obligation under
or renewed upon any life or lives, there shall be collected a Article 1181,41 by which the increase of the insurance coverage
documentary stamp tax of fifty centavos on each two hundred shall depend upon the happening of the event which
pesos or fractional part thereof, of the amount insured by any constitutes the obligation." 42
such policy.35 (Emphases ours.)
Since the Lincoln case, wherein the then CIR’s arguments for
Documentary stamp tax is a tax on documents, instruments, the BIR are very similar to the petitioner’s arguments herein,
loan agreements, and papers evidencing the acceptance, was decided in favor of the BIR, the petitioner is now relying on
assignment, sale or transfer of an obligation, right or property our ruling therein to support his position in this case. Although
incident thereto.36 It is in the nature of an excise tax because it the two cases are similar in many ways, they must be
is imposed upon the privilege, opportunity or facility offered at distinguished by the nature of the respective "clauses" in the
exchanges for the transaction of the business. It is an excise life insurance policies involved, where we note a major
upon the facilities used in the transaction of the business difference. In Lincoln, the relevant clause is the "Automatic
distinct and separate from the business itself.37 Increase Clause" which provided for the automatic increase in
the amount of life insurance coverage upon the attainment of a
To elucidate, documentary stamp tax is levied on the exercise certain age by the insured, without any need for another
of certain privileges granted by law for the creation, revision, or contract. In the case at bar, the clause in contention is the
termination of specific legal relationships through the execution "Guaranteed Continuity Clause" in respondent’s Money Plus
of specific instruments. Examples of these privileges, the Plan, which reads:
exercise of which are subject to documentary stamp tax, are
leases of lands, mortgages, pledges, trusts and conveyances GUARANTEED CONTINUITY
of real property. Documentary stamp tax is thus imposed on
the exercise of these privileges through the execution of We guarantee the continuity of this Policy until the Expiry Date
specific instruments, independently of the legal status of the stated in the Schedule provided that the effective premium is
transactions giving rise thereto. The documentary stamp tax consecutively paid when due or within the 31-day Grace
must be paid upon the issuance of these instruments, without Period.
regard to whether the contracts which gave rise to them are
rescissible, void, voidable, or unenforceable. 38
We shall not have the right to change premiums on your Policy
during the 20-year Policy term.
Accordingly, the documentary stamp tax on insurance policies,
though imposed on the document itself, is actually levied on
the privilege to conduct insurance business. Under Section At the end of each twenty-year period, and provided that you
173, the documentary stamp tax becomes due and payable at have not attained age 55, you may renew your Policy for a
the time the insurance policy is issued, with the tax based on further twenty-year period. To renew, you must submit proof of
the amount insured by the policy as provided for in Section insurability acceptable to MBLIC and pay the premium due
183. based on attained age according to the rates prevailing at the
time of renewal.43
Documentary Stamp Tax
on the "Money Plus Plan" A simple reading of respondent’s guaranteed continuity clause
will show that it is significantly different from the "automatic
increase clause" in Lincoln. The only things guaranteed in the
The petitioner would have us reverse both the CTA and the respondent’s continuity clause were: the continuity of the policy
Court of Appeals based on our decision in Commissioner of until the stated expiry date as long as the premiums were paid
Internal Revenue v. Lincoln Philippine Life Insurance within the allowed time; the non-change in premiums for the
Company, Inc.39 duration of the 20-year policy term; and the option to continue
such policy after the 20-year period, subject to certain
The Lincoln case has been invoked by both parties in different requirements. In fact, even the continuity of the policy after its
stages of this case. The respondent relied on the CTA’s ruling term was not guaranteed as the decision to renew it belonged
in the Lincoln case when it elevated its protest there; and when to the insured, subject to certain conditions. Any increase in
we reversed the CTA’s ruling therein, the petitioner called the the sum assured, as a result of the clause, had to survive a
Court of Appeals’ attention to it, and prayed for a decision new agreement between the respondent and the insured. The
upholding the assessment for deficiency documentary stamp increase in the life insurance coverage was only corollary to
tax just like in the Lincoln case. the new premium rate imposed based upon the insured’s age
at the time the continuity clause was availed of. It was not
It is therefore necessary to briefly discuss the Lincoln case to automatic, was never guaranteed, and was certainly neither
determine its applicability, if any, to the case now before us. definite nor determinable at the time the policy was issued.
Prior to 1984, Lincoln Philippine Life Insurance Company, Inc.
(Lincoln) had been issuing its "Junior Estate Builder Policy," a Therefore, the increases in the sum assured brought about by
special kind of life insurance policy because of a clause which the guaranteed continuity clause cannot be subject to
provided for an automatic increase in the amount of life documentary stamp tax under Section 183 as
insurance coverage upon attainment of a certain age by the insurance made upon the lives of the insured.
However, it is clear from the text of the guaranteed continuity Documentary Stamp Tax
clause that what the respondent was actually offering in its on Group Life Insurance
Money Plus Plan was the option to renew the policy, after the
expiration of its original term. Consequently, the acceptance of The petitioner is also asking this Court to sustain his deficiency
this offer would give rise to the renewal of the original policy. documentary stamp tax assessment on the additional
premiums earned by the respondent in its group life insurance
The petitioner avers that these life insurance policy renewals policies.
make the respondent liable for deficiency documentary stamp
tax under Section 198. This Court, in Pineda v. Court of Appeals47 has had the chance
to discuss the concept of "group insurance," to wit:
Section 198 of the old Tax Code reads:
In its original and most common form, group insurance
Section 198. Stamp Tax on Assignments and Renewals of provides life or health insurance coverage for the employees of
Certain Instruments. – Upon each and every assignment or one employer.
transfer of any mortgage, lease or policy of insurance, or the
renewal or continuance of any agreement, contract, charter, or The coverage terms for group insurance are usually stated in a
any evidence of obligation or indebtedness by altering or master agreement or policy that is issued by the insurer to a
otherwise, there shall be levied, collected and paid a representative of the group or to an administrator of the
documentary stamp tax, at the same rate as that imposed on insurance program, such as an employer. The employer acts
the original instrument.44 as a functionary in the collection and payment of premiums
and in performing related duties. Likewise falling within the
Section 198 speaks of assignments and renewals. In the case ambit of administration of a group policy is the disbursement of
of insurance policies, this section applies only when such insurance payments by the employer to the employees. Most
policy was assigned or transferred. The provision which policies, such as the one in this case, require an employee to
specifically applies to renewals of life insurance policies is pay a portion of the premium, which the employer deducts from
Section 183: wages while the remainder is paid by the employer. This is
known as a contributory plan as compared to a non-
Section 183. Stamp Tax on Life Insurance Policies. — On all contributory plan where the premiums are solely paid by the
policies of insurance or other instruments by whatever name employer.
the same may be called, whereby any insurance shall be made
or renewed upon any life or lives, there shall be collected a Although the employer may be the titular or named insured, the
documentary stamp tax of fifty centavos on each two hundred insurance is actually related to the life and health of the
pesos or fractional part thereof, of the amount insured by any employee. Indeed, the employee is in the position of a real
such policy. (Emphasis ours.) party to the master policy, and even in a non-contributory plan,
the payment by the employer of the entire premium is a part of
Section 183 is a substantial reproduction of the earlier the total compensation paid for the services of the employee.
documentary stamp tax provision, Section 1449(j) of the Put differently, the labor of the employees is the true source of
Administrative Code of 1917. Regulations No. 26, or The the benefits, which are a form of additional compensation to
Revised Documentary Stamp Tax Regulations,45 provided the them.48 (Emphasis ours.)
implementing rules to the provisions on documentary stamp
tax under the Administrative Code of 1917. Section 54 of the When a group insurance plan is taken out, a group master
Regulations, in reference to what is now Section 183, explicitly policy is issued with the coverage and premium rate based on
stated that the documentary stamp tax imposed under that the number of the members covered at that time. In the case of
section is also collectible upon renewals of life insurance a company group insurance plan, the premiums paid on the
policies, viz: issuance of the master policy cover only those employees
enrolled at the time such master policy was issued. When the
Section 54. Tax also due on renewals. – The tax under this employer hires additional employees during the life of the
section is collectible not only on the original policy or contract policy, the additional employees may be covered by the same
of insurance but also upon the renewal of the policy or contract group insurance already taken out without any need for the
of insurance. issuance of a new policy.

To argue that there was no new legal relationship created by The respondent claims that since the additional premiums
the availment of the guaranteed continuity clause would mean represented the additional members of the same existing
that any option to renew, integrated in the original agreement group insurance policy, then under our tax laws, no additional
or contract, would not in reality be a renewal but only a documentary stamp tax should be imposed since the
discharge of a pre-existing obligation. The truth of the matter is appropriate documentary stamp tax had already been paid
that the guaranteed continuity clause only gave the insured the upon the issuance of the master policy. The respondent
right to renew his life insurance policy which had a fixed term asserts that since the documentary stamp tax, by its nature, is
of twenty years. And although the policy would still continue paid at the time of the issuance of the policy, "then there can
with essentially the same terms and conditions, the fact is, its be no other imposition on the same, regardless of any change
maturity date, coverage, and premium rate would have in the number of employees covered by the existing group
changed. We cannot agree with the CTA in its holding that "the insurance."49
renewal, is in effect treated as an increase in the sum assured
since no new insurance policy was issued."46 The renewal was To resolve this issue, it would be instructive to take another
not meant to restore the original terms of an old agreement, look at Section 183: On all policies of insurance or other
but instead it was meant to extend the life of an existing instruments by whatever name the same may be called,
agreement, with some of the contract’s terms modified. This whereby any insurance shall be made or renewed upon any
renewal was still subject to the acceptance and to the life or lives.
conditions of both the insured and the respondent. This is
entirely different from a simple mutual agreement between the The phrase "other instruments" as also found in the earlier
insurer and the insured, to increase the coverage of an existing version of Section 183, i.e., Section 1449(j) of the
and effective life insurance policy. Administrative Code of 1917, was explained in Regulations No.
26, to wit:
It is clear that the availment of the option in the guaranteed
continuity clause will effectively renew the Money Plus Plan Section 52. "Other instruments" defined. – The term "other
policy, which is indisputably subject to the imposition of instruments" includes any instrument by whatever name the
documentary stamp tax under Section 183 as an same is called whereby insurance is made or renewed, i.e., by
insurance renewed upon the life of the insured. which the relationship of insurer and insured is created or
evidenced, whether it be a letter of acceptance, cablegrams,
letters, binders, covering notes, or memoranda. (Emphasis the deficiency documentary stamp tax in the amount of
ours.) ₱1,646,449.26, plus the delinquency penalties of 25%
surcharge on the amount due and 20% annual interest from
Whenever a master policy admits of another member, another January 5, 2000 until fully paid.
life is insured and covered. This means that the respondent, by
approving the addition of another member to its existing master SO ORDERED.
policy, is once more exercising its privilege to conduct the
business of insurance, because it is yet again insuring a life. It TERESITA J. LEONARDO-DE CASTRO
does not matter that it did not issue another policy to effect this Associate Justice
change, the fact remains that insurance on another life is made
and the relationship of insurer and insured is created between
the respondent and the additional member of that master 2.2
policy. In the respondent’s case, its group insurance plan is
embodied in a contract which includes not only the master G.R. No. L-66160 May 21, 1990
policy, but all documents subsequently attached to the master
policy.50 Among these documents are the Enrollment Cards
accomplished by the employees when they applied for COMMISSIONER OF INTERNAL REVENUE, petitioner,
membership in the group insurance plan. The Enrollment Card vs.
of a new employee, once registered in the Schedule of UNION SHIPPING CORPORATION and THE COURT OF
Benefits and attached to the master policy, becomes evidence TAX APPEALS, respondents.
of such employee’s membership in the group insurance plan,
and his right to receive the benefits therein. Everytime the Artemio M. Lobrin for private respondent.
respondent registers and attaches an Enrollment Card to an
existing master policy, it exercises its privilege to conduct its
business of insurance and this is patently subject to
documentary stamp tax as insurance made upon a life under
Section 183. PARAS, J.:

The respondent would like this Court to ignore the petitioner’s This is a petition for review on certiorari of the December 9,
argument that renewals of insurance policies are also subject 1983 decision * of the Court of Tax Appeals in CTA Case No.
to documentary stamp tax for being raised for the first time. 2989 reversing the Commissioner of Internal Revenue.
This Court was faced with the same dilemma in Commissioner
of Internal Revenue v. Procter & Gamble Philippine In a letter dated December 27, 1974 (Exhibit "A") herein
Manufacturing Corporation,51 when the petitioner also raised petitioner Commissioner of Internal Revenue assessed against
an issue therein for the first time in the Supreme Court. In Yee Fong Hong, Ltd. and/or herein private respondent Union
addressing the procedural lapse, we said: Shipping Corporation, the total sum of P583,155.22 as
deficiency income taxes due for the years 1971 and 1972. Said
As clearly ruled by Us "To allow a litigant to assume a different letter was received on January 4, 1975, and in a letter dated
posture when he comes before the court and challenges the January 10, 1975 (Exhibit "B"), received by petitioner on
position he had accepted at the administrative level," would be January 13, 1975, private respondent protested the
to sanction a procedure whereby the Court - which is supposed assessment.
to review administrative determinations - would not review, but
determine and decide for the first time, a question not raised at Petitioner, without ruling on the protest, issued a Warrant of
the administrative forum. Thus it is well settled that under the Distraint and Levy (Exhibit "C"), which was served on private
same underlying principle of prior exhaustion of administrative respondent's counsel, Clemente Celso, on November 25,
remedies, on the judicial level, issues not raised in the lower 1976.
court cannot generally be raised for the first time on appeal. x x
x.52 In a letter dated November 27, 1976 (Exhibit "D"), received by
petitioner on November 29, 1976 (Exhibit "D-1") private
However, in the same case, we also held that: respondent reiterated its request for reinvestigation of the
assessment and for the reconsideration of the summary
Nonetheless it is axiomatic that the State can never be in collection thru the Warrant of Distraint and Levy.
estoppel, and this is particularly true in matters involving
taxation. The errors of certain administrative officers should Petitioner, again, without acting on the request for
never be allowed to jeopardize the government's financial reinvestigation and reconsideration of the Warrant of Distraint
position.53 (Emphasis ours.) and Levy, filed a collection suit before Branch XXI of the then
Court of First Instance of Manila and docketed as Civil Case
Along with police power and eminent domain, taxation is one of No. 120459 against private respondent. Summons (Exhibit "E")
the three basic and necessary attributes of in the said collection case was issued to private respondent on
sovereignty.54 Taxes are the lifeblood of the government and December 28, 1978.
their prompt and certain availability is an imperious need. It is
through taxes that government agencies are able to operate On January 10, 1979, private respondent filed with respondent
and with which the State executes its functions for the welfare court its Petition for Review of the petitioner's assessment of its
of its constituents.55 It is for this reason that we cannot let the deficiency income taxes in a letter dated December 27, 1974,
petitioner’s oversight bar the government’s rightful docketed therein as CTA Case No. 2989 (Rollo, pp. 44-49),
claim.1avvphi1 wherein it prays that after hearing, judgment be rendered
holding that it is not liable for the payment of the income tax
This Court would like to make it clear that the assessment for herein involved, or which may be due from foreign shipowner
deficiency documentary stamp tax is being upheld not because Yee Fong Hong, Ltd.; to which petitioner filed his answer on
the additional premium payments or an agreement to change March 29, 1979 (Rollo, pp. 50-53).
the sum assured during the effectivity of an insurance plan are
subject to documentary stamp tax, but because documentary Respondent Tax Court, in a decision dated December 9, 1983,
stamp tax is levied on every document which establishes that ruled in favor of private respondent —
insurance was made or renewed upon a life.
WHEREFORE, the decision of the
WHEREFORE, the petition is GRANTED. The April 29, 2005 Commissioner of Internal Revenue appealed
Decision and the July 27, 2005 Resolution of the Court of from, assessing against and demanding from
Appeals in CA-G.R. SP No. 70600 are hereby SET ASIDE. petitioner the payment of deficiency income
Respondent Manila Bankers’ Life Insurance Corp. is hereby tax, inclusive of 50% surcharge, interest and
ordered to pay petitioner Commissioner of Internal Revenue compromise penalties, in the amounts of
 P73,958.76 and P583,155.22 for the years orderliness in administrative action. (Surigao
1971 and 1972, respectively, is reversed. Electric Co., Inc. v. C.T.A., 57 SCRA 523,
528, [1974]).
Hence, the instant petition.
There appears to be no dispute that petitioner did not rule on
The Second Division of this Court, after the filing of the private respondent's motion for reconsideration but contrary to
required pleadings, in a resolution dated January 28, 1985, the above ruling of this Court, left private respondent in the
resolved to give due course to the petition, and directed dark as to which action of the Commissioner is the decision
petitioner therein, to file his brief (Rollo, p. 145). In compliance, appealable to the Court of Tax Appeals. Had he categorically
petitioner filed his brief on May 10, 1985 (Rollo, p. 151). stated that he denies private respondent's motion for
Respondents, on the other hand, filed their brief on June 6, reconsideration and that his action constitutes his final
1985 (Rollo, p. 156). determination on the disputed assessment, private respondent
without needless difficulty would have been able to determine
when his right to appeal accrues and the resulting confusion
The main issues in this case are: (a) on the procedural aspect, would have been avoided.
whether or not the Court of Tax Appeals has jurisdiction over
this case and (b) on the merits, whether or not Union Shipping
Corporation acting as a mere "husbanding agent" of Yee Fong Much later, this Court reiterated the above-mentioned dictum in
Hong Ltd. is liable for payment of taxes on the gross receipts a ruling applicable on all fours to the issue in the case at bar,
or earnings of the latter. that the reviewable decision of the Bureau of Internal Revenue
is that contained in the letter of its Commissioner, that such
constitutes the final decision on the matter which may be
The main thrust of this petition is that the issuance of a warrant appealed to the Court of Tax Appeals and not the warrants of
of distraint and levy is proof of the finality of an assessment distraint (Advertising Associates, Inc. v. Court of Appeals, 133
because it is the most drastic action of all media of enforcing SCRA 769 [1984] emphasis supplied). It was likewise stressed
the collection of tax, and is tantamount to an outright denial of that the procedure enunciated is demanded by the pressing
a motion for reconsideration of an assessment. Among others, need for fair play, regularity and orderliness in administrative
petitioner contends that the warrant of distraint and levy was action.
issued after respondent corporation filed a request for
reconsideration of subject assessment, thus constituting
petitioner's final decision in the disputed assessments (Brief for Under the circumstances, the Commissioner of Internal
petitioner, pp. 9 and 12). Revenue, not having clearly signified his final action on the
disputed assessment, legally the period to appeal has not
commenced to run. Thus, it was only when private respondent
Petitioner argues therefore that the period to appeal to the received the summons on the civil suit for collection of
Court of Tax Appeals commenced to run from receipt of said deficiency income on December 28, 1978 that the period to
warrant on November 25, 1976, so that on January 10, 1979 appeal commenced to run.
when respondent corporation sought redress from the Tax
Court, petitioner's decision has long become final and
executory. The request for reinvestigation and reconsideration was in
effect considered denied by petitioner when the latter filed a
civil suit for collection of deficiency income. So. that on January
On this issue, this Court had already laid down the dictum that 10, 1979 when private respondent filed the appeal with the
the Commissioner should always indicate to the taxpayer in Court of Tax Appeals, it consumed a total of only thirteen (13)
clear and unequivocal language what constitutes his final days well within the thirty day period to appeal pursuant to
determination of the disputed assessment. Section 11 of R.A. 1125.

Specifically, this Court ruled: On the merits, it was found fully substantiated by the Court of
Tax Appeals that, respondent corporation is the husbanding
. . . we deem it appropriate to state that the agent of the vessel Yee Fong Hong, Ltd. as follows:
Commissioner of Internal Revenue should
always indicate to the taxpayer in clear and Coming to the second issue, petitioner
unequivocal language whenever his action contended and was substantiated by
on an assessment questioned by a taxpayer satisfactory uncontradicted testimonies of
constitutes his final determination on the Clemente Celso, Certified Public Accountant,
disputed assessment, as contemplated by and Rodolfo C. Cabalquinto, President and
sections 7 and 11 of Republic Act 1125, as General Manager, of petitioner that it is
amended. On the basis of this statement actually and legally the husbanding agent of
indubitably showing that the Commissioner's the vessel of Yee Fong Hong, Ltd. as (1) it
communicated action is his final decision on neither performed nor transacted any
the contested assessment, the aggrieved shipping business, for and in representation,
taxpayer would then be able to take recourse of Yee Fong Hong, Ltd. or its vessels or
to the tax court at the opportune time. otherwise negotiated or procured cargo to be
Without needless difficulty, the taxpayer loaded in the vessels of Yee Fong Hong, Ltd.
would be able to determine when his right to (p. 21, t.s.n., July 16, 1980); (2) it never
appeal to the tax court accrues. This rule of solicited or procured cargo or freight in the
conduct would also obviate all desire and Philippines or elsewhere for loading in said
opportunity on the part of the taxpayer to vessels of Yee Fong Hong, Ltd. (pp. 21 &
continually delay the finality of the 38, ibid.); (3) it had not collected any freight
assessment — and, consequently, the income or receipts for the said Yee Fong
collection of the amount demanded as taxes Hong, Ltd. (pp. 22 & 38, ibid; pp. 46 & 48,
— by repeated requests for recomputation t.s.n., Nov. 14, 1980.); (4) it never had
and reconsideration. On the part of the possession or control, actual or constructive,
Commissioner, this would encourage his over the funds representing payment by
office to conduct a careful and thorough Philippine shippers for cargo loaded on said
study of every questioned assessment and vessels (pp. 21 & 38, ibid; p. 48, ibid);
render a correct and definite decision petitioner never remitted to Yee Fong Hong,
thereon in the first instance. This would also Ltd. any sum of money representing freight
deter the Commissioner from unfairly making incomes of Yee Fong Hong, Ltd. (p. 21, ibid.;
the taxpayer grope in the dark and speculate p. 48, ibid); and (5) that the freight payments
as to which action constitutes the decision made for cargo loaded in the Philippines for
appealable to the tax court. Of greater foreign destination were actually paid directly
import, this rule of conduct would meet a by the shippers to the said Yee Fong Hong,
pressing need for fair play, regularity, and
 Ltd. upon arrival of the goods in the foreign Thereafter the Commissioner, by letter dated April 2, 1961,
ports. (Rollo, pp. 58-59). advised the petitioner to take up the matter with the General
Auditing Office, enclosing a copy of the 4th Indorsement of the
On the same issue, the Commissioner of Internal Revenue Auditor General dated November 23, 1960. This indorsement
Misael P. Vera, on query of respondent's counsel, opined that indicated that the petitioner's liability for deficiency franchise
respondent corporation being merely a husbanding agent is tax for the period from September 1947 to June 1959 was
not liable for the payment of the income taxes due from the P21,156.06, excluding surcharge. Subsequently, in a letter to
foreign ship owners loading cargoes in the Philippines (Rollo, the Auditor General dated August 2, 1962, the petitioner asked
p. 63; Exhibit "I", Rollo, pp. 64-66). for reconsideration of the assessment, admitting liability only
for the 2% franchise tax in accordance with its legislative
franchise and not at the higher rate of 5% imposed by section
Neither can private respondent be liable for withholding tax 259 of the National Internal Revenue Code, as amended,
under Section 53 of the Internal Revenue Code since it is not which latter rate the Auditor General used as basis in
in possession, custody or control of the funds received by and computing the petitioner's deficiency franchise tax.
remitted to Yee Fong Hong, Ltd., a non-resident taxpayer. As
correctly ruled by the Court of Tax Appeals, "if an individual or
corporation like the petitioner in this case, is not in the actual An exchange of correspondence between the petitioner, on the
possession, custody, or control of the funds, it can neither be one hand, and the Commissioner and the Auditor General, on
physically nor legally liable or obligated to pay the so-called the other, ensued, all on the matter of the petitioner's liability
withholding tax on income claimed by Yee Fong Hong, Ltd." for deficiency franchise tax.
(Rollo, p. 67).
The controversy culminated in a revised assessment dated
Finally, it must be stated that factual findings of the Court of April 29, 1963 (received by the petitioner on May 8, 1963) in
Tax Appeals are binding on this Court (Industrial Textiles the amount of P11,533.53, representing the petitioner's
Manufacturing Company of the Phil., Inc. (ITEMCOP) v. deficiency franchise-tax and surcharges thereon for the period
Commissioner of Internal Revenue, et al. (136 SCRA 549 from April 1, 1956 to June 30, 1959. The petitioner then
[1985]). It is well-settled that in passing upon petitions for requested a recomputation of the revised assessment in a
review of the decisions of the Court of Tax Appeals, this Court letter to the Commissioner dated June 6, 1963 (sent by
is generally confined to questions of law. The findings of fact of registered mail on June 7, 1963). The Commissioner, however,
said Court are not to be disturbed unless clearly shown to be in a letter dated June 28, 1963 (received by the petitioner on
unsupported by substantial evidence (Commissioner of Internal July 16, 1963), denied the request for recomputation.
Revenue v. Manila Machinery & Supply Company, 135 SCRA
8 [1985]). On August 1, 1963 the petitioner appealed to the Court of Tax
Appeals. The tax court dismissed the appeal on October 1,
A careful scrutiny of the records reveals no cogent reason to 1965 on the ground that the appeal was filed beyond the thirty-
disturb the findings of the Court of Tax Appeals. day period of appeal provided by section 11 of Republic Act
1125.
PREMISES CONSIDERED, the instant petition is hereby
DISMISSED and the assailed decision of the Court of Tax Hence, the present recourse.
Appeals is hereby AFFIRMED.
The case at bar raises only one issue: whether or not the
SO ORDERED. petitioner's appeal to the Court of Tax Appeals was time-
barred. The parties disagree on which letter of the
Commissioner embodies the decision or ruling appealable to
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., the tax court.
concur.
A close reading of the numerous letters exchanged between
2.3 the petitioner and the Commissioner clearly discloses that the
letter of demand issued by the Commissioner on April 29, 1963
G.R. No. L-25289 June 28, 1974 and received by the petitioner on May 8, 1963 constitutes the
definite determination of the petitioner's deficiency franchise
tax liability or the decision on the disputed assessment and,
SURIGAO ELECTRIC CO., INC., petitioner, therefore, the decision appealable to the tax court. This letter
vs. of April 29, 1963 was in response to the communications of the
THE HONORABLE COURT OF TAX APPEALS and petitioner, particularly the letter of August 2, 1962 wherein it
COMMISSIONER OF INTERNAL REVENUE, respondents. assailed the 4th Indorsement's data and findings on its
deficiency, franchise tax liability computed at 5% (on the
David G. Nitafan for petitioner. ground that its franchise precludes the imposition of a rate
higher than the 2% fixed in its legislative franchise), and the
Office of the Solicitor General Antonio P. Barredo, Assistant letter of April 24, 1963 wherein it again questioned the
Solicitor General Felicisimo R. Rosete and Special Attorney assessment and requested for a recomputation (on the ground
Franciso J. Malate, Jr. for respondents. that the Government could make an assessment only for the
period from May 29, 1956 to June 30, 1959). Thus, as early as
August 2, 1962, the petitioner already disputed the assessment
made by the Commissioner.

CASTRO, J.:p Moreover, the letter of demand dated April 29, 1963

unquestionably constitutes the final action taken by the
The Court denies the present petition for review of the decision Commissioner on the petitioner's several requests for
of the Court of Appeals dated October 1, 1965 in its CTA Case reconsideration and recomputation. In this letter, the
No. 1438, which dismissed the appeal filed by the petitioner Commissioner not only in effect demanded that the petitioner
Surigao Electric Company, Inc. with the tax court on August 1, pay the amount of P11,533.53 but also gave warning that in
1963 on the ground that it was time-barred. the event it failed to pay, the said Commissioner would be
constrained to enforce the collection thereof by means of the
remedies provided by law. The tenor of the letter, specifically,
In November 1961 the petitioner Surigao Electric Co., Inc.,
the statement regarding the resort to legal remedies,
grantee of a legislative electric franchise, received a warrant of
unmistakably indicates the final nature of the determination
distraint and levy to enforce the collection from "Mainit Electric"
made by the Commissioner of the petitioner's deficiency
of a deficiency franchise tax plus surcharge in the total amount
franchise tax liability.
of P718.59. In a letter to the Commissioner of Internal
Revenue, the petitioner contested this warrant, stating that it
did not have a franchise in Mainit, Surigao.
The foregoing-view accords with settled jurisprudence — and also deter the Commissioner from unfairly making the taxpayer
this despite the fact that nothing in Republic Act 1125, 1 as grope in the dark and speculate as to which action constitutes
amended, even remotely suggests the element truly the decision appealable to the tax court. Of greater import, this
determinative of the appealability to the Court of Appeals of a rule of conduct would meet a pressing need for fair play,
ruling of the Commissioner of Internal Revenue. Thus, this regularity, and orderliness in administrative action.
Court has considered the following communications sent by
the Commissioner to taxpayers as embodying rulings ACCORDINGLY, the decision of the Court of Tax Appeals
appealable to the tax court: (a) a letter which stated the result dated October 1, 1965 is affirmed, at petitioner's cost.
of the investigation requested by the taxpayer and the
consequent modification of the assessment;2 (b) letter which
denied the request of the taxpayer for the reconsideration Makalintal, C.J, Makasiar, Esguerra and Muñoz Palma, JJ.,
cancellation, or withdrawal of the original assessment;3 (c) a concur.
letter which contained a demand on the taxpayer for the
payment of the revised or reduced assessment;4 and (d) a 2.4
letter which notified the taxpayer of a revision of previous
assessments.5
G.R. No. 135210      July 11, 2001
To sustain the petitioner's contention that the Commissioner's
letter of June 28, 1963 denying its request for further COMMISSIONER OF INTERNAL REVENUE, petitioner,
amendment of the revised assessment constitutes the ruling vs.
appealable to the tax court and that the thirty-day period ISABELA CULTURAL CORPORATION, respondent.
should, therefore, be counted from July 16, 1963, the day it
received the June 28, 1963 letter, would, in effect, leave solely PANGANIBAN, J.:
to the petitioner's will the determination of the commencement
of the statutory thirty-day period, and place the petitioner — A final demand letter from the Bureau of Internal Revenue,
and for that matter, any taxpayer — in a position, to delay at reiterating to the taxpayer the immediate payment of a tax
will and on convenience the finality of a tax assessment. This deficiency assessment previously made, is tantamount to a
absurd interpretation espoused by the petitioner would result in denial of the taxpayer's request for reconsideration. Such letter
grave detriment to the interests of the Government, amounts to a final decision on a disputed assessment and is
considering that taxes constitute its life-blood and their prompt thus appealable to the Court of Tax Appeals (CTA).
and certain availability is an imperative need.6

The Case
The revised assessment embodied in the Commissioner's
letter dated April 29, 1963 being, in legal contemplation, the
final ruling reviewable by the tax court, the thirty-day appeal Before this Court is a Petition for Review
period should be counted from May 8, 1963 (the day the on Certiorari1 pursuant to Rule 45 of the Rules of Court,
petitioner received a copy of the said letter). From May 8, 1963 seeking to set aside the August 19, 1998 Decision2 of the
to June 7, 1963 (the day the petitioner, by registered mail, sent Court of Appeals3 (CA) in CA-GR SP No. 46383 and ultimately
to the Commissioner its letter of June 6, 1963 requesting for to affirm the dismissal of CTA Case No. 5211. The dispositive
further recomputation of the amount demanded from it) saw portion of the assailed Decision reads as follows:
the lapse of thirty days. The June 6, 1963 request for further
recomputation, partaking of a motion for reconsideration, tolled "WHEREFORE, the assailed decision is REVERSED
the running of the thirty-day period from June 7, 1963 (the day and SET ASIDE. Accordingly, judgment is hereby
the petitioner sent its letter by registered mail) to July 16, 1963 rendered REMANDING the case to the CTA for
(the day the petitioner received the letter of the Commissioner proper disposition."4
dated June 28, 1963 turning down its request). The
prescriptive period commenced to run again on July 16, 1963.
The Facts
The petitioner filed its petition for review with the tax court on
August 1, 1963 — after the lapse of an additional sixteen days.
The petition for review having been filed beyond the thirty-day The facts are undisputed. The Court of Appeals quoted the
period, we rule that the Court of Tax Appeals correctly summary of the CTA as follows:
dismissed the same.
"As succinctly summarized by the Court of Tax
The thirty-day period prescribed by section 11 of Republic Act appeals (CTA for brevity), the antecedent facts are as
1125, as amended, within which a taxpayer adversely affected follows:
by a decision of the Commissioner of Internal Revenue should
file his appeal with the tax court, is a jurisdictional 'In an investigation conducted on the 1986
requirement,7 and the failure of a taxpayer to lodge his appeal books of account of [respondent, petitioner]
within the prescribed period bars his appeal and renders the had the preliminary [finding] that
questioned decision final and executory.8 [respondent] incurred a total income tax
deficiency of P9,985,392.15, inclusive of
Prescinding from all the foregoing, we deem it appropriate to increments. Upon protest by [respondent's]
state that the Commissioner of Internal Revenue should counsel, the said preliminary assessment
always indicate to the taxpayer in clear and unequivocal was reduced to the amount of P325,869.44,
language whenever his action on an assessment questioned a breakdown of which follows:
by a taxpayer constitutes his final determination on the
disputed assessment, as contemplated by sections 7 and 11 of
Republic Act 1125, as amended. On the basis of Deficiency Income Tax
this indicium indubitably showing that the Commissioner's
communicated action is his final decision on the contested Deficiency Expanded Withholding Tax
assessment, the aggrieved taxpayer would then be able to
take recourse to the tax court at the opportune time. Without Total
needless difficulty, the taxpayer would be able to determine
when his right to appeal to the tax court accrues. This rule of
conduct would also obviate all desire and opportunity on the (pp. 187-189, BIR records)'
part of the taxpayer to continually delay the finality of the
assessment — and, consequently, the collection of the amount On February 23, 1990, [respondent] received from
demanded as taxes — by repeated requests for recomputation [petitioner] an assessment letter, dated February 9,
and reconsideration. On the part of the Commissioner, this 1990, demanding payment of the amounts of
would encourage his office to conduct a careful and thorough P333,196.86 and P4,897.79 as deficiency income tax
study of every questioned assessment and render a correct and expanded withholding tax inclusive of surcharge
and definite decision thereon in the first instance. This would and interest, respectively, for the taxable period from
 January 1, 1986 to December 31, 1986. (pp. 204 and considerable length of time, we have not been
205, BIR rec.) honored with a reply from you.

In a letter, dated March 22, 1990, filed with the In this connection, we are giving you this LAST
[petitioner's] office on March 23, 1990 (pp. 296-311, OPPORTUNITY to settle the adverted assessment
BIR rec.), [respondent] requested x x x a within ten (10) days after receipt hereof. Should you
reconsideration of the subject assessment. again fail, and refuse to pay, this Office will be
constrained to enforce its collection by summary
Supplemental to its protest was a letter, dated April 2, remedies of Warrant of Levy of Road Property,
1990, filed with the [petitioner's] office on April 18, Distraint of Personal Property or Warrant of
1990 (pp. 224 & 225, BIR rec.), to which x x x were Garnishment, and/or simultaneous court action.
attached certain documents supportive of its protest,
as well as a Waiver of Statute of Limitation, dated Please give this matter your preferential attention.
April 17, 1990, where it was indicated that [petitioner]
would only have until April 5, 1991 within which to
asses and collect the taxes that may be found due Very truly yours,
from [respondent] after the re-investigation.

On February 9, 1995, [respondent] received from ISIDRO B. TECSON, JR.

[petitioner] a Final Notice Before Seizure, dated Revenue District Officer
December 22, 1994 (p. 340, BIR rec.). In said letter,
[petitioner] demanded payment of the subject
assessment within ten (10) days from receipt thereof. By:
Otherwise, failure on its part would constrain
[petitioner] to collect the subject assessment through (Signed)
summary remedies. MILAGROS M. ACEVEDO
Actg. Chief Revenue Collection Officer"9
[Respondent] considered said final notice of seizure
as [petitioner's] final decision. Hence, the instant
petition for review filed with this Court on March 9, Petitioner maintains that this Final Notice was a mere
1995. reiteration of the delinquent taxpayer's obligation to pay the
taxes due. It was supposedly a mere demand that should not
have been mistaken for a decision on a protested assessment.
The CTA having rendered judgment dismissing the Such decision, the commissioner contends, must
petition, [respondent] filed the instant petition unequivocably indicate that it is the resolution of the taxpayer's
anchored on the argument that [petitioner's] issuance request for reconsideration and must likewise state the reason
of the Final Notice Before Seizure constitutes [its] therefor.
decision on [respondent's] request for reinvestigation,
which the [respondent] may appeal to the CTA."5
Respondent, on the other hand, points out that the Final Notice
Before Seizure should be considered as a denial of its request
Ruling of the Court of Appeals for reconsideration of the disputed assessment. The Notice
should be deemed as petitioner's last act, since failure to
In its Decision, the Court of Appeals reversed the Court of Tax comply with it would lead to the distraint and levy of
Appeals. The CA considered the final notice sent by petitioner respondent's properties, as indicated therein.
as the latter's decision, which was appealable to the CTA. The
appellate court reasoned that the final Notice before seizure We agree with respondent. In the normal course, the revenue
had effectively denied petitioner's request for a reconsideration district officer sends the taxpayer a notice of delinquent taxes,
of the commissioner's assessment. The CA relied on the long- indicating the period covered, the amount due including
settled tax jurisprudence that a demand letter reiterating interest, and the reason for the delinquency. If the taxpayer
payment of delinquent taxes amounted to a decision on a disagrees with or wishes to protest the assessment, it sends a
disputed assessment. letter to the BIR indicating its protest, stating the reasons
therefor, and submitting such proof as may be necessary. That
Hence, this recourse.6 letter is considered as the taxpayer's request for
reconsideration of the delinquent assessment. After the
Issues request is filed and received by the BIR, the assessment
becomes a disputed assessment on which it must render a
decision. That decision is appealable to the Court of Tax
In his Memorandum,7 petitioner presents for this Court's Appeals for review.
consideration a solitary issue:
Prior to the decision on a disputed assessment, there may still
"Whether or not the Final Notice Before Seizure dated be exchanges between the commissioner of internal revenue
February 9, 1995 signed by Acting Chief Revenue (CIR) and the taxpayer. The former may ask clarificatory
Collection Officer Milagros Acevedo against ICC questions or require the latter to submit additional evidence.
constitutes the final decision of the CIR appealable to However, the CIR's position regarding the disputed
the CTA."8 assessment must be indicated in the final decision. It is this
decision that is properly appealable to the CTA for review.
The Court's Ruling
Indisputably, respondent received an assessment letter dated
The Petition is not meritorious. February 9, 1990, stating that it had delinquent taxes due; and
it subsequently filed its motion for reconsideration on March
Sole Issue: 23, 1990. In support of its request for reconsideration, it sent to
The Nature of the Final Notice Before Seizure the CIR additional documents on April 18, 1990. The next
communication respondent received was already the Final
Notice Before Seizure dated November 10, 1994.
The Final Notice Before Seizure sent by the Bureau of Internal
Revenue (BIR) to respondent reads as follows:
In the light of the above facts, the Final Notice Before Seizure
cannot but be considered as the commissioner's decision
"On Feb. 9, 1990, [this] Office sent you a letter disposing of the request for reconsideration filed by
requesting you to settle the above-captioned respondent, who received no other response to its request. Not
assessment. To date, however, despite the lapse of a only was the Notice the only response received; its content and
tenor supported the theory that it was the CIR's final act "x x x. The letter of demand dated April 29, 1963
regarding the request for reconsideration. The very title unquestionably constitutes the final action taken by
expressly indicated that it was a final notice prior to seizure of the commissioner on the petitioner's several requests
property. The letter itself clearly stated that respondent was for reconsideration and recomputation. In this letter
being given "this LAST OPPORTUNITY" to pay; otherwise, its the commissioner not only in effect demanded that
properties would be subjected to distraint and levy. How then the petitioner pay the amount of P11,533.53 but also
could it have been made to believe that its request for gave warning that in the event it failed to pay, the said
reconsideration was still pending determination, despite the commissioner would be constrained to enforce the
actual threat of seizure of its properties? collection thereof by means of the remedies provided
by law. The tenor of the letter, specifically the
Furthermore, Section 228 of the National Internal Revenue statement regarding the resort to legal remedies,
Code states that a delinquent taxpayer may unmistakably indicate[d] the final nature of the
nevertheless directly appeal a disputed assessment, if its determination made by the commissioner of the
request for reconsideration remains unacted upon 180 days petitioner's deficiency franchise tax liability."
after submission thereof. We quote:
As in CIR v. Union Shipping,14 petitioner failed to rule on the
"Sec. 228. Protesting an Assessment. – x x x Motion for Reconsideration filed by private respondent, but
simply continued to demand payment of the latter's alleged tax
delinquency. Thus, the Court reiterated the dictum that the BIR
Within a period to be prescribed by implementing should always indicate to the taxpayer in clear and unequivocal
rules and regulations, the taxpayer shall be required language what constitutes final action on a disputed
to respond to said notice. If the taxpayer fails to assessment. The object of this policy is to avoid repeated
respond, the Commissioner or his duly authorized requests for reconsideration by the taxpayer, thereby delaying
representative shall issue an assessment based on the finality of the assessment and, consequently, the collection
his findings. of the taxes due. Furthermore, the taxpayer would not be
groping in the dark, speculating as to which communication or
Such assessment may be protested administratively action of the BIR may be the decision appealable to the tax
by filing a request for reconsideration or court.15
reinvestigation within thirty (30) days from receipt of
the assessment in such form and manner as may be In the instant case, the second notice received by private
prescribed by implementing rules and regulations. respondent verily indicated its nature – that it was final.
Within sixty (60) days from filing of the protest, all Unequivocably, therefore, it was tantamount to a rejection of
relevant supporting documents shall have become the request for reconsideration.
final.
Commissioner v. Algue16 is not in point here. In that case, the
If the protest is denied in whole or in part, or is not Warrant of Distraint and Levy, issued to the taxpayer without
acted upon within one hundred eighty (180) days from any categorical ruling on its request for reconsideration, was
submission of documents, the taxpayer adversely not deemed equivalent to a denial of the request. Because
affected by the decision or inaction may appeal to the such request could not in fact be found in its records, the BIR
Court of Tax Appeals within (30) days from receipt of cannot be presumed to have taken it into consideration. The
the said decision, or from the lapse of the one request was considered only when the taxpayer gave a copy of
hundred eighty (180)-day period; otherwise the it, duly stamp-received by the BIR. Hence, the Warrant was
decision shall become final, executory and deemed premature.1âwphi1.nêt
demandable."10
In the present case, petitioner does not deny receipt of private
In this case, the said period of 180 days had already lapsed respondent's protest letter. As a matter of fact, it categorically
when respondent filed its request for reconsideration on March relates the following in its "Statement of Relevant Facts":17
23, 1990, without any action on the part of the CIR.
"3. On March 23, 1990, respondent ICC wrote the CIR
Lastly, jurisprudence dictates that a final demand letter for requesting for a reconsideration of the assessment on
payment of delinquent taxes may be considered a decision on the ground that there was an error committed in the
a disputed or protested assessment. In Commissioner of computation of interest and that there were expenses
Internal Revenue v. Ayala Securities Corporation, this Court which were disallowed (Ibid., pp. 296-311).
held:
"4. On April 2, 1990, respondent ICC sent the CIR
"The letter of February 18, 1963 (Exh. G), in the view additional documents in support of its
of the Court, is tantamount to a denial of the protest/reconsideration. The letter was received by
reconsideration or [respondent corporation's] x x x the BIR on April 18, 1990. Respondent ICC further
protest o[f] the assessment made by the petitioner, executed a Waiver of Statute of Limitation (dated April
considering that the said letter [was] in itself a 17, 1990) whereby it consented to the BIR to assess
reiteration of the demand by the Bureau of Internal and collect any taxes that may be discovered in the
Revenue for the settlement of the assessment already process of reinvestigation, until April 3, 1991 (Ibid.,
made, and for the immediate payment of the sum of pp. 296-311). A copy of the waiver is hereto attached
P758,687.04 in spite of the vehement protest of the as Annex 'C'."
respondent corporation on April 21, 1961. This
certainly is a clear indication of the firm stand of
petitioner against the reconsideration of the disputed Having admitted as a fact private respondent's request for
assessment, in view of the continued refusal of the reconsideration, petitioner must have passed upon it prior to
respondent corporation to execute the waiver of the the issuance of the Final Notice Before Seizure.
period of limitation upon the assessment in question.
WHEREFORE, the Petition is hereby DENIED and the
This being so, the said letter amount[ed] to a decision assailed Decision AFFIRMED.
on a disputed or protested assessment and, there, the
court a quo did not err in taking cognizance of this SO ORDERED.
case."11
2.5
Similarly, in Surigao Electric Co., Inc. v. Court of Tax
Appeals12 and again in CIR v. Union Shipping Corp., 13 we
ruled: G.R. No. 148380 December 9, 2005
OCEANIC WIRELESS NETWORK, INC., Petitioner, Upon petitioner’s failure to pay the subject tax assessments
vs. within the prescribed period, the Assistant Commissioner for
COMMISSIONER OF INTERNAL REVENUE, THE COURT Collection, acting for the Commissioner of Internal Revenue,
OF TAX APPEALS, and THE COURT OF issued the corresponding warrants of distraint and/or levy and
APPEALS, Respondents. garnishment. These were served on petitioner on October 10,
1991 and October 17, 1991, respectively.2
DECISION
On November 8, 1991, petitioner filed a Petition for Review
AZCUNA, J.: with the Court of Tax Appeals (CTA) to contest the issuance of
the warrants to enforce the collection of the tax assessments.
This was docketed as CTA Case No. 4668.
This is a Petition for Review on Certiorari seeking to reverse
and set aside the Decision of the Court of Appeals dated
October 31, 2000, and its Resolution dated May 3, 2001, in The CTA dismissed the petition for lack of jurisdiction in a
"Oceanic Wireless Network, Inc. v. Commissioner of Internal decision dated September 16, 1994, declaring that said petition
Revenue" docketed as CA-G.R. SP No. 35581, upholding the was filed beyond the thirty (30)-day period reckoned from the
Decision of the Court of Tax Appeals dismissing the Petition for time when the demand letter of January 24, 1991 by the Chief
Review in CTA Case No. 4668 for lack of jurisdiction. of the BIR Accounts Receivable and Billing Division was
presumably received by petitioner, i.e., "within a reasonable
time from said date in the regular course of mail pursuant to
Petitioner Oceanic Wireless Network, Inc. challenges the Section 2(v) of Rule 131 of the Rules of Court."3
authority of the Chief of the Accounts Receivable and Billing
Division of the Bureau of Internal Revenue (BIR) National
Office to decide and/or act with finality on behalf of the The decision cited Surigao Electric Co., Inc. v. Court of Tax
Commissioner of Internal Revenue (CIR) on protests against Appeals4 wherein this Court considered a mere demand letter
disputed tax deficiency assessments. sent to the taxpayer after his protest of the assessment notice
as the final decision of the Commissioner of Internal Revenue
on the protest. Hence, the filing of the petition on November 8,
The facts of the case are as follows: 1991 was held clearly beyond the reglementary period.5

On March 17, 1988, petitioner received from the Bureau of The court a quo likewise stated that the finality of the denial of
Internal Revenue (BIR) deficiency tax assessments for the the protest by petitioner against the tax deficiency
taxable year 1984 in the total amount of ₱8,644,998.71, broken assessments was bolstered by the subsequent issuance of the
down as follows: warrants of distraint and/or levy and garnishment to enforce
the collection of the deficiency taxes. The issuance was not
Kind of Tax Assessment No. Amount barred by prescription because the mere filing of the letter of
protest by petitioner which was given due course by the
Deficiency Income Tax FAR-4-1984-88-001130 ₱8,381,354.00 Bureau of Internal Revenue suspended the running of the
prescription period as expressly provided under the then
Section 224 of the Tax Code:
Penalties for late payment FAR-4-1984-88-001131 3,000.00
SEC. 224. Suspension of Running of the Statute of
of income and failure to Limitations. – The running of the Statute of Limitations
provided in Section 203 and 223 on the making of assessment
file quarterly returns 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
Deficiency Contractor’s FAR-4-1984-88-001132 29,849.06
from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days thereafter; when the
Tax taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the
Deficiency Fixed Tax FAR-4--88-001133 12,083.65 address given by him in the return files upon which a tax is
being assessed or collected: Provided, That if the taxpayer
inform the Commissioner of any change of address, the
Deficiency Franchise Tax FAR-4—84-88-001134
running of the statute of limitations will not be suspended;
___227,712.00
when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his
T o t a l -------- ₱8,644,998.71 household with sufficient discretion, and no property could
located; and when the taxpayer is out of the
Petitioner filed its protest against the tax assessments and Philippines. 6 (Underscoring supplied.)
requested a reconsideration or cancellation of the same in a
letter to the BIR Commissioner dated April 12, 1988. Petitioner filed a Motion for Reconsideration arguing that the
demand letter of January 24, 1991 cannot be considered as
Acting in behalf of the BIR Commissioner, then Chief of the the final decision of the Commissioner of Internal Revenue on
BIR Accounts Receivable and Billing Division, Mr. Severino B. its protest because the same was signed by a mere
Buot, reiterated the tax assessments while denying petitioner’s subordinate and not by the Commissioner himself.7
request for reinvestigation in a letter 1 dated January 24, 1991,
thus: With the denial of its motion for reconsideration, petitioner
consequently filed a Petition for Review with the Court of
"Note: Your request for re-investigation has been denied for Appeals contending that there was no final decision to speak of
failure to submit the necessary supporting papers as per because the Commissioner had yet to make a personal
endorsement letter from the office of the Special Operation determination as regards the merits of petitioner’s case.8
Service dated 12-12-90."
The Court of Appeals denied the petition in a decision dated
Said letter likewise requested petitioner to pay the total amount October 31, 2000, the dispositive portion of which reads:
of ₱8,644,998.71 within ten (10) days from receipt thereof,
otherwise the case shall be referred to the Collection "WHEREFORE, the petition is DISMISSED for lack of merit.
Enforcement Division of the BIR National Office for the
issuance of a warrant of distraint and levy without further
SO ORDERED."
notice.
Petitioner’s Motion for Reconsideration was likewise denied in petitioner, and requested its payment. Failure to do so would
a resolution dated May 3, 2001. result in the "issuance of a warrant of distraint and levy to
enforce its collection without further notice."11 In addition, the
Hence, this petition with the following assignment of errors:9 letter contained a notation indicating that petitioner’s request
for reconsideration had been denied for lack of supporting
documents.
I
The above conclusion finds support in Commissioner of
THE HONORABLE RESPONDENT CA ERRED IN FINDING Internal Revenue v. Ayala Securities Corporation,12 where we
THAT THE DEMAND LETTER ISSUED BY THE (THEN) held:
ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR
NATIONAL OFFICE WAS THE FINAL DECISION OF THE
RESPONDENT CIR ON THE DISPUTED ASSESSMENTS, The letter of February 18, 1963 (Exh. G), in the view of the
AND HENCE CONSTITUTED THE DECISION APPEALABLE Court, is tantamount to a denial of the reconsideration or
TO THE HONORABLE RESPONDENT CTA; AND, [respondent corporation’s]…protest o[f] the assessment made
by the petitioner, considering that the said letter [was] in itself a
reiteration of the demand by the Bureau of Internal Revenue
II for the settlement of the assessment already made, and for the
immediate payment of the sum of P758,687.04 in spite of the
THE HONORABLE RESPONDENT CA ERRED IN vehement protest of the respondent corporation on April 21,
DECLARING THAT THE DENIAL OF THE PROTEST OF THE 1961. This certainly is a clear indication of the firm stand of
SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS petitioner against the reconsideration of the disputed
HAD LONG BECOME FINAL AND EXECUTORY FOR assessment…This being so, the said letter amount[ed] to a
FAILURE OF THE PETITIONER TO INSTITUTE THE decision on a disputed or protested assessment, and, there,
APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF the court a quo did not err in taking cognizance of this case.
THE ACCOUNTS RECEIVABLE/BILLING DIVISION, BIR
NATIONAL OFFICE, TO THE HONORABLE RESPONDENT Similarly, in Surigao Electric Co., Inc v. Court of Tax
CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT Appeals,13 and in CIR v. Union Shipping Corporation,14 we held:
THEREOF.
". . . In this letter, the commissioner not only in effect
Thus, the main issue is whether or not a demand letter for tax demanded that the petitioner pay the amount of ₱11,533.53
deficiency assessments issued and signed by a subordinate but also gave warning that in the event it failed to pay, the said
officer who was acting in behalf of the Commissioner of commissioner would be constrained to enforce the collection
Internal Revenue, is deemed final and executory and subject to thereof by means of the remedies provided by law. The tenor
an appeal to the Court of Tax Appeals. of the letter, specifically the statement regarding the resort to
legal remedies, unmistakably indicate[d] the final nature of the
We rule in the affirmative. determination made by the commissioner of the petitioner’s
deficiency franchise tax liability."
A demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested assessment. The demand letter received by petitioner verily signified a
The determination on whether or not a demand letter is final is character of finality. Therefore, it was tantamount to a rejection
conditioned upon the language used or the tenor of the letter of the request for reconsideration. As correctly held by the
being sent to the taxpayer. Court of Tax Appeals, "while the denial of the protest was in
the form of a demand letter, the notation in the said letter
We laid down the rule that the Commissioner of Internal making reference to the protest filed by petitioner clearly shows
Revenue should always indicate to the taxpayer in clear and the intention of the respondent to make it as [his] final
unequivocal language what constitutes his final determination decision."15
of the disputed assessment, thus:
This now brings us to the crux of the matter as to whether said
. . . we deem it appropriate to state that the Commissioner of demand letter indeed attained finality despite the fact that it
Internal Revenue should always indicate to the taxpayer in was issued and signed by the Chief of the Accounts
clear and unequivocal language whenever his action on an Receivable and Billing Division instead of the BIR
assessment questioned by a taxpayer constitutes his final Commissioner.
determination on the disputed assessment, as contemplated
by Sections 7 and 11 of Republic Act No. 1125, as amended. The general rule is that the Commissioner of Internal Revenue
On the basis of his statement indubitably showing that the may delegate any power vested upon him by law to Division
Commissioner’s communicated action is his final decision on Chiefs or to officials of higher rank. He cannot, however,
the contested assessment, the aggrieved taxpayer would then delegate the four powers granted to him under the National
be able to take recourse to the tax court at the opportune time. Internal Revenue Code (NIRC) enumerated in Section 7.
Without needless difficulty, the taxpayer would be able to
determine when his right to appeal to the tax court accrues. As amended by Republic Act No. 8424, Section 7 of the Code
authorizes the BIR Commissioner to delegate the powers
The rule of conduct would also obviate all desire and vested in him under the pertinent provisions of the Code to any
opportunity on the part of the taxpayer to continually delay the subordinate official with the rank equivalent to a division chief
finality of the assessment – and, consequently, the collection of or higher, except the following:
the amount demanded as taxes – by repeated requests for
recomputation and reconsideration. On the part of the (a) The power to recommend the promulgation of rules and
Commissioner, this would encourage his office to conduct a regulations by the Secretary of Finance;
careful and thorough study of every questioned assessment
and render a correct and definite decision thereon in the first
instance. This would also deter the Commissioner from unfairly (b) The power to issue rulings of first impression or to reverse,
making the taxpayer grope in the dark and speculate as to revoke or modify any existing ruling of the Bureau;
which action constitutes the decision appealable to the tax
court. Of greater import, this rule of conduct would meet a (c) The power to compromise or abate under Section 204(A)
pressing need for fair play, regularity, and orderliness in and (B) of this Code, any tax deficiency: Provided,
administrative action.10 however, that assessments issued by the Regional Offices
involving basic deficiency taxes of five hundred thousand
In this case, the letter of demand dated January 24, 1991, pesos (P500,000) or less, and minor criminal violations as may
unquestionably constitutes the final action taken by the Bureau be determined by rules and regulations to be promulgated by
of Internal Revenue on petitioner’s request for reconsideration the Secretary of Finance, upon the recommendation of the
when it reiterated the tax deficiency assessments due from Commissioner, discovered by regional and district officials,
may be compromised by a regional evaluation board which taxpayer and ruled upon by the Commissioner of Internal
shall be composed of the Regional Director as Chairman, the Revenue to warrant a decision from which a petition for review
Assistant Regional Director, heads of the Legal, Assessment may be taken to the Court of Tax Appeals. Where an adverse
and Collection Divisions and the Revenue District Officer ruling has been rendered by the Commissioner of Internal
having jurisdiction over the taxpayer, as members; and Revenue with reference to a disputed assessment or a claim
for refund or credit, the taxpayer may appeal the same within
(d) The power to assign or reassign internal revenue officers to thirty (30) days after receipt thereof.17
establishments where articles subject to excise tax are
produced or kept. We agree with the factual findings of the Court of Tax Appeals
that the demand letter may be presumed to have been duly
It is clear from the above provision that the act of issuance of directed, mailed and was received by petitioner in the regular
the demand letter by the Chief of the Accounts Receivable and course of the mail in the absence of evidence to the contrary.
Billing Division does not fall under any of the exceptions that This is in accordance with Section 2(v), Rule 131 of the Rules
have been mentioned as non-delegable. of Court, and in this case, since the period to appeal has
commenced to run from the time the letter of demand was
presumably received by petitioner within a reasonable time
Section 6 of the Code further provides: after January 24, 1991, the period of thirty (30) days to appeal
the adverse decision on the request for reconsideration had
"SEC. 6. Power of the Commissioner to Make Assessments already lapsed when the petition was filed with the Court of
and Prescribe Additional Requirements for Tax Administration Tax Appeals only on November 8, 1991. Hence, the Court of
and Enforcement. – Tax Appeals properly dismissed the petition as the tax
delinquency assessment had long become final and executory.
(A) Examination of Returns and Determination of Tax
Due. - After a return has been filed as required under the WHEREFORE, premises considered, the Decision of the Court
provisions of this Code, the Commissioner or his duly of Appeals dated October 31, 2000 and its Resolution dated
authorized representative may authorize the examination of May 3, 2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED.
any taxpayer and the assessment of the correct amount of The petition is accordingly DENIED for lack of merit.
tax; Provided, however, That failure to file a return shall not
prevent the Commissioner from authorizing the examination of SO ORDERED.
any taxpayer.

2.6
The tax or any deficiency tax so assessed shall be paid upon
notice and demand from the Commissioner or from his duly
authorized representative. . . ." (Emphasis supplied) G.R. No. 105208 May 29, 1995

Thus, the authority to make tax assessments may be COMMISSIONER OF INTERNAL REVENUE, petitioner,
delegated to subordinate officers. Said assessment has the vs.
same force and effect as that issued by the Commissioner THE PHILIPPINE AMERICAN LIFE INSURANCE CO., THE
himself, if not reviewed or revised by the latter such as in this COURT OF TAX APPEALS and THE COURT OF
case.16 APPEALS, respondents.

A request for reconsideration must be made within thirty (30)

days from the taxpayer’s receipt of the tax deficiency
assessment, otherwise, the decision becomes final,
ROMERO, J.:
unappealable and therefore, demandable. A tax assessment
that has become final, executory and enforceable for failure of
the taxpayer to assail the same as provided in Section 228 can This is a petition for review on certiorari filed by petitioner,
no longer be contested, thus: Commissioner of Internal Revenue, of the Decision1 dated
March 26, 1992 of the Court of Appeals in CA-GR No. 26598,
entitled "Commissioner of Internal Revenue v. The Philippine
"SEC. 228. Protesting of Assessment. – When the
American Life Insurance Co. & the Court of Tax Appeals"
Commissioner or his duly authorized representative finds that
affirming the decision of respondent Court of Tax Appeals
proper taxes should be assessed, he shall first notify the
which ordered the refund to the Philippine American Life
taxpayer of his findings…Such assessment may be protested
Insurance Co. (Philamlife) of the amount of P3,643,015.00
administratively by filing a request for reconsideration or
representing excess corporate income taxes for the first and
reinvestigation within thirty (30) days from receipt of the
second quarters of 1983.
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 Private respondent filed a case before the Court of Tax
have been submitted; otherwise, the assessment shall become Appeals (CTA) docketed as CTA Case No. 4018 entitled "The
final. Philippine American Life Insurance Company versus
Commissioner of Internal Revenue."
If the protest is denied in whole or in part, or is not acted upon
within one hundred (180) days from submission of documents, On September 16, 1991, the CTA rendered a decision in the
the taxpayer adversely affected by the decision or inaction may above-entitled case, the dispositive portion of which states:
appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of the one WHEREFORE, petitioner's claim for refund
hundred eighty (180) - day period; otherwise, the decision shall for P3,246,141.00 and P396,874.00
become final, executory and demandable." representing excess corporated income tax
payments for the first and second quarters of
Here, petitioner failed to avail of its right to bring the matter 1983, respectively, or a total of
before the Court of Tax Appeals within the reglementary period P3,643,015.00 is hereby GRANTED.
upon the receipt of the demand letter reiterating the assessed Accordingly, respondent Commissioner of
delinquent taxes and denying its request for reconsideration Internal Revenue, is hereby ordered to
which constituted the final determination by the Bureau of refund to petitioner Philippine American Life
Internal Revenue on petitioner’s protest. Being a final Insurance Company the total amount of
disposition by said agency, the same would have been a P3,643,015.00.
proper subject for appeal to the Court of Tax Appeals.
With respect to petitioner's claim for refund
The rule is that for the Court of Tax Appeals to acquire of P215,742.00 representing 1983
jurisdiction, an assessment must first be disputed by the withholding taxes on rental income the same
 is hereby DENIED for failure to present proof On January 2, 1986, private respondent filed a petition for
of actual-withholding and payment with the review with the CTA, docketed as CTA Case No. 4018
Bureau of Internal Revenue. No costs. regarding its 1983 and 1984 claims for refund in the above-
stated amount.
The facts, uncontroverted by petitioner, are:
Later, it amended its petition by limiting its claim for refund to
On May 30, 1983, private respondent Philamlife paid to the only P3,858,757.00 computed as follows:
Bureau of Internal Revenue (BIR) its first quarterly corporate
income tax for Calendar Year (CY) 1983 amounting to
P3,246,141.00.

On August 29, 1983, it paid P396,874.00 for the Second

Quarter of 1983.
Date Paid O.R. No. Amount Paid

For the Third Quarter of 1983, private respondent declared a

net taxable income of P2,515,671.00 and a tax due of 5/30/83 B2269337 P3,246,141.00
P708,464.00. After crediting the amount of P3,899,525.00 it 8/29/83 B1938178 396,874.00
declared a refundable amount of P3,158,061.00. 215,742.00

For its Fourth and final quarter ending December 31, private P3,858,757.00
respondent suffered a loss and thereby had no income tax
liability. In the return for that quarter, it declared a refund of
P3,991,841.00 representing the first and second quarterly
payments: P215,742.00 as withholding taxes on rental income
for 1983 and P133,084.00 representing 1982 income tax The issue in this case is the reckoning date of the two-year
refund applied as 1983 tax credit. prescriptive period provided in Section 230 of the National
Internal Revenue Code (formerly Section 292) which states
In 1984, private respondent again suffered a loss and declared that:
no income tax liability. However, it applied as tax credit for
1984, the amount of P3,991,841.00 representing its 1982 and Recovery of tax erroneously or illegally
1983 overpaid income taxes and the amount of P250,867.00 collected. — No suit or proceeding shall be
as withholding tax on rental income for 1984. maintained in any court for the recovery of
any national internal revenue tax hereafter
On September 26, 1984, private respondent filed a claim for its alleged to have been erroneously or illegally
1982 income tax refund of P133,084.00. On November 22, assessed or collected, or of any penalty
1984, it filed a petition for review with the Court of Tax Appeals claimed to have been collected without
(C.T.A. Case No. 3868) with respect to its 1982 claim for authority, or of any sum alleged to have
refund of P133,084.00. been excessive or in any manner wrongfully
collected, until a claim for refund or credit
has been duly filed with the Commissioner;
On December 16, 1985, it filed another claim for refund with but such suit or proceeding may be
petitioners appellate division in the aggregate amount of maintained, whether or not such tax, penalty,
P4,109,624.00, computed as follows: or sum has been paid under protest or
duress.
1982 income tax refundable
In any case, no such suit or proceeding shall
applied as tax credit P 133,084 be begun after the expiration of two years
from the date of payment of the tax or
penalty regardless of any supervening cause
1983 income tax refundable
that may arise after payment: Provided,
however, That the Commissioner may, even
applied as tax credit P 3,858,757 without a written claim therefor, refund or
credit any tax, where on the face of the
1984 tax credit on rental P 250,867 return upon which payment was made, such
payment appears clearly to have been
erroneously paid.

Total P 4,242,708
Forfeiture of refund. — A refund check or
warrant issued in accordance with the
pertinent provisions of this Code which shall
Less: 1983 claim for remain unclaimed or uncashed within five (5)
years from the date the said warrant or
check was mailed or delivered shall be
refund already
forfeited in favor of the government and the
amount thereof shall revert to the General
filed with the Fund.

BIR and the CTA Petitioner poses the following question: In a case such as this,
where a corporate taxpayer remits/pays to the BIR tax withheld
(Case No. 3868) P 133,084 on income for the first quarter but whose business operations
actually resulted in a loss for that year, as reflected in the
Corporate Final Adjustment Return subsequently filed with the
—————— BIR, should not the running of the prescriptive period
commence from the remittance/payment at the end of the first
Net Amount Refundable — P 4,109,624 quarter of the tax withheld instead of from the filing of the Final
Adjustment Return?
===========

In support of its contention, petitioner cites the case of Pacific

Procon Ltd. v. Court of Tax Appeals, et a1.2 wherein the CTA
denied therein petitioner's claim for refund after it construed levied, collected and paid. The Tax so
Section 292 (now Section 230) of the NIRC to be mandatory computed shall be decreased by the amount
and "not subject to any qualification," hence it applies of tax previously paid or assessed during the
regardless of the conditions under which payment may have preceding quarters and shall be paid not
been made. The Tax Court ruled: later than sixty (60) days from the close of
each of the first three (3) quarters of the
Under Section 292 (formerly Section 306) of taxable year.
the National Internal Revenue Code, a claim
for refund of a tax alleged to have been Sec. 69. Final Adjustment Return. — Every
erroneously or illegally collected shall be corporation liable to tax under Section 24
filed with the Commissioner of Internal shall file a final adjustment return covering
Revenue within two years from the date of the total net income for the preceding
payment of the tax, and that no suit or calendar or fiscal year. If the sum of the
proceeding for refund shall be begun after quarterly tax payments made during the said
the expiration of the said two-year period taxable year is not equal to the total tax due
(Citation omitted). As a matter of fact, the on the entire taxable net income of that year
said section further provides that: . . . In any the corporation shall either:
case, no such suit or proceeding shall be
begun after the expiration of two years from (a) Pay the excess still due; or
the date of payment of the tax or the date of
payment of the tax or penalty regardless of
any supervening cause that may arise after (b) Be refunded the excess amount paid, as
payment. the case may be.

Petitioner states that the phrase "regardless of supervening In case the corporation is entitled to a refund
cause that may arise after payment" is an amendatory phrase of the excess estimated quarterly income
under the said Section 292 which did not appear in Section taxes paid, the refundable amount shown on
306 of the old Tax Code before it was amended by Presidential its final adjustment return may be credited
Decree No. 69, which became effective January 1, 1973. against the estimated quarterly income tax
Petitioner argues that the incorporation of the said phrase did liabilities for the taxable quarters of the
away with any other interpretation and, therefore, the succeeding taxable year.
reckoning period of prescription under Section 292 (now
section 230) is from the date of payment of tax regardless of It may be observed that although quarterly taxes due are
financial loss (the "supervening cause"). Thus, the claim for required to be paid within sixty days from the close of each
refund of the amounts of P3,246,141.00 and P396,874.00 paid quarter, the fact that the amount shall be deducted from the tax
on May 30, 1983 and August 29, 1983, respectively, has due for the succeeding quarter shows that until a final
prescribed. adjustment return shall have been filed, the taxes paid in the
preceding quarters are merely partial taxes due from a
We find petitioner's contentions to be unmeritorious. corporation. Neither amount can serve as the final figure to
quantity what is due the government nor what should be
refunded to the corporation.
It is true that in the Pacific Procon case, we held that the right
to bring an action for refund had prescribed, the tax having
been found to have been paid at the end of the first quarter This interpretation may be gleaned from the last paragraph of
when the withholding tax corresponding thereto was remitted Section 69 of the Tax Code which provides that the refundable
to the Bureau of Internal Revenue, not at the time of filing of amount, in case a refund is due a corporation, is that amount
the Final Adjustment Return in April of the following year. which is shown on its final adjustment return and not on its
quarterly returns.
However, this case was overturned by the Court
in Commissioner of Internal Revenue v. TMX Sales Therefore, when private respondent paid P3,246,141.00 on
Incorporated and the Court of Tax Appeals,3 wherein we said: May 30, 1983, it would not have been able to ascertain on that
date, that the said amount was refundable. The same applies
with cogency to the payment of P396,874.00 on August 29,
. . . in resolving the instant case, it is 1983.
necessary that we consider not only Section
292 (now Section 230) of the National
Internal Revenue Code but also the other Clearly, the prescriptive period of two years should commence
provisions of the Tax Code, particularly to run only from the time that the refund is ascertained, which
Sections 84, 85 (now both incorporated as can only be determined after a final adjustment return is
Section 68), Section 86 (now Section 70) accomplished. In the present case, this date is April 16, 1984,
and Section 87 (now Section 69) on and two years from this date would be April 16, 1986. The
Quarterly Corporate Income Tax Payment record shows that the claim for refund was filed on December
and Section 321 (now Section 232) on 10, 1985 and the petition for review was brought before the
keeping of books of accounts. All these CTA on January 2, 1986. Both dates are within the two-year
provisions of the Tax Code should be reglementary period. Private respondent being a corporation,
harmonized with each other. Section 292 (now Section 230) cannot serve as the sole basis
for determining the two-year prescriptive period for refunds. As
we have earlier said in the TMX Sales case, Sections 68, 69,
Section 292 (now Section 230) stipulates that the two-year and 70 on Quarterly Corporate Income Tax Payment and
prescriptive period to claim refunds should be counted from Section 321 should be considered in conjunction with it.
date of payment of the tax sought to be refunded. When
applied to tax payers filing income tax returns on a quarterly
basis, the date of payment mentioned in Section 292 (now Moreover, even if the two-year period had already lapsed, the
Section 230) must be deemed to be qualified by Sections 68 same is not jurisdictional4 and may be suspended for reasons
and 69 of the present Tax Code which respectively provide: of equity and other special circumstances.5

Sec. 68 Declaration of Quarterly Income Petitioner also raises the issue of whether or not private
Tax. — Every corporation shall file in respondent has satisfactorily shown by competent evidence
duplicate a quarterly summary declaration of that it is entitled to the amount sought to be refunded. This
its gross income and deductions on a being a question of fact, this Court is bound by the findings of
cumulative basis for the preceding quarter or the Court of Tax Appeals which has clearly established the
quarters upon which the income tax, as propriety of private respondent's claim for refund for excess
provided in Title II of this Code shall be 1983 quarterly income tax payments. On the other hand,
petitioner Commissioner of Internal Revenue has failed to 2002, petitioner filed on said date a petition for review with the
present any documentary or testimonial evidence in support of Court of Tax Appeals (CTA).8
his case. Instead, he opted to postpone the hearings several
times and later chose to submit the case for decision on the Petitioner asserted that under the new definition of GPB under
basis of the records and pleadings of instant case. the 1997 NIRC and Article 4(7) of the RP-US Tax Treaty,
Philippine tax authorities have jurisdiction to tax only the gross
To repeat, we find that private respondent has presented revenue derived by US air and shipping carriers from outgoing
sufficient evidence in support of its claim for refund, whereas traffic in the Philippines. Since the Bureau of Internal Revenue
petitioner has failed to controvert the same adequately. (BIR) erroneously imposed and collected income tax in 1999
based on petitioner’s gross passenger revenue, as beginning
WHEREFORE, the instant petition is DISMISSED and the 1998 petitioner no longer flew passenger flights to and from the
decision of the Court of Appeals is hereby AFFIRMED in toto. Philippines, petitioner is entitled to a refund of such
No costs. erroneously collected income tax in the amount of
₱5,028,813.23.9
SO ORDERED.
In its Decision10 dated May 18, 2006, the CTA’s First
Division11 ruled that no excess or erroneously paid tax may be
2.7 refunded to petitioner because the income tax on GPB under
Section 28(A)(3)(a) of the NIRC applies as well to gross
G.R. No. 178788               September 29, 2010 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
UNITED AIRLINES, INC., Petitioner, Philippines. However, in reporting a cargo revenue of ₱740.33
vs. million in 1999, it was found that petitioner deducted two (2)
COMMISSIONER OF INTERNAL REVENUE, Respondent. items from its gross cargo revenue of ₱2.84 billion: ₱141.79
million as commission and ₱1.98 billion as other incentives of
DECISION 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
VILLARAMA, JR., J.:
incentives. Petitioner’s gross cargo revenue in 1999, being
₱2.84 billion, the GPB tax thereon was ₱42.54 million and not
Before us is a petition for review on certiorari under Rule 45 of ₱11.1 million, the amount petitioner paid for the reported net
the 1997 Rules of Civil Procedure, as amended, of the cargo revenue of ₱740.33 million. The CTA First Division
Decision1 dated July 5, 2007 of the Court of Tax Appeals En further noted that petitioner even underpaid its taxes on cargo
Banc (CTA En Banc) in C.T.A. EB No. 227 denying petitioner’s revenue by ₱31.43 million, which amount was much higher
claim for tax refund of ₱5.03 million. than the ₱5.03 million it asked to be refunded.

The undisputed facts are as follows: A motion for reconsideration was filed by petitioner but the First
Division denied the same. It held that petitioner’s claim for tax
Petitioner United Airlines, Inc. is a foreign corporation refund was not offset with its tax liability; that petitioner’s tax
organized and existing under the laws of the State of deficiency was due to erroneous deductions from its gross
Delaware, U.S.A., engaged in the international airline cargo revenue; that it did not make an assessment against
business. 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 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 Petitioner elevated the case to the CTA En Banc which
passenger flights in and out of the Philippines beginning affirmed the decision of the First Division.
February 21, 1998, petitioner appointed a sales agent in the
Philippines -- Aerotel Ltd. Corp., an independent general sales Hence, this petition anchored on the following grounds:
agent acting as such for several international airline
companies.2 Petitioner continued operating cargo flights from
I. THE CTA EN BANC GROSSLY ERRED IN
the Philippines until January 31, 2001.3
DENYING THE PETITIONER’S CLAIM FOR
REFUND OF ERRONEOUSLY PAID INCOME TAX
On April 12, 2002, petitioner filed with respondent ON GROSS PHILIPPINE BILLINGS [GPB] BASED
Commissioner a claim for income tax refund, pursuant to ON ITS FINDING THAT PETITIONER’S
Section 28(A)(3)(a)4 of the National Internal Revenue Code of UNDERPAYMENT OF [₱31.43 MILLION] GPB TAX
1997 (NIRC) in relation to Article 4(7)5 of the Convention ON CARGO REVENUES IS A LOT HIGHER THAN
between the Government of the Republic of the Philippines THE GPB TAX OF [₱5.03 MILLION] ON
and the Government of the United States of America with PASSENGER REVENUES, WHICH IS THE
respect to Income Taxes (RP-US Tax Treaty). Petitioner SUBJECT OF THE INSTANT CLAIM FOR REFUND.
sought to refund the total amount of ₱15,916,680.69 pertaining THE DENIAL OF PETITIONER’S CLAIM ON SUCH
to income taxes paid on gross passenger and cargo revenues GROUND CLEARLY AMOUNTS TO AN OFF-
for the taxable years 1999 to 2001, which included the amount SETTING OF TAX LIABILITIES, CONTRARY TO
of ₱5,028,813.23 allegedly representing income taxes paid in WELL-SETTLED JURISPRUDENCE.
1999 on passenger revenue from tickets sold in the
Philippines, the uplifts of which did not originate in the
II. THE DECISION OF THE CTA EN
Philippines. Citing the change in definition of Gross Philippine
BANC VIOLATED PETITIONER’S RIGHT TO DUE
Billings (GPB) in the NIRC, petitioner argued that since it no
PROCESS.
longer operated passenger flights originating from the
Philippines beginning February 21, 1998, its passenger
revenue for 1999, 2000 and 2001 cannot be considered as III. THE CTA EN BANC ACTED IN EXCESS OF ITS
income from sources within the Philippines, and hence should JURISDICTION BY DENYING PETITIONER’S CLAIM
not be subject to Philippine income tax under Article 9 6 of the FOR REFUND OF ERRONEOUSLY PAID INCOME
RP-US Tax Treaty.7 TAX ON GROSS PHILIPPINE BILLINGS BASED ON
ITS FINDING THAT PETITIONER UNDERPAID GPB
TAX ON CARGO REVENUES IN THE AMOUNT OF
As no resolution on its claim for refund had yet been made by
[₱31.43 MILLION] FOR THE TAXABLE YEAR 1999.
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, IV. THE CTA EN BANC HAS NO AUTHORITY
UNDER THE LAW TO MAKE ANY ASSESSMENTS
 FOR DEFICIENCY TAXES. THE AUTHORITY TO is not taxable under Section 28(A)(3)(a) of the NIRC for gross
MAKE ASSESSMENTS FOR DEFICIENCY passenger revenues. This much was also found by the CTA. In
NATIONAL INTERNAL REVENUE TAXES IS South African Airways v. Commissioner of Internal
VESTED BY THE 1997 NIRC UPON RESPONDENT. Revenue,20 we ruled that the correct interpretation of the said
provisions is that, if an international air carrier maintains flights
V. ANY ASSESSMENT AGAINST PETITIONER FOR to and from the Philippines, it shall be taxed at the rate of 2½%
DEFICIENCY INCOME TAX FOR THE TAXABLE of its GPB, while international air carriers that do not have
YEAR 1999 IS ALREADY BARRED BY flights to and from the Philippines but nonetheless earn income
PRESCRIPTION.13 from other activities in the country will be taxed at the rate of
32% of such income.
The main issue to be resolved is whether the petitioner is
entitled to a refund of the amount of ₱5,028,813.23 it paid as Here, the subject of claim for tax refund is the tax paid on
income tax on its passenger revenues in 1999. 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.
Petitioner argues that its claim for refund of erroneously paid The CTA found that petitioner had underpaid its GPB tax for
GPB tax on off-line passenger revenues cannot be denied 1999 because petitioner had made deductions from its gross
based on the finding of the CTA that petitioner allegedly cargo revenues in the income tax return it filed for the taxable
underpaid the GPB tax on cargo revenues by ₱31,431,171.09, year 1999, the amount of underpayment even greater than the
which underpayment is allegedly higher than the GPB tax of refund sought for erroneously paid GPB tax on passenger
₱5,028,813.23 on passenger revenues, the amount of the revenues for the same taxable period. Hence, the CTA ruled
instant claim. The denial of petitioner’s claim for refund on such petitioner is not entitled to a tax refund.
ground is tantamount to an offsetting of petitioner’s claim for
refund of erroneously paid GPB against its alleged tax liability.
Petitioner thus cites the well-entrenched rule in taxation cases Petitioner’s arguments regarding the propriety of such
that internal revenue taxes cannot be the subject of set-off or determination by the CTA are misplaced.
compensation.14
Under Section 72 of the NIRC, the CTA can make a valid
According to petitioner, the offsetting of the liabilities is very finding that petitioner made erroneous deductions on its gross
clear in the instant case because the amount of petitioner’s cargo revenue; that because of the erroneous deductions,
claim for refund of erroneously paid GPB tax of ₱5,028,813.23 petitioner reported a lower cargo revenue and paid a lower
for the taxable year 1999 is being offset against petitioner’s income tax thereon; and that petitioner's underpayment of the
alleged deficiency GPB tax liability on cargo revenues for the income tax on cargo revenue is even higher than the income
same year, which was not even the subject of an investigation tax it paid on passenger revenue subject of the claim for
nor any valid assessment issued by respondent against the refund, such that the refund cannot be granted.
petitioner. Under Section 22815 of the NIRC, the "taxpayer shall
be informed in writing of the law and the facts on which the Section 72 of the NIRC reads:
assessment is made; otherwise, the assessment shall be void."
This administrative process of issuing an assessment is part of SEC. 72. Suit to Recover Tax Based on False or Fraudulent
procedural due process enshrined in the 1987 Constitution. Returns. - When an assessment is made in case of any list,
Records do not show that petitioner has been assessed by the statement or return, which in the opinion of the Commissioner
BIR for any deficiency GBP tax for 1999, nor was there any was false or fraudulent or contained any understatement or
finding or investigation being conducted by respondent of any undervaluation, no tax collected under such assessment shall
liability of petitioner for GPB tax for the said taxable period. be recovered by any suit, unless it is proved that the said list,
Clearly, petitioner’s right to due process was violated.16 statement or return was not false nor fraudulent and did not
contain any understatement or undervaluation; but this
Petitioner further argues that the CTA acted in excess of its provision shall not apply to statements or returns made or to be
jurisdiction because the exclusive appellate jurisdiction of the made in good faith regarding annual depreciation of oil or gas
CTA covers only decisions or inactions of the respondent in wells and mines.
cases involving disputed assessments. The CTA has
effectively assessed petitioner with a ₱31.43 million tax In the afore-cited case of South African Airways, this Court
deficiency when it concluded that petitioner underpaid its GPB rejected similar arguments on the denial of claim for tax refund,
tax on cargo revenue. Since respondent did not issue an as follows:
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 Precisely, petitioner questions the offsetting of its payment of
stresses that the authority to issue an assessment for the tax under Sec. 28(A)(3)(a) with their liability under Sec.
deficiency internal revenue taxes is vested by law on 28(A)(1), considering that there has not yet been any
respondent, not with the CTA.17 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
Lastly, petitioner argues that any assessment against it for circumstances present in this case.
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 Article 1279 of the Civil Code contains the elements of legal
has prescribed on April 17, 2003, three (3) years after it filed its compensation, to wit:
1999 tax return.18
Art. 1279. In order that compensation may be proper, it is
Respondent Commissioner maintains that the CTA acted necessary:
within its jurisdiction in denying petitioner’s claim for tax refund.
It points out that the objective of the CTA’s determination of (1) That each one of the obligors be bound principally,
whether petitioner correctly paid its GPB tax for the taxable and that he be at the same time a principal creditor of
year 1999 was to ascertain the latter’s entitlement to the the other;
claimed refund and not for the purpose of imposing any
deficiency tax. Hence, petitioner’s arguments regarding the (2) That both debts consist in a sum of money, or if
propriety of the CTA’s determination of its deficiency tax on its the things due are consumable, they be of the same
GPB for gross cargo revenues for 1999 are clearly misplaced.19 kind, and also of the same quality if the latter has
been stated;
The petition has no merit.
(3) That the two debts be due;
As correctly pointed out by petitioner, inasmuch as it ceased
operating passenger flights to or from the Philippines in 1998, it
 (4) That they be liquidated and demandable; apply to statements or returns made or to be made in good
faith regarding annual depreciation of oil or gas wells and
(5) That over neither of them there be any retention or mines."
controversy, commenced by third persons and
communicated in due time to the debtor. Moreover, to grant the refund without determination of the
proper assessment and the tax due would inevitably result in
And we ruled in Philex Mining Corporation v. Commissioner of multiplicity of proceedings or suits. If the deficiency
Internal Revenue, thus: 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
In several instances prior to the instant case, we have already the prescriptive period of ten years after discovery of the
made the pronouncement that taxes cannot be subject to falsity, fraud or omission in the false or fraudulent return
compensation for the simple reason that the government and involved. This would necessarily require and entail additional
the taxpayer are not creditors and debtors of each other. There efforts and expenses on the part of the Government, impose a
is a material distinction between a tax and debt. Debts are due burden on and a drain of government funds, and impede or
to the Government in its corporate capacity, while taxes are delay the collection of much-needed revenue for governmental
due to the Government in its sovereign capacity. We find no operations.
cogent reason to deviate from the aforementioned distinction.
Thus, to avoid multiplicity of suits and unnecessary difficulties
Prescinding from this premise, in Francia v. Intermediate or expenses, it is both logically necessary and legally
Appellate Court, we categorically held that taxes cannot be appropriate that the issue of the deficiency tax assessment
subject to set-off or compensation, thus: against Citytrust be resolved jointly with its claim for tax refund,
to determine once and for all in a single proceeding the true
We have consistently ruled that there can be no off-setting of and correct amount of tax due or refundable.
taxes against the claims that the taxpayer may have against
the government. A person cannot refuse to pay a tax on the In fact, as the Court of Tax Appeals itself has heretofore
ground that the government owes him an amount equal to or conceded, it would be only just and fair that the taxpayer and
greater than the tax being collected. The collection of a tax the Government alike be given equal opportunities to avail of
cannot await the results of a lawsuit against the government. remedies under the law to defeat each other’s claim and to
determine all matters of dispute between them in one single
The ruling in Francia has been applied to the subsequent case case. It is important to note that in determining whether or not
of Caltex Philippines, Inc. v. Commission on Audit, which petitioner is entitled to the refund of the amount paid, it would
reiterated that: [be] necessary to determine how much the Government is
entitled to collect as taxes. This would necessarily include the
. . . a taxpayer may not offset taxes due from the claims that he determination of the correct liability of the taxpayer and,
may have against the government. Taxes cannot be the certainly, a determination of this case would constitute res
subject of compensation because the government and judicata on both parties as to all the matters subject thereof or
taxpayer are not mutually creditors and debtors of each other necessarily involved therein. (Emphasis supplied.)
and a claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off. Sec. 82, Chapter IX of the 1977 Tax Code is now Sec. 72,
Chapter XI of the 1997 NIRC. The above pronouncements are,
Verily, petitioner’s argument is correct that the offsetting of its therefore, still applicable today.
tax refund with its alleged tax deficiency is unavailing under
Art. 1279 of the Civil Code. Here, petitioner’s similar tax refund claim assumes that the tax
return that it filed was correct. Given, however, the finding of
Commissioner of Internal Revenue v. Court of Tax Appeals, the CTA that petitioner, although not liable under Sec. 28(A)(3)
however, granted the offsetting of a tax refund with a tax (a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the
deficiency in this wise: 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.)
Further, it is also worth noting that the Court of Tax Appeals
erred in denying petitioner’s supplemental motion for
reconsideration alleging bringing to said court’s attention the In the case at bar, the CTA explained that it merely determined
existence of the deficiency income and business tax whether petitioner is entitled to a refund based on the facts. On
assessment against Citytrust. The fact of such deficiency the assumption that petitioner filed a correct return, it had the
assessment is intimately related to and inextricably intertwined right to file a claim for refund of GPB tax on passenger
with the right of respondent bank to claim for a tax refund for revenues it paid in 1999 when it was not operating passenger
the same year. To award such refund despite the existence of flights to and from the Philippines. However, upon examination
that deficiency assessment is an absurdity and a polarity in by the CTA, petitioner’s return was found erroneous as it
conceptual effects. Herein private respondent cannot be understated its gross cargo revenue for the same taxable year
entitled to refund and at the same time be liable for a tax due to deductions of two (2) items consisting of commission
deficiency assessment for the same year.1avvphi1 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
The grant of a refund is founded on the assumption that the tax amount of the former being even much higher (₱31.43 million)
return is valid, that is, the facts stated therein are true and than the tax refund sought (₱5.2 million). The CTA therefore
correct. The deficiency assessment, although not yet final, correctly denied the claim for tax refund after determining the
created a doubt as to and constitutes a challenge against the proper assessment and the tax due. Obviously, the matter of
truth and accuracy of the facts stated in said return which, by prescription raised by petitioner is a non-issue. The
itself and without unquestionable evidence, cannot be the prescriptive periods under Sections 20322 and 22223 of the
basis for the grant of the refund. NIRC find no application in this case.

Section 82, Chapter IX of the National Internal Revenue Code We must emphasize that tax refunds, like tax exemptions, are
of 1977, which was the applicable law when the claim of construed strictly against the taxpayer and liberally in favor of
Citytrust was filed, provides that "(w)hen an assessment is the taxing authority.24 In any event, petitioner has not
made in case of any list, statement, or return, which in the discharged its burden of proof in establishing the factual basis
opinion of the Commissioner of Internal Revenue was false or for its claim for a refund and we find no reason to disturb the
fraudulent or contained any understatement or undervaluation, ruling of the CTA. It has been a long-standing policy and
no tax collected under such assessment shall be recovered by practice of the Court to respect the conclusions of quasi-
any suits unless it is proved that the said list, statement, or judicial agencies such as the CTA, a highly specialized body
return was not false nor fraudulent and did not contain any specifically created for the purpose of reviewing tax cases.25
understatement or undervaluation; but this provision shall not
WHEREFORE, we DENY the petition for lack of merit or other fixed or determinable annual or
and AFFIRM the Decision dated July 5, 2007 of the Court of periodical gains, profits, and income, it has
Tax Appeals En Banc in C.T.A. EB No. 227. been determined that the tax is still imposed
on income derived from capital, or labor, or
With costs against the petitioner. both combined, in accordance with the basic
principle of income taxation (Sec. 39, Income
Tax Regulations), and that a mere return of
SO ORDERED. capital or investment is not income (Par.
5,06, 1 Mertens Law of Federal 'Taxation).
MARTIN S. VILLARAMA, JR. Since according to the findings of the Special
Associate Justice Team who inquired into business of the non-
resident foreign film distributors, the
distribution or exhibition right on a film is
invariably acquired for a consideration, either
for a lump sum or a percentage of the film
2.8 rentals, whether from a parent company or
an independent outside producer, apart of
G.R. No. L-52306 October 12, 1981 the receipts of a non-resident foreign film
distributor derived from said film represents,
therefore, a return of investment.
ABS-CBN BROADCASTING CORPORATION, petitioner,
vs.
COURT OF TAX APPEALS and THE COMMISSIONER OF xxx xxx xxx
INTERNAL REVENUE, respondents.
4. The local distributor should withhold 30%
of one-half of the film rentals paid to the non-
resident foreign film distributor and pay the
same to this office in accordance with law
MELENCIO-HERRERA, J.: unless the non- resident foreign film
distributor makes a prior settlement of its
This is a Petition for Review on certiorari of the Decision of the income tax liability. (Emphasis ours).
Court of Tax Appeals in C.T.A. Case No. 2809, dated
November 29, 1979, which affirmed the assessment by the Pursuant to the foregoing, petitioner dutifully withheld and
Commissioner of Internal Revenue, dated April 16, 1971, of a turned over to the Bureau of Internal Revenue the amount of
deficiency withholding income tax against petitioner, ABS-CBN 30% of one-half of the film rentals paid by it to foreign
Broadcasting Corporation, for the years 1965, 1966, 1967 and corporations not engaged in trade or business within the
1968 in the respective amounts of P75,895.24, P99,239.18, Philippines. The last year that petitioner withheld taxes
P128,502.00 and P222, 260.64, or a total of P525,897.06. pursuant to the foregoing Circular was in 1968.

During the period pertinent to this case, petitioner corporation On June 27, 1968, Republic Act No. 5431 amended Section 24
was engaged in the business of telecasting local as well as (b) of the Tax Code increasing the tax rate from 30 % to 35 %
foreign films acquired from foreign corporations not engaged in and revising the tax basis from "such amount" referring to
trade or business within the Philippines. for which petitioner rents, etc. to "gross income," as follows:
paid rentals after withholding income tax of 30%of one-half of
the film rentals.
(b) Tax on foreign corporations.—(1) Non-
resident corporations.—A foreign corporation
In so far as the income tax on non-resident corporations is not engaged in trade or business in the
concerned, section 24 (b) of the National Internal Revenue Philippines including a foreign life insurance
Code, as amended by Republic Act No. 2343 dated June 20, company not engaged in the life insurance
1959, used to provide: business in the Philippines shall pay a tax
equal to thirty-five per cent of the gross
(b) Tax on foreign corporations.—(1) Non- income received during each taxable year
resident corporations.— There shall be from all sources within the Philippines, as
levied, collected, and paid for each taxable interests, dividends, rents, royalties, salaries,
year, in lieu of the tax imposed by the wages, premiums, annuities, compensations,
preceding paragraph, upon the amount remunerations for technical services or
received by every foreign corporation not otherwise, emoluments or other fixed or
engaged in trade or business within the determinable annual, periodical or casual
Philippines, from an sources within the gains, profits, and income, and capital
Philippines, as interest, dividends, rents, gains, Provided however, That premiums
salaries, wages, premiums, annuities, shah not include reinsurance premiums.
compensations, remunerations, emoluments, (Emphasis supplied)
or other fixed or determinable annual or
periodical gains, profits, and income, a tax On February 8, 1971, the Commissioner of Internal Revenue
equal to thirty per centum of such amount. issued Revenue Memorandum Circular No. 4-71, revoking
(Emphasis supplied) General Circular No. V-334, and holding that the latter was
"erroneous for lack of legal basis," because "the tax therein
On April 12, 1961, in implementation of the aforequoted prescribed should be based on gross income without deduction
provision, the Commissioner of Internal Revenue issued whatever," thus:
General Circular No. V-334 reading thus:
After a restudy and analysis of Section 24 (b)
In connection with Section 24 (b) of Tax of the National Internal Revenue Code, as
Code, the amendment introduced by amended by Republic Act No. 5431, and
Republic Act No. 2343, under which an guided by the interpretation given by tax
income tax equal to 30% is levied upon the authorities to a similar provision in the
amount received by every foreign Internal Revenue Code of the United States,
corporation not engaged in trade or business on which the aforementioned provision of our
within the Philippines from all sources within Tax Code was patterned, this Office has
this country as interest, dividends, rents, come to the conclusion that the tax therein
salaries, wages, premiums, annuities, prescribed should be based on gross income
compensations, remunerations, emoluments, without t deduction whatever. Consequently,
the ruling in General Circular No. V-334,
 dated April 12, 1961, allowing the deduction
16-68 to 4-16-71
of the proportionate cost of production or
exhibition of motion picture films from the
Total amount due & P128,502.00
rental income of non- resident foreign
collectible
corporations, is erroneous for lack of legal
basis.
1968
In view thereof, General Circular No. V-334,
dated April 12, 1961, is hereby revoked and
henceforth, local films distributors and Total amount remitted P881,816.92
exhibitors shall deduct and withhold 35% of
the entire amount payable by them to non- Withholding tax due 291,283.00
resident foreign corporations, as film rental thereon
or royalty, or whatever such payment may be
denominated, without any deduction Less: Amount already 92,886.00
whatever, pursuant to Section 24 (b), and assessed
pay the withheld taxes in accordance with
Section 54 of the Tax Code, as amended. Balance P198,447.00

All rulings inconsistent with this Circular is Add: 1/2% mo. int. fr. 4-16- 23,813.64
likewise revoked. (Emphasis ours) 69 to 4-29-71

Total amount due & P222,260.44 1

On the basis of this new Circular, respondent Commissioner of collectible
Internal Revenue issued against petitioner a letter of
assessment and demand dated April 15, 1971, but allegedly
released by it and received by petitioner on April 12, 1971, On May 5, 1971, petitioner requested for a reconsideration and
requiring them to pay deficiency withholding income tax on the withdrawal of the assessment. However, without acting
remitted film rentals for the years 1965 through 1968 and film thereon, respondent, on April 6, 1976, issued a warrant of
royalty as of the end of 1968 in the total amount of distraint and levy over petitioner's personal as well as real
P525,897.06 computed as follows: properties. The petitioner then filed its Petition for Review with
the Court of Tax Appeals whose Decision, dated November 29,
1965 1979, is, in turn, the subject of this review. The Tax Court held:

For the reasons given, the Court finds the

Total amount remitted P 511,059.48 assessment issued by respondent on April
16, 1971 against petitioner in the amounts of
Withholding tax due thereon 153,318.00 P75,895.24, P 99,239.18, P128,502.00 and
P222,260.64 or a total of P525,897.06 as
Less: Amount already 89,000.00 deficiency withholding income tax for the
assessed years 1965, 1966, 1967 and 1968,
respectively, in accordance with law. As
Balance P64,318.00 prayed for, the petition for review filed in this
case is dismissed, and petitioner ABS-CBN
Add: 1/2% mo. int. fr. 4-16-66 11,577.24 Broadcasting Corporation is hereby ordered
to 4-16-69 to pay the sum of P525,897.06 to
respondent Commissioner of Internal
Total amount due & collectible P 75,895.24 Revenue as deficiency withholding income
tax for the taxable years 1965 thru 1968,
plus the surcharge and interest which have
1966 accrued thereon incident to delinquency
pursuant to Section 51 (e) of the National
Internal Revenue Code, as amended.
Total amount remitted P373,492.24

Withholding tax due thereon 112,048.00 WHEREFORE, the decision appealed from
is hereby affirmed at petitioner's cost.
Less: Amount already 27,947.00
assessed SO ORDERED. 2

Balance 84,101.00
The issues raised are two-fold:
Add: 11/2%mo. int. fr. 4-16- 15,138.18
67 to 4-116-70 I. Whether or not respondent can apply
General Circular No. 4-71 retroactively and
Total amount due & P99,239.18 issue a deficiency assessment against
collectible petitioner in the amount of P 525,897.06 as
deficiency withholding income tax for the
years 1965, 1966, 1967 and 1968.
1967
II. Whether or not the right of the
Commissioner of Internal Revenue to assess
Total amount remitted P601,160.65 the deficiency withholding income tax for the
year 196,5 has prescribed. 3
Withholding tax due 180,348.00
thereon
Upon the facts and circumstances of the case, review is
Less: Amount already 71,448.00 warranted.
assessed
In point is Sec. 338-A (now Sec. 327) of the Tax Code. As
Balance 108,900.00 inserted by Republic Act No. 6110 on August 9, 1969, it
provides:
Add: 1/2% mo. int. fr. 4- 19,602.00
 Sec. 338-A. Non-retroactivity of rulings. — year, in lieu of the tax imposed by the
Any revocation, modification, or reversal of preceding paragraph, upon the amount
and of the rules and regulations promulgated received by every foreign corporation not
in accordance with the preceding section or engaged in trade or business within the
any of the rulings or circulars promulgated by Philippines, from all sources within the
the Commissioner of Internal Revenue shall Philippines, as interest, dividends, rents,
not be given retroactive application if the salaries, wages, premiums annuities,
relocation, modification, or reversal will be compensations, remunerations, emoluments,
prejudicial to the taxpayers, except in the or other fixed or determinable annual or
following cases: (a) where the taxpayer periodical gains, profits, and income, a tax
deliberately mis-states or omits material equal to thirty per centum of such amount:
facts from his return or any document PROVIDED, HOWEVER, THAT PREMIUMS
required of him by the Bureau of Internal SHALL NOT INCLUDE REINSURANCE
Revenue: (b) where the facts subsequently PREMIUMS. (double emphasis ours).
gathered by the Bureau of Internal Revenue
are materially different from the facts on Republic Act No. 3841, dated likewise on June 22, 1963,
which the ruling is based; or (c) where the followed after, omitting the proviso and inserting some words
taxpayer acted in bad faith. (italics for (also in bold letters).
emphasis)
(b) Tax on foreign corporations.—(1) Non-
It is clear from the foregoing that rulings or circulars resident corporations.—There shall be
promulgated by the Commissioner of Internal Revenue have levied, collected and paid for each taxable
no retroactive application where to so apply them would be year, in lieu of the tax imposed by the
prejudicial to taxpayers. The prejudice to petitioner of the preceding paragraph, upon the amount
retroactive application of Memorandum Circular No. 4-71 is received by every foreign corporation not
beyond question. It was issued only in 1971, or three years engaged in trade or business within the
after 1968, the last year that petitioner had withheld taxes Philippines, from all sources within the
under General Circular No. V-334. The assessment and Philippines, as interest, dividends, rents,
demand on petitioner to pay deficiency withholding income tax salaries, wages, premiums, annuities,
was also made three years after 1968 for a period of time compensations, remunerations, emoluments,
commencing in 1965. Petitioner was no longer in a position to or other fixed or determinable annual or
withhold taxes due from foreign corporations because it had periodical OR CASUAL gains, profits and
already remitted all film rentals and no longer had any control income, AND CAPITAL GAINS, a tax equal
over them when the new Circular was issued. And in so far as to thirty per centum of such
the enumerated exceptions are concerned, admittedly, amount. 6 (double emphasis supplied)
petitioner does not fall under any of them.
The principle of legislative approval of administrative
Respondent claims, however, that the provision on non- interpretation by re-enactment clearly obtains in this case. It
retroactivity is inapplicable in the present case in that General provides that "the re-enactment of a statute substantially
Circular No. V-334 is a nullity because in effect, it changed the unchanged is persuasive indication of the adoption by
law on the matter. The Court of Tax Appeals sustained this Congress of a prior executive construction. 7 Note should be
position holding that: "Deductions are wholly and exclusively taken of the fact that this case involves not a mere opinion of
within the power of Congress or the law-making body to grant, the Commissioner or ruling rendered on a mere query, but a
condition or deny; and where the statute imposes a tax equal Circular formally issued to "all internal revenue officials" by the
to a specified rate or percentage of the gross or entire amount then Commissioner of Internal Revenue.
received by the taxpayer, the authority of some administrative
officials to modify or change, much less reduce, the basis or
measure of the tax should not be read into law." 4 Therefore, It was only on June 27, 1968 under Republic Act No.
the Tax Court concluded, petitioner did not acquire any vested 5431, supra, which became the basis of Revenue
right thereunder as the same was a nullity. Memorandum Circular No. 4-71, that Sec. 24 (b) was amended
to refer specifically to 35% of the "gross income."
The rationale behind General Circular No. V-334 was clearly
stated therein, however: "It ha(d) been determined that the tax This Court is not unaware of the well-entrenched principle that
is still imposed on income derived from capital, or labor, or the Government is never estopped from collecting taxes
both combined, in accordance with the basic principle of because of mistakes or errors on the part of its
income taxation ...and that a mere return of capital or agents. 8 In fact, utmost caution should be taken in this
investment is not income ... ." "A part of the receipts of a non- regard. 9 But, like other principles of law, this also admits of
resident foreign film distributor derived from said film exceptions in the interest of justice and fairplay. The insertion
represents, therefore, a return of investment." The Circular of Sec. 338-A into the National Internal Revenue Code, as held
thus fixed the return of capital at 50% to simplify the in the case of Tuason, Jr. vs. Lingad, 10 is indicative of
administrative chore of determining the portion of the rentals legislative intention to support the principle of good faith. In
covering the return of capital." 5 fact, in the United States, from where Sec. 24 (b) was
patterned, it has been held that the Commissioner of Collector
is precluded from adopting a position inconsistent with one
Were the "gross income" base clear from Sec. 24 (b), perhaps, previously taken where injustice would result therefrom, 11 or
the ratiocination of the Tax Court could be upheld. It should be where there has been a misrepresentation to the taxpayer. 12
noted, however, that said Section was not too plain and simple
to understand. The fact that the issuance of the General
Circular in question was rendered necessary leads to no other We have also noted that in its Decision, the Court of Tax
conclusion than that it was not easy of comprehension and Appeals further required the petitioner to pay interest and
could be subjected to different interpretations. surcharge as provided for in Sec. 51 (e) of the Tax Code in
addition to the deficiency withholding tax of P 525,897.06. This
additional requirement is much less called for because the
In fact, Republic Act No. 2343, dated June 20, 1959, supra, petitioner relied in good faith and religiously complied with no
which was the basis of General Circular No. V-334, was just less than a Circular issued "to all internal revenue officials" by
one in a series of enactments regarding Sec. 24 (b) of the Tax the highest official of the Bureau of Internal Revenue and
Code. Republic Act No. 3825 came next on June 22, 1963 approved by the then Secretary of Finance. 13
without changing the basis but merely adding a proviso (in bold
letters).
With the foregoing conclusions arrived at, resolution of the
issue of prescription becomes unnecessary.
(b) Tax on foreign corporation.—(1) Non-
resident corporations. — There shall be
levied, collected and paid for each taxable
WHEREFORE, the judgment of the Court of Tax Appeals is arbitrary and despotic manner by reason of passion and
hereby reversed, and the questioned assessment set aside. hostility.3
No costs.
On June 1, 1993, the President issued a Memorandum
SO ORDERED. creating a Task Force to investigate the tax liabilities of
manufacturers engaged in tax evasion scheme, such as selling
products through dummy marketing corporations to avoid
3.1
payment of correct internal revenue tax, to collect from them
any tax liabilities discovered from such investigation, and to file
G.R. No. 119322 June 4, 1996 the necessary criminal actions against those who may have
violated the tax code. The task force was composed of the
COMMISSIONER ON INTERNAL REVENUE, SENIOR Commissioner of Internal Revenue as Chairman, a
STATE PROSECUTOR AURORA S. LAGMAN, SENIOR representative of the Department of Justice and a
STATE PROSECUTOR BERNELITO R. FERNANDEZ, representative of the Executive Secretary.
SENIOR STATE PROSECUTOR HENRICK P. GINGOYON,
ROGELIO F. VISTA, STATE PROSECUTOR ALFREDO On July 1, 1993, the Commissioner of Internal Revenue issued
AGCAOILI, PROSECUTING ATTORNEY EMMANUEL a Revenue Memorandum Circular No. 37-93 reclassifying best
VELASCO, CITY PROSECUTOR CANDIDO V. RIVERA, AND selling cigarettes bearing the brands "Hope," "More," and
ASSISTANT CITY PROSECUTOR LEOPOLDO E. "Champion" as cigarettes of foreign brands subject to a higher
BARAQUIA, petitioners, rate of tax.
vs.
THE HONORABLE COURT OF APPEALS, THE On August 3, 1993, respondent Fortune Tobacco Corporation
HONORABLE TIRSO D'C VELASCO, PRESIDING JUDGE, (Fortune) questioned the validity of the reclassification of said
REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 88, brands of cigarettes as violative of its right to due process and
FORTUNE TOBACCO CORPORATION, LUCIO TAN, equal protection of law. Parenthetically, on September 8, 1993,
HARRY C. TAN, CARMEN KAO TAN, FLORENCIO the Court of Tax Appeals by resolution ruled that the
SANTOS, SALVADOR MISON, CHUNG POE KEE, ROJAS reclassification made by the Commissioner "is of doubtful
CHUA, MARIANO TANENGLIAN, JUANITA LEE AND legality" and enjoined its enforcement.
ANTONIO P. ABAYA, respondents.
In a letter of August 13, 1993 which was received by Fortune
DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN on August 24, 1993, the Commissioner assessed against
COMMERCIALS, INC., LANDMARK SALES AND Fortune the total amount of P7,685,942,221.66 representing
MARKETING INC., CRIMSON CROCKER DISTRIBUTORS, deficiency income, ad valorem and value-added tax for the
INC., MOUNT MATUTUM MARKETING CORP., FIRST year 1992 with the request that the said amount be paid within
UNION TRADING CORP., CARLSBURG AND SONS, INC., thirty (30) days upon receipt thereof.4 Fortune on September
OMAR ALI DISTRIBUTORS, INC., ORIEL AND COMPANY, 17, 1993 moved for reconsideration of the assessments.
NEMESIO TAN, QUINTIN CALLEJA, YOLANDA MANALILI,
CARLOS CHAN, ROMEO TAN, VICENTE CO, WILLIAM YU,
LETICIA LIM, GLORIA LOPEZ, ROBERT TANTAMCO, On September 7, 1993, the Commissioner of Internal Revenue
FELIPE LOY, ROLANDO CHUA, HONORINA TAN, WILLIE filed a complaint with the Department of Justice against
TANTAMCO, HENRY WEECHEE, JESUS LIM, TEODORO respondent Fortune, its corporate officers, nine (9) other
TAN, ANTONIO APOSTOL, DOMINGO TENG, corporations and their respective corporate officers for alleged
CANDELARIO LI, ERLINDA CRUZ, CARLOS TUMPALAN, fraudulent tax evasion for supposed non-payment by Fortune
LARRY JOHN SY, ERNESTO ONG, WILFREDO of the correct amount of income tax, ad valorem tax and value-
MACROHON, ANTONIO TIU, ROSARIO LESTER, added tax for the year 1992. The complaint alleged, among
WILFREDO ONG, BONIFACIO CHUA, GO CHING CHUAN, others, that:
HENRY CHUA, LOPE LIM GUAN, EMILIO TAN, FELIPE TAN
SEH CHUAN, ANDRES CO, FELIPE KEE, HENRY GO CO, In the said income tax return, the taxpayer
NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO declared a net taxable income of
CABIGUN, GABRIELLE. QUINTELA, NELSON TE, EMILLIO P183,613,408.00 and an income tax due of
GO, EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP P64,264,693.00. Based mainly on
SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP JAO, documentary evidence submitted by the
JOSE P. YU, AND DAVID R. CORTES, respondents- taxpayer itself, these declarations are false
intervenors. and fraudulent because the correct taxable
income of the corporation for the said year is
  P1,282,959,399.25.

KAPUNAN, J.:p This underdeclaration which resulted in the

evasion of the amount of P723,773,759.79
as deficiency income tax for the year 1992 is
The pivotal issue in this petition for review is whether or not a violation of Section 45 of the Tax Code,
respondent Court of Appeals in its decision1 in CA-G.R. SP No. penalized under Section 253 in relation to
33599 correctly ruled that the Regional Trial Court of Quezon Sections 252(b) and (d) and 253 thereof,
City (Branch 88) in Civil Case No. Q-94- 18790 did not commit thus: . . .
grave abuse of discretion amounting to lack of jurisdiction in
issuing four (4) orders directing the issuance of writs of
preliminary injunction restraining petitioner prosecutors from xxx xxx xxx
continuing with the preliminary injunction of I.S. Nos. 93-508
and 93-584 in the Department of Justice and I.S. No. 93-17942 Fortune Tobacco Corporation, through its
in the Office of the City Prosecutors of Quezon City wherein Vice-President for Finance, Roxas Chua,
private respondents were respondents and denying petitioners' likewise filed value-added tax returns for the
Motion to Dismiss said Civil Case No. 94-18790.2 1st, 2nd, 3rd and 4th quarters of 1992 with
the Rev. District Office of Marikina, Metro
In resolving the issue raised in the petition, the Court may be Manila, declaring therein gross taxable
guided by its definition of what constitutes grave abuse of sales, as follows:
discretion. By grave abuse of discretion is meant such
capricious and whimsical exercise of judgment as is equivalent 1st Qtr. P 2,924,418,055.00
to lack of jurisdiction. The abuse of discretion must be patent
and gross as to amount to an evasion of positive duty or a 2nd Qtr. 2,980,335,235.00
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
3rd Qtr. 2,839,519,325.00
 4th Qtr. 2,992,386,005.00 2. Petitioner Commissioner and the Court of
Tax Appeals have still to determine Fortune's
However, contrary to what have been tax liability for 1992 in question; without any
reported in the said value- added tax returns, tax liability, there can be no tax evasion.
and based on documentary evidence
obtained from the taxpayer, the total actual 3. Exclusive jurisdiction to determine tax
taxable sales of the corporation for the year liability is vested in the Court of Tax Appeals;
1992 amounted to P16,158,575,035.00 therefore, the DOJ is without jurisdiction to
instead of P11,929,322,334.52 as declared conduct preliminary investigation.
by the corporation in the said VAT returns.
4. The complaint of petitioner Commissioner
These fraudulent underdeclarations which is not supported by any evidence to serve as
resulted in the evasion of value-added taxes adequate basis for the issuance of subpoena
in the aggregate amount of to private respondents and to put them to
P1,169,688,645.63 for the entire year 1992 their defense.
are violations of Section 110 in relation to
Section 100 of the Tax Code, which are At the scheduled preliminary investigation on October 15,
likewise penalized under the aforequoted 1993, private respondents were asked by the panel of
Section 253, in relation to Section 252, prosecutors to inform it of the aspects of the Verified Motion to
thereof. Sections 110 and 100 provide: Dismiss which counsel for private respondents did so briefly.
Counsel for the Commissioner of Internal Revenue asked for
xxx xxx xxx fifteen (15) days within which to file a reply in writing to private
respondents' Verified Motion to Dismiss. Thereupon, the panel
Furthermore, based on the corporation's of prosecutors declared a recess. Upon reconvening, the panel
VAT returns, the corporation reported its of prosecutors denied the motion to dismiss and treated the
taxable sales for 1992 in the amount of same as private respondents' counter-affidavits.8
P11,736,658,580. This declaration is
likewise false and fraudulent because, based On October 20, 1993, private respondents filed a motion for
on the daily manufacturer's sworn reconsideration of the order of October 15, 1993.9 On October
statements submitted to the BIR by the 21, 1993, private respondents filed a motion to require the
taxpayer, its total taxable sales during the submission by the Bureau of Internal Revenue of certain
year 1992 is P16,686,372,295.00. As a documents in further support of their Verified Motion to
result thereof, the corporation was able to Dismiss. Among the documents sought to be produced are the
evade the payment of ad valorem taxes in "Daily Manufacturer's Sworn Statements" which according to
the aggregate amount of P5,792,479,816.24 petitioner Commissioner in her complaint were submitted by
in violation of Section 127 in relation to Fortune to the BIR and which were the basis of her conclusion
Section 142, as amended by R.A. 6956, that Fortune's tax declarations were false and fraudulent.
penalized under the aforequoted Section Fortune claimed that without the "Daily Manufacturer's Sworn
253, in relation to Section 252, all of the Tax Statements," there is no evidence to support the complaint,
Code. Sections 127 and 142, as amended hence, warranting its outright dismissal.
by R.A. 6956, are quoted as follows: . . .
On October 26, 1993, private respondents moved for the
The complaint docketed as I.S. No. 93-508, was referred to the inhibition of the State prosecutors assigned to the case for
Department of Justice Task Force on revenue cases which alleged lack of impartiality.10 Private respondents also sought
found sufficient basis to further investigate the allegations that the production of the "Daily Manufacturer's Sworn Statements"
Fortune, through fraudulent means, evaded payment of income submitted by certain cigarette companies similarly situated as
tax, ad valorem tax, and value-added tax for the year 1992 Fortune but were not proceeded against, thus, private
thus, depriving the government of revenues in the amount of respondents charged that Fortune and its officers were being
Seven and One-half (P7.5) Billion Pesos. singled out for criminal prosecution which is discriminatory and
in violation of the equal protection clause of the Constitution.
The fraudulent scheme allegedly adopted by private
respondents consisted of making fictitious and simulated sales On December 20, 1993, the panel of prosecutors issued an
of Fortune's cigarette products to non-existing individuals and Omnibus Order11 denying private respondents' motion for
to entities incorporated and existing only for the purpose of reconsideration, motion for suspension of investigation, motion
such fictitious sales by declaring registered wholesale prices to inhibit the State Prosecutors, and motion to require
with the BIR lower than Fortune's actual wholesale prices submission by the BIR of certain documents to further support
which are required for determination of Fortune's correct private respondents' motion to dismiss.
income, ad valorem, and value-added tax liabilities. The
"ghosts wholesale buyers" then ostensibly sold the products to On January 4, 1994, private respondents filed a petition
customers and other wholesalers/retailers at higher wholesale for certiorari and prohibition with prayer for preliminary
prices determined by Fortune. The tax returns and injunction with the Regional Trial Court, Branch 88, Quezon
manufacturer's sworn statements filed by Fortune would then City, docketed as Q-94-18790, praying that the complaint of
declare the fictitious sales it made to the conduit corporators the Commissioner of Internal Revenue and the orders of the
and non-existing individual buyers as its gross sales.5 prosecutors in I.S. No. 93-508 be dismissed or set aside,
alternatively, the proceedings on the preliminary investigation
On September 8, 1993, the Department of Justice Task Force be suspended pending final determination by the
issued a subpoena directing private respondents to submit Commissioner of Fortune's motion for reconsideration/
their counter-affidavits not later than September 20, 1993. 6 reinvestigation of the August 13, 1993 assessment of the taxes
due.12
Instead of filing their counter-affidavits, the private respondents
on October 15, 1993 filed a Verified Motion to Dismiss; On January 17, 1994, petitioners filed a motion to dismiss the
Alternatively Motion to Suspend,7 based principally on the petition13 on the grounds that (a) the trial court is bereft of
following grounds: jurisdiction to enjoin a criminal prosecution under preliminary
investigation; (b) a criminal prosecution for tax fraud can
1. The complaint of petitioner Commissioner proceed independently of criminal or administrative action; (c)
follows a pattern of prosecution against there is no prejudicial question to justify suspension of the
private respondents in violation of their right preliminary investigation; (d) private respondents' rights to due
to due process and equal protection of the process was not violated; and (e) selective prosecution is not a
law. valid defense in this jurisdiction.
On January 19, 1994, at the hearing of the incident for the precipitate denial by the panel of
issuance of a writ of preliminary injunction in the petition, prosecutors, after a recess of about twenty
private respondents offered in evidence their verified petition (20) minutes, of private respondents' motion
for certiorari and prohibition and its annexes. Petitioners to dismiss, consisting of one hundred and
responded by praying that their motion to dismiss the petition thirty five (135) pages.
for certiorari and prohibition be considered as their opposition
to private respondents' application for the issuance of a writ of g) Private respondents had been especially
preliminary injunction. targeted by the government for prosecution.
Prior to the filing of the complaint in I.S. No.
On January 25, 1994, the trial court issued an order granting 93-508, petitioner Commissioner issued
the prayer for the issuance of a preliminary injunction.14 The Revenue Memorandum Circular No. 37-93
trial court rationalized its order in this wise: reclassifying Fortune's best selling
cigarettes, namely "Hope," "More," and
a) It is private respondents' claim that the ad "Champion" as cigarettes bearing a foreign
valorem tax for the year 1992 was levied, brand, thereby imposing upon them a higher
assessed and collected by the BIR under rate of tax that would price them out of the
Section 142(c) of the Tax Code on the basis market.
of the "manufacturer's registered wholesale
price" duly approved by the BIR. Fortune's h) While in petitioner Commissioner's letter
taxable sales for 1992 was in the amount of of August 13, 1993, she gave Fortune a
P11,736,658,580.00. period of thirty (30) days from receipt thereof
within which to pay the alleged tax deficiency
b) On the other hand, it is petitioners' assessments, she filed the criminal
contention that Fortune's declaration was complaint for tax evasion before the period
false and fraudulent because, based on its lapsed.
daily manufacturer's sworn statements
submitted to the BIR, its taxable sales in i) Based on the foregoing, the criminal
1992 were P16,686,372,295.00, as a result complaint against private respondents was
of which, Fortune was able to evade the filed prematurely and in violation of their
payment of ad valorem tax in the aggregate constitutional right to equal protection of the
amount of P5,792,479,816.24. laws.

c) At the hearing for preliminary On January 26, 1994, private respondents filed with the trial
investigation, the "Daily Manufacturer's court a Motion to Admit Supplemental Petition and sought the
Sworn Statements" which, according to issuance of a writ of preliminary injunction to enjoin the State
petitioners, were submitted to the BIR by Prosecutors from continuing with the preliminary investigation
private respondents and made the basis of filed by them against private respondents with the Quezon City
petitioner Commissioner's complaint that the Prosecutor's Office, docketed as I.S. 93-17942, for alleged
total taxable sales of Fortune in 1992 fraudulent tax evasion, committed by private respondents for
amounted to P16,686,372, 295.00 were not the taxable year 1990. Private respondents averred in their
produced as part of the evidence for motion that no supporting documents or copies of the
petitioners. In fact, private respondents had complaint were attached to the subpoena in I.S. 93-17942; that
filed a motion to require petitioner the subpoena violates private respondents' constitutional right
Commissioner to submit the aforesaid daily to due process, equal protection and presumption of
manufacturer's sworn statements before the innocence; that I.S. 93-17942 is substantially the same as I.S.
DOJ panel of prosecutors to show that 93-508; that no tax assessment has been issued by the
Fortune's actual taxable sales totaled Commission of Internal Revenue and considering that taxes
P16,686,373,295.00, but the motion was paid have not been challenged, no tax liability exists; and that
denied. since Assistant City Prosecutor Baraquia was a former
classmate of Presidential Legal Counsel Antonio T. Carpio, the
d) There is nothing on record in the former cannot conduct the preliminary investigation in an
preliminary investigation before the panel of impartial manner.
investigators which supports the allegation
that Fortune made a fraudulent declaration On January 28, 1994, private respondents filed with the trial
of its 1992 taxable sales. court a second supplemental petition,15 also seeking to stay the
preliminary investigation in I.S. 93-584, which was the third
e) Since, as alleged by private respondents, complaint filed against private respondents with the DOJ for
the ad valorem tax for the year 1992 should alleged fraudulent tax evasion for the taxable year 1991.
be based on the "manufacturer's registered
wholesale price" while, as claimed by On January 31, 1994, the lower court admitted the two (2)
petitioners, the ad valorem taxes should be supplemental petitions and issued a temporary restraining
based on the wholesale price at which the order in I.S. 93-17942 and I.S. 93-584.16 Also, on the same
manufacturer sold the cigarettes, which is a day, petitioners filed an Urgent Motion for Immediate
legal issue as admitted by a BIR lawyer Resolution of petitioners' motion to dismiss.
during the hearing for preliminary injunction,
the correct interpretation of the law involved, On February 7, 1994, the trial court issued an order denying
which is Section 142(c) of the Tax Code, petitioners' motion to dismiss private respondents' petition
constitutes a prejudicial question which must seeking to stay preliminary investigation in I.S. 93-508, ruling
first be resolved before criminal proceedings that the issue of whether Sec. 127(b) of the National Tax
for tax evasion may be pursued. In other Revenue Code should be the basis of private respondents' tax
words, the BIR must first make a final liability as contended by the Bureau of Internal Revenue, or
determination, which it has not, of Fortune's whether it is Section 142(c) of the same Code that applies, as
tax liability relative to its 1992 ad valorem, argued by herein private respondents, should first be settled
value-added and income taxes before the before any complaint for fraudulent tax evasion can be
taxpayer can be made liable for tax evasion. initiated.17

f) There was a precipitate issuance by the On February 14, 1994, the trial court issued an order granting
panel of prosecutors of subpoenas to private private respondents' petition for a supplemental writ of
respondents, on the very day following the preliminary injunction, likewise enjoining the preliminary
filing of the complaint with the DOJ investigation of the two (2) other complaints filed with the
consisting of about 600 pages, and the
Quezon City Prosecutor's Office and the DOJ for fraudulent tax disposition of the case before the respondent
evasion, I.S. 93-17942 and I.S. 93-584, for alleged tax evasion Court would not have been incurred.
for the taxable years 1990 and 1991 respectively.18 In granting
the supplemental writ, the trial court stated that the two other Grave abuse of discretion as a ground for
complaints are the same as in I.S. 93-508, except that the issuance of writs of certiorari and prohibition
former refer to the taxable years 1990 and 1991. implies capricious and whimsical exercise of
judgment as is equivalent to lack of
On March 7, 1994, petitioners filed a petition for certiorari and jurisdiction, or where the power is exercised
prohibition with prayer for preliminary injunction before this in an arbitrary or despotic manner by reason
Court. However, the petition was referred to the Court of of passion, prejudice, or personal hostility,
Appeals for disposition by virtue of its original concurrent amounting to an evasion of positive duty or
jurisdiction over the petition. to a virtual refusal to perform the duty
enjoined, or to act at all in contemplation of
On December 19, 1994, the Court of Appeals in CA-G.R No. law (Confederation of Citizens Labor Union
SP-33599 rendered a decision denying the petition. The Court vs. NLRC, 60 SCRA 84; Bustamante vs.
of Appeals ruled that the trial court committed no grave abuse Commission on Audit, 216 SCRA 134). For
of discretion in ordering the issuance of writs of preliminary such writs to lie, there must be capricious,
injunction and in denying petitioners' motion to dismiss. In arbitrary and whimsical exercise of power,
upholding the reasons and conclusions given by the trial court the very antithesis of the judicial prerogative
in its orders for the issuance of the questioned writs, the Court in accordance with centuries of both civil law
of Appeals said in part: and common law traditions (Young vs. Sulit,
162 SCRA 659, 664; FCC vs. IAC, 166
SCRA 155; Purefoods Corp. vs. NLRC, 171
In making such conclusion the respondent SCRA 45). Certiorari and prohibition are
Court must have understood from herein remedies narrow in scope and inflexible in
petitioner Commissioner's letter-complaint of character. They are not general utility tools in
14 pages (pp. 477-490, rollo of this case) the legal workshop (Vda. de Guia vs. Veloso,
and the joint affidavit of eight revenue 158 SCRA 340, 344). Their function is but
officers of 17 pages attached thereto (pp. limited to correction of defects of jurisdiction
491-507, supra) and its annexes (pp. 508- solely, not to be used for any other purpose
1077, supra), that the charge against herein (Garcia vs. Ranada, 166 SCRA 9), such as
respondents is for tax evasion for non- to cure errors in. proceedings or to correct
payment by herein respondent Fortune of erroneous conclusions of law or fact (Gold
the correct amounts of income tax, ad City Integrated Ports Services vs. IAC, 171
valorem tax and value added tax, not SCRA 579). Due regard for the foregoing
necessarily "fraudulent tax evasion." Hence, teachings enunciated in the decisions cited
the need for previous assessment of the can not bring about a decision other than
correct amount by herein petitioner what has been reached herein.
Commissioner before herein respondents
may be charged criminally. Certiorari will not
be issued to cure errors in proceedings or Needless to say, the case before the
correct erroneous conclusions of law or fact. respondent court involving those against
As long as a Court acts within its herein respondents for alleged non-payment
jurisdictions, any alleged error committed in of the correct amounts due as income tax,
the exercise of its jurisdiction, will amount to ad valorem tax and value added tax for the
nothing more than errors of judgment which years 1990, 1991 and 1992 (Civil Case No.
are reviewable by timely appeal and not by a Q-94-18790) is not ended by this decision.
special civil action of certiorari (Santos, Jr. The respondent Court is still to try the case
vs. Court of Appeals, 152 SCRA 378; Gold and decide it on the merits. All that is
City Integrated Port Services, Inc. vs. decided here is but the validity of the orders
Intermediate Appellate Court, 171 SCRA of the respondent Court granting herein
579). respondents' application for preliminary
injunction and denying herein petitioners'
motion to dismiss. If upon the facts
The questioned orders issued after hearing established after trial and the applicable law,
(Annexes A, B, C and D, petition) being but dissolution of the writ of preliminary
interlocutory, review thereof by this Court is injunction allowed to be issued by the
inappropriate until final judgment is respondent Court is called for and a
rendered, absent a showing of grave abuse judgment favorable to herein petitioners is
of discretion on the part of the issuing court demanded, the respondent Court is duty
(See Van Dorn vs. Romillo, 139 SCRA 139, bound to render judgment accordingly.
141; Newsweek, Inc. vs. IAC, 171, 177;
Mendoza vs. Court of Appeals, 201 SCRA
343, 352). The factual and legal issues WHEREFORE, the instant petition
involved in the main case still before the for certiorari and prohibition with application
respondent Court are best resolved after for issuance of restraining order and writ of
trial. Petitioners, therefore, instead of preliminary injunction is DISMISSED.
resorting to this petition for certiorari and Costs de oficio.19
prohibition should have filed an answer to
the petition as ordained in Section 4, Rule Their motion for reconsideration having been denied by
16, in connection with Rule 11 of the respondent appellate court on February 23, 1995, petitioners
Revised Rules of Court, interposing as filed the present petition for review based on the following
defense or defenses the objection or grounds:
objections raised in their motion to dismiss,
then proceed to trial in order that thereafter THE RESPONDENT COURTS
the case may be decided on the merits by COMMITTED GRAVE ABUSE OF
the respondent Court. In case of an adverse DISCRETION AMOUNTING TO LACK OR
decision, they may appeal therefrom by EXCESS OF JURISDICTION IN HOLDING
which the entire record of the case would be THAT:
elevated for review (See Mendoza vs. Court
of Appeals, supra). Therefore, certiorari and
prohibition resorted to by herein petitioners I. THERE IS A PREJUDICIAL AND/OR
will not lie in view of the remedy open to LEGAL QUESTION TO JUSTIFY THE
them. Thus, the resulting delay in the final
 SUSPENSION OF THE PRELIMINARY On the other hand, petitioners allege, as specifically worded in
INVESTIGATION. the complaint in I.S. No. 93-508, that "based on the daily
manufacturer's sworn statements submitted to the BIR by the
II. PRIVATE RESPONDENTS' RIGHTS TO Taxpayer (Fortune's) total taxable sales during the year 1992 is
DUE PROCESS, EQUAL PROTECTION P16,686,372,295.00," as result of which Fortune "was able to
AND PRESUMPTION OF INNOCENCE evade the payment of ad valorem taxes in the aggregate
WERE VIOLATED; ON THE CONTRARY, amount of P5,792,479,816.24 . . ."
THE STATE ITSELF WAS DEPRIVED OF
DUE PROCESS. Petitioners now argue that Section 127(b) lays down the rule
that in determining the gross selling price of goods subject to
III. THE ADMISSION OF PRIVATE ad valorem tax, it is the price, excluding the value-added tax, at
RESPONDENTS' SUPPLEMENTAL which the goods are sold at wholesale price in the place of
PETITIONS WERE PROPER. production or through their sales agents to the public. The
registered wholesale price shall then be used for computing
the ad valorem tax which is imposable upon removal of the
IV. THERE WAS SELECTIVE taxable goods from the place of production. However,
PROSECUTION. petitioners claim that Fortune used the "manufacturer's
registered wholesale price" in selling the goods to alleged
V. THE FACTUAL ALLEGATIONS IN THE fictitious individuals and dummy corporations for the purpose of
PETITION ARE HYPOTHETICALLY evading the payment of the correct ad valorem tax.
ADMITTED IN A MOTION TO DISMISS
BASED ON JURISDICTIONAL GROUNDS. There can be no question that under Section 127(b), the ad
valorem tax should be based on the correct price excluding the
VI. THE ISSUANCE OF THE WRITS OF value-added tax, at which goods are sold at wholesale in the
INJUNCTION IS NOT A DECISION ON THE place of production. It is significant to note that among the
MERITS OF THE PETITION BEFORE THE goods subject to ad valorem tax, the law -- specifically Section
LOWER COURT.20 142(c) -- requires that the corresponding tax on cigarettes shall
be levied, assessed and collected at the rates based on the
The petition is bereft of merit. "manufacturer's registered wholesale price." Why does the
wholesale price need to be registered and what is the purpose
of the registration? The reason is self-evident, which is to
In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93- ensure the payment of the correct taxes by the manufacturers
17942 charged private respondents with fraudulent tax evasion of cigarettes through close supervision, monitoring and
or wilfully attempting to evade or defeat payment of income checking of the business operations of the cigarette
tax, ad valorem tax and value-added tax for the year 1992, as companies. As pointed out by private respondents, no industry
well as for the years 1990-1991. is as intensely supervised by the BIR and also by the National
Tobacco Administration (NTA). Thus, the purchase and use of
The pertinent provisions of law involved are Sections 127(b) raw materials are subject to prior authorization and approval by
and 142(c) of the National Internal Revenue Code which state: the NTA. Importations of bobbins or cigarette paper, the
manufacture, sale, and utilization of the same, are subject to
BIR supervision and approval.21
Sec. 127. . . .

Moreover, as pointed to by private respondents, for purposes

(b) Determination of gross selling price of
of closer supervision by the BIR over the production of
goods subject to ad valorem tax. -- Unless
cigarettes, Revenue Enforcement Officers are detailed on a
otherwise provided, the price, excluding the
24-hour basis in the premises of the manufacturer to secure
value-added tax, at which the goods are sold
production and removal of finished products. Composite Mobile
at wholesale in the place of production or
Teams conduct counter-security on the business operations as
through their sales agents to the public shall
well as the performance of the Revenue Enforcement Officers
constitute the gross selling price. If the
detailed thereat. Every transfer of any raw material is not
manufacturer also sells or allows such goods
allowed unless, in addition to the required permits,
to be sold at wholesale price in another
accompanied by Revenue Enforcement Officer. For the
establishment of which he is the owner or in
purpose of determining the "Manufacturer's Registered
the profits at which he has an interest, the
Wholesale Price" a cigarette manufacturer is required to file a
wholesale price in such establishment shall
Manufacturer's Declaration (BIR Form No. 31.03) for each
constitute the gross selling price. Should
brand of cigarette manufactured, stating: a) Materials, b)
such price be less than the costs of
Labor; c) Overhead; d) Tax Burden and the Wholesale Price by
manufacture plus expenses incurred until the
Case. The data submitted therewith is verified by the Revenue
goods are finally sold, then a proportionate
Officers and approved by the Commission of Internal Revenue.
margin of profit, not less than 10% of such
Any change in the manufacturer's registered wholesale price of
manufacturing costs and expenses, shall be
any brand cannot be effected without submitting the
added to constitute the gross selling price.
corresponding Sworn Manufacturer's Declaration and verified
by the Revenue Officer and approved by the Commissioner on
Sec. 142. . . . Internal Revenue.22 The amount of ad valorem tax payments
together with the Payment Order and Confirmation Receipt
(c) Cigarettes packed in twenties. -- There Nos. must be indicated in the sales and delivery invoices and
shall be levied, assessed and collected on together with the Manufacturer's Sworn Declarations on (a) the
cigarettes packed in twenties an ad valorem quantity of raw materials used during the day's operations; (b)
tax at the rates prescribed below based on the total quantity produced according to brand; and (c) the
the manufacturer's registered wholesale corresponding quantity removed during the day, the
price. corresponding wholesale price thereof, and the VAT paid
thereon must be presented to the corresponding BIR
representative for authentication before removal.
x x x           x x x          x x x

Thus, as observed by the trial court in its order of January 25,

Private respondents contend that per Fortune's VAT returns,
1994 granting private respondents' prayer for the issuance of a
correct taxable sales for 1992 was in the amount of
writ of preliminary injunction, Fortune's registered wholesale
P11,736,658,580.00 which was the "manufacturer's registered
price (was) duly approved by the BIR, which fact is not
wholesale price" in accordance with Section 142(c) of the Tax
disputed by petitioners.23
Code and paid the amount of P4,805,254,523 as ad valorem
tax.
Now, if every step in the production of cigarettes was closely Reading Ungad carefully, the pronouncement therein that
monitored and supervised by the BIR personnel specifically deficiency assessment is not necessary prior to prosecution is
assigned to Fortune's premises, and considering that the pointedly and deliberately qualified by the Court with following
Manufacturer's Sworn Declarations on the data required to be statement quoted from Guzik v. U.S.:28 "The crime is complete
submitted by the manufacturer were scrutinized and verified by when the violator has knowingly and wilfully filed a fraudulent
the BIR and, further, since the manufacturer's wholesale price return with intent to evade and defeat apart or all of the tax." In
was duly approved by the BIR, then it is presumed that such plain words, for criminal prosecution to proceed before
registered wholesale price is the same as, or approximates assessment, there must be a prima facie showing of a wilful
"the price, excluding the value-added tax, at which the goods attempt to evade taxes. There was a wilful attempt to evade
are sold at wholesale in the place production," otherwise, the tax in Ungad because of the taxpayer's failure to declare in his
BIR would not have approved the registered wholesale price of income tax return "his income derived from banana sapplings."
the goods for purposes of imposing the ad valorem tax due. In In the mind of the trial court and the Court of Appeals,
such case, and in the absence of contrary evidence, it was Fortune's situation is quite apart factually since the registered
precipitate and premature to conclude that private respondents wholesale price of the goods, approved by the BIR, is
made fraudulent returns or wilfully attempted to evade payment presumed to be the actual wholesale price, therefore, not
of taxes due. "Wilful" means "premeditated; malicious; done fraudulent and unless and until the BIR has made a final
with intent, or with bad motive or purpose, or with indifference determination of what is supposed to be the correct taxes, the
to the natural consequence . . ." 24 "Fraud" in its general sense, taxpayer should not be placed in the crucible of criminal
"is deemed to comprise anything calculated to deceive, prosecution. Herein lies a whale of difference
including all acts, omissions, and concealment involving a between Ungad and the case at bar.
breach of legal or equitable duty, trust or confidence justly
reposed, resulting in the damage to another, or by which an This brings us to the erroneous disquisition that private
undue and unconscionable advantage taken of another.25 respondents' recourse to the trial court by way of special civil
action of certiorari and prohibition was improper because: a)
Fraud cannot be presumed. If there was fraud or wilful attempt the proceedings before the state prosecutors (preliminary
to evade payment of ad valorem taxes by private respondents injunction) were far from terminated -- private respondents
through the manipulation of the registered wholesale price of were merely subpoenaed and asked to submit counter
the cigarettes, it must have been with the connivance or affidavits, matters that they should have appealed to the
cooperation of certain BIR officials and employees who Secretary of Justice; b) it is only after the submission of private
supervised and monitored Fortune's production activities to see respondents' counter affidavits that the prosecutors will
to it that the correct taxes were paid. But there is no allegation, determine whether or not there is enough evidence to file in
much less evidence, of BIR personnel's malfeasance. In the court criminal charges for fraudulent tax evasion against
very least, there is the presumption that the BIR personnel private respondents; and c) the proper procedure is to allow
performed their duties in the regular course in ensuing the the prosecutors to conduct and finish the preliminary
correct taxes were paid by Fortune.26 investigation and to render a resolution, after which the
aggrieved party can appeal the resolution to the Secretary of
It is the opinion of both the trial court and respondent Court of Justice.
Appeals, that before Fortune and the other private respondents
could be prosecuted for tax evasion under Sections 253 and We disagree.
255 of the Tax Code, the fact that the deficiency income, ad
valorem and value-added taxes were due from Fortune for the As a general rule, criminal prosecutions cannot be enjoined.
year 1992 should first be established. Fortune received form However, there are recognized exceptions which, as
the Commissioner of Internal Revenue the deficiency summarized in Brocka v. Enrile29 are:
assessment notices in the total amount of P7,685,942,221.06
on August 24, 1993. However, under Section 229 of the Tax
Code, the taxpayer has the right to move for reconsideration of a. To afford adequate protection to the
the assessment issued by the Commissioner of Internal constitutional rights of the accused
Revenue within thirty (30) days from receipt of the assessment; (Hernandez vs. Albano, et al., L-19272,
and if the motion for reconsideration is denied, it may appeal to January 25, 1967, 19 SCRA 95);
the Court of Appeals within thirty (30) days from receipt of the
Commissioner's decision. Here, Fortune received the b. When necessary for the orderly
Commissioner's assessment notice dated August 13, 1993 on administration of justice or to avoid
August 24, 1993 asking for the payment of the deficiency oppression or multiplicity of actions
taxes. Within thirty (30) days from receipt thereof, Fortune (Dimayuga, et al. vs. Fernandez, 43 Phil.
moved for reconsideration. The Commissioner has not 304; Hernandez vs. Albano, supra; Fortun
resolved the request for reconsideration up to the present. vs. Labang, et al., L-38383, May 27, 1981,
104 SCRA 607);
We share with the view of both the trial court and court of
Appeals that before the tax liabilities of Fortune are first finally c. When there is a prejudicial question which
determined, it cannot be correctly asserted that private is sub judice (De Leon vs. Mabanag, 70 Phil
respondents have wilfully attempted to evade or defeat the 202);
taxes sought to be collected from Fortune. In plain words,
before one is prosecuted for wilful attempt to evade or defeat d. When the acts of the officer are without or
any tax under Sections 253 and 255 of the Tax code, the fact in excess of authority (Planas vs. Gil, 67 Phil
that a tax is due must first be proved. 62);

Suppose the Commissioner eventually resolves Fortune's e. Where the prosecution is under an invalid
motion for reconsideration of the assessments by pronouncing law, ordinance or regulation (Young vs.
that the taxpayer is not liable for any deficiency assessment, Rafferty, 33 Phil. 556; Yu Cong Eng vs.
then, the criminal complaints filed against private respondents Trinidad, 47 Phil. 385, 389);
will have no leg to stand on.

f. When double jeopardy is clearly apparent

In view of the foregoing reasons, we cannot subscribe to the (Sangalang vs. People and Alvendia, 109
petitioners' thesis citing Ungad v. Cusi,27 that the lack of a final Phil. 1140);
determination of Fortune's exact or correct tax liability is not a
bar to criminal prosecution, and that while a precise
computation and assessment is required for a civil action to g. Where the court had no jurisdiction over
collect tax deficiencies, the Tax Code does not require such the offense (Lopez vs. City Judge, L-25795,
computation and assessment prior to criminal prosecution. October 29, 1966, 18 SCRA 616);
 h. Where it is a case of persecution rather respondent shall submit counter-affidavits
than prosecution (Rustia vs. Ocampo, CA- and other supporting documents. He shall
G.R. No. 4760, March 25, 1960); have the right to examine all other evidence
submitted by the complainant.
i. Where the charges are manifestly false
and motivated by the lust for vengeance (c) Such counter-affidavits and other
(Recto vs. Castelo, 18 L.J. [1953], cited in supporting evidence submitted by the
Rano vs. Alvenia, CA-G.R. No. 30720-R, respondent shall also be sworn to and
October 8, 1962; Cf. Guingona, et al. vs. City certified as prescribed in paragraph (a)
Fiscal, L-60033, April 4, 1984, 128 SCRA hereof and copies thereof shall be furnished
577); and by him to the complainant.

j. When there is clearly no prima facie case (d) If the respondent cannot be subpoenaed,
against the accused and a motion to quash or if subpoenaed, does not submit counter-
on that ground has been denied (Salonga vs. affidavits within the ten (10) day period, the
Pane, et al., L-59524, February 18, 1985, investigating officer shall base his resolution
134 SCRA 438). on the evidence presented by the
complainant.
In issuing the questioned orders granting the issuance of a writ
of preliminary injunction, the trial court believed that said (e) If the investigating officer believes that
orders were warranted to afford private respondents adequate there are matters to be clarified, he may set
protection of their constitutional rights, particularly in reference a hearing to propound clarificatory questions
to presumption of innocence, due process and equal protection to the parties or their witnesses, during
of the laws. The trial court also found merit in private which the parties shall be afforded an
respondents' contention that preliminary injunction should be opportunity to be present but without the
issued to avoid oppression and because the acts of the state right to examine or cross-examine. If the
prosecutors were without or in excess of authority and for the parties so desire, they may submit questions
reason that there was a prejudicial question. to the investigating officer which the latter
may propound to the parties or witnesses
Contrary to petitioners' submission, preliminary investigation concerned.
may be enjoined where exceptional circumstances so warrant.
In Hernandez v. Albano30 and Fortun v. Labang,31 injunction (f) Thereafter, the investigation shall be
was issued to enjoin a preliminary investigation. In the case at deemed concluded, and the investigating
bar, private respondents filed a motion to dismiss the complaint officer shall resolve the case within ten (10)
against them before the prosecution and alternatively, to days therefrom. Upon the evidence thus
suspend the preliminary investigation on the grounds cited adduced, the investigating officer shall
hereinbefore, one of which is that the complaint of the determine whether or not there is sufficient
Commissioner is not supported by any evidence to serve as ground to hold the respondent for trial.
adequate basis for the issuance of the subpoena to them and
put them to their defense. As found by the Court of Appeals, there was obvious haste by
which the subpoena was issued to private respondents, just
Indeed, the purpose of a preliminary injunction is to secure the the day after the complaint was filed, hence, without the
innocent against hasty, malicious and oppressive prosecution investigating prosecutors being afforded material time to
and to protect him from an open and public accusation of examine and study the voluminous documents appended to
crime, from the trouble, expense and anxiety of a public trial the complaint for them to determine if preliminary investigation
and also to protect the state from useless and expensive should be conducted. The Court of Appeals further added that
trials. 32 Thus, the pertinent provisions of Rule 112 of the Rules the precipitate haste in the issuance of the subpoena justified
of Court state: private respondents' misgivings regarding the objectivity and
neutrality of the prosecutors in the conduct of the preliminary
Sec. 3. Procedure. -- Except as provided for investigation and so, the appellate court concluded, the grant
in Section 7 hereof, no complaint or of preliminary investigation by the trial court to afford adequate
information for an offense cognizable by the protection to private respondents' constitutional rights and to
Regional Trial Court shall be filed without a avoid oppression does not constitute grave abuse of discretion
preliminary investigation having been first amounting to lack of jurisdiction.
conducted in the following manner:
The complaint filed by the Commissioner on Internal Revenue
(a) The complaint shall state the known states itself that the primary evidence establishing the falsity of
address of the respondent and be the declared taxable sales in 1992 in the amount of
accompanied by affidavits of the complainant P11,736,658,580.00 were the "daily Manufacturer's Sworn
and his witnesses as well as other Statements" submitted by the taxpayer which would show that
supporting documents, in such number of the total taxable sales in 1992 are in the amount of
copies as there are respondents, plus two P16,686,372,295.00. However, the Commissioner did not
(2) copies for the official file. The said present the "Daily Manufacturer's Sworn Statements"
affidavits shall be sworn to before any fiscal, supposedly submitted to the BIR by the taxpayer, prompting
state prosecutor or government official private respondents to move for their production in order to
authorized to administer oath, or, in their verify the basis of petitioners' computation. Still, the
absence or unavailability, a notary public, Commissioner failed to produce the declarations. In Borja
who must certify that he personally v. Moreno,33 it was held that the act of the investigator in
examined the affiants and that he is satisfied proceeding with the hearing without first acting on respondents'
that they voluntarily executed and motion to dismiss is a manifest disregard of the requirement of
understood their affidavits. due process. Implicit in the opinion of the trial court and the
Court of Appeals is that, if upon the examination of the
complaint, it was clear that there was no ground to continue,
(b) Within ten (10) days after the filing of the with the inquiry, the investigating prosecutor was duty bound to
complaint, the investigating officer shall dismiss the case. On this point, the trial court stressed that the
either dismiss the same if he finds no ground prosecutor conducting the preliminary investigation should
to continue with the inquiry, or issue a have allowed the production of the "Daily Manufacturer's
subpoena to the respondent, attaching Sworn Statements" submitted by Fortune without which there
thereto a copy of the complaint, affidavits was no valid basis for the allegation that private respondents
and other supporting documents. Within ten wilfully attempted to evade payment of the correct taxes. The
(10) days from receipt thereof, the prosecutors should also have produced the "Daily
Manufacturer's Sworn Statements" by other cigarette But, I share the view of the majority that the trial court did not
companies, as sought by private respondents, to show that commit grave abuse of discretion amounting to lack of
these companies which had paid the ad valorem taxes on the jurisdiction. At once it must be pointed out that the trial court
same basis and in the same manner as Fortune were not merely issued writs of preliminary injunction. However to grant
similarly criminally charged. But the investigating prosecutors the prayer of herein petitioners would effectively dismiss the
denied private respondents' motion, thus, indicating that only petition for certiorari and prohibition filed by private
Fortune was singled out for prosecution. The trial court and the respondents with the trial court even before the issues in the
Court of Appeals maintained that at that stage of the main case could be joined, which seems to me to be a
preliminary investigation, where the complaint and the procedural lapse since the main case is already being resolved
accompanying affidavits and supporting documents did not when the only issue before the Court is the propriety of the
show any violation of the Tax Code providing penal sanctions, ancillary or provisional remedy.
the prosecutors should have dismissed the complaint outright
because of total lack of evidence, instead of requiring private The trial court granted the writs of preliminary injunction upon
respondents to submit their counter affidavits under Section finding, after hearing for the purpose, that private respondents
3(b) of Rule 112. sufficiently established that "they are entitled to certain
constitutional rights and that these rights have been
We believe that the trial court in issuing its questioned orders, violated,"1 and that they have complied with the requirements
which are interlocutory in nature, committed no grave abuse of of Sec. 3, Rule 58, Rules of Court.2 In support of its conclusion,
discretion amounting to lack of jurisdiction. There are factual the trial court enumerated its reasons: first, inspite of the
and legal bases for the assailed orders. On the other hand, the motion of respondent Fortune Tobacco Corporation, petitioner
burden is upon the petitioners to demonstrate that the Commissioner of Internal Revenue failed to present the "daily
questioned orders constitute a whimsical and capricious manufacturer's sworn statements submitted to the BIR by the
exercise of judgment, which they have not. For certiorari will taxpayer," supposedly stating that the total taxable sales of
not be issued to cure errors in proceedings or correct respondent Corporation for the year 1992 is
erroneous conclusions of law or fact. As long as a court acts P16,686,372,295.00, which is the basis of petitioner
within its jurisdiction, any alleged errors committed in the Commissioner's allegation that private respondents failed to
exercise of its jurisdiction will amount to nothing more than pay the correct taxes since it declared in its VAT returns that its
errors of judgment which are reviewable by timely appeal and total taxable sales in 1992 was only
not by a special civil action of certiorari. 34 Consequently, the P11,736,658.580.00; second, the proper application of Sec.
Regional Trial Court acted correctly and judiciously, and as 142, par. (c), of the National Internal Revenue Code is a
demanded by the facts and the law, in issuing the orders prejudicial question which must first be resolved by the Court
granting the writs of preliminary injunction, in denying of Tax Appeals to determine whether a tax liability which is an
petitioners' motion to dismiss and in admitting the essential element of tax evasion exists before criminal
supplemental petitions. What petitioners should have done was proceedings may be pursued; third, from the evidence
to file an answer to the petition filed in the trial court, proceed submitted, it appears that the Bureau of Internal Revenue has
to the hearing and appeal the decision of the court if adverse to not yet made a final determination of the tax liability of private
them. respondents with respect to its ad valorem, value added and
income taxes for 1992; and, fourth, the precipitate issuance by
WHEREFORE, the instant petition is hereby DISMISSED. the prosecutors of subpoenas to private respondents one (1)
day after the filing of the complaint, consisting of about 600
pages, inclusive of the 14-page complaint, 17-page joint
SO ORDERED. affidavit of eight (8) revenue officers and the annexes attached
thereto, and their hasty denial of private respondents' 135-
Hermosisima, Jr., J., concurs. page motion to dismiss, after a recess of only about 20
minutes, show that private respondents' constitutional rights
  may have been violated.

  These circumstances as well as the other traces of

discrimination mentioned by the trial court, i.e., the
announcement by the PCGG that it would take over the
  various corporations associated with respondent Lucio C. Tan;
the creation of the Task Force on Revenue Cases among the
Separate Opinions functions of which is to "[i]nvestigate the tax liabilities of
manufacturers that engage in well-known tax evasion
schemes, such as selling products through dummy marketing
 
companies to evade the payment of the correct internal
revenue taxes," the very charge against respondent Tan; the
BELLOSILLO, J., concurring and dissenting: reclassification of respondent corporation's best selling
cigarettes as foreign brands thereby imposing upon them a
I am in full accord with the conclusion of the majority that the higher tax rate that would price them out of the market without
trial court committed no grave abuse of discretion in issuing the notice and hearing; the singling out of private respondents as
assailed injunctive writs. But I am constrained to dissent subjects of a complaint for tax evasion when other cigarette
insofar as it finds that there was "selective prosecution" in manufacturers have been using the same basis private
charging private respondents. respondents are using in paying ad valorem, value added and
income taxes; and, the failure of petitioner Commissioner to
wait for the expiration of the 30-day period she herself gave to
Let me first touch on "selective prosecution." There is no
private respondents to pay the supposed tax deficiencies
showing that petitioner Commissioner of Internal Revenue is
before the filing of the complaint, obviously impelled the trial
not going after others who may be suspected of being big tax
court to issue the writ of preliminary injunction. Practically the
evaders and that only private respondents are being
same grounds were found by the trial court when it
prosecuted, or even merely investigated, for tax evasion. As
provisionally restrained the investigation of the two (2) other
pointed out by the Solicitor General, assuming ex
complaints, i.e., tax evasion complaints for FYs 1990 and
hypothesi that other corporate manufacturers are guilty of
1991.
using similar schemes for tax evasion, the proper remedy is
not the dismissal of the complaints against private
respondents, but the prosecution of other similar evaders. In On the basis of the findings of the trial court, it indeed appears
this regard, in the absence of willful or malicious prosecution, that private respondents' constitutional rights to due process of
or so-called "selective prosecution," the choice on whom to law and equal protection of the laws may have been for the
prosecute ahead of the others belongs legitimately, and rightly moment set aside, if not outright violated. The trial court was
so, to the public prosecutors. convinced that the tell-tale signs of malice and partiality were
indications that the constitutional rights of private respondents
may not have been afforded adequate protection. Accordingly I
see no manifest abuse, much less grave, on the part of the trial
court in issuing the injunctive writs. Thus it is my opinion that issuance of an ancillary writ is procedurally awkward and
the trial court did not commit grave abuse of discretion in violates due process, as it deprives private respondents of their
granting the assailed writs. right to present their case in court and support it with its
evidence.
Well entrenched is the rule that the issuance of the writ of
preliminary injunction as an ancillary or preventive remedy to In resolving the fundamental issue at hand, i.e., whether the
secure the rights of a party in a pending case rests upon the trial court committed grave abuse of discretion in issuing the
sound discretion of the court hearing it. The exercise of sound subject writs of preliminary injunction, we cannot avoid
judicial discretion by the trial court in injunctive matters should balancing on the scales the power of the State to tax and its
not be interfered with except in case of manifest abuse, 3 which inherent right to prosecute perceived transgressors of the law
is not true in the case before us. Equally well settled is that on one side, and the constitutional rights of a citizen to due
under Sec. 7, Rule 58, Rules of Court,4 a wide latitude is given process of law and the equal protection of the laws on the
to the trial court.5 This is because the conflicting claims in an other. Obviously the scales must tilt in favor of the individual,
application for a provisional writ more often than not involves a for a citizen's right is amply protected by the Bill of Rights of
factual determination which is not the function of this Court, or the Constitution. Thus while "taxes are the lifeblood of the
even respondent appellate court. Thus in the case at bar the government," the power to tax has its limits, inspite of all its
ascertainment of the actual tax liability, if any, based on the plenitude. Hence in Commissioner of Internal Revenue
evidence already presented and still to be presented, is more v. Algue, Inc.,10 we said --
within the competence of the trial court before which the
parties have raised the very same issue in the main case. The Taxes are the lifeblood of the government
truth or falsity of the divergent statements that there was and so should be collected without
deliberate haste in issuing the subpoenas and in denying unnecessary hindrance. On the other hand,
private respondents' motion to dismiss may be confirmed not such collection should be made in
by this Court but by the trial court during that hearing on the accordance with law as any arbitrariness will
merits. negate the very reason for government itself.
It is therefore necessary to reconcile the
In fine, no grave abuse of discretion can be attributed to a apparently conflicting interests of the
judge or body in the issuance of a writ of preliminary injunction authorities and the taxpayers so that the real
where a party was not deprived of its day in court as it was purpose of taxation, which is the promotion
heard and had exhaustively presented all its arguments and of the common good, may be achieved.
defenses.6 It is undisputed that in the case before us
petitioners and private respondents were given sufficient time xxx xxx xxx
and opportunity to present their respective pieces of evidence
as well as arguments in support of their positions.
It is said that taxes are what we pay for
civilized society. Without taxes, the
Consequently, I concur with the finding of the majority that the government would be paralyzed for the lack
trial court committed no grave abuse of discretion. As of the motive power to activate and operate
respondent appellate court said, "[g]rave abuse of discretion as it. Hence, despite the natural reluctance to
a ground for issuance of writs of certiorari and prohibition surrender part of one's hard-earned income
implies capricious and whimsical exercise of judgment as is to taxing authorities, every person who is
equivalent to lack of jurisdiction, or where the power is able to must contribute his share in the
exercised in an arbitrary or despotic manner by reason of running of the government. The government
passion, prejudice or personal hostility amounting to an for its part is expected to respond in the form
evasion of positive duty or to a virtual refusal to perform the of tangible and intangible benefits intended
duty enjoined, or to act at all in contemplation of law.7 For such to improve the lives of the people and
writs to lie there must be capricious, arbitrary and whimsical enhance their moral and material values.
exercise of power, the very antithesis of the judicial prerogative This symbiotic relationship is the rationale of
in accordance with centuries of both civil and common law taxation and should dispel the erroneous
traditions."8 The trial court, to my mind, is not guilty of any of notion that it is an arbitrary method of
these. Thus I accord respect to the exercise of the trial court's exaction by those in the seat of power.
sound judicial discretion and hold that the same should not be
interfered with.
But even as we concede the inevitability and
indispensability of taxation, it is a
To permanently enjoin the trial court from proceeding in any requirement in all democratic regimes that it
manner in Civil Case No. Q-94-19790 and allow the be exercised reasonably and in accordance
preliminary investigation of the complaints docketed as I.S. with the prescribed procedure. If it is not,
Nos. 93-508, 93-17942 and 93-584 with the Department of then the taxpayer has a right to complain
Justice to resume until their final conclusion and and the courts will then came to his succor.
completion would go against the prevailing rule that courts For all the awesome power of the tax
should avoid issuing a writ or preliminary injunction which collector, he may still be stopped in his
would in effect dispose of the main case without trial.9 Due tracks if the taxpayer can demonstrate . . .
process considerations dictate that the assailed injunctive writs that the law has not been observed.
are not judgments on the merits but merely orders for the grant
of a provisional and ancillary remedy to preserve the status
quo until the merits of the case can be heard. The hearing on In the instant case, it seems that due to the overzealousness in
the application for issuance of a writ of preliminary injunction is collecting taxes from private respondents and to some accident
separate and distinct from the trial on the merits of the main of immediate overwhelming interest which distressingly
case. The quantum of evidence required for one is different impassions and distorts judgment, the State has unwittingly
from that for the other, so that it does not necessarily follow ignored the citizens' constitutional rights. Thus even the rule
that if the court grants and issues the temporary writ applied for that injunction will not lie to prevent a criminal prosecution has
the same court will now have to rule in favor of the petition for admitted exceptions, which we enumerated in Brocka
prohibition and ipso facto make the provisional injunction v. Enrile11 and in Ocampo IV v. Ombudsman12 -- (a) to afford
permanent. adequate protection to the constitutional rights of the accused;
(b) when necessary for the orderly administration of justice or
to avoid oppression or multiplicity of actions; (c) when there is
If grave abuse of discretion attended the issuance of the writ of a prejudicial question which is sub-judice; (d) when the acts of
preliminary injunction, then by all means nullify the abusive act the officer are without or in excess of authority; (e) where the
-- but only that. The main case should be allowed to proceed prosecution is under an invalid law, ordinance or regulation; (f)
according to due process. The trial court should receive the when double jeopardy is clearly apparent; (g) when the court
evidence from the contending parties, weigh and evaluate the has no jurisdiction over the offense; (h) where it is a case of
same and then make its findings. Clearly, the dismissal of the persecution rather than prosecution; (i) where the charges are
main case as a result of a mere incident relative to the manifestly false and motivated by lust for vengeance; (j) when
there is clearly no prima facie case against the accused and a non-existent individual buyers as its gross
motion to quash on that ground has been denied; and, (k) to sales.1
prevent a threatened unlawful arrest.
Based on the initial evaluation of the DOJ Task Force, private
Finally, courts indeed should not hesitate to invoke the respondents were subpoenaed and required to submit their
constitutional guarantees to give adequate protection to the counter-affidavits not later than 20 September 1993.2 Instead
citizens when faced with the enormous powers of the State, of filing counter-affidavits, private respondents filed a "Verified
even when what is in issue are only provisional remedies, as in Motion to Dismiss; Alternatively, Motion to Suspend."3 Said
the case at hand. In days of great pressure, it is alluring to take motion was denied by the DOJ Task Force and treated as
short cuts by borrowing dictatorial techniques. But when we do, private respondents' counter-affidavit, in an order dated 15
we set in motion an arbitrary or subversive influence by our October 1993.4
own design which destroys us from within. Let not the present
case dangerously sway towards that trend. Private respondents sought reconsideration of the
aforementioned order of denial and likewise filed motions to
For all the foregoing, I vote to dismiss the instant petition for require submission by the Bureau of Internal Revenue (BIR) of
lack of merit, and to order the trial court to proceed with Civil certain documents to support the verified motion to dismiss or
Case No. Q-94-19790 with reasonable dispatch. suspend the investigation, and for the inhibition of the state
prosecutors assigned to the case for alleged lack of
  impartiality.5

PADILLA, J., dissenting: On 20 December 1993, an omnibus order was issued by the

investigating Task Force:6
Because of what I humbly perceive to be the crippling, chilling
and fatal effects of the majority opinion on the power of the a. denying reconsideration;
state to investigate fraudulent tax evasion in the country, I am
constrained to dissent, as vigorously as I can, from the majority b. denying suspension of investigation; and
opinion.
c. denying the motion to inhibit the
THE ISSUE investigating state prosecutors.

The main issue in this petition for review on certiorari is Thereupon, or on 4 January 1994, private respondents went to
whether or not there are valid grounds to stop or stay the court. They filed a petition for certiorari and prohibition with
preliminary investigation of complaints filed by the Bureau of prayer for preliminary injunction in the Regional Trial Court,
Internal Revenue (BIR) with the Department of Justice (DOJ) Branch 88, Quezon City, praying that the proceedings
Revenue Cases Task Force against private respondents for (investigation) before the DOJ Task Force be stopped. The
alleged fraudulent tax evasion for the years 1990, 1991 and petition was docketed as Civil Case No. Q-94-19790.7
1992. Stated differently, the issue is: did respondent trial court
commit grave abuse of discretion amounting to lack or excess On 17 January 1994, petitioners filed with the trial court a
of jurisdiction in stopping the subject preliminary investigation? motion to dismiss the aforesaid petition.8 On 25 January 1994,
the trial court issued instead an order granting the herein
THE CASE AND THE FACTS private respondents' prayer for a writ of preliminary
injunction,9 to stop the preliminary investigation in the DOJ
On 7 September 1993, petitioner Commissioner of Internal Revenue Cases Task Force.
Revenue filed a complaint with the DOJ against private
respondents Fortune Tobacco Corporation (hereinafter On 26 January 1994, private respondents filed with the trial
referred to simply as "Fortune"), its corporate officers, nine (9) court a Motion to Admit Supplemental Petition seeking this
other corporations, and their respective corporate officers, for time the issuance of another writ of preliminary injunction
alleged fraudulent tax evasion for the year 1992. against a second complaint of the BIR with the DOJ docketed
as I.S. No. 93-17942 likewise against herein private
The complaint, docketed as I.S. No. 93-508, was referred to respondents for fraudulent tax evasion for the year 1990.
the DOJ Task Force on Revenue Cases which found sufficient Private respondents averred in their aforesaid motion with the
grounds to further investigate the allegation that Fortune trail court that --
fraudulently evaded payment of income, value-added and ad
valorem taxes for the year 1992 thus depriving the a. no supporting documents nor copies of the complaint were
Government of revenue allegedly in excess of seven and one- attached to the subpoena in I.S. No. 93-17942;
half (7 1/2) billion pesos.
b. the abovementioned subpoena violates private respondents'
The fraudulent scheme allegedly adopted and employed by constitutional rights to due process, equal protection and
private respondents, is described by the BIR as follows: presumption of innocence;

In order to evade payment of said taxes, c. I.S. No. 93-17942 is substantially the same as I.S. No. 93-
[Fortune] made fictitious and simulated sales 508 except that it concerns the year 1990;
of its cigarette products to non-existent
individuals and to entities incorporated and d. no tax assessment has been issued by the Commissioner of
existing only for the purpose of such fictitious Internal Revenue and since taxes already paid have not been
sales by declaring registered wholesale challenged by the BIR, no tax liability exists;
prices with the BIR lower than [Fortune's]
actual wholesale prices which are required
for determination of [Fortune's] correct ad e. Assistant Quezon City Prosecutor Leopoldo E. Baraquia
valorem, income and value-added tax was a former classmate of then Presidential Legal Counsel
liabilities. These "ghost wholesale buyers" Antonio T. Carpio, thus, he cannot conduct the preliminary
then ostensibly sold the product to investigation in an impartial manner.
consumers and other wholesalers/retailers at
higher wholesale prices determined by On 28 January 1994, private respondents filed with the trial
[Fortune]. The tax returns and court a second supplemental petition10 this time seeking to stay
manufacturer's sworn statements filed by the preliminary investigation in I.S. No. 93-548, a third BIR
[Fortune] as aforesaid declare the fictitious complaint with the DOJ against private respondents for
sales it made to the conduit corporations and fraudulent tax evasion for the year 1991.
On 31 January 1994, the trial court admitted the two (2) then proceed to trial in order that thereafter
supplemental petitions and issued a temporary restraining the case may be decided on the merits by
order stopping the preliminary investigation of the two (2) later the respondent Court. In case of an adverse
complaints with the DOJ against private respondents for decision, they may appeal therefrom by
alleged fraudulent tax evasion for the years 1990 and 1991. which the entire record of the case would be
elevated for review. Therefore, certiorari and
On 7 February 1994, the trial court also issued an order prohibition resorted to by herein petitioners
denying herein petitioners' motion to dismiss private will not lie in view of the remedy open to
respondents' petition seeking to stay the preliminary them. Thus, the resulting delay in the final
investigation in I.S. No. 93-508. The trial court ruled that the disposition of the case before the respondent
issue of whether Sec. 127(b) of the National Internal Revenue Court would not have been incurred.
(Tax) Code should be the basis of herein private respondents'
tax liability, as contended by the Bureau of Internal Revenue, Grave abuse of discretion as a ground for
or whether it is Sec. 142(c) of the same code that applies, as issuance of writs of certiorari and prohibition
argued by herein private respondents, should first be settled implies capricious and whimsical exercise of
before any criminal complaint for fraudulent tax evasion can be judgment as is equivalent to lack of
initiated or maintained. jurisdiction, or where the power is exercised
in an arbitrary or despotic manner by reason
On 14 February 1994, the trial court issued a supplemental writ of passion, prejudice, or personal hostility,
of preliminary injunction this time enjoining the preliminary amounting to an evasion of positive duty or
investigations of the two (2) other BIR complaints with the DOJ to a virtual refusal to perform the duty
for fraudulent tax evasion. The trial court then denied motions enjoined, or to act at all in contemplation of
to dismiss the two (2) supplemental petitions, filed by therein law. For such writs to lie, there must be
respondents Commissioner of Internal Revenue and the DOJ capricious, arbitrary and whimsical exercise
Revenue Cases Task Force investigators. of power, the very antithesis of the judicial
prerogative in accordance with centuries of
both civil law and common law
On 7 March 1994, herein petitioners filed with this Court a traditions. Certiorari and prohibition are
petition for certiorari and prohibition with prayer for preliminary remedies narrow in scope and inflexible in
injunction which questioned the orders issued by the trial court character. They are not general utility tools in
granting the private respondents' prayer for preliminary the legal workshop. Their function is but
injunction to stop the preliminary investigation in the DOJ of the limited to correction of defects of jurisdiction
BIR's complaints for fraudulent tax evasions against private solely, not to be used for any other purpose,
respondents and denying petitioners' motions to dismiss such as to cure errors in proceedings or to
private respondents' various petitions with the trial court. The correct erroneous conclusions of law or fact.
petition was referred by this Court to the Court of Appeals Due regard for the foregoing teachings
which has original concurrent jurisdiction over the petition. enunciated in the decision cited can not
bring about a decision other than what has
On 19 December 1994, the Court of Appeals rendered a been reached herein.
decision which, in part, reads:
Needless to say, the case before the
In making such conclusion the respondent respondent Court involving those against
Court (the Regional Trial Court of Quezon herein respondents for alleged non-payment
City, Branch 88) must have understood from of the correct amount due as income tax, ad
herein petitioner Commissioner's letter- valorem tax and value-added tax for the
complaint of 14 pages and the joint affidavit years 1990, 1991, and 1992 is not ended by
of eight revenue officers of 17 pages this decision. The respondent Court is still to
attached thereto and its annexes, that the try the case and decide it on the merits. All
charge against herein respondents is for tax that is decided here is but the validity of the
evasion for non-payment by herein orders of the respondent Court granting
respondent Fortune of the correct amounts herein respondents' application for
of income tax, ad valorem tax and value preliminary injunction and denying herein,
added tax, not necessarily "fraudulent tax petitioners' motion to dismiss. If upon the
evasion". Hence, the need for previous facts established after trial and the
assessment of the correct amount by herein applicable law, dissolution of the writ of
petitioner Commissioner before herein preliminary injunction allowed to be issued
respondents may be charged by the respondent Court is called for and a
criminally. Certiorari will not be issued to judgment favorable to herein petitioners is
cure errors in proceedings or correct demanded, the respondent Court is duty
erroneous conclusions of law or fact. As long bound to render judgment accordingly.
as a Court acts within its jurisdiction, any
alleged error committed in the exercise of its WHEREFORE, the instant petition
jurisdiction, will amount to nothing more than for certiorari and prohibition with application
errors of judgment which are reviewable by for issuance of restraining order and writ of
timely appeal and not by a special civil action preliminary injunction is DISMISSED.
of certiorari. Costs de officio. (references to annexes and
citations omitted)11
The questioned orders issued after hearing
being but interlocutory, review thereof by this Petitioners' motion for reconsideration of the aforequoted
court is inappropriate until final judgment is judgment was denied by respondent appellate court on 23
rendered, absent a showing of grave abuse February 1995, hence, the present petition for review
of discretion on the part of the issuing court. on certiorari based on the following grounds:
The factual and legal issues involved in the
main case still before the respondent Court
are best resolved after trial. Petitioners, GROUNDS FOR THE PETITION
therefore, instead of resorting to this petition
for certiorari and prohibition should have filed THE RESPONDENT COURTS
an answer to the petition as ordained in COMMITTED GRAVE ABUSE OF
Section 4, Rule 16, in connection with Rule DISCRETION AMOUNTING TO LACK OR
11 of the Revised Rules of Court, interposing EXCESS OF JURISDICTION IN HOLDING
as defense or defenses the objection or THAT:
objections raised in their motion to dismiss,
 I. THERE IS A PREJUDICIAL AND/OR "As a general rule, an injunction will not be
LEGAL QUESTION TO JUSTIFY THE granted to restrain a criminal prosecution".
SUSPENSION OF THE PRELIMINARY With more reason will injunction not lie when
INVESTIGATION the case is still at the preliminary
investigation stage. This Court should not
II. PRIVATE RESPONDENTS' RIGHTS TO usurp the primary function of the City Fiscal
DUE PROCESS, EQUAL PROTECTION to conduct the preliminary investigation of
AND PRESUMPTION OF INNOCENCE the estafa charge and of the petitioners'
WERE VIOLATED; ON THE CONTRARY, countercharge for perjury, which was
THE STATE ITSELF WAS DEPRIVED OF consolidated with the estafa charge.
DUE PROCESS
The City Fiscal's office should be allowed to
III. THE ADMISSION OF PRIVATE finish its investigation and make its factual
RESPONDENTS' SUPPLEMENTAL findings. This Court should not conduct the
PETITIONS WERE PROPER preliminary investigation. It is not a trier of
facts. (Reference to footnotes omitted).
IV. THERE WAS SELECTIVE
PROSECUTION Before resolving the main issue in this petition, as earlier
stated in this opinion, several preliminary issues raised by
private respondents in their "Verified Motion To Dismiss;
V THE FACTUAL ALLEGATIONS IN THE Alternatively, Motion To Suspend" need to be addressed,
PETITION ARE HYPOTHETICALLY namely:
ADMITTED IN A MOTION TO DISMISS
BASED ON JURISDICTIONAL GROUNDS
A.) Private respondent Fortune's right to due process and
equal protection of the laws have been violated because of the
VI. THE ISSUANCE OF THE WRITS OF subject preliminary investigation before the DOJ Revenue
INJUNCTION IS NOT A DECISION ON THE Cases Task Force.
MERITS OF THE PETITION BEFORE THE
LOWER COURT12
B.) Jurisdiction over Fortune's tax liability pertains to the Court
of Tax Appeals and not the Regional Trial Courts, thus, the
DISCUSSION Department of Justice, through its state prosecutors, is without
jurisdiction to conduct the subject preliminary investigation.
At the outset, it should be pointed out that respondent
appellate court's observations to the effect that herein C.) The complaints for fraudulent tax evasion are unsupported
petitioners' recourse to said court through a special civil action by any evidence to serve as basis for the issuance of a
of certiorari and prohibition was improper (as discussed in the subpoena.
aforequoted portion of the CA decision) actually and
appropriately apply to private respondents when they resorted
to the remedy of certiorari and prohibition with application for D.) The lack of final determination of Fortune's tax liability
preliminary injunction with the respondent Regional Trial Court precludes criminal prosecution.
to stop the preliminary investigation being conducted by the
DOJ Revenue Cases Task Force of the BIR complaints for 1. On the alleged violation of Fortune's rights to due process
fraudulent tax evasion against private respondents. It is to be and equal protection of the laws, I fail to see any violation of
noted that the proceedings before the investigators said rights.
(preliminary investigation before the DOJ Revenue Cases Task
Force) are far from terminated. In fact, private respondents Fortune, its corporate officers, nine (9) other corporations and
were merely subpoenaed and asked to submit counter- their respective corporate officers alleged by the BIR to be
affidavits. They instead resorted to the courts for redress after mere "dummies" or conduits of Fortune in the fraudulent tax
denial of their motion to dismiss. The proper procedure on the evasion on the Government, were given the opportunity to file
part of private respondents after their motion to dismiss was their counter-affidavits to refute the allegations in the BIR
denied by the investigating panel, should have been an appeal complaints, together with their supporting documents. It is only
from such an adverse resolution to the Secretary of Justice, after submission of counter-affidavits that the investigators will
not a special civil action for certiorari and prohibition with determine whether or not there is enough evidence to file in
application for preliminary injunction before the respondent trial court criminal charges for fraudulent tax evasion against
court. private respondents or to dismiss the BIR complaints. At this
stage of the preliminary investigation, the constitutional right of
As a corollary, the respondent trial court should have desisted private respondents to due process is adequately protected
from entertaining private respondents' original petition because they have been given the opportunity to be heard, i.e.,
for certiorari and prohibition with prayer for preliminary to file counter-affidavits.
injunction because a court order to stop a preliminary
investigation is an act of interference with the investigating Nor can it be said, as respondents falsely argue, that there was
officers' discretion, absent any showing of grave abuse of no ground or basis for requiring the private respondents to file
discretion on the part of the latter in conducting such such counter-affidavits. As respondent Court of Appeals
preliminary investigation. admitted in its here assailed decision, the BIR complaint (1st
complaint) signed by the Commissioner of Internal Revenue
The rule is settled that the fiscal (prosecutor) cannot be consisted of fourteen (14) pages supported by an annex
prohibited from conducting and finishing his preliminary consisting of seventeen (17) pages in the form of a joint
investigation. 13 The private respondents' petition before the affidavit of eight (8) revenue officers, to which were attached
trial court in this case was clearly premature since the case did voluminous documents as annexes which, when put together,
not fall within any of the exceptions when prohibition lies to constituted a formidable network of evidence tending to show
stop a preliminary investigation.14 fraudulent tax evasion on the part of private respondents.
When, on the basis of such BIR complaint and its supporting
The decision of the majority in this case clearly constitutes an documents, the investigating Task Force saw a need to
untenable usurpation of the primary duty and function of the proceed with the inquiry and, consequently, required private
prosecutors to conduct the preliminary investigation of a respondents to file their counter-affidavits, grave abuse of
criminal offense and the power of the Secretary of Justice to discretion could hardly be imputed to said investigators.
review the resolution of said prosecutors.
2. On respondents' assertions that there is selective
In Guingona, supra, the Court en banc ruled thus: prosecution (no equal protection of the laws) since other
corporations similarly situated as they are, are not being
prosecuted and/or investigated, the argument is quite prosecution for fraudulent tax evasion. Thus, as this Court had
ludicrous, to say the least. As pointed out by the Solicitor earlier ruled --
General, more than one thousand (1,000) criminal cases for
tax evasion have been filed in Metro Manila alone. This An assessment of a deficiency is not
number, even if it seems to represent but a small fraction of necessary to a criminal prosecution for willful
"cases of actual tax evasion, undoubtedly show that attempt to defeat and evade the income tax.
respondents are not being singled out. It is of note that the A crime is complete when the violator has
memorandum issued by the President of the Philippines knowingly and willfully filed a fraudulent
creating a task force to investigate tax evasion schemes of return with intent to evade and defeat the
manufacturers was issued three (3) months before the tax. The perpetration of the crime is
complaints against private respondents were filed. This makes grounded upon knowledge on the part of the
any charge of selective prosecution baseless since it could not taxpayer that he has made an inaccurate
then be shown, nor has it been shown by private respondents return, and the government's failure to
that only they (respondents) were being discover the error and promptly to assess
investigated/prosecuted. In fact, up to this time, respondents has no connections with the commission of
have failed to substantiate this allegation of selective the crime.19
prosecution against them.
It follows that, under the Ungab doctrine, the filing of a criminal
Moreover, assuming arguendo that other corporate complaint for fraudulent tax evasion would be proper even
manufacturers are guilty of using similar schemes for tax without a previous assessment of the correct tax.
evasion, allegedly used by respondents, the Solicitor General
correctly points out that the remedy is not dismissal of the
complaints against private respondents or stoppage of the The argument that the Ungab doctrine will not apply to the
investigations of said complaints, but investigation and case at bar because it involves a factual setting different from
prosecution of other similar violators (fraudulent tax evaders). that of the case at bar, is erroneous. The Ungab case involved
the filing of a fraudulent income tax return because the
defendant failed to report his income derived from sale of
3. Private respondents' allegations that the Assistant Quezon banana saplings. In the case at bar, the complaints filed before
City Prosecutor (among those investigating the complaints the DOJ for investigation charge private wholesale
against them) lacks impartiality, are so unsubstantiated, respondents with fraudulent concealment of the actual price of
imaginary, speculative and indeed puerile. They need not be products sold through declaration of registered wholesale
elaborately refuted as a mere denial would suffice under the prices lower than the actual wholesale prices, resulting in
circumstances. underpayment of income, ad valorem, and value-added taxes.
Both cases involve, therefore, fraudulent schemes to evade
4. On the issue of jurisdiction, the rule is settled that city and payment to the Government of correct taxes.
state prosecutors are authorized to conduct preliminary
investigations of criminal offenses under the National Internal The Court in Ungab stated further as follows:
Revenue Code. Said criminal offenses are within the
jurisdiction of the Regional Trial Court.15
The petitioner also claims that the filing of
the informations was precipitate and
5. The issue of whether or not the evidence submitted by premature since the Commissioner of
petitioners is sufficient to warrant the filing of criminal Internal Revenue has not yet resolved his
informations for fraudulent tax evasion is prematurely protests against the assessment of the
raised.16 To argue, as private respondents do, that one piece of Revenue District Officer; and that he was
evidence, i.e. the Daily Manufacturer's Sworn Statements, denied recourse to the Court of Tax Appeals.
should be produced at a particular stage of the investigation, in
order to determine the probable guilt of the accused, is to
dictate to the investigating officers the procedure by which The contention is without merit. What is
evidence should be presented and examined. Further, "a involved here is not the collection of taxes
preliminary investigation is not the occasion for the full and where the assessment of the Commissioner
exhaustive display of the parties' evidence; it is for the of Internal Revenue may be reviewed by the
presentation of such evidence only as may engender a well Court of Tax Appeals, but a criminal
grounded belief that an offense has been committed and that prosecution for violations of the National
the accused is probably guilty thereof . . ."17 Internal Code which is within the cognizance
of courts of first instance. While there can be
no civil action to enforce collection before the
Besides, the preliminary investigation has not yet been assessment procedures provided in the
terminated. The proper procedure then should be to allow the Code have been followed, there is no
investigators, who undeniably have jurisdiction, to conduct and requirement for the precise computation and
finish the preliminary investigation and to render a resolution. assessment of the tax before there can be a
The party aggrieved by said resolution can then appeal it to the criminal prosecution under the Code.
Secretary of Justice,18 as required by the settled doctrine of
exhaustion of administrative remedies. What special
qualification or privilege, I may ask, do private respondents The contention is made, and is here
have, particularly Fortune and Lucio Tan, as to exempt them rejected, that an assessment of the
from the operation of this rooted principle and entitle them to deficiency tax due is necessary before the
immediate judicial relief from the respondent trial court in this taxpayer can be prosecuted criminally for the
case? charges preferred. The crime is complete
when the violator has, as in this case,
knowingly and wilfully filed fraudulent returns
6. The respondents Court of Appeals and the trial court with intent to evade and defeat a part or all
maintain, as private respondents do, that a previous of the tax. [Guzik vs. U.S., 54 F2d 618]
assessment of the correct amount of taxes due is necessary (emphasis supplied)
before private respondents may be charged criminally for
fraudulent tax evasion. This view is decidedly not supported by
law and jurisprudence. The ruling in the Ungab case is undisputably on all fours with,
and conclusive to the case at bar. It should be stressed and
pointed out that in Ungab the Court denied the prayer of
The lack of a final determination of respondent Fortune's exact therein petitioner to quash informations for tax evasion that had
or correct tax liability is not a bar to criminal prosecution for already been filed in court. In other words, the prosecutors
fraudulent tax evasion. While a precise computation and in Ungab had already found probable cause to try therein
assessment is required for a civil action to collect a tax petitioner for tax evasion. Despite this fact there was no finding
deficiency, the National Internal Revenue Code does not by the Court of violation of any of petitioner's constitutional
require such computation and assessment prior to criminal rights.
In the present case, private respondents were merely being manufacturing cost and expenses, shall be
required to submit counter-affidavits to the complaints filed. If added to constitute the gross selling price.
no violation of constitutional rights was committed in Ungab,
upon the filing of the criminal informations in Court, how can Sec. 142 . . .
there now be a violation of private respondents' constitutional
rights upon a requirement by the investigators that private
respondents submit their counter-affidavits. (c) Cigarettes packed in twenties. -- There
shall be levied, assessed and collected on
cigarettes packed in twenties an ad valorem
The Court has not been presented any compelling or tax at the rates prescribed below based on
persuasive argument why the Ungab doctrine has to be the manufacturer's registered wholesale
abandoned. It is good law and should be the nemesis of price:
fraudulent tax evaders. It gives teeth to the proper enforcement
of our tax laws.
(1) On locally manufactured cigarettes
bearing a foreign brand, fifty-five percent
7. Private respondents argue that a case earlier file before the (55%): Provided, That this rate shall apply
Court of Tax Appeals (CTA) and now before this regardless of whether or not the right to use
Court 20 involves a prejudicial question justifying or requiring or title to the foreign brand was sold or
suspension of the preliminary investigation of the complaints transferred by its owner to the local
for fraudulent tax evasion against private respondents. Said manufacturer. Whenever it has to be
case involves the validity of BIR Revenue Memorandum determined whether or not a cigarette bears
Circular No. 37-93 dated 1 July 1993 which reclassified a foreign brand, the listing of brands
cigarettes manufactured by respondent Fortune. The circular manufactured in foreign countries appearing
subjects cigarettes with brand names "Hope", "More" and in the current World Tobacco Directory shall
"Champion" to a 10% increase in ad valorem taxes starting 2 govern.
July 1993. Respondent Fortune has assailed the validity of
said revenue circular and the case has yet to be decided with
finality. (2) On other locally manufactured cigarettes,
forty-five percent (45%).
But the foregoing issue is irrelevant to the issue of fraudulent
tax evasion involved in this case. A final decision either Duly registered or existing brands of
upholding or nullifying the aforementioned revenue circular will cigarettes packed in twenties shall not be
not affect private respondents' criminal liability for fraudulent allowed to be packed in thirties.
tax evasion, for the following reasons:
When the existing registered wholesale
a) The revenue circular involved in the other case pertains price, including tax, of cigarettes packed in
to ad valorem taxes on sales of Fortune's named cigarette twenties does not exceed P4.00 per pack,
brands after 1 July 1993 while the fraudulent tax evasion the rate shall be twenty percent (20%).
involved in the present case pertains to years 1990, 1991 and
1992. As the Solicitor General correctly points out, the two (2)
aforequoted provisions of the Tax Code are both applicable in
b) The fraudulent scheme allegedly utilized by Fortune and its determining the amount of tax due. Section 127(b) provides for
dummies, as described in the BIR complaints pending with the the method of determining the gross wholesale price to be
DOJ Revenue Cases Task Force, which resulted in the registered with the BIR while Section 142(c) provides for the
misdeclaration/underdeclaration of Fortune's gross sales rate of ad valorem tax to be paid. Said rate is expressed as a
receipts resulting in turn in underpayment of ad valorem, value- percentage of the registered gross selling price which is
added and income taxes was actually a "built-in" tax evasion determined, in turn, based on Section 127(b).
device already in place even before the assailed revenue
circular was issued. The scheme is particularly designed to The aforementioned two (2) provisions of the Tax Code are
result in the underpayment of ad valorem, value-added and certainly not determinative of private respondents' criminal
income taxes regardless of the tax rate fixed by the liability, if any. A reading of the BIR complaints pending with
government on cigarette products. the DOJ Revenue Cases Task Force shows that private
respondent Fortune is being accused of using "dummy"
8. Respondents also argue that the issue of whether Section corporations and business conduits as well as non-existent
127(b) or Section 142(c) of the National Internal Revenue individuals and entities to enable the company (Fortune) to
Code is applicable to private respondents should first be report gross receipts from sales of its cigarette
settled before any criminal cases can be filed against them. brands lower than gross receipts which are actually
This argument is both misleading and erroneous. derived from such sales. Such lower gross receipts of the
company, as reported by respondent Fortune thus result in
lower ad valorem, value-added and income taxes paid to the
The aforementioned provisions read: government. Stated a little differently, respondent Fortune is
accused of selling at wholesale prices its cigarette brands
Sec. 127. . . . through dummy entities in the profits of which it has a
controlling interest. Under Section 127(b), the gross selling
(b) Determination of gross selling price of price of the goods should be the wholesale price of such
goods subject to ad valorem tax. -- Unless dummy -- entities to its buyers but it is alleged by the
otherwise provided, the price, excluding the government that respondent Fortune has purposely made use
value-added tax, at which the goods are sold of such entities to evade payment of higher but legally correct
at wholesale in the place of production or taxes.
through their sales agents to the public shall
constitute the gross selling price. If the 9. As to respondents' additional claim that with regard to ad
manufacturer also sells or allows such goods valorem tax, they merely based their liability on the wholesale
to be sold at wholesale price in another price registered with the Bureau of Internal Revenue (BIR)
establishment of which he is the owner or in following the method used by all cigarette manufacturers, said
the profits at which he has an interest, the claim cannot absolve Fortune and its officers from criminal
wholesale price in such establishment shall liability.21 Payment of ad valorem and other taxes based on the
constitute the gross selling price. Should wholesale price registered with the BIR presupposes and
such price be less than the cost of naturally assumes that the registered wholesale price
manufacture plus expenses incurred until the correspond to the actual wholesale prices at which the
goods are finally sold, then a proportionate manufacturer sells the product. If a manufacturer makes use of
margin of profit, not less than 10% of such a method or device to make it appear that products are sold at
a wholesale price lower than the amounts that the
manufacturer actually realizes from such wholesale of its 11. The trial court's ruling that private respondents'
products, as what respondent Fortune is accused of doing, constitutional rights have been violated, rests on untenable
through the use of dummy entities, then there arises criminal grounds. It must be remembered, in this connection, that
liability under the penal provisions of the Tax Code. This is exceptions to a settled rule, by their nature, must be strictly
clear from Section 127(b) aforequoted in relation to the penal applied. And any claim to an exception must be fully
provisions of the Tax Code. substantiated. In other words, it must have real basis for
existing.
10. Private respondents contend that the registration with the
BIR of manufacturer's wholesale price and the corresponding The exceptions to the general rule against restraining orders or
close supervision and monitoring by BIR officials of the injunctions to stop preliminary investigations or criminal
business operations of cigarette companies, ensure payment prosecutions are enumerated in Brocka vs. Enrile.24 One
of correct taxes. The argument is baseless. It does not follow specific exception is when an injunction is needed for the
that the cited procedure is a guarantee against fraudulent adequate protection of the accused's constitutional rights. The
schemes resorted to by tax-evading individuals or entities. It exception definitely does not apply in the case at bar.
only indicates that taxpayers bent on evading payment of taxes
would explore more creative devices or mechanisms in order Before proceeding to illustrate this point, it is important to
to defraud the government of its sources of income even under stress that in a preliminary investigation, the investigating
its very nose. It is precisely to avoid and detect cases like this officers' sole duty is to determine, before the presentation of
that the President issued a Memorandum on 1 June 1993 evidence by the prosecution and by the defense, if the latter
creating a task force to investigate tax liabilities of should wish to present any, whether or not there are
manufacturers engaged in tax evasion schemes, such as reasonable grounds for proceeding formally against the
selling products through dummy marketing companies at accused.25 This is in conformity with the purpose of a
underdeclared wholesale prices registered with the BIR. preliminary investigation which is to secure the innocent
against hasty, malicious, and oppressive prosecutions, and to
Moreover, the Manufacturer's Declaration which is the basis for protect him from an open and public accusation of crime, from
determining the "Manufacturer's Registered Wholesale Price" the trouble, expense and anxiety of public trial, and also to
(which in turn becomes the basis for the imposition of ad protect the state from useless and expensive trials. 26 As
valorem tax), even if verified by revenue officers and approved restated by the illustrious late Chief Justice Manuel V. Moran --
by the Commissioner of Internal Revenue, does not
necessarily reflect the actual wholesale price at which the . . . the purpose of a preliminary investigation
cigarettes are sold. This is why manufacturers are still required is to afford the accused an opportunity to
to file other documents, like the "daily manufacturer's sworn show by his own evidence that there is no
statements" in order to assist in determining whether or not reasonable ground to believe that he is guilty
correct taxes have been paid. In fine, even if BIR officials may of the offense charged and that, therefore,
have verified Fortunes' BIR registered wholesale price for its there is no good reason for further holding
products, the same does not estop or preclude the him to await trial in the Court of First
Government from filing criminal complaints for fraudulent tax Instance.27
evasion based on evidence subsequently gathered to the
effect that such BIR registered wholesale prices were a
misdeclaration or underdeclaration of the actual wholesale Prescinding from the tenets above-discussed, it is clear from
price. It is hornbook law that the Government is not bound or the inception that there had been no violation of private
estopped by the mistakes, inadvertence, and what more, respondents' constitutional rights to presumption of innocence,
connivance of its officials and employees with fraudulent due process and equal protection of the laws. The preliminary
schemes to defraud the Government.22 investigation, I repeat, has not yet been terminated. At this
stage, only the complainant has finished presenting its
affidavits and supporting documents. Obviously then, the
Even on the assumption that official duty of BIR officials and investigating panel found that there were grounds to continue
employees has been regularly performed, the allegations in the with the inquiry, hence, the issuance of subpoena and an order
complaints are clear enough in that private respondents for the submission of counter-affidavits by private respondents.
allegedly made use of schemes to make it appear that Instead of filing counter-affidavits, private respondents filed a
respondent Fortune's tax liabilities are far less than what it Verified Motion to Dismiss; Alternatively, Motion to Suspend. At
(Fortune) should be actually liable for under the law. The very this point, it may be asked, how could private respondents'
nature of the offense for which respondents are being constitutional right to presumption of innocence be violated
investigated, certainly makes regularity/irregularity in the when, in all stages of the preliminary investigation, they were
performance of official duties irrelevant. presumed innocent? Declaring that there are reasonable
grounds to continue with the inquiry is not the same as
It should also be pointed out that the offense allegedly pronouncing that a respondent is guilty or probably guilty of the
committed by private respondents' consists in' the intentional offense charged.
use of "dummy" entities to make it appear that respondent
Fortune sells its products at lower wholesale prices, which 12. Private respondents cannot also claim that they were not
prices would correspond to the wholesale prices registered by afforded due process and equal protection of the laws. In fact,
Fortune with the BIR, but not to the prices at which its products the investigating panel was concerned with just that when it
are sold by Fortune's dummies. The difference between ordered the submission of private respondents' counter-
Fortune's BIR-reported wholesale prices and the prices at affidavits. This procedure afforded private respondents the
which its dummies sell Fortune's products thus constitutes opportunity to show by their own evidence that no reasonable
amounts for which Fortune should actually incur tax liabilities grounds exist for the filing of informations against them.
but for which it allegedly never paid taxes because of the Furthermore, contrary to the findings of the trial court and the
operation of the tax evasion scheme founded on a combined Court of Appeals, the alleged haste by which the subpoena
underdeclaration with the BIR of Fortune's wholesale price of was issued to private respondents (the day after the filing of
its products and the sale of such products to is "dummy" the 600-page annexed complaint) does not lessen the
corporations or to non- existing individuals or entities. This is investigating panel's ability to study and examine the
the obvious reason why the government has sought to complainant's evidence. Neither does such act merit the
investigate the alleged tax evasion scheme purportedly utilized conclusion that the investigating panel was less than objective
by respondent Fortune and its dummy corporations. in conducting the preliminary investigation. Consequently, the
general and settled rule must apply that the courts cannot
Based on the foregoing discussions, it follows that the answer interfere with the discretion of the investigating officer to
to the main issue formulated earlier in this opinion is in determine the specificity and adequacy of the averments in the
the negative since the private respondents have not shown complaint filed, except in very exceptional
that there exist, in this case, exceptional grounds removing it circumstances,28 which do not obtain here.
from the general rule that preliminary investigations of criminal
offenses and criminal prosecutions cannot be stayed or Therefore, private respondents' act of filing a petition
enjoined by the courts.23 for certiorari and prohibition before the Regional Trial Court
was rather untimely and uncalled for, not only because private fraudulent tax evasion. Said public interest is much more
respondents failed to exhaust their administrative remedies but compelling in the present case since private respondents are
also because the grounds cited in their petition before the trial not only accused of violating tax and penal laws but are also,
court were highly speculative -- more fancied than real. as a consequence of such violations, possibly depriving the
government of a primary source of revenue so essential to the
Finally, Hernandez v. Albano (19 SCRA 95), cited by the life, growth and development of the nation and for the
majority to support the conclusion that preliminary investigation prestation of essential services to the people.
can be stayed by the courts, clearly states that preliminary
investigation can be stayed by court order only 14. It should be made clear, at this point, however, that this
in extreme cases. Hernandez also states that: opinion is not a pre-judgment or pre-determination of private
respondents' guilt of the offense charged. No one, not even the
By statute, the prosecuting officer of the City prosecutors investigating the cases for fraudulent tax evasion,
of Manila and his assistants are empowered is, at this stage of the proceedings, when private respondents
to investigate crimes committed within the have yet to file their counter-affidavits, in a position to
city's territorial jurisdiction. Not a mere determine and state with finality or conclusiveness whether or
privilege, it is the sworn duty of a Fiscal to not private respondents are guilty of the offense charged in the
conduct an investigation of a criminal charge BIR complaints, now with the DOJ Revenue Cases Task
filed with his office. The power to investigate Force. It is precisely through the preliminary investigation that
postulates the other obligation on the part of the DOJ Task Force on Revenue Cases can determine
the Fiscal to investigate promptly and file the whether or not there are grounds to file informations in court or
case of as speedily. Public interest -- the to dismiss the BIR complaints.
protection of society -- so demands.
Agreeably to the foregoing, a 15. I see no grave abuse of discretion committed by the state
rule -- now of long standing and frequent prosecutors in requiring private respondents to submit counter-
application -- was formulated that ordinarily affidavits to the complaints for fraudulent tax evasion and to
criminal prosecution may not be blocked by determine the existence or absence of probable criminal
court prohibition or injunction. Really, if at liability.
every turn investigation of a crime will be
halted by a court order, the administration of The Rules on Criminal Procedure do not even require, as a
criminal justice will meet with an undue condition sine qua non to the validity of a preliminary
setback. Indeed, the investigative power of investigation, the presence of the respondent as long as efforts
the Fiscal may suffer such a tremendous to reach him are made and an opportunity to controvert the
shrinkage that it may end up in hollow sound complainant's evidence is accorded him. The purpose of the
rather than as a part and parcel of the rule is to check attempts of unscrupulous respondents to
machinery of criminal justice. thwart criminal investigations by not appearing or employing
dilatory tactics.30
It should be noted that while Hernandez lays down
the extreme grounds when preliminary investigation of criminal 16. Since the preliminary investigation in the DOJ Revenue
offenses may be restrained by the courts, the dispositive Cases Task Force against private respondents for alleged
portion of the decision affirmed the decision of the trial court fraudulent tax evasion is well within its jurisdiction and
dismissing a petition for certiorari and prohibition with prayer constitutes no grave abuse of discretion, it was in fact the
for preliminary injunction filed to stay the preliminary respondent trial court that committed grave abuse of discretion,
investigation of criminal complaints against petitioner amounting to lack or excess of jurisdiction, when it stayed such
Hernandez. preliminary investigation.

The other case cited by the majority to support its decision in 17. The successful prosecution of criminal offenders is not only
this case, Fortun v. Labang29 involves criminal complaints filed a right but the duty of the state. Only when the state's acts
against a judge of the Court of First Instance by disgruntled clearly violate constitutional rights can the courts step in to
lawyers who had lost their cases in the judge's sala. Clearly, interfere with the state's exercise of such right and
the basis for the Court to stay preliminary investigation performance of such duty. I am indubitably impressed that
in Fortun was a finding that said complaints were filed merely there is no violation of private respondents' constitutional rights
as a form of harassment against the judge and which "could in this case.
have no other purpose than to place petitioner-judge in
contempt and disrepute". The factual situation in the case at
bar is poles apart from the factual situation in Fortun. 18. Lastly, the consolidation of the three (3) complaints in the
DOJ against private respondents should be allowed since they
all involve the same scheme allegedly used by private
Further, in Fortun there was an express finding by the Court respondents to fraudulently evade payment of taxes.
that complaints against judges of the Courts of First Instance Consolidation will not only avoid multiplicity of suits but will also
are properly filed with the Supreme Court under Executive enable private respondents to more conveniently prepare
Order No. 264 (1970) since the Court is considered as the whatever responsive pleadings are required or expected of
department head of the judiciary. In the present case it cannot them.
be disputed that jurisdiction to conduct preliminary
investigation over fraudulent tax evasion cases lies with the
state prosecutors (fiscals). It is, therefore, my considered view that the decision of the
Court of Appeals of 19 December 1994 in CA G.R. SP No.
33599 should be SET ASIDE. The respondent trial court
It cannot therefore be denied that should be ENJOINED from proceeding in any manner in Civil
neither Hernandez nor Fortun supports with any plausibility the Case No. Q-94-19790, or at least until further orders from this
majority's disposition of the issues in the present case. On the Court.
other hand, it appears to me all too clearly that the majority
opinion, in this case, has altered the entire rationale and
concept of preliminary investigation of alleged criminal The preliminary investigation of the BIR complaints docketed
offenses. That alteration has, of course, served the purposes as I.S. Nos. 93-508, 93-17942 and 93-584 with the Department
of distinguished private respondents. But I will have no part in of Justice Revenue Cases Task Force, being constitutionally
the shocking process especially in light of the fact that and legally in order, should be allowed to resume until their
Government cries out that the people have final conclusion or completion, with private respondents given
been cheated and defrauded of their taxes to the tune a non-extendible period of ten (10) days from notice to submit
allegedly of P25.6 billion pesos, and yet, it is not given by this to the investigating panel their respective counter-affidavits and
Court even a beggar's chance to prove it! supporting documents, if any.

13. There is great and vital public interest in the successful  

investigation and prosecution of criminal offenses involving
VITUG, J., dissenting: sufficiently established that "they are entitled to certain
constitutional rights and that these rights have been
I see in the petition the overriding issue of whether or not violated,"1 and that they have complied with the requirements
judicial relief could be resorted to in order to stop state of Sec. 3, Rule 58, Rules of Court.2 In support of its conclusion,
prosecutors from going through with their investigation of the trial court enumerated its reasons: first, inspite of the
complaints lodged against private respondents. Almost motion of respondent Fortune Tobacco Corporation, petitioner
invariably, this Court has resolved not to unduly interfere, let Commissioner of Internal Revenue failed to present the "daily
alone to peremptorily prevent, the prosecuting agencies or manufacturer's sworn statements submitted to the BIR by the
offices of the government in their investigatorial work or in their taxpayer," supposedly stating that the total taxable sales of
own evaluation of the results of investigation. It would indeed respondent Corporation for the year 1992 is
be, in my view, an act precipitate for the courts to take on a P16,686,372,295.00, which is the basis of petitioner
case even before the complaint or information is filed by the Commissioner's allegation that private respondents failed to
prosecution. Of course, one cannot preclude the possibility that pay the correct taxes since it declared in its VAT returns that its
at times compelling reasons may dictate otherwise; I do not total taxable sales in 1992 was only
think, however, that the instant case could be the right P11,736,658.580.00; second, the proper application of Sec.
occasion for it. 142, par. (c), of the National Internal Revenue Code is a
prejudicial question which must first be resolved by the Court
of Tax Appeals to determine whether a tax liability which is an
While I do understand the concern expressed by some of my essential element of tax evasion exists before criminal
colleagues, i.e., that stopping the trial court from now proceedings may be pursued; third, from the evidence
proceeding with Civil Case No. Q-94-9170 would, effectively, submitted, it appears that the Bureau of Internal Revenue has
mean a disposition of the main case without its merits having not yet made a final determination of the tax liability of private
first been fully heard in the court below, in this particular respondents with respect to its ad valorem, value added and
situation before the Court, however, the parties have since income taxes for 1992; and, fourth, the precipitate issuance by
exhaustively and adequately presented their respective cases. the prosecutors of subpoenas to private respondents one (1)
In the interest of good order, the practical measure of enjoining day after the filing of the complaint, consisting of about 600
the trial court from taking further cognizance of the case would pages, inclusive of the 14-page complaint, 17-page joint
not thus appear to be really all that unwarranted. affidavit of eight (8) revenue officers and the annexes attached
thereto, and their hasty denial of private respondents' 135-
A final word: The matter affecting the civil liability for the due page motion to dismiss, after a recess of only about 20
payment of internal revenue taxes, including the applicable minutes, show that private respondents' constitutional rights
remedies and proceedings in the determination thereof, must may have been violated.
be considered apart from and technically independent of the
criminal aspect that may be brought to bear in appropriate These circumstances as well as the other traces of
cases. A recourse in one is not necessarily preclusive of, nor discrimination mentioned by the trial court, i.e., the
would the results thereof be conclusive on, the other. announcement by the PCGG that it would take over the
various corporations associated with respondent Lucio C. Tan;
Accordingly, I vote to grant the petition. the creation of the Task Force on Revenue Cases among the
functions of which is to "[i]nvestigate the tax liabilities of
  manufacturers that engage in well-known tax evasion
schemes, such as selling products through dummy marketing
companies to evade the payment of the correct internal
Separate Opinions revenue taxes," the very charge against respondent Tan; the
reclassification of respondent corporation's best selling
BELLOSILLO, J., concurring and dissenting: cigarettes as foreign brands thereby imposing upon them a
higher tax rate that would price them out of the market without
notice and hearing; the singling out of private respondents as
I am in full accord with the conclusion of the majority that the
subjects of a complaint for tax evasion when other cigarette
trial court committed no grave abuse of discretion in issuing the
manufacturers have been using the same basis private
assailed injunctive writs. But I am constrained to dissent
respondents are using in paying ad valorem, value added and
insofar as it finds that there was "selective prosecution" in
income taxes; and, the failure of petitioner Commissioner to
charging private respondents.
wait for the expiration of the 30-day period she herself gave to
private respondents to pay the supposed tax deficiencies
Let me first touch on "selective prosecution." There is no before the filing of the complaint, obviously impelled the trial
showing that petitioner Commissioner of Internal Revenue is court to issue the writ of preliminary injunction. Practically the
not going after others who may be suspected of being big tax same grounds were found by the trial court when it
evaders and that only private respondents are being provisionally restrained the investigation of the two (2) other
prosecuted, or even merely investigated, for tax evasion. As complaints, i.e., tax evasion complaints for FYs 1990 and
pointed out by the Solicitor General, assuming ex 1991.
hypothesi that other corporate manufacturers are guilty of
using similar schemes for tax evasion, the proper remedy is
On the basis of the findings of the trial court, it indeed appears
not the dismissal of the complaints against private
that private respondents' constitutional rights to due process of
respondents, but the prosecution of other similar evaders. In
law and equal protection of the laws may have been for the
this regard, in the absence of willful or malicious prosecution,
moment set aside, if not outright violated. The trial court was
or so-called "selective prosecution," the choice on whom to
convinced that the tell-tale signs of malice and partiality were
prosecute ahead of the others belongs legitimately, and rightly
indications that the constitutional rights of private respondents
so, to the public prosecutors.
may not have been afforded adequate protection. Accordingly I
see no manifest abuse, much less grave, on the part of the trial
But, I share the view of the majority that the trial court did not court in issuing the injunctive writs. Thus it is my opinion that
commit grave abuse of discretion amounting to lack of the trial court did not commit grave abuse of discretion in
jurisdiction. At once it must be pointed out that the trial court granting the assailed writs.
merely issued writs of preliminary injunction. However to grant
the prayer of herein petitioners would effectively dismiss the
Well entrenched is the rule that the issuance of the writ of
petition for certiorari and prohibition filed by private
preliminary injunction as an ancillary or preventive remedy to
respondents with the trial court even before the issues in the
secure the rights of a party in a pending case rests upon the
main case could be joined, which seems to me to be a
sound discretion of the court hearing it. The exercise of sound
procedural lapse since the main case is already being resolved
judicial discretion by the trial court in injunctive matters should
when the only issue before the Court is the propriety of the
not be interfered with except in case of manifest abuse, 3 which
ancillary or provisional remedy.
is not true in the case before us. Equally well settled is that
under Sec. 7, Rule 58, Rules of Court,4 a wide latitude is given
The trial court granted the writs of preliminary injunction upon to the trial court.5 This is because the conflicting claims in an
finding, after hearing for the purpose, that private respondents application for a provisional writ more often than not involves a
factual determination which is not the function of this Court, or the Constitution. Thus while "taxes are the lifeblood of the
even respondent appellate court. Thus in the case at bar the government," the power to tax has its limits, inspite of all its
ascertainment of the actual tax liability, if any, based on the plenitude. Hence in Commissioner of Internal Revenue
evidence already presented and still to be presented, is more v. Algue, Inc.,10 we said --
within the competence of the trial court before which the
parties have raised the very same issue in the main case. The Taxes are the lifeblood of the government
truth or falsity of the divergent statements that there was and so should be collected without
deliberate haste in issuing the subpoenas and in denying unnecessary hindrance. On the other hand,
private respondents' motion to dismiss may be confirmed not such collection should be made in
by this Court but by the trial court during that hearing on the accordance with law as any arbitrariness will
merits. negate the very reason for government itself.
It is therefore necessary to reconcile the
In fine, no grave abuse of discretion can be attributed to a apparently conflicting interests of the
judge or body in the issuance of a writ of preliminary injunction authorities and the taxpayers so that the real
where a party was not deprived of its day in court as it was purpose of taxation, which is the promotion
heard and had exhaustively presented all its arguments and of the common good, may be achieved.
defenses.6 It is undisputed that in the case before us
petitioners and private respondents were given sufficient time xxx xxx xxx
and opportunity to present their respective pieces of evidence
as well as arguments in support of their positions.
It is said that taxes are what we pay for
civilized society. Without taxes, the
Consequently, I concur with the finding of the majority that the government would be paralyzed for the lack
trial court committed no grave abuse of discretion. As of the motive power to activate and operate
respondent appellate court said, "[g]rave abuse of discretion as it. Hence, despite the natural reluctance to
a ground for issuance of writs of certiorari and prohibition surrender part of one's hard-earned income
implies capricious and whimsical exercise of judgment as is to taxing authorities, every person who is
equivalent to lack of jurisdiction, or where the power is able to must contribute his share in the
exercised in an arbitrary or despotic manner by reason of running of the government. The government
passion, prejudice or personal hostility amounting to an for its part is expected to respond in the form
evasion of positive duty or to a virtual refusal to perform the of tangible and intangible benefits intended
duty enjoined, or to act at all in contemplation of law.7 For such to improve the lives of the people and
writs to lie there must be capricious, arbitrary and whimsical enhance their moral and material values.
exercise of power, the very antithesis of the judicial prerogative This symbiotic relationship is the rationale of
in accordance with centuries of both civil and common law taxation and should dispel the erroneous
traditions."8 The trial court, to my mind, is not guilty of any of notion that it is an arbitrary method of
these. Thus I accord respect to the exercise of the trial court's exaction by those in the seat of power.
sound judicial discretion and hold that the same should not be
interfered with.
But even as we concede the inevitability and
indispensability of taxation, it is a
To permanently enjoin the trial court from proceeding in any requirement in all democratic regimes that it
manner in Civil Case No. Q-94-19790 and allow the be exercised reasonably and in accordance
preliminary investigation of the complaints docketed as I.S. with the prescribed procedure. If it is not,
Nos. 93-508, 93-17942 and 93-584 with the Department of then the taxpayer has a right to complain
Justice to resume until their final conclusion and and the courts will then came to his succor.
completion would go against the prevailing rule that courts For all the awesome power of the tax
should avoid issuing a writ or preliminary injunction which collector, he may still be stopped in his
would in effect dispose of the main case without trial.9 Due tracks if the taxpayer can demonstrate . . .
process considerations dictate that the assailed injunctive writs that the law has not been observed.
are not judgments on the merits but merely orders for the grant
of a provisional and ancillary remedy to preserve the status
quo until the merits of the case can be heard. The hearing on In the instant case, it seems that due to the overzealousness in
the application for issuance of a writ of preliminary injunction is collecting taxes from private respondents and to some accident
separate and distinct from the trial on the merits of the main of immediate overwhelming interest which distressingly
case. The quantum of evidence required for one is different impassions and distorts judgment, the State has unwittingly
from that for the other, so that it does not necessarily follow ignored the citizens' constitutional rights. Thus even the rule
that if the court grants and issues the temporary writ applied for that injunction will not lie to prevent a criminal prosecution has
the same court will now have to rule in favor of the petition for admitted exceptions, which we enumerated in Brocka
prohibition and ipso facto make the provisional injunction v. Enrile11 and in Ocampo IV v. Ombudsman12 -- (a) to afford
permanent. adequate protection to the constitutional rights of the accused;
(b) when necessary for the orderly administration of justice or
to avoid oppression or multiplicity of actions; (c) when there is
If grave abuse of discretion attended the issuance of the writ of a prejudicial question which is sub-judice; (d) when the acts of
preliminary injunction, then by all means nullify the abusive act the officer are without or in excess of authority; (e) where the
-- but only that. The main case should be allowed to proceed prosecution is under an invalid law, ordinance or regulation; (f)
according to due process. The trial court should receive the when double jeopardy is clearly apparent; (g) when the court
evidence from the contending parties, weigh and evaluate the has no jurisdiction over the offense; (h) where it is a case of
same and then make its findings. Clearly, the dismissal of the persecution rather than prosecution; (i) where the charges are
main case as a result of a mere incident relative to the manifestly false and motivated by lust for vengeance; (j) when
issuance of an ancillary writ is procedurally awkward and there is clearly no prima facie case against the accused and a
violates due process, as it deprives private respondents of their motion to quash on that ground has been denied; and, (k) to
right to present their case in court and support it with its prevent a threatened unlawful arrest.
evidence.
Finally, courts indeed should not hesitate to invoke the
In resolving the fundamental issue at hand, i.e., whether the constitutional guarantees to give adequate protection to the
trial court committed grave abuse of discretion in issuing the citizens when faced with the enormous powers of the State,
subject writs of preliminary injunction, we cannot avoid even when what is in issue are only provisional remedies, as in
balancing on the scales the power of the State to tax and its the case at hand. In days of great pressure, it is alluring to take
inherent right to prosecute perceived transgressors of the law short cuts by borrowing dictatorial techniques. But when we do,
on one side, and the constitutional rights of a citizen to due we set in motion an arbitrary or subversive influence by our
process of law and the equal protection of the laws on the own design which destroys us from within. Let not the present
other. Obviously the scales must tilt in favor of the individual, case dangerously sway towards that trend.
for a citizen's right is amply protected by the Bill of Rights of
For all the foregoing, I vote to dismiss the instant petition for certain documents to support the verified motion to dismiss or
lack of merit, and to order the trial court to proceed with Civil suspend the investigation, and for the inhibition of the state
Case No. Q-94-19790 with reasonable dispatch. prosecutors assigned to the case for alleged lack of
impartiality.5
 
On 20 December 1993, an omnibus order was issued by the
PADILLA, J., dissenting: investigating Task Force:6

Because of what I humbly perceive to be the crippling, chilling a. denying reconsideration;

and fatal effects of the majority opinion on the power of the
state to investigate fraudulent tax evasion in the country, I am b. denying suspension of investigation; and
constrained to dissent, as vigorously as I can, from the majority
opinion. c. denying the motion to inhibit the
investigating state prosecutors.
THE ISSUE
Thereupon, or on 4 January 1994, private respondents went to
The main issue in this petition for review on certiorari is court. They filed a petition for certiorari and prohibition with
whether or not there are valid grounds to stop or stay the prayer for preliminary injunction in the Regional Trial Court,
preliminary investigation of complaints filed by the Bureau of Branch 88, Quezon City, praying that the proceedings
Internal Revenue (BIR) with the Department of Justice (DOJ) (investigation) before the DOJ Task Force be stopped. The
Revenue Cases Task Force against private respondents for petition was docketed as Civil Case No. Q-94-19790.7
alleged fraudulent tax evasion for the years 1990, 1991 and
1992. Stated differently, the issue is: did respondent trial court On 17 January 1994, petitioners filed with the trial court a
commit grave abuse of discretion amounting to lack or excess motion to dismiss the aforesaid petition.8 On 25 January 1994,
of jurisdiction in stopping the subject preliminary investigation? the trial court issued instead an order granting the herein
private respondents' prayer for a writ of preliminary
THE CASE AND THE FACTS injunction,9 to stop the preliminary investigation in the DOJ
Revenue Cases Task Force.
On 7 September 1993, petitioner Commissioner of Internal
Revenue filed a complaint with the DOJ against private On 26 January 1994, private respondents filed with the trial
respondents Fortune Tobacco Corporation (hereinafter court a Motion to Admit Supplemental Petition seeking this
referred to simply as "Fortune"), its corporate officers, nine (9) time the issuance of another writ of preliminary injunction
other corporations, and their respective corporate officers, for against a second complaint of the BIR with the DOJ docketed
alleged fraudulent tax evasion for the year 1992. as I.S. No. 93-17942 likewise against herein private
respondents for fraudulent tax evasion for the year 1990.
The complaint, docketed as I.S. No. 93-508, was referred to Private respondents averred in their aforesaid motion with the
the DOJ Task Force on Revenue Cases which found sufficient trail court that --
grounds to further investigate the allegation that Fortune
fraudulently evaded payment of income, value-added and ad a. no supporting documents nor copies of the complaint were
valorem taxes for the year 1992 thus depriving the attached to the subpoena in I.S. No. 93-17942;
Government of revenue allegedly in excess of seven and one-
half (7 1/2) billion pesos. b. the abovementioned subpoena violates private respondents'
constitutional rights to due process, equal protection and
The fraudulent scheme allegedly adopted and employed by presumption of innocence;
private respondents, is described by the BIR as follows:
c. I.S. No. 93-17942 is substantially the same as I.S. No. 93-
In order to evade payment of said taxes, 508 except that it concerns the year 1990;
[Fortune] made fictitious and simulated sales
of its cigarette products to non-existent d. no tax assessment has been issued by the Commissioner of
individuals and to entities incorporated and Internal Revenue and since taxes already paid have not been
existing only for the purpose of such fictitious challenged by the BIR, no tax liability exists;
sales by declaring registered wholesale
prices with the BIR lower than [Fortune's]
actual wholesale prices which are required e. Assistant Quezon City Prosecutor Leopoldo E. Baraquia
for determination of [Fortune's] correct ad was a former classmate of then Presidential Legal Counsel
valorem, income and value-added tax Antonio T. Carpio, thus, he cannot conduct the preliminary
liabilities. These "ghost wholesale buyers" investigation in an impartial manner.
then ostensibly sold the product to
consumers and other wholesalers/retailers at On 28 January 1994, private respondents filed with the trial
higher wholesale prices determined by court a second supplemental petition10 this time seeking to stay
[Fortune]. The tax returns and the preliminary investigation in I.S. No. 93-548, a third BIR
manufacturer's sworn statements filed by complaint with the DOJ against private respondents for
[Fortune] as aforesaid declare the fictitious fraudulent tax evasion for the year 1991.
sales it made to the conduit corporations and
non-existent individual buyers as its gross On 31 January 1994, the trial court admitted the two (2)
sales.1 supplemental petitions and issued a temporary restraining
order stopping the preliminary investigation of the two (2) later
Based on the initial evaluation of the DOJ Task Force, private complaints with the DOJ against private respondents for
respondents were subpoenaed and required to submit their alleged fraudulent tax evasion for the years 1990 and 1991.
counter-affidavits not later than 20 September 1993.2 Instead
of filing counter-affidavits, private respondents filed a "Verified On 7 February 1994, the trial court also issued an order
Motion to Dismiss; Alternatively, Motion to Suspend."3 Said denying herein petitioners' motion to dismiss private
motion was denied by the DOJ Task Force and treated as respondents' petition seeking to stay the preliminary
private respondents' counter-affidavit, in an order dated 15 investigation in I.S. No. 93-508. The trial court ruled that the
October 1993.4 issue of whether Sec. 127(b) of the National Internal Revenue
(Tax) Code should be the basis of herein private respondents'
Private respondents sought reconsideration of the tax liability, as contended by the Bureau of Internal Revenue,
aforementioned order of denial and likewise filed motions to or whether it is Sec. 142(c) of the same code that applies, as
require submission by the Bureau of Internal Revenue (BIR) of argued by herein private respondents, should first be settled
before any criminal complaint for fraudulent tax evasion can be judgment as is equivalent to lack of
initiated or maintained. jurisdiction, or where the power is exercised
in an arbitrary or despotic manner by reason
On 14 February 1994, the trial court issued a supplemental writ of passion, prejudice, or personal hostility,
of preliminary injunction this time enjoining the preliminary amounting to an evasion of positive duty or
investigations of the two (2) other BIR complaints with the DOJ to a virtual refusal to perform the duty
for fraudulent tax evasion. The trial court then denied motions enjoined, or to act at all in contemplation of
to dismiss the two (2) supplemental petitions, filed by therein law. For such writs to lie, there must be
respondents Commissioner of Internal Revenue and the DOJ capricious, arbitrary and whimsical exercise
Revenue Cases Task Force investigators. of power, the very antithesis of the judicial
prerogative in accordance with centuries of
both civil law and common law
On 7 March 1994, herein petitioners filed with this Court a traditions. Certiorari and prohibition are
petition for certiorari and prohibition with prayer for preliminary remedies narrow in scope and inflexible in
injunction which questioned the orders issued by the trial court character. They are not general utility tools in
granting the private respondents' prayer for preliminary the legal workshop. Their function is but
injunction to stop the preliminary investigation in the DOJ of the limited to correction of defects of jurisdiction
BIR's complaints for fraudulent tax evasions against private solely, not to be used for any other purpose,
respondents and denying petitioners' motions to dismiss such as to cure errors in proceedings or to
private respondents' various petitions with the trial court. The correct erroneous conclusions of law or fact.
petition was referred by this Court to the Court of Appeals Due regard for the foregoing teachings
which has original concurrent jurisdiction over the petition. enunciated in the decision cited can not
bring about a decision other than what has
On 19 December 1994, the Court of Appeals rendered a been reached herein.
decision which, in part, reads:
Needless to say, the case before the
In making such conclusion the respondent respondent Court involving those against
Court (the Regional Trial Court of Quezon herein respondents for alleged non-payment
City, Branch 88) must have understood from of the correct amount due as income tax, ad
herein petitioner Commissioner's letter- valorem tax and value-added tax for the
complaint of 14 pages and the joint affidavit years 1990, 1991, and 1992 is not ended by
of eight revenue officers of 17 pages this decision. The respondent Court is still to
attached thereto and its annexes, that the try the case and decide it on the merits. All
charge against herein respondents is for tax that is decided here is but the validity of the
evasion for non-payment by herein orders of the respondent Court granting
respondent Fortune of the correct amounts herein respondents' application for
of income tax, ad valorem tax and value preliminary injunction and denying herein,
added tax, not necessarily "fraudulent tax petitioners' motion to dismiss. If upon the
evasion". Hence, the need for previous facts established after trial and the
assessment of the correct amount by herein applicable law, dissolution of the writ of
petitioner Commissioner before herein preliminary injunction allowed to be issued
respondents may be charged by the respondent Court is called for and a
criminally. Certiorari will not be issued to judgment favorable to herein petitioners is
cure errors in proceedings or correct demanded, the respondent Court is duty
erroneous conclusions of law or fact. As long bound to render judgment accordingly.
as a Court acts within its jurisdiction, any
alleged error committed in the exercise of its WHEREFORE, the instant petition
jurisdiction, will amount to nothing more than for certiorari and prohibition with application
errors of judgment which are reviewable by for issuance of restraining order and writ of
timely appeal and not by a special civil action preliminary injunction is DISMISSED.
of certiorari. Costs de officio. (references to annexes and
citations omitted)11
The questioned orders issued after hearing
being but interlocutory, review thereof by this Petitioners' motion for reconsideration of the aforequoted
court is inappropriate until final judgment is judgment was denied by respondent appellate court on 23
rendered, absent a showing of grave abuse February 1995, hence, the present petition for review
of discretion on the part of the issuing court. on certiorari based on the following grounds:
The factual and legal issues involved in the
main case still before the respondent Court
are best resolved after trial. Petitioners, GROUNDS FOR THE PETITION
therefore, instead of resorting to this petition
for certiorari and prohibition should have filed THE RESPONDENT COURTS
an answer to the petition as ordained in COMMITTED GRAVE ABUSE OF
Section 4, Rule 16, in connection with Rule DISCRETION AMOUNTING TO LACK OR
11 of the Revised Rules of Court, interposing EXCESS OF JURISDICTION IN HOLDING
as defense or defenses the objection or THAT:
objections raised in their motion to dismiss,
then proceed to trial in order that thereafter I. THERE IS A PREJUDICIAL AND/OR
the case may be decided on the merits by LEGAL QUESTION TO JUSTIFY THE
the respondent Court. In case of an adverse SUSPENSION OF THE PRELIMINARY
decision, they may appeal therefrom by INVESTIGATION
which the entire record of the case would be
elevated for review. Therefore, certiorari and
prohibition resorted to by herein petitioners II. PRIVATE RESPONDENTS' RIGHTS TO
will not lie in view of the remedy open to DUE PROCESS, EQUAL PROTECTION
them. Thus, the resulting delay in the final AND PRESUMPTION OF INNOCENCE
disposition of the case before the respondent WERE VIOLATED; ON THE CONTRARY,
Court would not have been incurred. THE STATE ITSELF WAS DEPRIVED OF
DUE PROCESS
Grave abuse of discretion as a ground for
issuance of writs of certiorari and prohibition
implies capricious and whimsical exercise of
 III. THE ADMISSION OF PRIVATE The City Fiscal's office should be allowed to
RESPONDENTS' SUPPLEMENTAL finish its investigation and make its factual
PETITIONS WERE PROPER findings. This Court should not conduct the
preliminary investigation. It is not a trier of
IV. THERE WAS SELECTIVE facts. (Reference to footnotes omitted).
PROSECUTION
Before resolving the main issue in this petition, as earlier
V THE FACTUAL ALLEGATIONS IN THE stated in this opinion, several preliminary issues raised by
PETITION ARE HYPOTHETICALLY private respondents in their "Verified Motion To Dismiss;
ADMITTED IN A MOTION TO DISMISS Alternatively, Motion To Suspend" need to be addressed,
BASED ON JURISDICTIONAL GROUNDS namely:

VI. THE ISSUANCE OF THE WRITS OF A.) Private respondent Fortune's right to due process and
INJUNCTION IS NOT A DECISION ON THE equal protection of the laws have been violated because of the
MERITS OF THE PETITION BEFORE THE subject preliminary investigation before the DOJ Revenue
LOWER COURT12 Cases Task Force.

DISCUSSION B.) Jurisdiction over Fortune's tax liability pertains to the Court
of Tax Appeals and not the Regional Trial Courts, thus, the
Department of Justice, through its state prosecutors, is without
At the outset, it should be pointed out that respondent jurisdiction to conduct the subject preliminary investigation.
appellate court's observations to the effect that herein
petitioners' recourse to said court through a special civil action
of certiorari and prohibition was improper (as discussed in the C.) The complaints for fraudulent tax evasion are unsupported
aforequoted portion of the CA decision) actually and by any evidence to serve as basis for the issuance of a
appropriately apply to private respondents when they resorted subpoena.
to the remedy of certiorari and prohibition with application for
preliminary injunction with the respondent Regional Trial Court D.) The lack of final determination of Fortune's tax liability
to stop the preliminary investigation being conducted by the precludes criminal prosecution.
DOJ Revenue Cases Task Force of the BIR complaints for
fraudulent tax evasion against private respondents. It is to be 1. On the alleged violation of Fortune's rights to due process
noted that the proceedings before the investigators and equal protection of the laws, I fail to see any violation of
(preliminary investigation before the DOJ Revenue Cases Task said rights.
Force) are far from terminated. In fact, private respondents
were merely subpoenaed and asked to submit counter-
affidavits. They instead resorted to the courts for redress after Fortune, its corporate officers, nine (9) other corporations and
denial of their motion to dismiss. The proper procedure on the their respective corporate officers alleged by the BIR to be
part of private respondents after their motion to dismiss was mere "dummies" or conduits of Fortune in the fraudulent tax
denied by the investigating panel, should have been an appeal evasion on the Government, were given the opportunity to file
from such an adverse resolution to the Secretary of Justice, their counter-affidavits to refute the allegations in the BIR
not a special civil action for certiorari and prohibition with complaints, together with their supporting documents. It is only
application for preliminary injunction before the respondent trial after submission of counter-affidavits that the investigators will
court. determine whether or not there is enough evidence to file in
court criminal charges for fraudulent tax evasion against
private respondents or to dismiss the BIR complaints. At this
As a corollary, the respondent trial court should have desisted stage of the preliminary investigation, the constitutional right of
from entertaining private respondents' original petition private respondents to due process is adequately protected
for certiorari and prohibition with prayer for preliminary because they have been given the opportunity to be heard, i.e.,
injunction because a court order to stop a preliminary to file counter-affidavits.
investigation is an act of interference with the investigating
officers' discretion, absent any showing of grave abuse of
discretion on the part of the latter in conducting such Nor can it be said, as respondents falsely argue, that there was
preliminary investigation. no ground or basis for requiring the private respondents to file
such counter-affidavits. As respondent Court of Appeals
admitted in its here assailed decision, the BIR complaint (1st
The rule is settled that the fiscal (prosecutor) cannot be complaint) signed by the Commissioner of Internal Revenue
prohibited from conducting and finishing his preliminary consisted of fourteen (14) pages supported by an annex
investigation. 13 The private respondents' petition before the consisting of seventeen (17) pages in the form of a joint
trial court in this case was clearly premature since the case did affidavit of eight (8) revenue officers, to which were attached
not fall within any of the exceptions when prohibition lies to voluminous documents as annexes which, when put together,
stop a preliminary investigation.14 constituted a formidable network of evidence tending to show
fraudulent tax evasion on the part of private respondents.
The decision of the majority in this case clearly constitutes an When, on the basis of such BIR complaint and its supporting
untenable usurpation of the primary duty and function of the documents, the investigating Task Force saw a need to
prosecutors to conduct the preliminary investigation of a proceed with the inquiry and, consequently, required private
criminal offense and the power of the Secretary of Justice to respondents to file their counter-affidavits, grave abuse of
review the resolution of said prosecutors. discretion could hardly be imputed to said investigators.

In Guingona, supra, the Court en banc ruled thus: 2. On respondents' assertions that there is selective
prosecution (no equal protection of the laws) since other
"As a general rule, an injunction will not be corporations similarly situated as they are, are not being
granted to restrain a criminal prosecution". prosecuted and/or investigated, the argument is quite
With more reason will injunction not lie when ludicrous, to say the least. As pointed out by the Solicitor
the case is still at the preliminary General, more than one thousand (1,000) criminal cases for
investigation stage. This Court should not tax evasion have been filed in Metro Manila alone. This
usurp the primary function of the City Fiscal number, even if it seems to represent but a small fraction of
to conduct the preliminary investigation of "cases of actual tax evasion, undoubtedly show that
the estafa charge and of the petitioners' respondents are not being singled out. It is of note that the
countercharge for perjury, which was memorandum issued by the President of the Philippines
consolidated with the estafa charge. creating a task force to investigate tax evasion schemes of
manufacturers was issued three (3) months before the
complaints against private respondents were filed. This makes
any charge of selective prosecution baseless since it could not
then be shown, nor has it been shown by private respondents return, and the government's failure to
that only they (respondents) were being discover the error and promptly to assess
investigated/prosecuted. In fact, up to this time, respondents has no connections with the commission of
have failed to substantiate this allegation of selective the crime.19
prosecution against them.
It follows that, under the Ungab doctrine, the filing of a criminal
Moreover, assuming arguendo that other corporate complaint for fraudulent tax evasion would be proper even
manufacturers are guilty of using similar schemes for tax without a previous assessment of the correct tax.
evasion, allegedly used by respondents, the Solicitor General
correctly points out that the remedy is not dismissal of the The argument that the Ungab doctrine will not apply to the
complaints against private respondents or stoppage of the case at bar because it involves a factual setting different from
investigations of said complaints, but investigation and that of the case at bar, is erroneous. The Ungab case involved
prosecution of other similar violators (fraudulent tax evaders). the filing of a fraudulent income tax return because the
defendant failed to report his income derived from sale of
3. Private respondents' allegations that the Assistant Quezon banana saplings. In the case at bar, the complaints filed before
City Prosecutor (among those investigating the complaints the DOJ for investigation charge private wholesale
against them) lacks impartiality, are so unsubstantiated, respondents with fraudulent concealment of the actual price of
imaginary, speculative and indeed puerile. They need not be products sold through declaration of registered wholesale
elaborately refuted as a mere denial would suffice under the prices lower than the actual wholesale prices, resulting in
circumstances. underpayment of income, ad valorem, and value-added taxes.
Both cases involve, therefore, fraudulent schemes to evade
4. On the issue of jurisdiction, the rule is settled that city and payment to the Government of correct taxes.
state prosecutors are authorized to conduct preliminary
investigations of criminal offenses under the National Internal The Court in Ungab stated further as follows:
Revenue Code. Said criminal offenses are within the
jurisdiction of the Regional Trial Court.15 The petitioner also claims that the filing of
the informations was precipitate and
5. The issue of whether or not the evidence submitted by premature since the Commissioner of
petitioners is sufficient to warrant the filing of criminal Internal Revenue has not yet resolved his
informations for fraudulent tax evasion is prematurely protests against the assessment of the
raised.16 To argue, as private respondents do, that one piece of Revenue District Officer; and that he was
evidence, i.e. the Daily Manufacturer's Sworn Statements, denied recourse to the Court of Tax Appeals.
should be produced at a particular stage of the investigation, in
order to determine the probable guilt of the accused, is to The contention is without merit. What is
dictate to the investigating officers the procedure by which involved here is not the collection of taxes
evidence should be presented and examined. Further, "a where the assessment of the Commissioner
preliminary investigation is not the occasion for the full and of Internal Revenue may be reviewed by the
exhaustive display of the parties' evidence; it is for the Court of Tax Appeals, but a criminal
presentation of such evidence only as may engender a well prosecution for violations of the National
grounded belief that an offense has been committed and that Internal Code which is within the cognizance
the accused is probably guilty thereof . . ."17 of courts of first instance. While there can be
no civil action to enforce collection before the
Besides, the preliminary investigation has not yet been assessment procedures provided in the
terminated. The proper procedure then should be to allow the Code have been followed, there is no
investigators, who undeniably have jurisdiction, to conduct and requirement for the precise computation and
finish the preliminary investigation and to render a resolution. assessment of the tax before there can be a
The party aggrieved by said resolution can then appeal it to the criminal prosecution under the Code.
Secretary of Justice,18 as required by the settled doctrine of
exhaustion of administrative remedies. What special The contention is made, and is here
qualification or privilege, I may ask, do private respondents rejected, that an assessment of the
have, particularly Fortune and Lucio Tan, as to exempt them deficiency tax due is necessary before the
from the operation of this rooted principle and entitle them to taxpayer can be prosecuted criminally for the
immediate judicial relief from the respondent trial court in this charges preferred. The crime is complete
case? when the violator has, as in this case,
knowingly and wilfully filed fraudulent returns
6. The respondents Court of Appeals and the trial court with intent to evade and defeat a part or all
maintain, as private respondents do, that a previous of the tax. [Guzik vs. U.S., 54 F2d 618]
assessment of the correct amount of taxes due is necessary (emphasis supplied)
before private respondents may be charged criminally for
fraudulent tax evasion. This view is decidedly not supported by The ruling in the Ungab case is undisputably on all fours with,
law and jurisprudence. and conclusive to the case at bar. It should be stressed and
pointed out that in Ungab the Court denied the prayer of
The lack of a final determination of respondent Fortune's exact therein petitioner to quash informations for tax evasion that had
or correct tax liability is not a bar to criminal prosecution for already been filed in court. In other words, the prosecutors
fraudulent tax evasion. While a precise computation and in Ungab had already found probable cause to try therein
assessment is required for a civil action to collect a tax petitioner for tax evasion. Despite this fact there was no finding
deficiency, the National Internal Revenue Code does not by the Court of violation of any of petitioner's constitutional
require such computation and assessment prior to criminal rights.
prosecution for fraudulent tax evasion. Thus, as this Court had
earlier ruled -- In the present case, private respondents were merely being
required to submit counter-affidavits to the complaints filed. If
An assessment of a deficiency is not no violation of constitutional rights was committed in Ungab,
necessary to a criminal prosecution for willful upon the filing of the criminal informations in Court, how can
attempt to defeat and evade the income tax. there now be a violation of private respondents' constitutional
A crime is complete when the violator has rights upon a requirement by the investigators that private
knowingly and willfully filed a fraudulent respondents submit their counter-affidavits.
return with intent to evade and defeat the
tax. The perpetration of the crime is The Court has not been presented any compelling or
grounded upon knowledge on the part of the persuasive argument why the Ungab doctrine has to be
taxpayer that he has made an inaccurate abandoned. It is good law and should be the nemesis of
fraudulent tax evaders. It gives teeth to the proper enforcement (1) On locally manufactured cigarettes
of our tax laws. bearing a foreign brand, fifty-five percent
(55%): Provided, That this rate shall apply
7. Private respondents argue that a case earlier file before the regardless of whether or not the right to use
Court of Tax Appeals (CTA) and now before this or title to the foreign brand was sold or
Court 20 involves a prejudicial question justifying or requiring transferred by its owner to the local
suspension of the preliminary investigation of the complaints manufacturer. Whenever it has to be
for fraudulent tax evasion against private respondents. Said determined whether or not a cigarette bears
case involves the validity of BIR Revenue Memorandum a foreign brand, the listing of brands
Circular No. 37-93 dated 1 July 1993 which reclassified manufactured in foreign countries appearing
cigarettes manufactured by respondent Fortune. The circular in the current World Tobacco Directory shall
subjects cigarettes with brand names "Hope", "More" and govern.
"Champion" to a 10% increase in ad valorem taxes starting 2
July 1993. Respondent Fortune has assailed the validity of (2) On other locally manufactured cigarettes,
said revenue circular and the case has yet to be decided with forty-five percent (45%).
finality.
Duly registered or existing brands of
But the foregoing issue is irrelevant to the issue of fraudulent cigarettes packed in twenties shall not be
tax evasion involved in this case. A final decision either allowed to be packed in thirties.
upholding or nullifying the aforementioned revenue circular will
not affect private respondents' criminal liability for fraudulent When the existing registered wholesale
tax evasion, for the following reasons: price, including tax, of cigarettes packed in
twenties does not exceed P4.00 per pack,
a) The revenue circular involved in the other case pertains the rate shall be twenty percent (20%).
to ad valorem taxes on sales of Fortune's named cigarette
brands after 1 July 1993 while the fraudulent tax evasion As the Solicitor General correctly points out, the two (2)
involved in the present case pertains to years 1990, 1991 and aforequoted provisions of the Tax Code are both applicable in
1992. determining the amount of tax due. Section 127(b) provides for
the method of determining the gross wholesale price to be
b) The fraudulent scheme allegedly utilized by Fortune and its registered with the BIR while Section 142(c) provides for the
dummies, as described in the BIR complaints pending with the rate of ad valorem tax to be paid. Said rate is expressed as a
DOJ Revenue Cases Task Force, which resulted in the percentage of the registered gross selling price which is
misdeclaration/underdeclaration of Fortune's gross sales determined, in turn, based on Section 127(b).
receipts resulting in turn in underpayment of ad valorem, value-
added and income taxes was actually a "built-in" tax evasion The aforementioned two (2) provisions of the Tax Code are
device already in place even before the assailed revenue certainly not determinative of private respondents' criminal
circular was issued. The scheme is particularly designed to liability, if any. A reading of the BIR complaints pending with
result in the underpayment of ad valorem, value-added and the DOJ Revenue Cases Task Force shows that private
income taxes regardless of the tax rate fixed by the respondent Fortune is being accused of using "dummy"
government on cigarette products. corporations and business conduits as well as non-existent
individuals and entities to enable the company (Fortune) to
8. Respondents also argue that the issue of whether Section report gross receipts from sales of its cigarette
127(b) or Section 142(c) of the National Internal Revenue brands lower than gross receipts which are actually
Code is applicable to private respondents should first be derived from such sales. Such lower gross receipts of the
settled before any criminal cases can be filed against them. company, as reported by respondent Fortune thus result in
This argument is both misleading and erroneous. lower ad valorem, value-added and income taxes paid to the
government. Stated a little differently, respondent Fortune is
The aforementioned provisions read: accused of selling at wholesale prices its cigarette brands
through dummy entities in the profits of which it has a
controlling interest. Under Section 127(b), the gross selling
Sec. 127. . . . price of the goods should be the wholesale price of such
dummy -- entities to its buyers but it is alleged by the
(b) Determination of gross selling price of government that respondent Fortune has purposely made use
goods subject to ad valorem tax. -- Unless of such entities to evade payment of higher but legally correct
otherwise provided, the price, excluding the taxes.
value-added tax, at which the goods are sold
at wholesale in the place of production or 9. As to respondents' additional claim that with regard to ad
through their sales agents to the public shall valorem tax, they merely based their liability on the wholesale
constitute the gross selling price. If the price registered with the Bureau of Internal Revenue (BIR)
manufacturer also sells or allows such goods following the method used by all cigarette manufacturers, said
to be sold at wholesale price in another claim cannot absolve Fortune and its officers from criminal
establishment of which he is the owner or in liability.21 Payment of ad valorem and other taxes based on the
the profits at which he has an interest, the wholesale price registered with the BIR presupposes and
wholesale price in such establishment shall naturally assumes that the registered wholesale price
constitute the gross selling price. Should correspond to the actual wholesale prices at which the
such price be less than the cost of manufacturer sells the product. If a manufacturer makes use of
manufacture plus expenses incurred until the a method or device to make it appear that products are sold at
goods are finally sold, then a proportionate a wholesale price lower than the amounts that the
margin of profit, not less than 10% of such manufacturer actually realizes from such wholesale of its
manufacturing cost and expenses, shall be products, as what respondent Fortune is accused of doing,
added to constitute the gross selling price. through the use of dummy entities, then there arises criminal
liability under the penal provisions of the Tax Code. This is
Sec. 142 . . . clear from Section 127(b) aforequoted in relation to the penal
provisions of the Tax Code.
(c) Cigarettes packed in twenties. -- There
shall be levied, assessed and collected on 10. Private respondents contend that the registration with the
cigarettes packed in twenties an ad valorem BIR of manufacturer's wholesale price and the corresponding
tax at the rates prescribed below based on close supervision and monitoring by BIR officials of the
the manufacturer's registered wholesale business operations of cigarette companies, ensure payment
price: of correct taxes. The argument is baseless. It does not follow
that the cited procedure is a guarantee against fraudulent
schemes resorted to by tax-evading individuals or entities. It adequate protection of the accused's constitutional rights. The
only indicates that taxpayers bent on evading payment of taxes exception definitely does not apply in the case at bar.
would explore more creative devices or mechanisms in order
to defraud the government of its sources of income even under Before proceeding to illustrate this point, it is important to
its very nose. It is precisely to avoid and detect cases like this stress that in a preliminary investigation, the investigating
that the President issued a Memorandum on 1 June 1993 officers' sole duty is to determine, before the presentation of
creating a task force to investigate tax liabilities of evidence by the prosecution and by the defense, if the latter
manufacturers engaged in tax evasion schemes, such as should wish to present any, whether or not there are
selling products through dummy marketing companies at reasonable grounds for proceeding formally against the
underdeclared wholesale prices registered with the BIR. accused.25 This is in conformity with the purpose of a
preliminary investigation which is to secure the innocent
Moreover, the Manufacturer's Declaration which is the basis for against hasty, malicious, and oppressive prosecutions, and to
determining the "Manufacturer's Registered Wholesale Price" protect him from an open and public accusation of crime, from
(which in turn becomes the basis for the imposition of ad the trouble, expense and anxiety of public trial, and also to
valorem tax), even if verified by revenue officers and approved protect the state from useless and expensive trials. 26 As
by the Commissioner of Internal Revenue, does not restated by the illustrious late Chief Justice Manuel V. Moran --
necessarily reflect the actual wholesale price at which the
cigarettes are sold. This is why manufacturers are still required . . . the purpose of a preliminary investigation
to file other documents, like the "daily manufacturer's sworn is to afford the accused an opportunity to
statements" in order to assist in determining whether or not show by his own evidence that there is no
correct taxes have been paid. In fine, even if BIR officials may reasonable ground to believe that he is guilty
have verified Fortunes' BIR registered wholesale price for its of the offense charged and that, therefore,
products, the same does not estop or preclude the there is no good reason for further holding
Government from filing criminal complaints for fraudulent tax him to await trial in the Court of First
evasion based on evidence subsequently gathered to the Instance.27
effect that such BIR registered wholesale prices were a
misdeclaration or underdeclaration of the actual wholesale
price. It is hornbook law that the Government is not bound or Prescinding from the tenets above-discussed, it is clear from
estopped by the mistakes, inadvertence, and what more, the inception that there had been no violation of private
connivance of its officials and employees with fraudulent respondents' constitutional rights to presumption of innocence,
schemes to defraud the Government.22 due process and equal protection of the laws. The preliminary
investigation, I repeat, has not yet been terminated. At this
stage, only the complainant has finished presenting its
Even on the assumption that official duty of BIR officials and affidavits and supporting documents. Obviously then, the
employees has been regularly performed, the allegations in the investigating panel found that there were grounds to continue
complaints are clear enough in that private respondents with the inquiry, hence, the issuance of subpoena and an order
allegedly made use of schemes to make it appear that for the submission of counter-affidavits by private respondents.
respondent Fortune's tax liabilities are far less than what it Instead of filing counter-affidavits, private respondents filed a
(Fortune) should be actually liable for under the law. The very Verified Motion to Dismiss; Alternatively, Motion to Suspend. At
nature of the offense for which respondents are being this point, it may be asked, how could private respondents'
investigated, certainly makes regularity/irregularity in the constitutional right to presumption of innocence be violated
performance of official duties irrelevant. when, in all stages of the preliminary investigation, they were
presumed innocent? Declaring that there are reasonable
It should also be pointed out that the offense allegedly grounds to continue with the inquiry is not the same as
committed by private respondents' consists in' the intentional pronouncing that a respondent is guilty or probably guilty of the
use of "dummy" entities to make it appear that respondent offense charged.
Fortune sells its products at lower wholesale prices, which
prices would correspond to the wholesale prices registered by 12. Private respondents cannot also claim that they were not
Fortune with the BIR, but not to the prices at which its products afforded due process and equal protection of the laws. In fact,
are sold by Fortune's dummies. The difference between the investigating panel was concerned with just that when it
Fortune's BIR-reported wholesale prices and the prices at ordered the submission of private respondents' counter-
which its dummies sell Fortune's products thus constitutes affidavits. This procedure afforded private respondents the
amounts for which Fortune should actually incur tax liabilities opportunity to show by their own evidence that no reasonable
but for which it allegedly never paid taxes because of the grounds exist for the filing of informations against them.
operation of the tax evasion scheme founded on a combined Furthermore, contrary to the findings of the trial court and the
underdeclaration with the BIR of Fortune's wholesale price of Court of Appeals, the alleged haste by which the subpoena
its products and the sale of such products to is "dummy" was issued to private respondents (the day after the filing of
corporations or to non- existing individuals or entities. This is the 600-page annexed complaint) does not lessen the
the obvious reason why the government has sought to investigating panel's ability to study and examine the
investigate the alleged tax evasion scheme purportedly utilized complainant's evidence. Neither does such act merit the
by respondent Fortune and its dummy corporations. conclusion that the investigating panel was less than objective
in conducting the preliminary investigation. Consequently, the
Based on the foregoing discussions, it follows that the answer general and settled rule must apply that the courts cannot
to the main issue formulated earlier in this opinion is in interfere with the discretion of the investigating officer to
the negative since the private respondents have not shown determine the specificity and adequacy of the averments in the
that there exist, in this case, exceptional grounds removing it complaint filed, except in very exceptional
from the general rule that preliminary investigations of criminal circumstances,28 which do not obtain here.
offenses and criminal prosecutions cannot be stayed or
enjoined by the courts.23 Therefore, private respondents' act of filing a petition
for certiorari and prohibition before the Regional Trial Court
11. The trial court's ruling that private respondents' was rather untimely and uncalled for, not only because private
constitutional rights have been violated, rests on untenable respondents failed to exhaust their administrative remedies but
grounds. It must be remembered, in this connection, that also because the grounds cited in their petition before the trial
exceptions to a settled rule, by their nature, must be strictly court were highly speculative -- more fancied than real.
applied. And any claim to an exception must be fully
substantiated. In other words, it must have real basis for Finally, Hernandez v. Albano (19 SCRA 95), cited by the
existing. majority to support the conclusion that preliminary investigation
can be stayed by the courts, clearly states that preliminary
The exceptions to the general rule against restraining orders or investigation can be stayed by court order only
injunctions to stop preliminary investigations or criminal in extreme cases. Hernandez also states that:
prosecutions are enumerated in Brocka vs. Enrile.24 One
specific exception is when an injunction is needed for the
 By statute, the prosecuting officer of the City prosecutors investigating the cases for fraudulent tax evasion,
of Manila and his assistants are empowered is, at this stage of the proceedings, when private respondents
to investigate crimes committed within the have yet to file their counter-affidavits, in a position to
city's territorial jurisdiction. Not a mere determine and state with finality or conclusiveness whether or
privilege, it is the sworn duty of a Fiscal to not private respondents are guilty of the offense charged in the
conduct an investigation of a criminal charge BIR complaints, now with the DOJ Revenue Cases Task
filed with his office. The power to investigate Force. It is precisely through the preliminary investigation that
postulates the other obligation on the part of the DOJ Task Force on Revenue Cases can determine
the Fiscal to investigate promptly and file the whether or not there are grounds to file informations in court or
case of as speedily. Public interest -- the to dismiss the BIR complaints.
protection of society -- so demands.
Agreeably to the foregoing, a 15. I see no grave abuse of discretion committed by the state
rule -- now of long standing and frequent prosecutors in requiring private respondents to submit counter-
application -- was formulated that ordinarily affidavits to the complaints for fraudulent tax evasion and to
criminal prosecution may not be blocked by determine the existence or absence of probable criminal
court prohibition or injunction. Really, if at liability.
every turn investigation of a crime will be
halted by a court order, the administration of
criminal justice will meet with an undue The Rules on Criminal Procedure do not even require, as a
setback. Indeed, the investigative power of condition sine qua non to the validity of a preliminary
the Fiscal may suffer such a tremendous investigation, the presence of the respondent as long as efforts
shrinkage that it may end up in hollow sound to reach him are made and an opportunity to controvert the
rather than as a part and parcel of the complainant's evidence is accorded him. The purpose of the
machinery of criminal justice. rule is to check attempts of unscrupulous respondents to
thwart criminal investigations by not appearing or employing
dilatory tactics.30
It should be noted that while Hernandez lays down
the extreme grounds when preliminary investigation of criminal
offenses may be restrained by the courts, the dispositive 16. Since the preliminary investigation in the DOJ Revenue
portion of the decision affirmed the decision of the trial court Cases Task Force against private respondents for alleged
dismissing a petition for certiorari and prohibition with prayer fraudulent tax evasion is well within its jurisdiction and
for preliminary injunction filed to stay the preliminary constitutes no grave abuse of discretion, it was in fact the
investigation of criminal complaints against petitioner respondent trial court that committed grave abuse of discretion,
Hernandez. amounting to lack or excess of jurisdiction, when it stayed such
preliminary investigation.
The other case cited by the majority to support its decision in
this case, Fortun v. Labang29 involves criminal complaints filed 17. The successful prosecution of criminal offenders is not only
against a judge of the Court of First Instance by disgruntled a right but the duty of the state. Only when the state's acts
lawyers who had lost their cases in the judge's sala. Clearly, clearly violate constitutional rights can the courts step in to
the basis for the Court to stay preliminary investigation interfere with the state's exercise of such right and
in Fortun was a finding that said complaints were filed merely performance of such duty. I am indubitably impressed that
as a form of harassment against the judge and which "could there is no violation of private respondents' constitutional rights
have no other purpose than to place petitioner-judge in in this case.
contempt and disrepute". The factual situation in the case at
bar is poles apart from the factual situation in Fortun. 18. Lastly, the consolidation of the three (3) complaints in the
DOJ against private respondents should be allowed since they
Further, in Fortun there was an express finding by the Court all involve the same scheme allegedly used by private
that complaints against judges of the Courts of First Instance respondents to fraudulently evade payment of taxes.
are properly filed with the Supreme Court under Executive Consolidation will not only avoid multiplicity of suits but will also
Order No. 264 (1970) since the Court is considered as the enable private respondents to more conveniently prepare
department head of the judiciary. In the present case it cannot whatever responsive pleadings are required or expected of
be disputed that jurisdiction to conduct preliminary them.
investigation over fraudulent tax evasion cases lies with the
state prosecutors (fiscals). It is, therefore, my considered view that the decision of the
Court of Appeals of 19 December 1994 in CA G.R. SP No.
It cannot therefore be denied that 33599 should be SET ASIDE. The respondent trial court
neither Hernandez nor Fortun supports with any plausibility the should be ENJOINED from proceeding in any manner in Civil
majority's disposition of the issues in the present case. On the Case No. Q-94-19790, or at least until further orders from this
other hand, it appears to me all too clearly that the majority Court.
opinion, in this case, has altered the entire rationale and
concept of preliminary investigation of alleged criminal The preliminary investigation of the BIR complaints docketed
offenses. That alteration has, of course, served the purposes as I.S. Nos. 93-508, 93-17942 and 93-584 with the Department
of distinguished private respondents. But I will have no part in of Justice Revenue Cases Task Force, being constitutionally
the shocking process especially in light of the fact that and legally in order, should be allowed to resume until their
Government cries out that the people have final conclusion or completion, with private respondents given
been cheated and defrauded of their taxes to the tune a non-extendible period of ten (10) days from notice to submit
allegedly of P25.6 billion pesos, and yet, it is not given by this to the investigating panel their respective counter-affidavits and
Court even a beggar's chance to prove it! supporting documents, if any.

13. There is great and vital public interest in the successful 3.2
investigation and prosecution of criminal offenses involving
fraudulent tax evasion. Said public interest is much more
compelling in the present case since private respondents are G.R. No. 119761 August 29, 1996
not only accused of violating tax and penal laws but are also,
as a consequence of such violations, possibly depriving the COMMISSIONER OF INTERNAL REVENUE, petitioner,
government of a primary source of revenue so essential to the vs.
life, growth and development of the nation and for the HON. COURT OF APPEALS, HON. COURT OF TAX
prestation of essential services to the people. APPEALS and FORTUNE TOBACCO
CORPORATION, respondents.
14. It should be made clear, at this point, however, that this
opinion is not a pre-judgment or pre-determination of private  
respondents' guilt of the offense charged. No one, not even the
VITUG, J.:p shall not be less than Five Pesos (P5.00) per
pack.
The Commissioner of Internal Revenue ("CIR") disputes the
decision, dated 31 March 1995, of respondent Court of (2) On other locally manufactured cigarettes,
Appeals 1 affirming the 10th August 1994 decision and the 11th forty-five percent (45%) provided that the
October 1994 resolution of the Court of Tax Appeals 2 ("CTA") minimum tax shall not be less than Three
in C.T.A. Case No. 5015, entitled "Fortune Tobacco Pesos (P3.00) per pack.
Corporation vs. Liwayway Vinzons-Chato in her capacity as
Commissioner of Internal Revenue." xxx xxx xxx

The facts, by and large, are not in dispute. When the registered manufacturer's
wholesale price or the actual manufacturer's
Fortune Tobacco Corporation ("Fortune Tobacco") is engaged wholesale price whichever is higher of
in the manufacture of different brands of cigarettes. existing brands of cigarettes, including the
amounts intended to cover the taxes, of
On various dates, the Philippine Patent Office issued to the cigarettes packed in twenties does not
corporation separate certificates of trademark registration over exceed Four Pesos and eighty centavos
"Champion," "Hope," and "More" cigarettes. In a letter, dated (P4.80) per pack, the rate shall be twenty
06 January 1987, of then Commissioner of Internal Revenue percent (20%). 7 (Emphasis supplied)
Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz of the
Presidential Commission on Good Government, "the initial About a month after the enactment and two (2)
position of the Commission was to classify 'Champion,' 'Hope,' days before the effectivity of RA 7654, Revenue
and 'More' as foreign brands since they were listed in the Memorandum Circular No. 37-93 ("RMC 37-93"), was
World Tobacco Directory as belonging to foreign companies. issued by the BIR the full text of which expressed:
However, Fortune Tobacco changed the names of 'Hope' to
'Hope Luxury' and 'More' to 'Premium More,' thereby removing REPUBLIKA NG PILIPINAS
the said brands from the foreign brand category. Proof was KAGAWARAN NG PANANALAPI
also submitted to the Bureau (of Internal Revenue ['BIR']) that KAWANIHAN NG RENTAS INTERNAS
'Champion' was an original Fortune Tobacco Corporation
register and therefore a local brand." 3 Ad Valorem taxes were
imposed on these brands, 4 at the following rates: July 1, 19

BRAND AD VALOREM TAX RATE REVENUE MEMORANDUM CIRCULAR

E.O. 22 and E.O. 273 RA 6956 NO. 37-93
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90 SUBJECT: Reclassification of Cigarettes
Subject to Excise Tax
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45% TO: All Internal Revenue Officers and Others
Hope Luxury M. King Concerned.
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's In view of the issues raised on whether
Sec. 142, (c), (2) 40% 45% "HOPE," "MORE" and "CHAMPION"
More Premium International cigarettes which are locally manufactured
Sec. 142, (c), (2) 40% 45% are appropriately considered as locally
Champion Int'l. M. 100's manufactured cigarettes bearing a foreign
Sec. 142, (c), (2) 40% 45% brand, this Office is compelled to review the
Champion M. 100's previous rulings on the matter.
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20% Section 142 (c)(1) National Internal Revenue
Champion Lights Code, as amended by R.A. No. 6956,
Sec. 142, (c), last par. 15% 20% 5 provides:

A bill, which later became Republic Act ("RA") No. On locally manufactured
7654, 6 was enacted, on 10 June 1993, by the cigarettes bearing a
legislature and signed into law, on 14 June 1993, by foreign brand, fifty-five
the President of the Philippines. The new law became percent (55%) Provided,
effective on 03 July 1993. It amended Section 142(c) That this rate shall apply
(1) of the National Internal Revenue Code ("NIRC") to regardless of whether or
read; as follows: not the right to use or title
to the foreign brand was
sold or transferred by its
Sec. 142. Cigars and Cigarettes. — owner to the local
manufacturer. Whenever it
xxx xxx xxx has to be determined
whether or not a cigarette
(c) Cigarettes packed by machine. — There bears a foreign brand, the
shall be levied, assessed and collected on listing of brands
cigarettes packed by machine a tax at the manufactured in foreign
rates prescribed below based on the countries appearing in the
constructive manufacturer's wholesale price current World Tobacco
or the actual manufacturer's wholesale price, Directory shall govern.
whichever is higher:
Under the foregoing, the test for imposition
(1) On locally manufactured cigarettes which of the 55% ad valorem tax on cigarettes is
are currently classified and taxed at fifty-five that the locally manufactured cigarettes bear
percent (55%) or the exportation of which is a foreign brand regardless of whether or not
not authorized by contract or otherwise, fifty- the right to use or title to the foreign brand
five (55%) provided that the minimum tax was sold or transferred by its owner to the
 local manufacturer. The brand must be WHEREFORE, Revenue Memorandum
originally owned by a foreign manufacturer Circular No. 37-93 reclassifying the brands
or producer. If ownership of the cigarette of cigarettes, viz: "HOPE," "MORE" and
brand is, however, not definitely "CHAMPION" being manufactured by
determinable, ". . . the listing of brands Fortune Tobacco Corporation as locally
manufactured in foreign countries appearing manufactured cigarettes bearing a foreign
in the current World Tobacco Directory shall brand subject to the 55% ad valorem tax on
govern. . . ." cigarettes is found to be defective, invalid
and unenforceable, such that when R.A. No.
"HOPE" is listed in the World Tobacco 7654 took effect on July 3, 1993, the brands
Directory as being manufactured by (a) in question were not CURRENTLY
Japan Tobacco, Japan and (b) Fortune CLASSIFIED AND TAXED at 55% pursuant
Tobacco, Philippines. "MORE" is listed in the to Section 1142(c)(1) of the Tax Code, as
said directory as being manufactured by: (a) amended by R.A. No. 7654 and were
Fills de Julia Reig, Andorra; (b) Rothmans, therefore still classified as other locally
Australia; (c) RJR-Macdonald Canada; (d) manufactured cigarettes and taxed at 45% or
Rettig-Strenberg, Finland; (e) Karellas, 20% as the case may be.
Greece; (f) R.J. Reynolds, Malaysia; (g)
Rothmans, New Zealand; (h) Fortune Accordingly, the deficiency ad valorem tax
Tobacco, Philippines; (i) R.J. Reynolds, assessment issued on petitioner Fortune
Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tobacco Corporation in the amount of
Tabacalera, Spain; (l) R.J. Reynolds, P9,598,334.00, exclusive of surcharge and
Switzerland; and (m) R.J. Reynolds, USA. interest, is hereby canceled for lack of legal
"Champion" is registered in the said directory basis.
as being manufactured by (a)
Commonwealth Bangladesh; (b) Sudan, Respondent Commissioner of Internal
Brazil; (c) Japan Tobacco, Japan; (d) Revenue is hereby enjoined from collecting
Fortune Tobacco, Philippines; (e) Haggar, the deficiency tax assessment made and
Sudan; and (f) Tabac Reunies, Switzerland. issued on petitioner in relation to the
implementation of RMC No. 37-93.
Since there is no showing who among the
above-listed manufacturers of the cigarettes SO ORDERED. 9
bearing the said brands are the real owner/s
thereof, then it follows that the same shall be
considered foreign brand for purposes of In its resolution, dated 11 October 1994, the CTA
determining the ad valorem tax pursuant to dismissed for lack of merit the motion for
Section 142 of the National Internal Revenue reconsideration.
Code. As held in BIR Ruling No. 410-88,
dated August 24, 1988, "in cases where it The CIR forthwith filed a petition for review with the
cannot be established or there is dearth of Court of Appeals, questioning the CTA's 10th August
evidence as to whether a brand is foreign or 1994 decision and 11th October 1994 resolution. On
not, resort to the World Tobacco Directory 31 March 1993, the appellate court's Special
should be made." Thirteenth Division affirmed in all respects the
assailed decision and resolution.
In view of the foregoing, the aforesaid
brands of cigarettes, viz: "HOPE," "MORE" In the instant petition, the Solicitor General argues:
and "CHAMPION" being manufactured by That —
Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes I. RMC 37-93 IS A
bearing a foreign brand subject to the RULING OR OPINION OF
55% ad valorem tax on cigarettes. THE COMMISSIONER OF
INTERNAL REVENUE
Any ruling inconsistent herewith is revoked INTERPRETING THE
or modified accordingly. PROVISIONS OF THE
TAX CODE.
(SGD) LIWAYWAY VINZONS-
CHATO II. BEING AN
Commissioner INTERPRETATIVE
RULING OR OPINION,
On 02 July 1993, at about 17:50 hours, BIR Deputy THE PUBLICATION OF
Commissioner Victor A. Deoferio, Jr., sent via RMC 37-93, FILING OF
telefax a copy of RMC 37-93 to Fortune Tobacco but COPIES THEREOF WITH
it was addressed to no one in particular. On 15 July THE UP LAW CENTER
1993, Fortune Tobacco received, by ordinary mail, a AND PRIOR HEARING
certified xerox copy of RMC 37-93. ARE NOT NECESSARY
TO ITS VALIDITY,
EFFECTIVITY AND
In a letter, dated 19 July 1993, addressed to the ENFORCEABILITY.
appellate division of the BIR, Fortune Tobacco
requested for a review, reconsideration and recall of
RMC 37-93. The request was denied on 29 July 1993. III. PRIVATE
The following day, or on 30 July 1993, the CIR RESPONDENT IS
assessed Fortune Tobacco for ad valorem tax DEEMED TO HAVE BEEN
deficiency amounting to P9,598,334.00. NOTIFIED OR RMC 37-93
ON JULY 2, 1993.
On 03 August 1993, Fortune Tobacco filed a petition
for review with the CTA. 8 IV. RMC 37-93 IS NOT
DISCRIMINATORY SINCE
IT APPLIES TO ALL
On 10 August 1994, the CTA upheld the position of LOCALLY
Fortune Tobacco and adjudged: MANUFACTURED
 CIGARETTES SIMILARLY (3) In case of opposition, the rules on
SITUATED AS "HOPE," contested cases shall be observed.
"MORE" AND
"CHAMPION" In addition such rule must be published. On
CIGARETTES. the other hand, interpretative rules are
designed to provide guidelines to the law
V. PETITIONER WAS which the administrative agency is in charge
NOT LEGALLY of enforcing. 12
PROSCRIBED FROM
RECLASSIFYING It should be understandable that when an
"HOPE," "MORE" AND administrative rule is merely interpretative in nature,
"CHAMPION" its applicability needs nothing further than its bare
CIGARETTES BEFORE issuance for it gives no real consequence more than
THE EFFECTIVITY OF what the law itself has already prescribed. When,
R.A. NO. 7654. upon the other hand, the administrative rule goes
beyond merely providing for the means that can
VI. SINCE RMC 37-93 IS facilitate or render least cumbersome the
AN INTERPRETATIVE implementation of the law but substantially adds to or
RULE, THE INQUIRY IS increases the burden of those governed, it behooves
NOT INTO ITS VALIDITY, the agency to accord at least to those directly affected
EFFECTIVITY OR a chance to be heard, and thereafter to be duly
ENFORCEABILITY BUT informed, before that new issuance is given the force
INTO ITS and effect of law.
CORRECTNESS OR
PROPRIETY; RMC 37-93 A reading of RMC 37-93, particularly considering the
IS CORRECT. 10 circumstances under which it has been issued,
convinces us that the circular cannot be viewed
In fine, petitioner opines that RMC 37-93 is merely an simply as a corrective measure (revoking in the
interpretative ruling of the BIR which can thus become process the previous holdings of past
effective without any prior need for notice and Commissioners) or merely as construing Section
hearing, nor publication, and that its issuance is not 142(c)(1) of the NIRC, as amended, but has, in fact
discriminatory since it would apply under similar and most importantly, been made in order to place
circumstances to all locally manufactured cigarettes. "Hope Luxury," "Premium More" and "Champion"
within the classification of locally manufactured
The Court must sustain both the appellate court and cigarettes bearing foreign brands and to thereby have
the tax court. them covered by RA 7654. Specifically, the new law
would have its amendatory provisions applied to
locally manufactured cigarettes which at the time of its
Petitioner stresses on the wide and ample authority of effectivity were not so classified as bearing foreign
the BIR in the issuance of rulings for the effective brands. Prior to the issuance of the questioned
implementation of the provisions of the National circular, "Hope Luxury," "Premium More," and
Internal Revenue Code. Let it be made clear that such "Champion" cigarettes were in the category of locally
authority of the Commissioner is not here doubted. manufactured cigarettes not bearing foreign brand
Like any other government agency, however, the CIR subject to 45% ad valorem tax. Hence, without RMC
may not disregard legal requirements or applicable 37-93, the enactment of RA 7654, would have had no
principles in the exercise of its quasi-legislative new tax rate consequence on private respondent's
powers. products. Evidently, in order to place "Hope Luxury,"
"Premium More," and "Champion" cigarettes within
Let us first distinguish between two kinds of the scope of the amendatory law and subject them to
administrative issuances — a legislative rule and an increased tax rate, the now disputed RMC 37-93
an interpretative rule. had to be issued. In so doing, the BIR not simply
intrepreted the law; verily, it legislated under its quasi-
In Misamis Oriental Association of Coco Traders, legislative authority. The due observance of the
Inc., vs. Department of Finance Secretary, 11 the requirements of notice, of hearing, and of publication
Court expressed: should not have been then ignored.

. . . a legislative rule is in the nature of Indeed, the BIR itself, in its RMC 10-86, has observed
subordinate legislation, designed to and provided:
implement a primary legislation by providing
the details thereof . In the same way that RMC NO. 10-86
laws must have the benefit of public hearing, Effectivity of Internal Revenue Rules and
it is generally required that before a Regulations
legislative rule is adopted there must be
hearing. In this connection, the It has been observed that one of the problem
Administrative Code of 1987 provides: areas bearing on compliance with Internal
Revenue Tax rules and regulations is lack or
Public Participation. — If not otherwise insufficiency of due notice to the tax paying
required by law, an agency shall, as far as public. Unless there is due notice, due
practicable, publish or circulate notices of compliance therewith may not be reasonably
proposed rules and afford interested parties expected. And most importantly, their strict
the opportunity to submit their views prior to enforcement could possibly suffer from legal
the adoption of any rule. infirmity in the light of the constitutional
provision on "due process of law" and the
(2) In the fixing of rates, no rule or final order essence of the Civil Code provision
shall be valid unless the proposed rates shall concerning effectivity of laws, whereby due
have been published in a newspaper of notice is a basic requirement (Sec. 1, Art. IV,
general circulation at least two (2) weeks Constitution; Art. 2, New Civil Code).
before the first hearing thereon.
In order that there shall be a just
enforcement of rules and regulations, in
conformity with the basic element of due
 process, the following procedures are hereby 2. Locally manufactured by LA SUERTE
prescribed for the drafting, issuance and CIGAR and CIGARETTE COMPANY
implementation of the said Revenue Tax
Issuances: (a) "GOLDEN KEY" is
listed being manufactured
(1) This Circular shall by United Tobacco,
apply only to (a) Revenue Pakistan (Exhibit "S")
Regulations; (b) Revenue
Audit Memorandum (b) "CANNON" is listed as
Orders; and (c) Revenue being manufactured by
Memorandum Circulars Alpha Tobacco,
and Revenue Bangladesh (Exhibit "T")
Memorandum Orders
bearing on internal
revenue tax rules and 3. Locally manufactured by LA PERLA
regulations. INDUSTRIES, INC.

(2) Except when the law (a) "WHITE HORSE" is

otherwise expressly listed as being
provides, the aforesaid manufactured by
internal revenue tax Rothman's, Malaysia
issuances shall not begin (Exhibit "U")
to be operative until after
due notice thereof may be (b) "RIGHT" is listed as
fairly presumed. being manufactured by
SVENSKA, Tobaks,
Due notice of the said Sweden (Exhibit "V-1")
issuances may be fairly
presumed only after the 4. Locally manufactured by MIGHTY
following procedures have CORPORATION
been taken;
(a) "WHITE HORSE" is
x x x           x x x          x x x listed as being
manufactured by
(5) Strict compliance with Rothman's, Malaysia
the foregoing procedures (Exhibit "U-1")
is
enjoined. 13 5. Locally manufactured by STERLING
TOBACCO CORPORATION
Nothing on record could tell us that it was either
impossible or impracticable for the BIR to observe (a) "UNION" is listed as
and comply with the above requirements before giving being manufactured by
effect to its questioned circular. Sumatra Tobacco,
Indonesia and Brown and
Not insignificantly, RMC 37-93 might have likewise Williamson, USA (Exhibit
infringed on uniformity of taxation. "U-3")

Article VI, Section 28, paragraph 1, of the 1987 (b) "WINNER" is listed as
Constitution mandates taxation to be uniform and being manufactured by
equitable. Uniformity requires that all subjects or Alpha Tobacco,
objects of taxation, similarly situated, are to be treated Bangladesh; Nangyang,
alike or put on equal footing both in privileges and Hongkong; Joo Lan,
liabilities. 14 Thus, all taxable articles or kinds of Malaysia; Pakistan
property of the same class must be taxed at the same Tobacco Co., Pakistan;
rate 15 and the tax must operate with the same force Premier Tobacco,
and effect in every place where the subject may be Pakistan and Haggar,
found. Sudan (Exhibit "U-4"). 17

Apparently, RMC 37-93 would only apply to "Hope The court quoted at length from the transcript of the
Luxury," "Premium More" and "Champion" cigarettes hearing conducted on 10 August 1993 by the
and, unless petitioner would be willing to concede to Committee on Ways and Means of the House of
the submission of private respondent that the circular Representatives; viz:
should, as in fact my esteemed colleague Mr. Justice
Bellosillo so expresses in his separate opinion, be THE CHAIRMAN. So you have specific
considered adjudicatory in nature and thus violative of information on Fortune Tobacco alone. You
due process following the Ang Tibay 16 doctrine, the don't have specific information on other
measure suffers from lack of uniformity of taxation. In tobacco manufacturers. Now, there are other
its decision, the CTA has keenly noted that other brands which are similarly situated. They are
cigarettes bearing foreign brands have not been locally manufactured bearing foreign brands.
similarly included within the scope of the circular, And may I enumerate to you all these
such as — brands, which are also listed in the World
Tobacco Directory . . . Why were these
1. Locally manufactured by ALHAMBRA brand not reclassified at 55 if your want to
INDUSTRIES, INC. give a level playing filed to foreign
manufacturers?
(a) "PALM TREE" is listed
as manufactured by office MS. CHATO. Mr. Chairman, in fact, we have
of Monopoly, Korea already prepared a Revenue Memorandum
(Exhibit "R") Circular that was supposed to come after
RMC No. 37-93 which have really named right actions on the matter, we were really
specifically the list of locally manufactured caught by the July 3 deadline. But in fact,
cigarettes bearing a foreign brand for excise We have already prepared a revenue
tax purposes and includes all these brands memorandum circular clarifying with the
that you mentioned at 55 percent except that other . . . does not yet, would have been a
at that time, when we had to come up with list of locally manufactured cigarettes
this, we were forced to study the brands of bearing a foreign brand for excise tax
Hope, More and Champion because we purposes which would include all the other
were given documents that would indicate brands that were mentioned by the
the that these brands were actually being Honorable Chairman. (Emphasis supplied)
claimed or patented in other countries (Exhibit "FF-2-d," par. IX-4). 18
because we went by Revenue Memorandum
Circular 1488 and we wanted to give some All taken, the Court is convinced that the hastily promulgated
rationality to how it came about but we RMC 37-93 has fallen short of a valid and effective
couldn't find the rationale there. And we administrative issuance.
really found based on our own interpretation
that the only test that is given by that existing
law would be registration in the World WHEREFORE, the decision of the Court of Appeals, sustaining
Tobacco Directory. So we came out with this that of the Court of Tax Appeals, is AFFIRMED. No costs.
proposed revenue memorandum circular
which we forwarded to the Secretary of SO ORDERED.
Finance except that at that point in time, we
went by the Republic Act 7654 in Section 1 Kapunan, J., concurs.
which amended Section 142, C-1, it said,
that on locally manufactured cigarettes which
are currently classified and taxed at 55 3.3
percent. So we were saying that when this
law took effect in July 3 and if we are going G.R. No. 128315 June 29, 1999
to come up with this revenue circular
thereafter, then I think our action would really
be subject to question but we feel that . . . COMMISSIONER OF INTERNAL REVENUE, petitioner,
Memorandum Circular Number 37-93 would vs.
really cover even similarly situated PASCOR REALTY AND DEVELOPMENT CORPORATION,
brands. And in fact, it was really because of ROGELIO A. DIO and VIRGINIA S. DIO, respondents.
the study, the short time that we were given
to study the matter that we could not include  
all the rest of the other brands that would
have been really classified as foreign brand
PANGANIBAN, J.:
if we went by the law itself. I am sure that by
the reading of the law, you would without
that ruling by Commissioner Tan they would An assessment contains not only a computation of tax
really have been included in the definition or liabilities, but also a demand for payment within a prescribed
in the classification of foregoing brands. period. It also signals the time when penalties and protests
These brands that you referred to or just begin to accrue against the taxpayer. To enable the taxpayer
read to us and in fact just for your to determine his remedies thereon, due process requires that it
information, we really came out with a must be served on and received by the taxpayer. Accordingly,
proposed revenue memorandum circular for an affidavit, which was executed by revenue officers stating the
those brands. (Emphasis supplied) 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.
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-
3).
Statement of the Case
xxx xxx xxx
Before this Court is a Petition for Review on Certiorari under
Rule 45 of the Rules of Court praying for the nullification of the
MS. CHATO. . . . But I do agree with you
October 30, 1996
now that it cannot and in fact that is why I felt
Decision 1 of the Court of Appeals 2 in CA-GR SP No. 40853,
that we . . . I wanted to come up with a more
which effectively affirmed the January 25, 1996 Resolution 3 of
extensive coverage and precisely why I
the Court of Tax Appeals 4 CTA Case No. 5271. The CTA
asked that revenue memorandum circular
disposed as follows:
that would cover all those similarly situated
would be prepared but because of the lack of
time and I came out with a study of RA 7654, WHEREFORE, finding [the herein
it would not have been possible to really petitioner's] "Motion to Dismiss" as
come up with the reclassification or the UNMERITORIOUS, the same is hereby
proper classification of all brands that are DENIED. [The CIR] is hereby given a period
listed there. . . (emphasis supplied) (Exhibit of thirty (30) days from receipt hereof to file
"FF-2d," page IX-1) her answer.

xxx xxx xxx Petitioner also seeks to nullify the February 13, 1997
Resolution 5 of the Court of Appeals denying reconsideration.
HON. DIAZ. But did you not consider that
there are similarly situated? The Facts

MS. CHATO. That is precisely why, Sir, after As found by the Court of Appeals, the undisputed facts of the
we have come up with this Revenue case are as follows:
Memorandum Circular No. 37-93, the other
brands came about the would have also It appears that by virtue of Letter of Authority
clarified RMC 37-93 by I was saying really No. 001198, then BIR Commissioner Jose U.
because of the fact that I was just recently Ong authorized Revenue Officers Thomas T.
appointed and the lack of time, the period Que, Sonia T. Estorco and Emmanuel M.
that was allotted to us to come up with the Savellano to examine the books of accounts
and other accounting records of Pascor We agree with petitioners'
Realty and Development Corporation. contentions, that the
(PRDC) for the years ending 1986, 1987 and criminal complaint for tax
1988. The said examination resulted in a evasion is the assessment
recommendation for the issuance of an issued, and that the letter
assessment in the amounts of denial of May 17, 1995 is
P7,498,434.65 and P3,015,236.35 for the the decision properly
years 1986 and 1987, respectively. appealable to [u]s.
Respondent's ground of
On March 1, 1995, the Commissioner of denial, therefore, that
Internal Revenue filed a criminal complaint there was no formal
before the Department of Justice against the assessment issued, is
PRDC, its President Rogelio A. Dio, and its untenable.
Treasurer Virginia S. Dio, alleging evasion of
taxes in the total amount of P10,513,671 .00. It is the Court's honest belief, that the
Private respondents PRDC, et. al. filed an criminal case for tax evasion is already
Urgent Request for anassessment. The complaint, more
Reconsideration/Reinvestigation disputing particularly, the Joint Affidavit of Revenue
the tax assessment and tax liability. Examiners Lagmay and Savellano attached
thereto, contains the details of the
On March 23, 1995, private respondents assessment like the kind and amount of tax
received a subpoena from the DOJ in due, and the period covered:
connection with the criminal complaint filed
by the Commissioner of Internal Revenue Petitioners are right, in claiming that the
(BIR) against them.1âwphi1.nêt provisions of Republic Act No. 1125, relating
to exclusive appellate jurisdiction of this
In a letter dated May 17, 1995, the CIR Court, do not, make any mention of "formal
denied the urgent request for assessment." The law merely states, that
reconsideration/reinvestigation of the private this Court has exclusive appellate jurisdiction
respondents on the ground that no formal over decisions of the Commissioner of
assessment of the has as yet been issued by Internal Revenue on disputed assessments,
the Commissioner. and other matters arising under the National
Internal Revenue Code, other law or part
administered by the Bureau of Internal
Private respondents then elevated the Revenue Code.
Decision of the CIR dated May 17, 1995 to
the Court of Tax Appeals on a petition for
review docketed as CTA Case No. 5271 on As far as this Court is concerned, the
July 21, 1995. On September 6, 1995, the amount and kind of tax due, and the period
CIR filed a Motion to Dismiss the petition on covered, are sufficient details needed for an
the ground that the CTA has no jurisdiction "assessment." These details are more than
over the subject matter of the petition, as complete, compared to the following
there was no formal assessment issued definitions of the term as quoted hereunder.
against the petitioners. The CTA denied the Thus:
said motion to dismiss in a Resolution dated
January 25, 1996 and ordered the CIR to file Assessment is laying a tax. Johnson City v.
an answer within thirty (30) days from receipt Clinchfield R. Co., 43 S.W. (2d) 386, 387,
of said resolution. The CIR received the 163 Tenn. 332. (Words and Phrases,
resolution on January 31, 1996 but did not Permanent Edition, Vol. 4, p. 446).
file an answer nor did she move to
reconsider the resolution. The word assessment when used in
connection with taxation, may have more
Instead, the CIR filed this petition on June 7, than one meaning. The ultimate purpose of
1996, alleging as grounds that: an assessment to such a connection is to
ascertain the amount that each taxpayer is to
Respondent Court of Tax pay. More commonly, the word "assessment"
Appeals acted with grave means the official valuation of a taxpayer's
abuse of discretion and property for purpose of taxation. State v.
without jurisdiction in New York, N.H. and H.R. Co. 22 A. 765,
considering the 768, 60 Conn. 326, 325. (Ibid. p. 445)
affidavit/report of the
revenue officer and the From the above, it can be gleaned that an
indorsement of said report assessment simply states how much tax is
to the secretary of justice due from a taxpayer. Thus, based on these
as assessment which may definitions, the details of the tax as given in
be appealed to the Court the Joint Affidavit of respondent's examiners,
of Tax Appeals; which was attached to the tax evasion
complaint, more than suffice to qualify as an
Respondent Court Tax assessment. Therefore, this assessment
Appeals acted with grave having been disputed by petitioners, and
abuse of discretion in there being a denial of their letter disputing
considering the denial by such assessment, this Court unquestionably
petitioner of private acquired jurisdiction over the instant petition
respondents' Motion for for review. 6
Reconsideration as [a]
final decision which may As earlier observed, the Court of Appeals sustained the CTA
be appealed to the Court and dismissed the petition.
of Tax Appeals.
Hence, this recourse to this Court. 7
In denying the motion to dismiss filed by the
CIR, the Court of Tax Appeals stated: Ruling of the Court of Appeals
The Court of Appeals held that the tax court committed no True, as pointed out by the private respondents, an
grave abuse of discretion in ruling that the Criminal Complaint assessment informs the taxpayer that he or she has tax
for tax evasion filed by the Commissioner of Internal Revenue liabilities. But not all documents coming from the BIR
with the Department of Justice constituted an "assessment" of containing a computation of the tax liability can be deemed
the tax due, and that the said assessment could be the subject assessments.
of a protest. By definition, an assessment is simply the
statement of the details and the amount of tax due from a To start with, an assessment must be sent to and received by
taxpayer. Based on this definition, the details of the tax a taxpayer, and must demand payment of the taxes described
contained in the BIR examiners' Joint Affidavit, 8 which was therein within a specific period. Thus, the NIRC imposes a 25
attached to the criminal Complaint, constituted an assessment. percent penalty, in addition to the tax due, in case the taxpayer
Since the assailed Order of the CTA was merely interlocutory fails to pay deficiency tax within the time prescribed for its
and devoid of grave abuse of discretion, a petition payment in the notice of assessment. Likewise, an interest of
for certiorari did not lie. 20 percent per annum, or such higher rates as may be
prescribed by rules and regulations, is to be collected form the
Issues date prescribed for its payment until the full payment. 12

Petitioners submit for the consideration of this Court following The issuance of an assessment is vital in determining, the
issues: period of limitation regarding its proper issuance and the period
within which to protest it. Section 203 13 of the NIRC provides
(1) Whether or not the that internal revenue taxes must be assessed within three
criminal complaint for tax years from the last day within which to file the return. Section
evasion can be construed 222, 14 on the other hand, specifies a period of ten years in
as an assessment. case a fraudulent return with intent to evade was submitted or
in case of failure to file a return. Also, Section 228 15 of the
same law states that said assessment may be protested only
(2) Whether or not an within thirty days from receipt thereof. Necessarily, the
assessment is necessary taxpayer must be certain that a specific document constitutes
before criminal charges for an assessment. Otherwise, confusion would arise regarding
tax evasion may be the period within which to make an assessment or to protest
instituted. the same, or whether interest and penalty may accrue thereon.

(3) Whether or not the It should also be stressed that the said document is a notice
CTA can take cognizance duly sent to the taxpayer. Indeed, an assessment is deemed
of the case in the absence made only when the collector of internal revenue releases,
of an assessment. 9 mails or sends such notice to the taxpayer. 16

In the main, the Court will resolve whether the revenue officers' In the present case, the revenue officers' Affidavit merely
Affidavit-Report, which was attached to criminal revenue contained a computation of respondents' tax liability. It did not
Complaint filed the Department of Justice, constituted an state a demand or a period for payment. Worse, it was
assessment that could be questioned before the Court of Tax addressed to the justice secretary, not to the taxpayers.
Appeals.
Respondents maintain that an assessment, in relation to
The Court's Ruling taxation, is simply understood' to mean:

The petition is meritorious. A notice to the effect that the amount therein
stated is due as tax and a demand for
Main Issue: Assessment payment thereof. 17

Petitioner argues that the filing of the criminal complaint with Fixes the liability of the taxpayer and
the Department of Justice cannot in any way be construed as a ascertains the facts and furnishes the data
formal assessment of private respondents' tax liabilities. This for the proper presentation of tax rolls. 18
position is based on Section 205 of the National Internal
Revenue Code 10 (NIRC), which provides that remedies for the Even these definitions fail to advance private respondents'
collection of deficient taxes may be by either civil or criminal case. That the BIR examiners' Joint Affidavit attached to the
action. Likewise, petitioner cites Section 223(a) of the same Criminal Complaint contained some details of the tax liabilities
Code, which states that in case of failure to file a return, the tax of private respondents does not ipso facto make it an
may be assessed or a proceeding in court may be begun assessment. The purpose of the Joint Affidavit was merely to
without assessment. support and substantiate the Criminal Complaint for tax
evasion. Clearly, it was not meant to be a notice of the tax due
Respondents, on the other hand, maintain that an assessment and a demand to the private respondents for payment thereof.
is not an action or proceeding for the collection of taxes, but
merely a notice that the amount stated therein is due as tax The fact that the Complaint itself was specifically directed and
and that the taxpayer is required to pay the same. Thus, sent to the Department of Justice and not to private
qualifying as an assessment was the BIR examiners' Joint respondents shows that the intent of the commissioner was to
Affidavit, which contained the details of the supposed taxes file a criminal complaint for tax evasion, not to issue an
due from respondent for taxable years ending 1987 and 1988, assessment. Although the revenue officers recommended the
and which was attached to the tax evasion Complaint filed with issuance of an assessment, the commissioner opted instead to
the DOJ. Consequently, the denial by the BIR of private file a criminal case for tax evasion. What private respondents
respondents' request for reinvestigation of the disputed received was a notice from the DOJ that a criminal case for tax
assessment is properly appealable to the CTA. evasion had been filed against them, not a notice that the
Bureau of Internal Revenue had made an assessment.
We agree with petitioner. Neither the NIRC nor the regulations
governing the protest of assessments 11 provide a specific In addition, what private respondents sent to the commissioner
definition or form of an assessment. However, the NIRC was a motion for a reconsideration of the tax evasion charges
defines the specific functions and effects of an assessment. To filed, not of an assessment, as shown thus:
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. This is to request for reconsideration of the tax evasion
charges against my client, PASCOR Realty and Development
Corporation and for the same to be referred to the Appellate
Division in order to give my client the opportunity of a fair and VITUG,, J.:
objective hearing. 19
Before the Court is a petition for review seeking to set aside
Additional Issues: the decision of 24 February 1999 of the Court of Appeals, as
well as its resolution of 27 Apri11999, in CA-G.R. SP No.
Assessment Not 34156, which has reversed that of the Court of Tax Appeals in
CTA Case No.4956, entitled "Jose V. Feria, in his capacity as
Executor of the Estate of Jose San Agustin versus
Necessary Before Filing of Commissioner of Internal Revenue." The tax court's decision
has modified the deficiency assessment of the Commission of
Criminal Complaint Internal Revenue for surcharge, interests and other penalties
imposed against the estate of the late Jose San Agustin.
Private respondents maintain that the filing of a criminal
complaint must be preceded by an assessment. This is The facts of the case narrated by the appellate court would
incorrect, because Section 222 of the NIRC specifically states appear, by and large, to be uncontroverted; thus viz:
that in cases where a false or fraudulent return is submitted or
in cases of failure to file a return such as this case, "Atty. Jose San Agustin of 2904 Kakarong St.,
proceedings in court may be commenced without an Olympia, Makati died on June 27, 1990 leaving his
assessment. Furthermore, Section 205 of the same Code wife Dra. Felisa L. San Agustin as sole heir. He left a
clearly mandates that the civil and criminal aspects of the case holographic will executed on April 21, 1980 giving all
may be pursued simultaneously. In Ungab v. Cusi,20 petitioner his estate to his widow, and naming retired Justice
therein sought the dismissal of the criminal Complaints for Jose Y. Feria as Executor thereof.
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 "Probate proceedings were instituted on August 22,
resolution of the protest in the CTA. This was because the 1990, in the Regional Trial Court (RTC) of Makati,
commissioner of internal revenue had, in such tax evasion Branch 139, docketed as Sp. Proc. No. M-2554.
cases, discretion on whether to issue an assessment or to file Pursuantly, notice of decedent's death was sent to the
a criminal case against the taxpayer or to do both. Commissioner of Internal Revenue on August 30,
1990.1âwphi1.nêt
Private respondents insist that Section 222 should be read in
relation to Section 255 of the NLRC, 21 which penalizes failure "On September 3, 1990, an estate tax return reporting
to file a return. They add that a tax assessment should precede an estate tax due of P1,676,432.00 was filed on
a criminal indictment. We disagree. To reiterate, said Section behalf of the estate, with a request for an extension of
222 states that an assessment is not necessary before a two years for the payment of the tax, inasmuch as the
criminal charge can be filed. This is the general rule. Private decedent's widow ( did) not personally have sufficient
respondents failed to show that they are entitled to an funds, and that the payment (would) have to come
exception. Moreover, the criminal charge need only be from the estate.
supported by a prima facie showing of failure to file a required
return. This fact need not be proven by an assessment. "In his letter/answer, dated September 4, 1990, BIR
Deputy Commissioner Victor A. Deoferio, Jr., granted
The issuance of an assessment must be distinguished from the the heirs an extension of only six (6) months, subject
filing of a complaint. Before an assessment is issued, there is, to the imposition of penalties and interests under
by practice, a pre-assessment notice sent to the taxpayer. The Sections 248 and 249 of the National Internal
taxpayer is then given a chance to submit position papers and Revenue Code, as amended.
documents to prove that the assessment is unwarranted. If the
commissioner is unsatisfied, an assessment signed by him or "In the probate proceedings, on October 11, 1990 the
her is then sent to the taxpayer informing the latter specifically RTC allowed the will and appointed Jose Feria as
and clearly that an assessment has been made against him or Executor of the estate. On December 5, 1990, the
her. In contrast, the criminal charge need not go through all executor submitted to the probate court an inventory
these. The criminal charge is filed directly with the DOJ. of the estate with a motion for authority to withdraw
Thereafter, the taxpayer is notified that a criminal case had funds for the payment of the estate tax.
been filed against him, not that the commissioner has issued
an assessment. It must be stressed that a criminal complaint is Such authority was granted by the probate court on
instituted not to demand payment, but to penalize the taxpayer March 5, 1991 .Thereafter, on March 8, 1991 , the
for violation of the Tax Code. executor paid the estate tax in the amount of
P1,676,432 as reported in the Tax Return filed with
WHEREFORE, the petition is hereby GRANTED. The assailed the BIR. This was well within the six (6) months
Decision is REVERSED and SET ASIDE. CTA Case No. 5271 extension period granted by the BIR.
is likewise DISMISSED. No costs.
"On September 23, 1991, the widow of the deceased,
SO ORDERED. Felisa L. San Agustin, received a Pre-Assessment
Notice from the BIR, dated August 29, 1991, showing
Vitug, Purisima and Gonzaga-Reyes, JJ., concur. a deficiency estate tax of P538,509.50, which,
including surcharge, interest and penalties, amounted
to P976,540.00.

"On October 1, 1991, within the ten-day period given

3.4 in the pre-assessment notice, the executor filed a
letter with the petitioner Commissioner expressing
3.5 readiness to pay the basic deficiency estate tax of
P538,509.50 as soon as the Regional Trial Court
G.R. No. 138485      September 10, 2001 approves withdrawal thereof, but, requesting that the
surcharge, interest, and other penalties, amounting to
P438,040.38 be waived, considering that the
DR. FELISA L. VDA. DE SAN AGUSTIN, in substitution of assessed deficiency arose only on account of the
JOSE Y. FERIA, in his capacity as Executor of the Estate difference in zonal valuation used by the Estate and
of JOSE SAN AGUSTIN, petitioner, the BIR, and that the estate tax due per return of
vs. P1,676,432.00 was already paid in due time within the
COMMISSIONER OF INTERNAL REVENUE, respondent. extension period.
 "On October 4, 1991, the Commissioner issued an estate tax of P538,509.50 due on the transmission of
Assessment Notice reiterating the demand in the pre- the said Estate to the sole heir in 1990."2
assessment notice and requesting payment on or
before thirty (30) days upon receipt thereof. In its decision of 24 February 1999, the Court of Appeals
granted the petition of the Commissioner of Internal Revenue
"In a letter, dated October 31, 1991, the executor and held that the Court of Tax Appeals did not acquire
requested the Commissioner a reconsideration of the jurisdiction over the subject matter and that, accordingly, its
assessment of P976,549.00 and waiver of the decision was null and void.
surcharge, interest, etc.
Hence, the instant petition where petitioner submits that -
"On December 18, 1991, the Commissioner accepted
payment of the basic deficiency tax in the amount of "1. The filing of a claim for refund [is] not essential
P538,509.50 through its Receivable Accounts Billing before the filing of the petition for review.
Division.
"2. The imposition by the respondent of surcharge,
"The request for reconsideration was not acted upon interest and penalties on the deficiency estate tax is
until January 21, 1993, when the executor received a not in accord with the law and therefore illegal."3
letter, dated September 21, 1992, signed by the
Commissioner, stating that there is no legal
justification for the waiver of the interests, surcharge The Court finds the petition partly meritorious.
and compromise penalty in this case, and requiring
full payment of P438,040.38 representing such The case has a striking resemblance to the controversy in
charges within ten (10) days from receipt thereof. Roman Catholic Archbishop of Cebu vs. Collector of Internal
Revenue.4
"In view thereof, the respondent estate paid the
amount of P438,040.38 under protest on January 25, The petitioner in that case paid under protest the sum of
1993. P5,201.52 by way of income tax, surcharge and interest and,
forthwith, filed a petition for review before the Court of Tax
"On February 18, 1993, a Petition for Review was Appeals. Then respondent Collector (now Commissioner) of
filed by the executor with the CT A with the prayer Internal Revenue set up several defenses, one of which was
that the Commissioner's letter/decision, dated that petitioner had failed to first file a written claim for refund,
September 21, 1992 be reversed and that a refund of pursuant to Section 306 of the Tax Code, of the amounts paid.
the amount of P438,040.38 be ordered . Convinced that the lack of a written claim for refund was fatal
to petitioner's recourse to it, the Court of Tax Appeals
dismissed the petition for lack of jurisdiction. On appeal to this
"The Commissioner opposed the said petition, Court, the tax court's ruling was reversed; the Court held:
alleging that the CTA's jurisdiction was not properly
invoked inasmuch as no claim for a tax refund of the
deficiency tax collected was filed with the Bureau of "We agree with petitioner that Section 7 of Republic
Internal Revenue before the petition was filed, in Act No.1125, creating the Court of Tax Appeals, in
violation of Sections 204 and 230 of the National providing for appeals from -
Internal Revenue Code. Moreover, there is no
statutory basis for the refund of the deficiency '(1) Decisions of the Collector of Internal
surcharges, interests and penalties charged by the Revenue in cases involving disputed
Commissioner upon the estate of the decedent. assessments, refunds of internal revenue
taxes, fees or other charges, penalties
"Upholding its jurisdiction over the dispute, the CTA imposed in relation thereto, or other matters
rendered its Decision, dated April 21, 1994, modifying arising under the National Internal Revenue
the CIR's assessment for surcharge, interests and Code or other law or part of the law
other penalties from P438,040.38 to P13,462.74, administered by the Bureau of Internal
representing interest on the deficiency estate tax, for Revenue -
which reason the CTA ordered the reimbursement to
the respondent estate the balance of P423,577.64, to allows an appeal from a decision of the Collector in
wit: cases involving' disputed assessments' as
distinguished from cases involving' refunds of internal
"WHEREFORE, respondent's deficiency revenue taxes, fees or other charges, x x'; that the
assessment for surcharge, interests, and present action involves a disputed assessment';
other penalties is hereby modified and since because from the time petitioner received
petitioner has clearly paid the full amount of assessments Nos. 17-EC-00301-55 and 17-AC-
P438,040.38, respondent is hereby ordered 600107-56 disallowing certain deductions claimed by
to refund to the Estate of Jose San Agustin him in his income tax returns for the years 1955 and
the overpayment amounting to 1956, he already protested and refused to pay the
P423,577.64."1 same, questioning the correctness and legality of
such assessments; and that the petitioner paid the
disputed assessments under protest before filing his
On 30 May 1994, the decision of the Court of Tax Appeals was petition for review with the Court a quo, only to
appealed by the Commissioner of Internal Revenue to the forestall the sale of his properties that had been
Court of Appeals. There, the petition for review raised the placed under distraint by the respondent Collector
following issues: since December 4, 1957. To hold that the taxpayer
has now lost the right to appeal from the ruling on, the
"1. Whether respondent Tax Court has jurisdiction to disputed assessment but must prosecute his appeal
take cognizance of the case considering the failure of under section 306 of the Tax Code, which requires a
private respondent to comply with the mandatory taxpayer to file a claim for refund of the taxes paid as
requirements of Sections 204 and 230 of the National a condition precedent to his right to appeal, would in
Internal Revenue Code. effect require of him to go through a useless and
needless ceremony that would only delay the !
"2. Whether or not respondent Tax Court was correct disposition of the case, for the Collector (now
in ordering the refund to the Estate of Jose San Commissioner) would cer1ainly disallow the claim for
Agustin the reduced amount of P423,577.64 as refund in the same way as he disallowed the protest
alleged overpaid surcharge, interests and against the assessment. The law, should not be
compromise penalty imposed on the basic deficiency interpreted as to result in absurdities."5
The Court sees no cogent reason to abandon the collected interest at the rate hereinabove prescribed
above dictum and to require a useless formality that can serve on the tax or deficiency tax or any part thereof unpaid
the interest of neither the government nor the taxpayer. The from the date of notice and demand until it is paid."
tax court has aptly acted in taking cognizance of the taxpayer's
appeal to it. It would appear that, as early as 23 September 1991, the
estate already received a pre-assessment notice indicating a
On the second issue, the National Internal Revenue Code, deficiency estate tax of P538,509.50. Within the ten-day period
relative to the imposition of surcharges, interests, and given in the pre-assessment notice, respondent Commissioner
penalties, provides thusly: received a letter from petitioner expressing the latter's
readiness to pay the basic deficiency estate tax of
"Sec. 248. Civil Penalties. - P538,509.50 as soon as the trial court would have approved
the withdrawal of that sum from the estate but requesting that
the surcharge, interests and penalties be waived. On 04
"(a) There shall be imposed, in addition to the tax October 1991, however, petitioner received from the
required to be paid, a penalty equivalent to twenty-five Commissioner notice insisting payment of the tax due on or
percent (25% ) of the amount due, in the following before the lapse of thirty (30) days from receipt thereof. The
cases: deficiency estate tax of P538,509.50 was not paid until 19
December 1991.6
"(1) Failure to file any return and pay the tax due
thereon as required under the provisions of this Code The delay in the payment of the deficiency tax within the time
or rules and regulations on the date prescribed; or prescribed for its payment in the notice of assessment justifies
the imposition of a 25% surcharge in consonance with Section
"(2) Unless otherwise authorized by the 248A(3) of the Tax Code. The basic deficiency tax in this case
Commissioner, filing a return with an internal revenue being P538,509.50, the twenty-five percent thereof comes to
officer other than those with whom the return is P134,627.37. Section 249 of the Tax Code states that any
required to be filed; or deficiency in the tax due would be subject to interest at the rate
of twenty percent (20%) per annum, which interest shall be
"(3) Failure to pay the deficiency tax within the time assessed and collected from the date prescribed for its
prescribed for its payment in the notice of payment until full payment is made. The computation of
assessment; or interest by the Court of Tax Appeals -

"(4) Failure to pay the full or part of the amount of "Deficiency

tax estate tax x Interest Rate x Terms
shown on any return required to be filed under P538,509.50
the 20% per annum 11/2 mo./12 m
provisions of this Code or rules and regulations, or the (11/04/91 to 12/19/91)
full amount of tax due for which no return is required
to be filed, on or before the date prescribed for =its P13,462.74"7
payment."

"Sec.249. Interest. - conforms with the law, i.e., computed on the deficiency tax
from the date prescribed for its payment until it is paid.

"(A) In General. -There shall be assessed and

collected on any unpaid amount of tax, interest at the The Court of Tax Appeals correctly held that the compromise
rate of twenty percent (20%) per annum, or such penalty of P20,000.00 could not be imposed on petitioner, a
higher rate as may be prescribed by rules and compromise being, by its nature, mutual in essence. The
regulations, from the date prescribed for payment until payment made under protest by petitioner could only signify
the amount is fully paid. that there was no agreement that had effectively been reached
between the parties.

"(B) Deficiency Interest. - Any deficiency in the tax

due, as the term is defined in this Code, shall be Regrettably for petitioner, the need for an authority from the
subject to the interest prescribed in Subsection (A) probate court in the payment of the deficiency estate tax, over
hereof, which interest shall be assessed and collected which respondent Commissioner has hardly any control, is not
from the date prescribed for its payment until the full one that can negate the application of the Tax Code provisions
payment thereof. aforequoted. Taxes, the lifeblood of the government, are meant
to be paid without delay and often oblivious to contingencies or
conditions.
"(C) Delinquency Interest. -In case of failure to pay:
In. sum, the tax liability of the estate includes a surcharge of
"(1) The amount of the tax due on any return to be P134,627.37 and interest of P13,462.74 or a total of
filed, or P148,090.00.

"(2) The amount of the tax due for which no return is WHEREFORE, the instant petition is partly GRANTED. The
required, or deficiency assessment for surcharge, interest and penalties is
modified and recomputed to be in the amount of P148,090.00
"(3) A deficiency tax, or any surcharge or interest surcharge of P134,627.37 and interest of P13,462.74.
thereon on the due date appearing in the notice and Petitioner estate having since paid the sum of P438,040.38,
demand of the Commissioner, there shall be respondent Commissioner is hereby ordered to refund to the
assessed and collected on the unpaid amount, Estate of Jose San Agustin the overpaid amount of
interest at the rate prescribed in Subsection (A) P289,950.38. No costs.
hereof until the amount is fully paid, which interest
shall form part of the tax. SO ORDERED.1âwphi1.nêt

"(D) Interest on Extended Payment. -If any person Melo, Panganiban, Gonzaga-Reyes, Sandoval-Gutierrez,
required to pay the tax is qualified and elects to pay JJ., concur
the tax on installment under the provisions of this
Code, but fails to pay the tax or any installment
hereof, or any part of such amount or installment on 3.6
or before the date prescribed for its payment, or
where the Commissioner has authorized an extension G.R. No. 162852             December 16, 2004
of time within which to pay a tax or a deficiency tax or
any part thereof, there shall be assessed and
PHILIPPINE JOURNALISTS, INC., petitioner,
Value Added Tax 184,299.20
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
Expanded Withholding Tax 2,363,220.38

Total P111,291,214.46

On March 16, 1999, a Preliminary Collection Letter was sent

DECISION by Deputy Commissioner Romeo S. Panganiban to the
petitioner to pay the assessment within ten (10) days from
receipt of the letter. On November 10, 1999, a Final Notice
Before Seizure8 was issued by the same deputy commissioner
giving the petitioner ten (10) days from receipt to pay.
Petitioner received a copy of the final notice on November 24,
YNARES-SANTIAGO, J.: 1999. By letters dated November 26, 1999, petitioner asked to
be clarified how the tax liability of P111,291,214.46 was
reached and requested an extension of thirty (30) days from
This is a petition for review filed by Philippine Journalists, receipt of the clarification within which to reply.9
Incorporated (PJI) assailing the Decision1 of the Court of
Appeals dated August 5, 2003,2 which ordered petitioner to pay
the assessed tax liability of P111,291,214.46 and the The BIR received a follow-up letter from the petitioner
Resolution3 dated March 31, 2004 which denied the Motion for asserting that its (PJI) records do not show receipt of Tax
Reconsideration. Assessment/Demand No. 33-1-000757-94.10 Petitioner also
contested that the assessment had no factual and legal basis.
On March 28, 2000, a Warrant of Distraint and/or Levy No. 33-
The case arose from the Annual Income Tax Return filed by 06-04611 signed by Deputy Commissioner Romeo Panganiban
petitioner for the calendar year ended December 31, 1994 for the BIR was received by the petitioner.
which presented a net income of P30,877,387.00 and the tax
due of P10,807,086.00. After deducting tax credits for the year,
petitioner paid the amount of P10,247,384.00. Petitioner filed a Petition for Review12 with the Court of Tax
Appeals (CTA) which was amended on May 12, 2000.
Petitioner complains: (a) that no assessment or demand was
On August 10, 1995, Revenue District Office No. 33 of the received from the BIR; (b) that the warrant of distraint and/or
Bureau of Internal Revenue (BIR) issued Letter of Authority levy was without factual and legal bases as its issuance was
No. 871204 for Revenue Officer Federico de Vera, Jr. and premature; (c) that the assessment, having been made beyond
Group Supervisor Vivencio Gapasin to examine petitioner’s the 3-year prescriptive period, is null and void; (d) that the
books of account and other accounting records for internal issuance of the warrant without being given the opportunity to
revenue taxes for the period January 1, 1994 to December 31, dispute the same violates its right to due process; and (e) that
1994. the grave prejudice that will be sustained if the warrant is
enforced is enough basis for the issuance of the writ of
From the examination, the petitioner was told that there were preliminary injunction.
deficiency taxes, inclusive of surcharges, interest and
compromise penalty in the following amounts: On May 14, 2002, the CTA rendered its decision,13 to wit:

Value Added Tax P 229,527.90 As to whether or not the assessment notices were
received by the petitioner, this Court rules in the
Income Tax 125,002,892.95 affirmative.

Withholding Tax 2,748,012.35 To disprove petitioner’s allegation of non-receipt of

the aforesaid assessment notices, respondent
Total P 127,980,433.20 presented a certification issued by the Post Master of
the Central Post Office, Manila to the effect that
Registered Letter No. 76134 sent by the BIR, Region
In a letter dated August 29, 1997, Revenue District Officer No. 6, Manila on December 15, 1998 addressed to
Jaime Concepcion invited petitioner to send a representative to Phil. Journalists, Inc. at Journal Bldg., Railroad St.,
an informal conference on September 15, 1997 for an Manila was duly delivered to and received by a
opportunity to object and present documentary evidence certain Alfonso Sanchez, Jr. (Authorized
relative to the proposed assessment. On September 22, 1997, Representative) on January 8, 1999. Respondent also
petitioner’s Comptroller, Lorenza Tolentino, executed a showed proof that in claiming Registered Letter No.
"Waiver of the Statute of Limitation Under the National Internal 76134, Mr. Sanchez presented three identification
Revenue Code (NIRC)".5 The document "waive[d] the running cards, one of which is his company ID with herein
of the prescriptive period provided by Sections 223 and 224 petitioner.
and other relevant provisions of the NIRC and consent[ed] to
the assessment and collection of taxes which may be found
…
due after the examination at any time after the lapse of the
period of limitations fixed by said Sections 223 and 224 and
other relevant provisions of the NIRC, until the completion of However, as to whether or not the Waiver of the
the investigation".6 Statute of Limitations is valid and binding on the
petitioner is another question. Since the subject
assessments were issued beyond the three-year
On July 2, 1998, Revenue Officer De Vera submitted his audit
prescriptive period, it becomes imperative on our part
report recommending the issuance of an assessment and
to rule first on the validity of the waiver allegedly
finding that petitioner had deficiency taxes in the total amount
executed on September 22, 1997, for if this court
of P136,952,408.97. On October 5, 1998, the Assessment
finds the same to be ineffective, then the
Division of the BIR issued Pre-Assessment Notices which
assessments must necessarily fail.
informed petitioner of the results of the investigation. Thus, BIR
Revenue Region No. 6, Assessment Division/Billing Section,
issued Assessment/Demand No. 33-1-000757-947 on …
December 9, 1998 stating the following deficiency taxes,
inclusive of interest and compromise penalty: After carefully examining the questioned Waiver of the
Statute of Limitations, this Court considers the same
to be without any binding effect on the petitioner for
Income Tax P108,743,694.88 the following reasons:
 The waiver is an unlimited waiver. It does not contain the bottom page that the BIR "accepted and agreed
a definite expiration date. Under RMO No. 20-90, the to:"…, followed by the signature of the BIR’s
phrase indicating the expiry date of the period agreed authorized representative. Although the date of
upon to assess/collect the tax after the regular three- acceptance was not stated, the document was dated
year period of prescription should be filled up… 22 September 1997. This date could reasonably be
understood as the same date of acceptance by the
… BIR since a different date was not otherwise
indicated. As to the allegation that Phil. Journalists
was not furnished a copy of the waiver, this
Secondly, the waiver failed to state the date of requirement appears ridiculous. Phil. Journalists,
acceptance by the Bureau which under the through its comptroller, Lorenza Tolentino, signed the
aforequoted RMO should likewise be indicated… waiver. Why would it need a copy of the document it
knowingly executed when the reason why copies are
… furnished to a party is to notify it of the existence of a
document, event or proceeding? …
Finally, petitioner was not furnished a copy of the
waiver. It is to be noted that under RMO No. 20-90, As regards the need for a definite expiration date, this
the waiver must be executed in three (3) copies, the is the biggest flaw of the decision. The period of
second copy of which is for the taxpayer. It is likewise prescription for the assessment of taxes may be
required that the fact of receipt by the taxpayer of extended provided that the extension be made in
his/her file copy be indicated in the original copy. writing and that it be made prior to the expiration of
Again, respondent failed to comply. the period of prescription. These are the requirements
for a valid extension of the prescriptive period. To
It bears stressing that RMO No. 20-90 is directed to these requirements provided by law, the
all concerned internal revenue officers. The said RMO memorandum order adds that the length of the
even provides that the procedures found therein extension be specified by indicating its expiration
should be strictly followed, under pain of being date. This requirement could be reasonably construed
administratively dealt with should non-compliance from the rule on extension of the prescriptive period.
result to prescription of the right to assess/collect… But this requirement does not apply in the instant
case because what we have here is not an extension
of the prescriptive period but a waiver thereof. These
Thus, finding the waiver executed by the petitioner on are two (2) very different things. What Phil. Journalists
September 22, 1997 to be suffering from legal executed was a renunciation of its right to invoke the
infirmities, rendering the same invalid and ineffective, defense of prescription. This is a valid waiver. When
the Court finds Assessment/Demand No. 33-1- one waives the prescriptive period, it is no longer
000757-94 issued on December 5, 1998 to be time- necessary to indicate the length of the extension of
barred. Consequently, the Warrant of Distraint and/or the prescriptive period since the person waiving may
Levy issued pursuant thereto is considered null and no longer use this defense.
void.
WHEREFORE, the 02 August 2002 resolution and 14
WHEREFORE, in view of all the foregoing, the instant May 2002 decision of the CTA are hereby SET
Petition for Review is hereby GRANTED. Accordingly, ASIDE. Respondent Phil. Journalists is ordered [to]
the deficiency income, value-added and expanded pay its assessed tax liability of P111,291,214.46.
withholding tax assessments issued by the
respondent against the petitioner on December 9,
1998, in the total amount of P111,291,214.46 for the SO ORDERED.15
year 1994 are hereby declared CANCELLED,
WITHDRAWN and WITH NO FORCE AND EFFECT. Petitioner’s Motion for Reconsideration was denied in a
Likewise, Warrant of Distraint and/or Levy No. 33-06- Resolution dated March 31, 2004. Hence, this appeal on the
046 is hereby declared NULL and VOID. following assignment of errors:

SO ORDERED.14 I.

After the motion for reconsideration of the Commissioner of The Honorable Court of Appeals committed grave
Internal Revenue was denied by the CTA in a Resolution dated error in ruling that it is outside the jurisdiction of the
August 2, 2002, an appeal was filed with the Court of Appeals Court of Tax Appeals to entertain the Petition for
on August 12, 2002. Review filed by the herein Petitioner at the CTA
despite the fact that such case inevitably rests upon
In its decision dated August 5, 2003, the Court of Appeals the validity of the issuance by the BIR of warrants of
disagreed with the ruling of the CTA, to wit: distraint and levy contrary to the provisions of Section
7(1) of Republic Act No. 1125.

… The petition for review filed on 26 April 2000 with

CTA was neither timely filed nor the proper remedy. II.
Only decisions of the BIR, denying the request for
reconsideration or reinvestigation may be appealed to The Honorable Court of Appeals gravely erred when it
the CTA. Mere assessment notices which have ruled that failure to comply with the provisions of
become final after the lapse of the thirty (30)-day Revenue Memorandum Order (RMO) No. 20-90 is
reglementary period are not appealable. Thus, the merely a formal defect that does not invalidate the
CTA should not have entertained the petition at all. waiver of the statute of limitations without stating the
legal justification for such conclusion. Such ruling
… totally disregarded the mandatory requirements of
Section 222(b) of the Tax Code and its implementing
regulation, RMO No. 20-90 which are substantive in
… [T]he CTA found the waiver executed by Phil. nature. The RMO provides that violation thereof
Journalists to be invalid for the following reasons: (1) subjects the erring officer to administrative sanction.
it does not indicate a definite expiration date; (2) it This directive shows that the RMO is not merely cover
does not state the date of acceptance by the BIR; and forms.
(3) Phil. Journalist, the taxpayer, was not furnished a
copy of the waiver. These grounds are merely formal
in nature. The date of acceptance by the BIR does not III.
categorically appear in the document but it states at
 The Honorable Court of Appeals gravely erred when it This is not the first case where the CTA validly ruled on issues
ruled that the assessment notices became final and that did not relate directly to a disputed assessment or a claim
unappealable. The assessment issued is void and for refund. In Pantoja v. David,17 we upheld the jurisdiction of
legally non-existent because the BIR has no power to the CTA to act on a petition to invalidate and annul the distraint
issue an assessment beyond the three-year orders of the Commissioner of Internal Revenue. Also,
prescriptive period where there is no valid and binding in Commissioner of Internal Revenue v. Court of Appeals,18 the
waiver of the statute of limitation. decision of the CTA declaring several waivers executed by the
taxpayer as null and void, thus invalidating the assessments
IV. issued by the BIR, was upheld by this Court.

The Honorable Court of Appeals gravely erred when it The second and fifth assigned errors both focus on Revenue
held that the assessment in question has became Memorandum Circular No. 20-90 (RMO No. 20-90) on the
final and executory due to the failure of the Petitioner requisites of a valid waiver of the statute of limitations. The
to protest the same. Respondent had no power to Court of Appeals held that the requirements and procedures
issue an assessment beyond the three year period laid down in the RMO are only formal in nature and did not
under the mandatory provisions of Section 203 of the invalidate the waiver that was signed even if the requirements
NIRC. Such assessment should be held void and were not strictly observed.
non-existent, otherwise, Section 203, an expression
of a public policy, would be rendered useless and The NIRC, under Sections 203 and 222,19 provides for a statute
nugatory. Besides, such right to assess cannot be of limitations on the assessment and collection of internal
validly granted after three years since it would arise revenue taxes in order to safeguard the interest of the taxpayer
from a violation of the mandatory provisions of against unreasonable investigation.20 Unreasonable
Section 203 and would go against the vested right of investigation contemplates cases where the period for
the Petitioner to claim prescription of assessment. assessment extends indefinitely because this deprives the
taxpayer of the assurance that it will no longer be subjected to
V. further investigation for taxes after the expiration of a
reasonable period of time. As was held in Republic of the Phils.
v. Ablaza:21
The Honorable Court of Appeals committed grave
error when it HELD valid a defective waiver by
considering the latter a waiver of the right to invoke The law prescribing a limitation of actions for the
the defense of prescription rather than an extension of collection of the income tax is beneficial both to the
the three year period of prescription (to make an Government and to its citizens; to the Government
assessment) as provided under Section 222 in because tax officers would be obliged to act promptly
relation to Section 203 of the Tax Code, an in the making of assessment, and to citizens because
interpretation that is contrary to law, existing after the lapse of the period of prescription citizens
jurisprudence and outside of the purpose and intent would have a feeling of security against unscrupulous
for which they were enacted.16 tax agents who will always find an excuse to inspect
the books of taxpayers, not to determine the latter’s
real liability, but to take advantage of every
We find merit in the appeal. opportunity to molest peaceful, law-abiding citizens.
Without such a legal defense taxpayers would
The first assigned error relates to the jurisdiction of the CTA furthermore be under obligation to always keep their
over the issues in this case. The Court of Appeals ruled that books and keep them open for inspection subject to
only decisions of the BIR denying a request for reconsideration harassment by unscrupulous tax agents. The law on
or reinvestigation may be appealed to the CTA. Since the prescription being a remedial measure should be
petitioner did not file a request for reinvestigation or interpreted in a way conducive to bringing about
reconsideration within thirty (30) days, the assessment notices the beneficent purpose of affording protection to
became final and unappealable. The petitioner now argue that the taxpayer within the contemplation of the
the case was brought to the CTA because the warrant of Commission which recommend the approval of
distraint or levy was illegally issued and that no assessment the law. (Emphasis supplied)
was issued because it was based on an invalid waiver of the
statutes of limitations. RMO No. 20-90 implements these provisions of the NIRC
relating to the period of prescription for the assessment and
We agree with petitioner. Section 7(1) of Republic Act No. collection of taxes. A cursory reading of the Order supports
1125, the Act Creating the Court of Tax Appeals, provides for petitioner’s argument that the RMO must be strictly followed,
the jurisdiction of that special court: thus:

SEC. 7. Jurisdiction. – The Court of Tax Appeals shall In the execution of said waiver, the following procedures
exercise exclusive appellate jurisdiction to review by should be followed:
appeal, as herein provided –
1. The waiver must be in the form identified hereof.
(1) Decisions of the Commissioner of Internal This form may be reproduced by the Office
Revenue in cases involving disputed assessments, concerned but there should be no deviation from
refunds of internal revenue taxes, fees or other such form. The phrase "but not after __________
charges, penalties imposed in relation thereto, 19___" should be filled up…
or other matters arising under the National
Internal Revenue Code or other laws or part of law 2. …
administered by the Bureau of Internal Revenue;
(Emphasis supplied).
Soon after the waiver is signed by the taxpayer, the
Commissioner of Internal Revenue or the revenue
The appellate jurisdiction of the CTA is not limited to cases official authorized by him, as hereinafter provided,
which involve decisions of the Commissioner of Internal shall sign the waiver indicating that the Bureau
Revenue on matters relating to assessments or refunds. The has accepted and agreed to the waiver. The date of
second part of the provision covers other cases that arise out such acceptance by the Bureau should be indicated…
of the NIRC or related laws administered by the Bureau of
Internal Revenue. The wording of the provision is clear and
simple. It gives the CTA the jurisdiction to determine if the 3. The following revenue officials are authorized to
warrant of distraint and levy issued by the BIR is valid and to sign the waiver.
rule if the Waiver of Statute of Limitations was validly effected.
A. In the National Office
 … consent by the BIR. We invalidated the subject waivers and
ruled:

3. Commissioner For tax cases involving

Petitioner’s submission is inaccurate…
more than P1M

…
B. In the Regional Offices
The Court of Appeals itself also passed upon the
1. The Revenue District Officer with validity of the waivers executed by Carnation,
respect to tax cases still pending observing thus:
investigation and the period to
assess is about to prescribe We cannot go along with the petitioner’s
regardless of amount. theory. Section 319 of the Tax Code earlier
quoted is clear and explicit that the waiver of
… the five-year26 prescriptive period must be in
writing and signed by both the BIR
5. The foregoing procedures Commissioner and the taxpayer.
shall be strictly followed. Any
revenue official found not to Here, the three waivers signed by Carnation
have complied with this Order do not bear the written consent of the BIR
resulting in prescription of the Commissioner as required by law.
right to assess/collect shall be
administratively dealt We agree with the CTA in holding "these
with. (Emphasis supplied)22 ‘waivers’ to be invalid and without any
binding effect on petitioner (Carnation) for
A waiver of the statute of limitations under the NIRC, to a the reason that there was no consent by the
certain extent, is a derogation of the taxpayers’ right to security respondent (Commissioner of Internal
against prolonged and unscrupulous investigations and must Revenue)."
therefore be carefully and strictly construed.23 The waiver of the
statute of limitations is not a waiver of the right to invoke the …
defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR
that the period to issue an assessment and collect the taxes For sure, no such written agreement
due is extended to a date certain. The waiver does not mean concerning the said three waivers exists
that the taxpayer relinquishes the right to invoke prescription between the petitioner and private
unequivocally particularly where the language of the document respondent Carnation.
is equivocal. For the purpose of safeguarding taxpayers from
any unreasonable examination, investigation or assessment, …
our tax law provides a statute of limitations in the collection of
taxes. Thus, the law on prescription, being a remedial What is more, the waivers in question reveal that they
measure, should be liberally construed in order to afford such are in no wise unequivocal, and therefore
protection. As a corollary, the exceptions to the law on necessitates for its binding effect the concurrence of
prescription should perforce be strictly construed.24 RMO No. the Commissioner of Internal Revenue…. On this
20-90 explains the rationale of a waiver: basis neither implied consent can be presumed
nor can it be contended that the waiver required
... The phrase "but not after _________ 19___" under Sec. 319 of the Tax Code is one which is
should be filled up. This indicates the expiry date of unilateral nor can it be said that concurrence to
the period agreed upon to assess/collect the tax after such an agreement is a mere formality because it
the regular three-year period of prescription. The is the very signatures of both the Commissioner
period agreed upon shall constitute the time of Internal Revenue and the taxpayer which give
within which to effect the assessment/collection birth to such a valid agreement. 27 (Emphasis
of the tax in addition to the ordinary prescriptive supplied)
period. (Emphasis supplied)
The other defect noted in this case is the date of acceptance
As found by the CTA, the Waiver of Statute of Limitations, which makes it difficult to fix with certainty if the waiver was
signed by petitioner’s comptroller on September 22, 1997 is actually agreed before the expiration of the three-year
not valid and binding because it does not conform with the prescriptive period. The Court of Appeals held that the date of
provisions of RMO No. 20-90. It did not specify a definite the execution of the waiver on September 22, 1997 could
agreed date between the BIR and petitioner, within which the reasonably be understood as the same date of acceptance by
former may assess and collect revenue taxes. Thus, the BIR. Petitioner points out however that Revenue District
petitioner’s waiver became unlimited in time, violating Section Officer Sarmiento could not have accepted the waiver yet
222(b) of the NIRC. because she was not the Revenue District Officer of RDO No.
33 on such date. Ms. Sarmiento’s transfer and assignment to
The waiver is also defective from the government side because RDO No. 33 was only signed by the BIR Commissioner on
it was signed only by a revenue district officer, not the January 16, 1998 as shown by the Revenue Travel
Commissioner, as mandated by the NIRC and RMO No. 20-90. Assignment Order No. 14-98.28 The Court of Tax Appeals noted
The waiver is not a unilateral act by the taxpayer or the BIR, in its decision that it is unlikely as well that Ms. Sarmiento
but is a bilateral agreement between two parties to extend the made the acceptance on January 16, 1998 because "Revenue
period to a date certain. The conformity of the BIR must be Officials normally have to conduct first an inventory of their
made by either the Commissioner or the Revenue District pending papers and property responsibilities."29
Officer. This case involves taxes amounting to more than One
Million Pesos (P1,000,000.00) and executed almost seven Finally, the records show that petitioner was not furnished a
months before the expiration of the three-year prescription copy of the waiver. Under RMO No. 20-90, the waiver must be
period. For this, RMO No. 20-90 requires the Commissioner of executed in three copies with the second copy for the taxpayer.
Internal Revenue to sign for the BIR. The Court of Appeals did not think this was important because
the petitioner need not have a copy of the document it
The case of Commissioner of Internal Revenue v. Court of knowingly executed. It stated that the reason copies are
Appeals,25 dealt with waivers that were not signed by the furnished is for a party to be notified of the existence of a
Commissioner but were argued to have been given implied document, event or proceeding.
The flaw in the appellate court’s reasoning stems from its disallowed for failure to pay the withholding tax and interest
assumption that the waiver is a unilateral act of the taxpayer expenses that were likewise disallowed. On the following day,
when it is in fact and in law an agreement between the 22 April 1994, respondent received a Formal Assessment
taxpayer and the BIR. When the petitioner’s comptroller signed Notice with Assessment Notice No. 000688-80-7333, dated 14
the waiver on September 22, 1997, it was not yet complete and April 1994, for deficiency income tax in the total amount
final because the BIR had not assented. There is compliance of P118,271,672.00.3
with the provision of RMO No. 20-90 only after the taxpayer
received a copy of the waiver accepted by the BIR. The On 6 May 1994, respondent, through its counsel Ponce Enrile
requirement to furnish the taxpayer with a copy of the waiver is Cayetano Reyes and Manalastas Law Offices, filed a formal
not only to give notice of the existence of the document but of protest letter against Assessment Notice No. 000688-80-7333.
the acceptance by the BIR and the perfection of the Respondent filed another protest letter on 23 May 1994,
agreement. through another counsel Siguion Reyna Montecillo & Ongsiako
Law Offices. In both letters, respondent requested for the
The waiver document is incomplete and defective and thus the cancellation of the tax assessment, which they alleged was
three-year prescriptive period was not tolled or extended and invalid for lack of factual and legal basis.4
continued to run until April 17, 1998. Consequently, the
Assessment/Demand No. 33-1-000757-94 issued on On 16 October 2002, more than eight years after the
December 9, 1998 was invalid because it was issued beyond assessment was presumably issued, the Ponce Enrile
the three (3) year period. In the same manner, Warrant of Cayetano Reyes and Manalastas Law Offices received from
Distraint and/or Levy No. 33-06-046 which petitioner received the CIR a Final Decision dated 8 October 2002 denying the
on March 28, 2000 is also null and void for having been issued respondent’s protest against Assessment Notice No. 000688-
pursuant to an invalid assessment. 80-7333, and affirming the said assessment in toto.5

WHEREFORE, premises considered, the instant petition for On 15 November 2002, respondent filed a Petition for Review
review is GRANTED. The Decision of the Court of Appeals with the CTA. After due notice and hearing, the CTA rendered
dated August 5, 2003 and its Resolution dated March 31, 2004 a Decision in favor of respondent on 9 June 2004. 6 The CTA
are REVERSED and SET ASIDE. The Decision of the Court of ruled on the primary issue of prescription and found it
Tax Appeals in CTA Case No. 6108 dated May 14, 2002, unnecessary to decide the issues on the validity and propriety
declaring Warrant of Distraint and/or Levy No. 33-06-046 null of the assessment. It decided that the protest letters filed by
and void, is REINSTATED. the respondent cannot constitute a request for reinvestigation,
hence, they cannot toll the running of the prescriptive period to
SO ORDERED. collect the assessed deficiency income tax.7 Thus, since more
than three years had lapsed from the time Assessment Notice
No. 000688-80-7333 was issued in 1994, the CIR’s right to
3.7
collect the same has prescribed in conformity with Section 269
of the National Internal Revenue Code of 1977 8 (Tax Code of
G.R. No. 167146             October 31, 2006 1977). The dispositive portion of this decision reads:

COMMISSIONER OF INTERNAL REVENUE, petitioner, WHEREFORE, premises considered, judgment is

vs. hereby rendered in favor of the petitioner.
PHILIPPINE GLOBAL COMMUNICATION, INC., respondent. Accordingly, respondent’s Final Decision dated
October 8, 2002 is hereby REVERSED and SET
ASIDE and respondent is hereby ORDERED to
WITHDRAW and CANCEL Assessment Notice No.
000688-80-7333 issued against the petitioner for its
1990 income tax deficiency because respondent’s
DECISION right to collect the same has prescribed.9

The CIR moved for reconsideration of the aforesaid Decision

but was denied by the CTA in a Resolution dated 22
September 2004.10 Thereafter, the CIR filed a Petition for
Review with the CTA en banc, questioning the aforesaid
Decision and Resolution. In its en banc Decision, the CTA
CHICO-NAZARIO, J.:
affirmed the Decision and Resolution in CTA Case No. 6568.
The dispositive part reads:
This is a Petition for Review on Certiorari, under Rule 45 of the
Rules of Court, seeking to set aside the en banc Decision of
WHEREFORE, premises considered, the Petition for
the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22
Review is hereby DISMISSED for lack of merit.
February 2005,1 ordering the petitioner to withdraw and cancel
Accordingly, the assailed Decision and Resolution in
Assessment Notice No. 000688-80-7333 issued against
CTA Case No. 6568 are hereby AFFIRMED in toto.11
respondent Philippine Global Communication, Inc. for its 1990
income tax deficiency. The CTA, in its assailed en
banc Decision, affirmed the Decision of the First Division of the Hence, this Petition for Review on Certiorari raising the
CTA dated 9 June 20042 and its Resolution dated 22 following grounds:
September 2004 in C.T.A. Case No. 6568.
THE COURT OF TAX APPEALS, SITTING EN
Respondent, a corporation engaged in telecommunications, BANC, COMMITTED REVERSIBLE ERROR IN
filed its Annual Income Tax Return for taxable year 1990 on 15 AFFIRMING THE ASSAILED DECISION AND
April 1991. On 13 April 1992, the Commissioner of Internal RESOLUTION IN CTA CASE NO. 6568 DECLARING
Revenue (CIR) issued Letter of Authority No. 0002307, THAT THE RIGHT OF THE GOVERNMENT TO
authorizing the appropriate Bureau of Internal Revenue (BIR) COLLECT THE DEFICIENCY INCOME TAX FROM
officials to examine the books of account and other accounting RESPONDENT FOR THE YEAR 1990 HAS
records of respondent, in connection with the investigation of PRESCRIBED
respondent’s 1990 income tax liability. On 22 April 1992, the
BIR sent a letter to respondent requesting the latter to present A. THE PRESCRIPTIVE PERIOD WAS
for examination certain records and documents, but INTERUPTED WHEN RESPONDENT
respondent failed to present any document. On 21 April 1994, FILED TWO LETTERS OF PROTEST
respondent received a Preliminary Assessment Notice dated DISPUTING IN DETAIL THE DEFICIENCY
13 April 1994 for deficiency income tax in the amount ASSESSMENT IN QUESTION AND
of P118,271,672.00, inclusive of surcharge, interest, and REQUESTING THE CANCELLATION OF
compromise penalty, arising from deductions that were SAID ASSESSMENT. THE TWO LETTERS
 OF PROTEST ARE, BY NATURE, of time. (Vol. II, Report of the Tax Commission of the
REQUESTS FOR REINVESTIGATION OF Philippines, pp. 321-322).17
THE DISPUTED ASSESSMENT.
In a number of cases, this Court has also clarified that the
B. THE REQUESTS FOR statute of limitations on the collection of taxes should benefit
REINVESTIGATION OF RESPONDENT both the Government and the taxpayers. In these cases, the
WERE GRANTED BY THE BUREAU OF Court further illustrated the harmful effects that the delay in the
INTERNAL REVENUE.12 assessment and collection of taxes inflicts upon taxpayers.
In Collector of Internal Revenue v. Suyoc Consolidated Mining
This Court finds no merit in this Petition. Company,18 Justice Montemayor, in his dissenting opinion,
identified the potential loss to the taxpayer if the assessment
and collection of taxes are not promptly made.
The main issue in this case is whether or not CIR’s right to
collect respondent’s alleged deficiency income tax is barred by
prescription under Section 269(c) of the Tax Code of 1977, Prescription in the assessment and in the collection of
which reads: taxes is provided by the Legislature for the benefit of
both the Government and the taxpayer; for the
Government for the purpose of expediting the
Section 269. Exceptions as to the period of limitation collection of taxes, so that the agency charged with
of assessment and collection of taxes. – x x x the assessment and collection may not tarry too long
or indefinitely to the prejudice of the interests of the
xxxx Government, which needs taxes to run it; and for the
taxpayer so that within a reasonable time after filing
c. Any internal revenue tax which has been assessed his return, he may know the amount of the
within the period of limitation above-prescribed may assessment he is required to pay, whether or not
be collected by distraint or levy or by a proceeding in such assessment is well founded and reasonable so
court within three years following the assessment of that he may either pay the amount of the assessment
the tax. or contest its validity in court x x x. It would surely be
prejudicial to the interest of the taxpayer for the
Government collecting agency to unduly delay the
The law prescribed a period of three years from the date the assessment and the collection because by the time
return was actually filed or from the last date prescribed by law the collecting agency finally gets around to making
for the filing of such return, whichever came later, within which the assessment or making the collection, the taxpayer
the BIR may assess a national internal revenue may then have lost his papers and books to support
tax.13 However, the law increased the prescriptive period to his claim and contest that of the Government, and
assess or to begin a court proceeding for the collection without what is more, the tax is in the meantime accumulating
an assessment to ten years when a false or fraudulent return interest which the taxpayer eventually has to pay .
was filed with the intent of evading the tax or when no return
was filed at all.14 In such cases, the ten-year period began to
run only from the date of discovery by the BIR of the falsity, In Republic of the Philippines v. Ablaza,19 this Court
fraud or omission. emphatically explained that the statute of limitations of actions
for the collection of taxes is justified by the need to protect law-
abiding citizens from possible harassment:
If the BIR issued this assessment within the three-year period
or the ten-year period, whichever was applicable, the law
provided another three years after the assessment for the The law prescribing a limitation of actions for the
collection of the tax due thereon through the administrative collection of the income tax is beneficial both to the
process of distraint and/or levy or through judicial Government and to its citizens; to the Government
proceedings.15 The three-year period for collection of the because tax officers would be obliged to act promptly
assessed tax began to run on the date the assessment notice in the making of assessment, and to citizens because
had been released, mailed or sent by the BIR.16 after the lapse of the period of prescription citizens
would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect
The assessment, in this case, was presumably issued on 14 the books of taxpayers, not to determine the latter’s
April 1994 since the respondent did not dispute the CIR’s real liability, but to take advantage of every
claim. Therefore, the BIR had until 13 April 1997. However, as opportunity to molest, peaceful, law-abiding citizens.
there was no Warrant of Distraint and/or Levy served on the Without such legal defense taxpayers would
respondents nor any judicial proceedings initiated by the BIR, furthermore be under obligation to always keep their
the earliest attempt of the BIR to collect the tax due based on books and keep them open for inspection subject to
this assessment was when it filed its Answer in CTA Case No. harassment by unscrupulous tax agents. The law on
6568 on 9 January 2003, which was several years beyond the prescription being a remedial measure should be
three-year prescriptive period. Thus, the CIR is now prescribed interpreted in a way conducive to bringing about the
from collecting the assessed tax. beneficient purpose of affording protection to the
taxpayer within the contemplation of the Commission
The provisions on prescription in the assessment and which recommended the approval of the law.
collection of national internal revenue taxes became law upon
the recommendation of the tax commissioner of the And again in the recent case Bank of the Philippine Islands v.
Philippines. The report submitted by the tax commission clearly Commissioner of Internal Revenue,20 this Court, in confirming
states that these provisions on prescription should be enacted these earlier rulings, pronounced that:
to benefit and protect taxpayers:
Though the statute of limitations on assessment and
Under the former law, the right of the Government to collection of national internal revenue taxes benefits
collect the tax does not prescribe. However, in both the Government and the taxpayer, it principally
fairness to the taxpayer, the Government should be intends to afford protection to the taxpayer against
estopped from collecting the tax where it failed to unreasonable investigation. The indefinite extension
make the necessary investigation and assessment of the period for assessment is unreasonable
within 5 years after the filing of the return and where it because it deprives the said taxpayer of the
failed to collect the tax within 5 years from the date of assurance that he will no longer be subjected to
assessment thereof. Just as the government is further investigation for taxes after the expiration of a
interested in the stability of its collections, so also are reasonable period of time.
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 Thus, in Commissioner of Internal Revenue v. B.F.
Goodrich,21 this Court affirmed that the law on prescription
should be liberally construed in order to protect taxpayers and
that, as a corollary, the exceptions to the law on prescription suspend the running of the statute of limitations on
should be strictly construed. collection of the assessed tax, while the latter cannot.

The Tax Code of 1977, as amended, provides instances when In the present case, the separate letters of protest dated 6 May
the running of the statute of limitations on the assessment and 1994 and 23 May 1994 are requests for reconsideration. The
collection of national internal revenue taxes could be CIR’s allegation that there was a request for reinvestigation is
suspended, even in the absence of a waiver, under Section inconceivable since respondent consistently and categorically
271 thereof which reads: refused to submit new evidence and cooperate in any
reinvestigation proceedings. This much was admitted in the
Section 224. Suspension of running of statute. – The running Decision dated 8 October 2002 issued by then CIR Guillermo
of the statute of limitation provided in Sections 268 and 269 on Payarno, Jr.
the making of assessments and the beginning of distraint or
levy or a proceeding in court for collection in respect of any In the said conference-hearing, Revenue Officer
deficiency, shall be suspended for the period during which the Alameda basically testified that Philcom, despite
Commissioner is prohibited from making the assessment or repeated demands, failed to submit documentary
beginning distraint or levy or a proceeding in court and for sixty evidences in support of its claimed deductible
days thereafter; when the taxpayer requests for a expenses. Hence, except for the item of interest
reinvestigation which is granted by the Commissioner; expense which was disallowed for being not ordinary
when the taxpayer cannot be located in the address given by and necessary, the rest of the claimed expenses were
him in the return filed upon which a tax is being assessed or disallowed for non-withholding. In the same token,
collected x x x. (Emphasis supplied.) Revenue Officer Escober testified that upon his
assignment to conduct the re-investigation, he
Among the exceptions provided by the aforecited section, and immediately requested the taxpayer to present
invoked by the CIR as a ground for this petition, is the instance various accounting records for the year 1990, in
when the taxpayer requests for a reinvestigation which is addition to other documents in relation to the
granted by the Commissioner. However, this exception does disallowed items (p.171). This was followed by other
not apply to this case since the respondent never requested for requests for submission of documents (pp.199 &217)
a reinvestigation. More importantly, the CIR could not have but these were not heeded by the taxpayer.
conducted a reinvestigation where, as admitted by the CIR in Essentially, he stated that Philcom did not cooperate
its Petition, the respondent refused to submit any new in his reinvestigation of the case.
evidence.
In response to the testimonies of the Revenue
Revenue Regulations No. 12-85, the Procedure Governing Officers, Philcom thru Atty. Consunji, emphasized that
Administrative Protests of Assessment of the Bureau of it was denied due process because of the issuance of
Internal Revenue, issued on 27 November 1985, defines the the Pre-Assessment Notice and the Assessment
two types of protest, the request for reconsideration and the Notice on successive dates. x x x Counsel for the
request for reinvestigation, and distinguishes one from the taxpayer even questioned the propriety of the
other in this manner: conference-hearing inasmuch as the only question to
resolved (sic) is the legality of the issuance of the
assessment. On the disallowed items, Philcom thru
Section 6. Protest. - The taxpayer may protest counsel manifested that it has no intention to present
administratively an assessment by filing a written documents and/or evidences allegedly because of the
request for reconsideration or reinvestigation pending legal question on the validity of the
specifying the following particulars: assessment.23

xxxx Prior to the issuance of Revenue Regulations No. 12-85, which

distinguishes a request for reconsideration and a request for
For the purpose of protest herein— reinvestigation, there have been cases wherein these two
terms were used interchangeably. But upon closer
(a) Request for reconsideration-- refers to a plea for a examination, these cases all involved a reinvestigation that
re-evaluation of an assessment on the basis of was requested by the taxpayer and granted by the BIR.
existing records without need of additional evidence.
It may involve both a question of fact or of law or both. In Collector of Internal Revenue v. Suyoc Consolidated Mining
Company,24 the Court weighed the considerable time spent by
(b) Request for reinvestigation—refers to a plea for the BIR to actually conduct the reinvestigations requested by
re-evaluation of an assessment on the basis of newly- the taxpayer in deciding that the prescription period was
discovered evidence or additional evidence that a suspended during this time.
taxpayer intends to present in the investigation. It may
also involve a question of fact or law or both. Because of such requests, several reinvestigations
were made and a hearing was even held by the
The main difference between these two types of protests lies in Conference Staff organized in the collection office to
the records or evidence to be examined by internal revenue consider claims of such nature which, as the record
officers, whether these are existing records or newly shows, lasted for several months. After inducing
discovered or additional evidence. A re-evaluation of existing petitioner to delay collection as he in fact did, it is
records which results from a request for reconsideration does most unfair for respondent to now take advantage of
not toll the running of the prescription period for the collection such desistance to elude his deficiency income tax
of an assessed tax. Section 271 distinctly limits the suspension liability to the prejudice of the Government invoking
of the running of the statute of limitations to instances when the technical ground of prescription.
reinvestigation is requested by a taxpayer and is granted by
the CIR. The Court provided a clear-cut rationale in the case Although the Court used the term "requests for
of Bank of the Philippine Islands v. Commissioner of Internal reconsideration" in reference to the letters sent by the taxpayer
Revenue22 explaining why a request for reinvestigation, and in the case of Querol v. Collector of Internal Revenue,25 it took
not a request for reconsideration, interrupts the running of the into account the reinvestigation conducted soon after these
statute of limitations on the collection of the assessed tax: letters were received and the revised assessment that resulted
from the reinvestigations.
Undoubtedly, a reinvestigation, which entails the
reception and evaluation of additional evidence, will It is true that the Collector revised the original
take more time than a reconsideration of a tax assessment on February 9, 1955; and appellant avers
assessment, which will be limited to the evidence that this revision was invalid in that it was not made
already at hand; this justifies why the former can within the five-year prescriptive period provided by
 law (Collector vs. Pineda, 112 Phil. 321). But that fact collection of an assessed tax. If both types of protest can
is that the revised assessment was merely a result of effectively interrupt the running of the statute of limitations, an
petitioner Querol’s requests for reconsideration of the erroneous assessment may never prescribe. If the taxpayer
original assessment, contained in his letters of fails to file a protest, then the erroneous assessment would
December 14, 1951 and May 25, 1953. The records become final and unappealable.29 On the other hand, if the
of the Bureau of Internal Revenue show that after taxpayer does file the protest on a patently erroneous
receiving the letters, the Bureau conducted a assessment, the statute of limitations would automatically be
reinvestigation of petitioner’s tax liabilities, and, in suspended and the tax thereon may be collected long after it
fact, sent a tax examiner to San Fernando, La Union, was assessed. Meanwhile the interest on the deficiencies and
for that purpose; that because of the examiner’s the surcharges continue to accumulate. And for an unrestricted
report, the Bureau revised the original assessment, x number of years, the taxpayers remain uncertain and are
x x. In other words, the reconsideration was granted burdened with the costs of preserving their books and records.
in part, and the original assessment was altered. This is the predicament that the law on the statute of limitations
Consequently, the period between the petition for seeks to prevent.
reconsideration and the revised assessment should
be subtracted from the total prescriptive period The Court, in sustaining for the first time the suspension of the
(Republic vs. Ablaza, 108 Phil 1105). running of the statute of limitations in cases where the taxpayer
requested for a reinvestigation, gave this justification:
The Court, in Republic v. Lopez,26 even gave a detailed
accounting of the time the BIR spent for each reinvestigation in A taxpayer may be prevented from setting up the
order to deduct it from the five-year period set at that time in defense of prescription even if he has not previously
the statute of limitations: waived it in writing as when by his repeated requests
or positive acts the Government has been, for good
It is now a settled ruled in our jurisdiction that the five- reasons, persuaded to postpone collection to make
year prescriptive period fixed by Section 332(c) of the him feel that the demand was not unreasonable or
Internal Revenue Code within which the Government that no harassment or injustice is meant by the
may sue to collect an assessed tax is to be computed Government.
from the last revised assessment resulting from a
reinvestigation asked for by the taxpayer and (2) that xxxx
where a taxpayer demands a reinvestigation, the time
employed in reinvestigating should be deducted from
the total period of limitation. 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
xxxx jurisprudence. As Mr. Justice Cardozo has said: "The
applicable principle is fundamental and unquestioned.
The first reinvestigation was granted, and a reduced ‘He who prevents a thing from being done may
assessment issued on 29 May 1954, from which date not avail himself of the nonperformance which he
the Government had five years for bringing an action himself occasioned, for the law says to him in
to collect. effect "this is your own act, and therefore you are
not damnified."’ (R.H. Stearns Co. v. U.S., 78 L. ed.,
The second reinvestigation was asked on 16 January 647). (Emphasis supplied.)30
1956, and lasted until it was decided on 22 April 1960,
or a period of 4 years, 3 months, and 6 days, during This rationale is not applicable to the present case where the
which the limitation period was interrupted. respondent did nothing to prevent the BIR from collecting the
tax. It did not present to the BIR any new evidence for its re-
The Court reiterated the ruling in Republic v. Lopez in the case evaluation. At the earliest opportunity, respondent insisted that
of Commissioner of Internal Revenue v. Sison,27 "that where a the assessment was invalid and made clear to the BIR its
taxpayer demands a reinvestigation, the time employed in refusal to produce documents that the BIR requested. On the
reinvestigating should be deducted from the total period of other hand, the BIR also communicated to the respondent its
limitation." Finally, in Republic v. Arcache,28 the Court unwavering stance that its assessment is correct. Given that
enumerated the reasons why the taxpayer is barred from both parties were at a deadlock, the next logical step would
invoking the defense of prescription, one of which was that, "In have been for the BIR to issue a Decision denying the
the first place, it appears obvious that the delay in the respondent’s protest and to initiate proceedings for the
collection of his 1946 tax liability was due to his own repeated collection of the assessed tax and, thus, allow the respondent,
requests for reinvestigation and similarly repeated requests for should it so choose, to contest the assessment before the
extension of time to pay." CTA. Postponing the collection for eight long years could not
possibly make the taxpayer feel that the demand was not
unreasonable or that no harassment or injustice is meant by
In this case, the BIR admitted that there was no new or the Government. There was no legal, or even a moral,
additional evidence presented. Considering that the BIR issued obligation preventing the CIR from collecting the assessed tax.
its Preliminary Assessment Notice on 13 April 1994 and its In a similar case, Cordero v. Conda,31 the Court did not
Formal Assessment Notice on 14 April 1994, just one day suspend the running of the prescription period where the acts
before the three-year prescription period for issuing the of the taxpayer did not prevent the government from collecting
assessment expired on 15 April 1994, it had ample time to the tax.
make a factually and legally well-founded assessment. Added
to the fact that the Final Decision that the CIR issued on 8
October 2002 merely affirmed its earlier findings, whatever The government also urges that partial payment is
examination that the BIR may have conducted cannot possibly "acknowledgement of the tax obligation", hence a
outlast the entire three-year prescriptive period provided by law "waiver on the defense of prescription." But partial
to collect the assessed tax, not to mention the eight years it payment would not prevent the government from
actually took the BIR to decide the respondent’s protest. The suing the taxpayer. Because, by such act of payment,
factual and legal issues involved in the assessment are the government is not thereby "persuaded to
relatively simple, that is, whether certain income tax deductions postpone collection to make him feel that the demand
should be disallowed, mostly for failure to pay withholding was not unreasonable or that no harassment or
taxes. Thus, there is no reason to suspend the running of the injustice is meant." Which, as stated in Collector v.
statute of limitations in this case. Suyoc Consolidated Mining Co., et al., L-11527,
November 25, 1958, is the underlying reason behind
the rule that prescriptive period is arrested by the
The distinction between a request for reconsideration and a taxpayer’s request for reexamination or
request for reinvestigation is significant. It bears repetition that reinvestigation – even if "he has not previously waived
a request for reconsideration, unlike a request for it [prescription] in writing."
reinvestigation, cannot suspend the statute of limitations on the
The Court reminds us, in the case of Commissioner of Internal CTA for the cancellation of the assessments which was
Revenue v. Algue, Inc., 32 of the need to balance the conflicting docketed as C.T.A. Case No. 6475.6
interests of the government and the taxpayers.
On July 15, 2003, respondent filed a motion to resolve first the
Taxes are the lifeblood of the government and so issue of CTA’s jurisdiction,7 which was granted by the CTA in a
should be collected without unnecessary hindrance. Resolution dated September 10, 2003.8 The petition for review
On the other hand, such collection should be made in was dismissed because it was filed beyond the 30-day period
accordance with law as any arbitrariness will negate following the lapse of 180 days from petitioner’s submission of
the very reason for government itself. It is therefore documents in support of its protest, as provided under Section
necessary to reconcile the apparently conflicting 228 of the NIRC and Section 11 of R.A. No. 1125, otherwise
interest of the authorities and the taxpayers so that known as the Law Creating the Court of Tax Appeals.
the real purpose of taxation, which is the promotion of
common good, may be achieved. Petitioner did not file a motion for reconsideration or an appeal
to the CTA En Banc from the dismissal of its petition for review.
Thus, the three-year statute of limitations on the collection of Consequently, the September 10, 2003 Resolution became
an assessed tax provided under Section 269(c) of the Tax final and executory on October 1, 2003 and Entry of Judgment
Code of 1977, a law enacted to protect the interests of the was made on December 1, 2003.9 Thereafter, respondent sent
taxpayer, must be given effect. In providing for exceptions to a Demand Letter to petitioner for the payment of the deficiency
such rule in Section 271, the law strictly limits the suspension tax assessments.
of the running of the prescription period to, among other
instances, protests wherein the taxpayer requests for a On February 20, 2004, petitioner filed a Petition for Relief from
reinvestigation. In this case, where the taxpayer merely filed Judgment10 on the ground of excusable negligence of its
two protest letters requesting for a reconsideration, and where counsel’s secretary who allegedly misfiled and lost the
the BIR could not have conducted a reinvestigation because September 10, 2003 Resolution. The CTA Second Division set
no new or additional evidence was submitted, the running of the case for hearing on April 2, 200411 during which petitioner’s
statute of limitations cannot be interrupted. The tax which is the counsel was present.12 Respondent filed an Opposition13 while
subject of the Decision issued by the CIR on 8 October 2002 petitioner submitted its Manifestation and Counter-Motion.14
affirming the Formal Assessment issued on 14 April 1994 can
no longer be the subject of any proceeding for its collection.
Consequently, the right of the government to collect the On May 3, 2004, the CTA Second Division rendered a
alleged deficiency tax is barred by prescription. Resolution15 denying petitioner’s Petition for Relief from
Judgment.lawph!l.net
IN VIEW OF THE FOREGOING, the instant Petition
is DENIED. The assailed en banc Decision of the CTA in CTA Petitioner’s motion for reconsideration was denied in a
EB No. 37 dated 22 February 2005, cancelling Assessment Resolution dated November 5, 2004,16 hence it filed a petition
Notice No. 000688-80-7333 issued against Philippine Global for review with the CTA En Banc, docketed as C.T.A. EB No.
Communication, Inc. for its 1990 income tax deficiency for the 50, which affirmed the assailed Resolutions of the CTA Second
reason that it is barred by prescription, is hereby AFFIRMED. Division in a Decision dated June 7, 2005.
No costs.
Hence, this petition for review based on the following grounds:
SO ORDERED.
I.
3.8
THE HONORABLE CTA AND CTA EN
BANC GRAVELY ERRED IN DENYING
G.R. No. 168498             June 16, 2006 PETITIONER’S PETITION FOR RELIEF, WITHOUT
FIRST AFFORDING IT THE OPPORTUNITY TO
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner, ADDUCE EVIDENCE TO ESTABLISH THE
vs. FACTUAL ALLEGATIONS CONSTITUTING ITS
COMMISSIONER OF INTERNAL REVENUE, Respondent. ALLEGED EXCUSABLE NEGLIGENCE, IN CLEAR
VIOLATION OF PETITIONER’S BASIC RIGHT TO
DECISION DUE PROCESS.

YNARES-SANTIAGO, J.: II.

This is a petition for review under Rule 45 of the Rules of Court CONSIDERING THAT THE SUBJECT
assailing the Decision1 of the Court of Tax Appeals (CTA) En ASSESSMENT, INSOFAR AS IT INVOLVES
Banc dated June 7, 2005 in C.T.A. EB No. 50 which affirmed ALLEGED DEFICIENCY DOCUMENTARY STAMP
the Resolutions of the CTA Second Division dated May 3, TAXES ON SPECIAL SAVINGS ACCOUNTS, IS AN
20042 and November 5, 20043 in C.T.A. Case No. 6475 ISSUE AFFECTING ALL MEMBERS OF THE
denying petitioner’s Petition for Relief from Judgment and the BANKING INDUSTRY, PETITIONER, LIKE ALL
Motion for Reconsideration thereof, respectively. OTHER BANKS, SHOULD BE AFFORDED AN
EQUAL OPPORTUNITY TO FULLY LITIGATE THE
ISSUE, AND HAVE THE CASE DETERMINED
The undisputed facts are as follows: BASED ON ITS MERITS, RATHER THAN ON A
MERE TECHNICALITY.17
On July 5, 2001, petitioner Rizal Commercial Banking
Corporation received a Formal Letter of Demand dated May Relief from judgment under Rule 38 of the Rules of Court is a
25, 2001 from the respondent Commissioner of Internal legal remedy that is allowed only in exceptional cases whereby
Revenue for its tax liabilities particularly for Gross Onshore Tax a party seeks to set aside a judgment rendered against him by
in the amount of P53,998,428.29 and Documentary Stamp Tax a court whenever he was unjustly deprived of a hearing or was
for its Special Savings Placements in the amount of prevented from taking an appeal, in either case, because of
P46,717,952.76, for the taxable year 1997.4 fraud, accident, mistake or excusable neglect.18

On July 20, 2001, petitioner filed a protest letter/request for Petitioner argues that it was denied due process when it was
reconsideration/reinvestigation pursuant to Section 228 of the not given the opportunity to be heard to prove that its failure to
National Internal Revenue Code of 1997 (NIRC).5 file a motion for reconsideration or appeal from the dismissal of
its petition for review was due to the failure of its employee to
As the protest was not acted upon by the respondent, forward the copy of the September 10, 2003 Resolution which
petitioner filed on April 30, 2002 a petition for review with the constitutes excusable negligence.
Petitioner’s argument lacks merit. Petitioner protested the assessments pursuant to Section 228
of the NIRC, which provides:
It is basic that as long as a party is given the opportunity to
defend his interests in due course, he would have no reason to SEC. 228. Protesting of Assessment.- x x x.
complain, for it is this opportunity to be heard that makes up
the essence of due process.19 In Batongbakal v. Zafra,20 the xxxx
Court held that:
Within a period to be prescribed by implementing rules and
There is no question that the "essence of due process is a regulations, the taxpayer shall be required to respond to said
hearing before conviction and before an impartial and notice. If the taxpayer fails to respond, the Commissioner or his
disinterested tribunal" but due process as a constitutional duly authorized representative shall issue an assessment
precept does not, always and in all situations, require a trial- based on his findings.
type proceeding. The essence of due process is to be found in
the reasonable opportunity to be heard and submit any
evidence one may have in support of one’s defense. "To be Such assessment may be protested administratively by filing a
heard" does not only mean verbal arguments in court; one request for reconsideration or reinvestigation within thirty (30)
may be heard also through pleadings. Where opportunity days from receipt of the assessment in such form and manner
to be heard, either through oral arguments or pleadings, is as may be prescribed by implementing rules and regulations.
accorded, there is no denial of procedural due Within sixty (60) days from filing of the protest, all relevant
process. (Emphasis supplied) supporting documents shall have been submitted; otherwise,
the assessment shall become final.
As correctly pointed by the Office of the Solicitor General
(OSG), the CTA Second Division set the case for hearing on If the protest is denied in whole or in part, or is not acted
April 2, 2004 after the filing by the petitioner of its petition for upon within one hundred eighty (180) days from
relief from judgment. Petitioner’s counsel was present on the submission of documents, the taxpayer adversely affected
scheduled hearing and in fact orally argued its petition. 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
Moreover, after the CTA Second Division dismissed the period; otherwise the decision shall become final,
petition for relief from judgment in a Resolution dated May 3, executory and demandable. (Emphasis supplied)
2004, petitioner filed a motion for reconsideration and the court
further required both parties to file their respective
memorandum. Indeed, petitioner was not denied its day in The CTA Second Division held:
court considering the opportunities given to argue its claim.
Following the periods provided for in the aforementioned laws,
Relief cannot be granted on the flimsy excuse that the failure to from July 20, 2001, that is, the date of petitioner’s filing of
appeal was due to the neglect of petitioner’s protest, it had until September 18, 2001 to submit relevant
counsel.21 Otherwise, all that a losing party would do to documents and from September 18, 2001, the Commissioner
salvage his case would be to invoke neglect or mistake of his had until March 17, 2002 to issue his decision. As admitted by
counsel as a ground for reversing or setting aside the adverse petitioner, the protest remained unacted by the Commissioner
judgment, thereby putting no end to litigation.22 of Internal Revenue. Therefore, it had until April 16, 2002
within which to elevate the case to this court. Thus, when
petitioner filed its Petition for Review on April 30, 2002, the
Negligence to be "excusable" must be one which ordinary same is outside the thirty (30) period.27
diligence and prudence could not have guarded against and by
reason of which the rights of an aggrieved party have probably
been impaired.23 Petitioner’s former counsel’s omission could As provided in Section 228, the failure of a taxpayer to appeal
hardly be characterized as excusable, much less unavoidable. from an assessment on time rendered the assessment final,
executory and demandable. Consequently, petitioner is
precluded from disputing the correctness of the assessment.
The Court has repeatedly admonished lawyers to adopt a
system whereby they can always receive promptly judicial
notices and pleadings intended for them.24 Apparently, In Ker & Company, Ltd. v. Court of Tax Appeals,28 the Court
petitioner’s counsel was not only remiss in complying with this held that while the right to appeal a decision of the
admonition but he also failed to check periodically, as an act of Commissioner to the Court of Tax Appeals is merely a
prudence and diligence, the status of the pending case before statutory remedy, nevertheless the requirement that it must be
the CTA Second Division. The fact that counsel allegedly had brought within 30 days is jurisdictional. If a statutory remedy
not renewed the employment of his secretary, thereby making provides as a condition precedent that the action to enforce it
the latter no longer attentive or focused on her work, did not must be commenced within a prescribed time, such
relieve him of his responsibilities to his client. It is a problem requirement is jurisdictional and failure to comply therewith
personal to him which should not in any manner interfere with may be raised in a motion to dismiss.
his professional commitments.
In fine, the failure to comply with the 30-day statutory period
In exceptional cases, when the mistake of counsel is so would bar the appeal and deprive the Court of Tax Appeals of
palpable that it amounts to gross negligence, this Court affords its jurisdiction to entertain and determine the correctness of the
a party a second opportunity to vindicate his right. But this assessment.29
opportunity is unavailing in the case at bar, especially since
petitioner had squandered the various opportunities available WHEREFORE, in view of the foregoing, the Decision of the
to it at the different stages of this case. Public interest Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A.
demands an end to every litigation and a belated effort to EB No. 50 affirming the Resolutions of the Court of Tax
reopen a case that has already attained finality will serve no Appeals Second Division dated May 3, 2004 and November 5,
purpose other than to delay the administration of justice.25 2004 in C.T.A. Case No. 6475 denying petitioner’s Petition for
Relief from Judgment and Motion for Reconsideration,
Since petitioner’s ground for relief is not well-taken, it follows respectively, is AFFIRMED.
that the assailed judgment stands.lavvphil.ñe+ Assuming ex
gratia argumenti that the negligence of petitioner’s counsel is SO ORDERED.
excusable, still the petition must fail. As aptly observed by the
OSG, even if the petition for relief from judgment would be
granted, petitioner will not fare any better if the case were to be 4.1
returned to the CTA Second Division since its action for the
cancellation of its assessments had already prescribed.26 G.R. No. 180385               July 28, 2010
PETRON CORPORATION, Petitioner, perfected an appeal which was docketed as C.T.A. Case No.
vs. 5657 before the CTA. Upholding Petron’s argument to the
COMMISSIONER OF INTERNAL REVENUE, Respondent. effect, among other matters, that its status as a BOI-registered
enterprise and its transactions with the original grantees
DECISION qualified it to be a transferee of the subject TCCs, the CTA
rendered a decision dated July 23, 1999, 12 the decretal portion
of which states:
PEREZ, J.:
WHEREFORE, in view of the foregoing, the instant Petition for
Assailed in this petition for review on certiorari filed pursuant to Review is hereby GRANTED. The collection of the alleged
Rule 45 of the 1997 Rules of Civil Procedure and Section 11 of delinquent excise taxes in the amount of ₱1,107,542,547.08 is
Republic Act No. 92821 is the Decision dated October 30, 2007 hereby CANCELLED AND SET ASIDE for being contrary to
rendered by the Court of Tax Appeals (CTA) En Banc in CTA law. Accordingly, Respondents are ENJOINED from collecting
EB No. 238.2 The assailed decision affirmed the Decision the said amount of taxes against the petitioner.
dated August 23, 2006 in turn rendered by the CTA Second
Division in CTA Case No. 6136, ordering petitioner Petron
Corporation (Petron) to pay deficiency excise taxes for the SO ORDERED.13
taxable years 1995 to 1997, together with the surcharge,
interests and delinquency interest imposed thereon.3 During the pendency of the respondent’s appeal before the
Court of Appeals under docket of CA-G.R. No. 55330, the
The Facts Center conducted a post-audit in the premises. On October 24,
1999, the Center cancelled TCCs worth ₱284,390,845.00 of
the same TCCs14 acquired and used by Petron on the ground
A corporation engaged in the production of petroleum that they were fraudulently procured and transferred. The
products, Petron is a Board of Investment (BOI) registered cancellation was based on the following findings, viz.: (a) the
enterprise in accordance with the provisions of the Omnibus grantees did not manufacture and export at the volumes which
Investment Code, under Certificates of Registration No. 89- served as bases for the grant of the subject TCCs; and, (b) the
1037 and D95-136. Pursuant to Deeds of Assignment grantees were not using fuel oil at the levels which served as
executed in its favor, Petron acquired Tax Credit Certificates bases for the approval of the transfer of the same TCCs. 15 As a
(TCCs) from, among others, the following BOI-registered consequence of the cancellation, respondent issued an
entities, namely, Diamond Knitting Corporation, Filstar Textile Assessment dated November 15, 1999 (the Assessment),
Industrial Corporation, Alliance Thread Co., Inc., Fiber Tech. directing Petron to pay deficiency excise taxes in the sum of
Corporation, Jantex Phils., Inc. and Master Colour System ₱284,390,854.00 for the period 1995 to 1997, surcharges in
Corporation.4 Granted to the foregoing assignees pursuant to the sum of ₱142,195,422.50 and interest in the sum of
Administrative Order No. 226, in relation to Executive Order ₱224,747,996.42 or an aggregate amount of
No. 226,5 the TCCs were subject to the following conditions, to ₱651,334,263.92.16
wit:
In view of respondent’s inaction on the protest it filed to
1. Post-audit and subsequent adjustment in the event question the factual and legal bases of the Assessment, Petron
of computational discrepancy; filed the July 7, 2000 petition for review which was docketed
before the CTA as C.T.A. Case No. 6136. Coupled with a
2. A deduction for any outstanding account/obligation motion to stay collection of the deficiency excise taxes,
of claimant with the BIR and/or BOC; and surcharges and interest sought to be collected, the petition
alleged, among other matters, that Petron’s right to due
3. Revalidation with the Center in case the TCC is not process was violated since it was not informed and/or given
utilized for payment within one (1) year from the date any opportunity to participate in the proceedings which resulted
of issuance/date of last utilization. in the cancellation of the TCCs, that the Assessment was void
for lack of a statement of the facts and the law on which the
same was based; that the validity of Petron’s use of the TCCs
The assignments of the TCCs were duly approved by the assigned in its favor as payment of its excise taxes had been
Department of Finance One-Stop Shop Inter-Agency Tax upheld by the CTA in C.T.A. Case No. 5657; and, that
Credit and Duty Drawback Center (the Center), a tax credit respondent’s right to collect the alleged tax delinquencies had
window created under Administrative Order No. 226,6 dated already prescribed. Petron prayed for the issuance of an
February 7, 1992, composed of representatives from the injunctive writ against the Assessment, the invalidation of the
Department of Finance (DOF), the BOI, the Bureau of Customs cancellation of the TCCs as well as the withdrawal of the
(BOC) and the Bureau of Internal Revenue (BIR). Issued DOF Assessment.17
Tax Debit Memos (DOF-TDMs) by the Center, Petron, as
assignee of said TCCs, utilized the same to pay its excise tax
liabilities for the years 1993 to 1997. Upon Petron’s surrender Served with summons, respondent filed its August 28, 2000
of the DOF-TDMs, TCCs and Deeds of Assignment, the answer, specifically denying the material allegations of the
corresponding Authorities to Accept Payment of Excise Taxes foregoing petition. Contending that the cancellation of the
(ATAPETs) were further issued by the BIR Collection Program subject TCCs rendered the same valueless and resulted in the
Division. Together with the aforesaid documents, the ATAPETs non-payment of the excise taxes for which they were utilized,
were further submitted to the BIR Head Office which issued respondent averred that, Petron was apprised of the
BIR-TDMs signed by the Assistant Commissioner of Collection cancellation of the TCCs which served as basis for the
Service, signifying acceptance of the TCCs as payment of Assessment as well as the law and facts on which the same
Petron’s excise taxes.7 was based; that the TCCs were cancelled on the strength of
the Center’s findings that they were fraudulently obtained and
transferred to Petron upon fictitious supply agreements with
Pursuant to its undertaking under the aforesaid Deeds of the grantees; and, that the government’s right to collect the
Assignment, Petron issued Credit Notes (CNs) in an equivalent deficiency excise taxes, together with the interests and
amount in favor of its assignors which, by themselves or thru surcharges, had yet to prescribe in view of Petron’s filing of
their own assignees, used the same to avail of fuel products fraudulent returns with intent to evade payment of taxes.
from the former.8 On the ground, however, that its use of TCCs Maintaining that all presumptions are in favor of the
issued to said grantees was invalid for being violative of Rule correctness of the Assessment and that the government is
IX of the Rules and Regulations issued by the BOI to never estopped from collecting legitimate taxes due to the
implement Presidential Decree No. 17899 and Batas errors committed by its agents, respondent sought the
Pambansa Blg. 391,10 Petron received a collection letter dated dismissal of the petition, with costs.18
April 22, 1998 from the BIR Revenue District Office of South
Makati, Metro Manila, demanding payment of the total amount
of ₱1,107,542,547.08 in unpaid taxes, surcharges and At the pre-trial conference conducted in the case, the parties
interests for the years 1993 to 1997.11 With the denial of its submitted a Joint Stipulation of Facts and Issues dated March
letters of protest to the foregoing collection letter, Petron 29, 200119 upon which Petron rested its case. With the parties’
further submission of the Joint Stipulations of Facts and Issues
dated June 22, 200120 and January 24, 200221 as well as (d) The Center acted within its mandate in declaring
respondent’s filing of his Formal Offer of Evidence,22 Petron TCCs fraudulently issued and transferred; and
moved for the presentation of its rebuttal evidence and the
appointment of an independent Certified Public Accountant to (e) The resultant delay in the payment of Petron’s
examine, evaluate and audit the pieces of documentary excise tax liabilities justified the imposition of the 25%
evidence intended to be adduced.23 Commissioned for the surcharge and annual interest of 20% pursuant to
purpose by the CTA, Lilian Linsangan of Punongbayan & Sections 248A(3) and 249 of the Tax Code.
Araullo submitted a written report dated March 10, 2003 and a
supplemental report dated March 17, 2003 which Petron
submitted in evidence alongside the TCCs, TDMs, CNs, The Issues
ATAPETs and pertinent documents probative of its claim of
valid payment of taxes.24 Aggrieved, Petron filed the petition for review on certiorari at
bench, on the following grounds:
Subsequent to the parties’ filing of their respective
memoranda25 and the submission of the case for decision, I. THE COURT OF TAX APPEALS EN BANC COMMITTED
respondent filed a motion to reopen the case for the purpose of GRAVE REVERSIBLE ERROR WHEN IT RULED THAT THE
presenting additional evidence.26 With the grant of said motion SUBSEQUENT CANCELLATION BY THE DOF CENTER OF
in the September 24, 2004 resolution issued by the CTA THE TAX CREDIT CERTIFICATES PREVIOUSLY USED TO
Second Division,27 respondent presented Beverly Taneza- PAY PETRON’S TAX LIABILITIES HAD THE EFFECT OF
Basman, a Tax Specialist II at the Center, who presented and NON-PAYMENT OF PETRON’S EXCISE TAXES
identified28 the documents which served as bases for the ALLEGEDLY BECAUSE THE SUBSEQUENT
Center’s approval of the grantees’ transfer of the subject TCCs CANCELLATION OF THE TCCs RESULTS IN NON-
to Petron.29 In receipt of the parties’ respective supplemental PAYMENT OF PETRON’S EXCISE TAX LIABILITIES
memoranda,30 the CTA Second Division went on to render the CONSIDERING THAT:
August 23, 2006 decision,31 denying Petron’s petition for lack
of merit, viz.: A. POST-AUDIT OF THE TAX CREDIT
CERTIFICATES IS NOT IN THE NATURE OF A
WHEREFORE, premises considered, this instant Petition for SUSPENSIVE CONDITION TO EFFECT PAYMENT.
Review is hereby DENIED for lack of merit. Accordingly,
petitioner is ORDERED TO PAY the respondent the amount of B. THERE WAS NO FRAUD IN THE TRANSFER OF
FIVE HUNDRED EIGHTY MILLION TWO HUNDRED THIRTY THE SUBJECT TAX CREDIT CERTIFICATES.
SIX THOUSAND FIVE HUNDRED FIFTY TWO AND 67/100
PESOS (₱580,236,552.67), representing deficiency excise
taxes for the taxable years 1995 to 1997, computed as follows: C. BEING A PURCHASER IN GOOD FAITH,
PETRON CANNOT BE PREJUDICED BY A
SUBSEQUENT FINDING OF FRAUD IN THE GRANT
Basic Tax ₱284,390,845.00 AND TRANSFER OF THE TAX CREDIT
CERTIFICATES.
Add:
II. THE COURT OF TAX APPEALS EN BANC COMMITTED
Late Payment GRAVE REVERSIBLE ERROR WHEN IT RULED THAT THE
TAX CREDIT CERTIFICATES WERE FRAUDULENTLY
Surcharge (25%) P 71,097,711.25 TRANSFERRED FROM THE GRANTEES TO PETRON
CONSIDERING THAT:
Interest (20%) 224,747,996.42 295,847,707.67
A. THE TCCS WERE ASSIGNED TO PETRON IN
ACCORDANCE WITH THE LAW AND THE
₱580,236,552.67 ASSIGNMENTS WERE APPROVED BY THE
APPROPRIATE GOVERNMENT AGENCIES.
In addition, petitioner is ORDERED TO PAY the respondent
20% delinquency interest per annum on the ₱580,236,552.67, B. PETRON FULFILLED ITS OBLIGATION TO
computed from December 4, 1999 until the amount is fully ISSUE CREDIT NOTES UNDER THE DEEDS OF
paid. ASSIGNMENT.

SO ORDERED.32 C. THE CREDIT NOTES WERE AVAILED BY THE

ASSIGNORS AND FUEL AND OTHER PETROLEUM
With the denial of its motion for reconsideration of the PRODUCTS WERE DELIVERED UPON THE
foregoing decision33 for lack of merit in the CTA Second ORDER OF THE ASSIGNORS.
Division’s resolution dated November 23, 2006,34 Petron
elevated the matter via the petition for review docketed before D. AFFIDAVITS OF GENERAL MANAGERS
the CTA En Banc as CTA EB Case No. 238.35 On October 30, ATTACHED TO THE CANCELLATION
2007, the CTA En Banc rendered the herein assailed decision, MEMORANDUM ALLEGEDLY DENYING
affirming the August 23, 2006 decision of the CTA Second DELIVERIES OF FUEL AND PETROLEUM
Division,36 upon the following findings and conclusions, to wit: PRODUCTS ARE HEARSAY.

(a) The subsequent cancellation of the TCCs resulted E. VALIDITY OF PETRON’S PAYMENTS OF
in the non-payment of the excise tax liabilities since EXCISE TAXES THRU THE USE OF ASSIGNED
the post-audit partook the nature of a suspensive TCCS UPHELD BY THE COURT OF TAX APPEALS
condition to the effectiveness of Petron’s use thereof; IN CTA CASE NO. 5657, ‘PETRON CORPORATION
VS. COMMISSIONER OF INTERNAL REVENUE, ET
(b) The Center’s finding of fraud in the procurement of AL.’
the TCCs by the grantees rendered the same
worthless, even in the hands of an assignee like III. THE COURT OF TAX APPEALS EN BANC COMMITTED
Petron; GRAVE REVERSIBLE ERROR WHEN IT RULED THAT THE
DEPARTMENT OF FINANCE CENTER IS THE COMPETENT
(c) The evidence adduced in the case which showed AUTHORITY TO DECLARE THE TAX CREDIT
misrepresentation in the levels of fuel oil use by the CERTIFICATES AS FRAUDULENTLY ISSUED AND
grantees and the non-delivery of petroleum products TRANSFERRED.
by Petron also indicate that fraud also attended the
transfer of the TCCs;
IV. THE COURT OF TAX APPEALS EN BANC COMMITTED of Tax Credit at the back of the certificate and affix his
GRAVE REVERSIBLE ERROR WHEN IT RULED THAT signature on the column provided."
PETRON IS LIABLE TO PAY TWENTY-FIVE PERCENT
(25%) LATE PAYMENT SURCHARGE PURSUANT TO The foregoing guidelines cannot be clearer on the validity and
SECTION 28(A) OF THE NATIONAL INTERNAL REVENUE effectivity of the TCC to pay or settle tax liabilities of the
CODE OF 1997 AND TWENTY PERCENT (20%) INTEREST grantee or transferee, as they do not make the effectivity and
PURSUANT TO SECTIONS 248 AND 249 OF THE validity of the TCC dependent on the outcome of a post-audit.
NATIONAL INTERNAL REVENUE CODE OF 1997.37 In fact, if we are to sustain the appellate tax court, it would be
absurd to make the effectivity of the payment of a TCC
The Court’s Ruling dependent on a post-audit since there is no contemplation of
the situation wherein there is no post-audit. Does the payment
We find the petition impressed with merit. made become effective if no post-audit is conducted? Or does
the so-called suspensive condition still apply as no law, rule, or
regulation specifies a period when a post-audit should or could
In urging the reversal of the assailed Decision, Petron argues be conducted with a prescriptive period? Clearly, a tax
that, having been issued pursuant to Administrative Order No. payment through a TCC cannot be both effective when made
226 in relation to Executive Order No. 226, the subject TCCs and dependent on a future event for its effectivity. Our system
were immediately effective and could be readily used by the of laws and procedures abhors ambiguity.
grantees and/or their transferees. Invoking this Court’s ruling in
the case of Pilipinas Shell Petroleum Corporation vs.
Commissioner of Internal Revenue38 to the effect, among other Moreover, if the TCCs are considered to be subject to post-
matters, that the post-audit of the TCCs was not meant as a audit as a suspensive condition, the very purpose of the TCC
suspensive condition for their validity but pertained only to would be defeated as there would be no guarantee that the
computational discrepancies resulting from their transfer and TCC would be honored by the government as payment for
utilization, Petron maintains that respondent failed to prove the taxes. No investor would take the risk of utilizing TCCs if these
fraud which purportedly attended the procurement of the were subject to a post-audit that may invalidate them, without
subject TCCs. Against Petron’s contention that its rights as a prescribed grounds or limits as to the exercise of said post-
purchaser in good faith cannot be prejudiced even in the face audit.
of the Center’s subsequent finding of fraud in the grant of the
TCCs,39 the Office of the Solicitor General, in representation of The inescapable conclusion is that the TCCs are not subject to
respondent, argues that, the cancellation of the subject TCCs post-audit as a suspensive condition, and are thus valid and
effectively avoided the payment of the excise tax liabilities of effective from their issuance. As such, in the present case, if
Petron which, as assignee, could not acquire rights better than the TCCs have already been applied as partial payment for the
the grantees-assignors. tax liability of PSPC, a post-audit of the TCCs cannot simply
annul them and the tax payment made through said TCCs.
As correctly pointed out by Petron, however, the issue about Payment has already been made and is as valid and effective
the immediate validity of TCCs and the use thereof in payment as the issued TCCs. The subsequent post-audit cannot void
of tax liabilities and duties are not matters of first impression for the TCCs and allow the respondent to declare that utilizing
this Court. Taking into consideration the definition and nature canceled TCCs results in nonpayment on the part of PSPC x x
of tax credits40 and TCCs,41 this Court’s Second Division x."42
definitively ruled in the aforesaid Pilipinas Shell case that the
post audit is not a suspensive condition for the validity of Considered in the light of the foregoing pronouncements,
TCCs, thus: Petron correctly argues that the CTA En Banc reversibly erred
in holding that the result of the post-audit conducted by the
Art. 1181 tells us that the condition is suspensive when the Center partook the nature of a suspensive condition for the
acquisition of rights or demandability of the obligation must validity of the subject TCCs and the use thereof as payment of
await the occurrence of the condition. However, Art. 1181 does its tax liabilities or duties. Limited only to computational
not apply to the present case since the parties did NOT agree discrepancies arising from the use or transfer of TCCs, the
to a suspensive condition. Rather, specific laws, rules, and post-audit conducted by the Center would, if at all, only give
regulations govern the subject TCCs, not the general rise to an adjustment of the monetary value of the TCCs
provisions of the Civil Code. Among the applicable laws that subjected thereto. Issued pursuant to Article 39 (k) of
cover the TCCs are EO 226 or the Omnibus Investments Executive Order No. 22643 and subject to the aforequoted
Code, Letter of Instructions No. 1355, EO 765, RP-US Military Guidelines and Instructions printed at the back thereof, the
Agreement, Sec. 106 (c) of the Tariff and Customs Code, Sec. subject TCCs were, consequently, valid upon their issuance in
106 of the NIRC, BIR Revenue Regulations (RRs), and others. favor of the original grantees which had the right to use them in
Nowhere in the aforementioned laws does the post-audit payment of their tax liabilities and/or transfer them in favor of
become necessary for the validity or effectivity of the TCCs. assignees like Petron which could, in turn, utilize them as
Nowhere in the aforementioned laws is it provided that a TCC payment of its own tax liabilities.
is issued subject to a suspensive condition.
Not being privy to the issuance of the subject TCCs and having
xxxx already used them in paying its own tax liabilities, Petron also
correctly points out that it cannot be prejudiced by the fraud
which supposedly attended the issuance of the same. More so,
xxx (T)he TCCs are immediately valid and effective after their when it is borne in mind that, as ground for the cancellation of
issuance. As aptly pointed out in the dissent of Justice Lovell said TCCs, fraud was not adequately established by
Bautista in CTA EB No. 64, this is clear from the Guidelines respondent with clear and convincing evidence showing that
and instructions found at the back of each TCC, which provide: the grantees had not, indeed, manufactured and exported at
the volumes which served as bases for the grant of the subject
1. This Tax Credit Certificate (TCC) shall entitle the grantee to TCCs. Rather than presenting oral and documentary evidence
apply the tax credit against taxes and duties until the amount is to prove said material fact, the record shows that respondent
fully utilized, in accordance with the pertinent tax and customs simply relied on the findings and conclusions the Center cited
laws, rules and regulations. in support of the cancellation of the TCCs44 as well as those
embodied in the Report of the Senate Committee on Ways and
xxxx Means and Committee on Accountability of Public Officers and
Investigation which jointly delved into the irregularities reported
to have attended the Center’s issuance of TCCs in favor of
4. To acknowledge application of payment, the One-Stop-Shop corporations in the textile industry, including petitioner’s
Tax Credit Center shall issue the corresponding Tax Debit assignors.45
Memo (TDM) to the grantee.
While the CTA is not governed strictly by technical rules of
The authorized Revenue Officer/Customs Collector to which evidence on the principle that rules of procedure are not ends
payment/utilization was made shall accomplish the Application in themselves but are primarily intended as tools in the
administration of justice,46 respondent’s presentation of For a party charged with the burden of proving the same,
evidence to prove the fraud which attended the issuance of the respondent did not even come close to establishing the fraud
subject TCCs is not a mere procedural technicality which may which purportedly attended both the issuance of the subject
be disregarded considering that it is the very basis for the claim TCCs and the transfer thereof in favor of Petron. That
that Petron’s payment of its excise tax liabilities had been respondent’s reliance of the Center’s cancellation memoranda
avoided. It cannot be over-emphasized that fraud is a question was misplaced and misguided is evident from the following
of fact47 which cannot be presumed and must be proven by admissions in the parties’ June 22, 2001 Joint Stipulation of
clear and convincing evidence48 by the party alleging the same. Facts and Issues, to wit:
Without even presenting the documents which served as
bases for the issuance of the subject TCCs from 1994 to 1997, 3. That the available records at the DOF Center upon
respondent miserably failed in discharging his evidentiary which the findings and conclusions of the Cancellation
burden with the presentation of the Center’s cancellation Memorandum (Exhibit "2", "3", "4", "5", "6", "7" and
memoranda to which were simply annexed some of the "8") were based had not been explained nor
grantees’ original registration documents49 and their Financial confirmed by the issuer, signatory or parties to the
Statements for an average of two years.50 said records;

On the other hand, the transferability of the TCCs issued in 4. That respondent’s witness, Beverly M. Taneza has
favor of the original grantees is primarily governed by Article 21 no actual knowledge that Petron actually delivered
of EO 226 which provides that, "the tax credit certificates fuel and other petroleum products in fulfillment of, and
issued by the Board (of Investments) pursuant to laws in accordance with, its agreement or instructions of
repealed by this Code but without in any way diminishing the the assignors, namely, Diamond Knitting, Alliance
scope of negotiability under their laws of issue are transferable Thread, Filstar Textile, Fiber Tech., Jantex Phils. and
under such conditions as may be determined by the Board Master Colour which assigned their TCCs to Petron in
after consultation with the Department of Finance." In turn, the consideration or payment of the delivery and supply of
Implementing Rules and Regulations (IRR) of EO 226 fuel and other petroleum products;
incorporated the October 5, 1982 Memorandum of Agreement
(MOA) between the Ministry of Finance (MOF) and the BOI,
which pertinently provides the following guidelines for the 5. That the statement in the ‘Recommendation’ on the
transfer of said TCCs, to wit: Cancellation Memorandum (Exhibit "2", "3", "4", "5",
"6", "7" and "8") that the TCC grantees Diamond
Knitting, Alliance Thread, Filstar Textile, Fiber Tech.,
1) All tax credit certificates issued to BOI-registered Jantex Phils. and Master Colour have concurred in
enterprises under P.D. 1789 may be transferred their findings on the issuance and transfer of the
under conditions provided herein; TCCs to the oil companies is based on the Affidavits
of the General Managers of the said TCC grantees
2) The transferee should be a BOI-registered firm; marked as Exhibit ‘2-G’ (Virgilio Pinon of Alliance
Thread), ‘3-F’ (Reynato G. Andaya of Diamond
3) The transferee may apply such tax credit Knitting), ‘5-G’ (Carmencita C. Camara of Fiber
certificates for payment of taxes, duties, charges or Tech.), ‘6-G’ (Rodel P. Rodriguez of Filstar Textile),
fees directly due to the national government for as ‘7-G’ (Angel T. Chua of Jantex Phils.) and ‘8-G’
long as it enjoys incentives under P.D. 1789. (Margaret A. De Luna of Master Colour).54

As a BOI-registered enterprise under Certificates of In finding that the assignments of the TCCs in favor of Petron
Registration No. 89-1037 and D95-136, Petron is undoubtedly were fraudulent, we find that the CTA En Banc reversibly erred
a qualified transferee of the TCCs originally issued in favor of in relying on the abovementioned affidavits executed by the
its assignors. In finding that the assignments of the TCCs in grantees’ former general managers/officers who, after
favor of Petron were likewise fraudulent, however, the CTA En disavowing knowledge of the assignment of the subject TCCs
Banc ruled that the aforesaid October 5, 1982 MOA between and Petron’s delivery of bunker fuel oil in consideration thereof,
the MOF and the BOI was amended by the said agencies’ requested the cancellation of the TCCs.55 Without said
August 29, 1989 MOA which additionally required that the erstwhile general managers/officers being presented on the
TCC-assignee should be a "domestic capital equipment witness stand to affirm the truth and veracity of their
supplier or a raw material and/or component supplier of the statements, the affidavits they executed are, however, correctly
transferor." Underscoring the fact that the assignments were impugned by Petitioner as hearsay for lack of opportunity to
approved upon the representation that the TCCs were to be cross-examine said affiants. Almost always incomplete and
used as payment for oil products purchased from Petron, the often inaccurate, sometimes from partial suggestion, or for
CTA En Banc found that the grantees’ Financial Statements want of suggestion and inquiries,56 the infirmity of affidavits as
indicated that they could not have consumed fuels at the levels species of evidence is a matter of judicial experience and are
represented to the Center and that Petron had not, in fact, thus considered inferior to the testimony given in open
delivered petroleum products in consideration of the court.57 Unless the affiant is placed on the witness stand to
assignment of the TCCs.51 testify thereon, the rule is settled that affidavits are
inadmissible as evidence under the hearsay rule.58
As held in the Pilipinas Shell case, however, said August 29,
1989 MOA between the MOF and the BOI cannot prejudice Having proven the valuable consideration for the grantees’
transferees of TCCs like petitioner. Aside from not having been transfer of the TCCs in its favor, it also bears pointing out that
elevated to the level of or incorporated as an amendment in Petron has more than amply proved its good faith by complying
the IRR of EO 226, the same MOA was found ineffective for with the procedures laid down for the transfer and use thereof.
non-compliance with the publication requirement under With its approval of the Deeds of Assignment executed by the
Chapter 2, Book VII of EO 292, otherwise known as the grantees, the Center unequivocally affirmed not only the
Administrative Code of 1987.52 For the validity of the transfer of validity of the TCCs but also the transfer thereof in favor of
the TCCs by the grantees, it is, consequently, enough that Petron to whom it issued the requisite DOF-TDMs. On the
Petron is a BOI registered-enterprise, as provided under said other hand, upon surrender of the Deeds of Assignment, the
agencies’ October 5, 1982 MOA. Although not required by law TCCs and the DOF-TDMs, the BIR Collection Program
to be a capital equipment provider or a supplier of raw material Division issued the corresponding ATAPETs which, together
and/or component supplier to the transferors, the record, even with said documents, were further submitted to the BIR Head
then, shows that Petron issued credit notes to the grantees Office. It was only after further authentication and verification of
and, as a result, delivered petroleum products in favor of the the documents thus submitted that Petron was eventually
latter and/or its assignees in the aggregate amount of issued BIR TDMs which bore the signature of the BIR
₱284,390,845.00.53 In the absence of showing of any legal Assistant Commissioner of Collection Service and signified
prohibition thereon, we find that Petron cannot be faulted for acceptance of the TCCs as payment of the excise taxes due
honoring the grantees’ further assignment of said credit notes from the former.59
in favor of third parties.
Under RR 5-2000, a TDM or a Tax Debit Memo "shall serve as has knowledge of its fraudulent issuance, said transferee is
the official receipt from the BIR evidencing a taxpayer’s liable for the taxes and for the fraud committed as provided for
payment or satisfaction of his tax obligation." Until the Center’s by law.65
cancellation of the TCCs assigned in its favor, Petron was, in
fact, never questioned nor assessed for deficiency or In addition to its lack of participation in the procurement of the
delinquency in the payment of its excise taxes thru the use of subject TCCs as admitted in the parties’ March 29, 2001 Joint
the same TCCs.60 Even prescinding from the CTA July 23, Stipulation of Facts and Issues, Petron was not shown to have
1999 decision in C.T.A. Case No. 5657 which remains on had a hand in or knowledge of the fraud which purportedly
appeal before the Court of Appeals, we find that Petron had attended the issuance of the same TCCs. Qualified to be a
every right to rely on the validity of the subject TCCs, the transferee as a BOI-registered enterprise under October 5,
Center’s approval of the deeds of assignment the grantees 1982 MOA between the MOF and the BOI, Petron went
executed over the same and the BIR’s acceptance of its use through the multi-tiered prescribed procedures for the transfer
thereof in payment of its excise taxes. While the Government of said TCCs and use thereof in payment of its tax obligations.
cannot, concededly, be estopped from collecting taxes by the Relying on the validity of the TCCs, the Center’s approval of
mistake, negligence, or omission of its agents, 61 the Court’s the transfer thereof and the BIR’s acceptance of the same as
ruling in the Pilipinas Shell case is to the effect that an payment for its excise tax obligations, Petron issued credit
assignee’s status as a transferee in good faith and for value notes by way of consideration for the TCCs and delivered
provides ample protection from the adverse findings petroleum products in the total sum of ₱284,390,845.00 in
subsequently made by the Center.62 favor of the grantees and/or their assignees. As a transferee in
good faith and for value, Petron cannot, therefore, be said to
In urging the affirmance of the assailed decision, respondent have incurred any liability insofar as the transfers of the subject
calls our attention to the pronouncement in the case of Proton TCCs are concerned.
Pilipinas Corporation vs. Republic of the Philippines 63 that the
resultant non-payment of customs duties and taxes by reason As for the government agency vested with the authority to
of the cancellation of the TCCs for having been found as fake cancel the subject TCCs, the ruling in the Pilipinas Shell is to
and spurious is the obligation of the taxpayer. Rather than the the effect that, pursuant to Section 3 (a), (g) and (l) of AO
legal implications and consequences of the cancellation of 226,66 the Center has concurrent authority to do so alongside
TCCs, however, the Proton Pilipinas case dealt with procedural the BIR and the BOC. Given the nature of the TCC’s
matters such as the effect of the Sandiganbayan’s jurisdiction immediate effectiveness and validity, however, said authority
over the criminal case involving the issuance of the TCCs to may only be exercised before the TCC has been fully utilized
the collection case instituted by the government before the by a transferee which had no participation in the perpetration of
Regional Trial Court (RTC), the existence of litis pendentia as fraud in the issuance, transfer and utilization thereof.67 Once
a consequence of the pendency of the criminal and civil cases accepted by the BIR and applied towards the satisfaction of
filed under the circumstances and the prejudicial question such a tranferee’s tax obligations, a TCC is effectively used up,
arising therefrom. Sharing the same factual and legal milieu as debited and canceled such that there is nothing left to avoid or
the case at bench, more in point is the Pilipinas Shell case to cancel anew.68 Considering the protection afforded to
which ruled that the rights of a transferee in good faith cannot transferees in good faith and for value, it was held that the
be prejudiced by the Center’s turnaround from its previous remedy of the Government is to go after the grantees alleged
approval of the assignments of the TCCs. to have perpetrated fraud in the procurement of the subject
TCCs.69
Once a case has been decided one way, the rule is settled that
any other case involving exactly the same point at issue should Viewed in the light of the foregoing disquisition, respondent
be decided in the same manner64 under the principle stare had no legal basis to once again assess the excise taxes
decisis et non quieta movere. Fealty to the same principle Petron already paid with the use of the TCCs assigned in its
impels us to discount merit from respondent’s reliance on the favor, much less to impose the 25% late payment surcharge
Liability Clause at the dorsal portion of the TCCs which pursuant to Section 248 (A)70 of the National Internal Revenue
provides that both the transferor and the transferee shall be Code of 1997 and the 20% interest provided under Section
jointly and severally liable for any fraudulent act or violation of 24971 of the same Code. Admitted to have filed it tax returns in
the pertinent laws, rules and regulations relating to the transfer accordance with law,72 Petron was never questioned nor
of the TCC. Expounding on the practical and legal significance assessed for deficiency delinquency in the payment of its
of said Liability Clause in the Pilipinas Shell case, this Court excise taxes from 1992 to 1997, thru the use of the TCCs
ruled as follows: assigned by the original grantees.73 In receipt of the November
15, 1999 Assessment subsequent to the Center’s cancellation
The above clause to our mind clearly provides only for the of the subject TCCs, Petron filed the petition for review
solidary liability relative to the transfer of the TCCs from the docketed before the CTA Second Division as CTA Case No.
original grantee to a transferee. There is nothing in the above 6136 as a consequence of respondent’s inaction on its protest.
clause that provides for the liability of the transferee in the Although the August 23, 2006 adverse decision rendered in
event that the validity of the TCC issued to the original grantee said case was affirmed in the herein assailed October 30, 2007
by the Center is impugned or where the TCC is declared to decision rendered in CTA EB No. 238, a reversal of said CTA
have been fraudulently procured by the said original grantee. En Banc decision would necessarily foreclose the factual and
Thus, the solidary liability, if any, applies only to the sale of the legal bases for respondent’s impugned Assessment.
TCC to the transferee by the original grantee. Any fraud or
breach of law or rule relating to the issuance of the TCC by the WHEREFORE, premises considered, the petition is GRANTED
Center to the transferor or the original grantee is the latter's and the October 30, 2007 CTA En Banc Decision in CTA EB
responsibility and liability. The transferee in good faith and for No. 238 is, accordingly, REVERSED and SET ASIDE. In lieu
value may not be unjustly prejudiced by the fraud committed by thereof, another is entered invalidating respondent’s
the claimant or transferor in the procurement or issuance of the Assessment of petitioner’s deficiency excise taxes for the
TCC from the Center. It is not only unjust but well-nigh violative years 1995 to 1997 for lack of legal bases. No pronouncement
of the constitutional right not to be deprived of one's property as to costs.
without due process of law. Thus, a re-assessment of tax
liabilities previously paid through TCCs by a transferee in good
faith and for value is utterly confiscatory, more so when SO ORDERED.
surcharges and interests are likewise assessed.1avvphi1
4.2
A transferee in good faith and for value of a TCC who has
relied on the Center’s representation of the genuineness and G.R. No. 177279               October 13, 2010
validity of the TCC transferred to it may not be legally required
to pay again the tax covered by the TCC which has been
belatedly declared null and void, that is, after the TCCs have COMMISSIONER OF INTERNAL REVENUE, Petitioner,
been fully utilized through settlement of internal revenue tax vs.
liabilities. Conversely, when the transferee is party to the fraud HON. RAUL M. GONZALEZ, Secretary of Justice, L. M.
as when it did not obtain the TCC for value or was a party to or
CAMUS ENGINEERING CORPORATION (represented by Affidavit executed by the revenue officers who conducted the
LUIS M. CAMUS and LINO D. MENDOZA), Respondents. tax fraud investigation, it was alleged that despite the receipt of
the final assessment notice and formal demand letter on
DECISION October 1, 2002, LMCEC failed and refused to pay the
deficiency tax assessment in the total amount of
₱630,164,631.61, inclusive of increments, which had become
VILLARAMA, JR., J.: final and executory as a result of the said taxpayer’s failure to
file a protest thereon within the thirty (30)-day reglementary
This is a petition for review on certiorari under Rule 45 of period.12
the 1997 Rules of Civil Procedure, as amended, assailing the
Decision1 dated October 31, 2006 and Resolution2 dated Camus and Mendoza filed a Joint Counter-Affidavit contending
March 6, 2007 of the Court of Appeals (CA) in CA-G.R. SP No. that LMCEC cannot be held liable whatsoever for the alleged
93387 which affirmed the Resolution3 dated December 13, tax deficiency which had become due and demandable.
2005 of respondent Secretary of Justice in I.S. No. 2003-774 Considering that the complaint and its annexes all showed that
for violation of Sections 254 and 255 of the National Internal the suit is a simple civil action for collection and not a tax
Revenue Code of 1997 (NIRC). evasion case, the Department of Justice (DOJ) is not the
proper forum for BIR’s complaint. They also assail as invalid
The facts as culled from the records: the assessment notices which bear no serial numbers and
should be shown to have been validly served by an Affidavit of
Pursuant to Letter of Authority (LA) No. 00009361 dated Constructive Service executed and sworn to by the revenue
August 25, 2000 issued by then Commissioner of Internal officers who served the same. As stated in LMCEC’s letter-
Revenue (petitioner) Dakila B. Fonacier, Revenue Officers protest dated December 12, 2002 addressed to Revenue
Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., District Officer (RDO) Clavelina S. Nacar of RD No. 40, Cubao,
Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora supervised Quezon City, the company had already undergone a series of
by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division routine examinations for the years 1997, 1998 and 1999; under
(TFD), National Office, conducted a fraud investigation for all the NIRC, only one examination of the books of accounts is
internal revenue taxes to ascertain/determine the tax liabilities allowed per taxable year.13
of respondent L. M. Camus Engineering Corporation (LMCEC)
for the taxable years 1997, 1998 and 1999.4 The audit and LMCEC further averred that it had availed of the Bureau’s Tax
investigation against LMCEC was precipitated by the Amnesty Programs (Economic Recovery Assistance Payment
information provided by an "informer" that LMCEC had [ERAP] Program and the Voluntary Assessment Program
substantial underdeclared income for the said period. For [VAP]) for 1998 and 1999; for 1997, its tax liability was
failure to comply with the subpoena duces tecum issued in terminated and closed under Letter of Termination14 dated
connection with the tax fraud investigation, a criminal complaint June 1, 1999 issued by petitioner and signed by the Chief of
was instituted by the Bureau of Internal Revenue (BIR) against the Assessment Division.15 LMCEC claimed it made payments
LMCEC on January 19, 2001 for violation of Section 266 of the of income tax, VAT and expanded withholding tax (EWT), as
NIRC (I.S. No. 00-956 of the Office of the City Prosecutor of follows:
Quezon City).5

YEAR
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 1997 Termination Letter Under Letter of Authority No
₱430,958,005.90 (income tax - ₱318,606,380.19 and value- 174600 Dated November 4, 1998
added tax [VAT] - ₱112,351,625.71) covering the said period.
The Preliminary Assessment Notice (PAN) was received by
LMCEC on February 22, 2001.7
1998 ERAP Program pursuan
LMCEC’s alleged underdeclared income was summarized by to RR #2-99
petitioner as follows:
1999 VAP Program pursuan
Year Income Income to RR #8-2001
Per ITR Per Investigation

1997 96,638,540.00 283,412,140.84 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
1998 86,793,913.00 236,863,236.81 immunity from audit from the company’s 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
1999 88,287,792.00 251,507,903.13 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
In view of the above findings, assessment notices together with the company for the second time, after the routine
a formal letter of demand dated August 7, 2002 were sent to examination, issuance of termination letter and the availment
LMCEC through personal service on October 1, 2002.9 Since of ERAP and VAP. LMCEC thus maintained that unless there
the company and its representatives refused to receive the is a prior determination of fraud supported by documents not
said notices and demand letter, the revenue officers resorted yet incorporated in the docket of the case, petitioner cannot
to constructive service10 in accordance with Section 3, just issue LAs without first terminating those previously issued.
Revenue Regulations (RR) No. 12-9911. It emphasized the fact that the BIR officers who filed and
signed the Affidavit-Complaint in this case were the same ones
who appeared as complainants in an earlier case filed against
On May 21, 2003, petitioner, through then Commissioner
Camus for his alleged "failure to obey summons in violation of
Guillermo L. Parayno, Jr., referred to the Secretary of Justice
Section 5 punishable under Section 266 of the NIRC of 1997"
for preliminary investigation its complaint against LMCEC, Luis
(I.S. No. 00-956 of the Office of the City Prosecutor of Quezon
M. Camus and Lino D. Mendoza, the latter two were sued in
City). After preliminary investigation, said case was dismissed
their capacities as President and Comptroller, respectively.
for lack of probable cause in a Resolution issued by the
The case was docketed as I.S. No. 2003-774. In the Joint
Investigating Prosecutor on May 2, 2001.17
LMCEC further asserted that it filed on April 20, 2001 a protest Petitioner also pointed out that LMCEC’s assertion correlating
on the PAN issued by petitioner for having no basis in fact and this case with I.S. No. 00-956 is misleading because said case
law. However, until now the said protest remains unresolved. involves another violation and offense (Sections 5 and 266 of
As to the alleged informant who purportedly supplied the the NIRC). Said case was filed by petitioner due to the failure
"confidential information," LMCEC believes that such person is of LMCEC to submit or present its books of accounts and other
fictitious and his true identity and personality could not be accounting records for examination despite the issuance of
produced. Hence, this case is another form of harassment subpoena duces tecum against Camus in his capacity as
against the company as what had been found by the Office of President of LMCEC. While indeed a Resolution was issued by
the City Prosecutor of Quezon City in I.S. No. 00-956. Said Asst. City Prosecutor Titus C. Borlas on May 2, 2001
case and the present case both have something to do with the dismissing the complaint, the same is still on appeal and
audit/examination of LMCEC for taxable years 1997, 1998 and pending resolution by the DOJ. The determination of probable
1999 pursuant to LA No. 00009361.18 cause in said case is confined to the issue of whether there
was already a violation of the NIRC by Camus in not complying
In the Joint Reply-Affidavit executed by the Bureau’s revenue with the subpoena duces tecum issued by the BIR.24
officers, petitioner disagreed with the contention of LMCEC
that the complaint filed is not criminal in nature, pointing out Petitioner contended that precisely the reason for the issuance
that LMCEC and its officers Camus and Mendoza were being to the TFD of LA No. 00009361 by the Commissioner is
charged for the criminal offenses defined and penalized under because the latter agreed with the findings of the investigating
Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful revenue officers that fraud exists in this case. In the conduct of
Failure to Pay Tax) of the NIRC. This finds support in Section their investigation, the revenue officers observed the proper
205 of the same Code which provides for administrative procedure under Revenue Memorandum Order (RMO) No. 49-
(distraint, levy, fine, forfeiture, lien, etc.) and judicial (criminal or 2000 wherein it is required that before the issuance of a Letter
civil action) remedies in order to enforce collection of taxes. of Authority against a particular taxpayer, a preliminary
Both remedies may be pursued either independently or investigation should first be conducted to determine if a prima
simultaneously. In this case, the BIR decided to simultaneously facie case for tax fraud exists. As to the allegedly unresolved
pursue both remedies and thus aside from this criminal action, protest filed on April 20, 2001 by LMCEC over the PAN, this
the Bureau also initiated administrative proceedings against has been disregarded by the Bureau for being pro forma and
LMCEC.19 having been filed beyond the 15-day reglementary period. A
subsequent letter dated April 20, 2001 was filed with the TFD
On the lack of control number in the assessment notice, and signed by a certain Juan Ventigan. However, this was
petitioner explained that such is a mere office requirement in disregarded and considered a mere scrap of paper since the
the Assessment Service for the purpose of internal control and said signatory had not shown any prior authorization to
monitoring; hence, the unnumbered assessment notices represent LMCEC. Even assuming said protest letter was
should not be interpreted as irregular or anomalous. Petitioner validly filed on behalf of the company, the issuance of a Formal
stressed that LMCEC already lost its right to file a protest letter Demand Letter and Assessment Notice through constructive
after the lapse of the thirty (30)-day reglementary period. service on October 1, 2002 is deemed an implied denial of the
LMCEC’s protest-letter dated December 12, 2002 to RDO said protest. Lastly, the details regarding the "informer" being
Clavelina S. Nacar, RD No. 40, Cubao, Quezon City was confidential, such information is entitled to some degree of
actually filed only on December 16, 2002, which was protection, including the identity of the informant against
disregarded by the petitioner for being filed out of time. Even LMCEC.25
assuming for the sake of argument that the assessment
notices were invalid, petitioner contended that such could not In their Joint Rejoinder-Affidavit,26 Camus and Mendoza
affect the present criminal action,20 citing the ruling in the reiterated their argument that the identity of the alleged
landmark case of Ungab v. Cusi, Jr.21 informant is crucial to determine if he/she is qualified under
Section 282 of the NIRC. Moreover, there was no assessment
As to the Letter of Termination signed by Ruth Vivian G. that has already become final, the validity of its issuance and
Gandia of the Assessment Division, Revenue Region No. 7, service has been put in issue being anomalous, irregular and
Quezon City, petitioner pointed out that LMCEC failed to oppressive. It is contended that for criminal prosecution to
mention that the undated Certification issued by RDO Pablo C. proceed before assessment, there must be a prima facie
Cabreros, Jr. of RD No. 40, Cubao, Quezon City stated that showing of a willful attempt to evade taxes. As to LMCEC’s
the report of the 1997 Internal Revenue taxes of LMCEC had availment of the VAP and ERAP programs, the certificate of
already been submitted for review and approval of higher immunity from audit issued to it by the BIR is plain and simple,
authorities. LMCEC also cannot claim as excuse from the but petitioner is now saying it has the right to renege with
reopening of its books of accounts the previous investigations impunity from its undertaking. Though petitioner deems
and examinations. Under Section 235 (a), an exception was LMCEC not qualified to avail of the benefits of VAP, it must be
provided in the rule on once a year audit examination in case noted that if it is true that at the time the petitioner filed I.S. No.
of "fraud, irregularity or mistakes, as determined by the 00-956 sometime in January 2001 it had already in its custody
Commissioner". Petitioner explained that the distinction that "Confidential Information No. 29-2000 dated July 7, 2000",
between a Regular Audit Examination and Tax Fraud Audit these revenue officers could have rightly filed the instant case
Examination lies in the fact that the former is conducted by the and would not resort to filing said criminal complaint for refusal
district offices of the Bureau’s Regional Offices, the authority to comply with a subpoena duces tecum.
emanating from the Regional Director, while the latter is
conducted by the TFD of the National Office only when On September 22, 2003, the Chief State Prosecutor issued a
instances of fraud had been determined by the petitioner.22 Resolution27 finding no sufficient evidence to establish
probable cause against respondents LMCEC, Camus and
Petitioner further asserted that LMCEC’s claim that it was Mendoza. It was held that since the payments were made by
granted immunity from audit when it availed of the VAP and LMCEC under ERAP and VAP pursuant to the provisions of
ERAP programs is misleading. LMCEC failed to state that its RR Nos. 2-99 and 8-2001 which were offered to taxpayers by
availment of ERAP under RR No. 2-99 is not a grant of the BIR itself, the latter is now in estoppel to insist on the
absolute immunity from audit and investigation, aside from the criminal prosecution of the respondent taxpayer. The voluntary
fact that said program was only for income tax and did not payments made thereunder are in the nature of a tax amnesty.
cover VAT and withholding tax for the taxable year 1998. As The unnumbered assessment notices were found highly
for LMCEC’S availment of VAP in 1999 under RR No. 8-2001 irregular and thus their validity is suspect; if the amounts
dated August 1, 2001 as amended by RR No. 10-2001 dated indicated therein were collected, it is uncertain how these will
September 3, 2001, the company failed to state that it covers be accounted for and if it would go to the coffers of the
only income tax and VAT, and did not include withholding tax. government or elsewhere. On the required prior determination
However, LMCEC is not actually entitled to the benefits of VAP of fraud, the Chief State Prosecutor declared that the Office of
under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to the the City Prosecutor in I.S. No. 00-956 has already squarely
principle of estoppel invoked by LMCEC, estoppel clearly does ruled that (1) there was no prior determination of fraud, (2)
not lie against the BIR as this involved the exercise of an there was indiscriminate issuance of LAs, and (3) the
inherent power by the government to collect taxes.23 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 court.34 It appears that entry of judgment was issued by the CA
context of a "fishing expedition" or "witch-hunting." stating that its October 31, 2006 Decision attained finality on
Consequently, there is nothing to speak of regarding the finality March 25, 2007.35 However, the said entry of judgment was set
of assessment notices in the aggregate amount of aside upon manifestation by the petitioner that it has filed a
₱630,164,631.61. petition for review before this Court subsequent to its receipt of
the Resolution dated March 6, 2007 denying petitioner’s
Petitioner filed a motion for reconsideration which was denied motion for reconsideration on March 20, 2007.36
by the Chief State Prosecutor.28
The petition is anchored on the following grounds:
Petitioner appealed to respondent Secretary of Justice but the
latter denied its petition for review under Resolution dated I.
December 13, 2005.29
The Honorable Court of Appeals erroneously sustained the
The Secretary of Justice found that petitioner’s claim that there findings of the Secretary of Justice who gravely abused his
is yet no finality as to LMCEC’s payment of its 1997 taxes discretion by dismissing the complaint based on grounds which
since the audit report was still pending review by higher are not even elements of the offenses charged.
authorities, is unsubstantiated and misplaced. It was noted that
the Termination Letter issued by the Commissioner on June 1, II.
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 The Honorable Court of Appeals erroneously sustained the
amount of ₱61,635.40 and ₱38,404.55, respectively. This findings of the Secretary of Justice who gravely abused his
eventually gave rise to the issuance of a certificate of immunity discretion by dismissing petitioner’s evidence, contrary to law.
from audit for 1998 by the Office of the Commissioner of
Internal Revenue. For taxable year 1999, respondent III.
Secretary found that pursuant to earlier LA No. 38633 dated
July 4, 2000, LMCEC’s 1999 tax liabilities were still pending The Honorable Court of Appeals erroneously sustained the
investigation for which reason LMCEC assailed the findings of the Secretary of Justice who gravely abused his
subsequent issuance of LA No. 00009361 dated August 25, discretion by inquiring into the validity of a Final Assessment
2000 calling for a similar investigation of its alleged 1999 tax Notice which has become final, executory and demandable
deficiencies when no final determination has yet been arrived pursuant to Section 228 of the Tax Code of 1997 for failure of
on the earlier LA No. 38633.30 private respondent to file a protest against the same.37

On the allegation of fraud, respondent Secretary ruled that The core issue to be resolved is whether LMCEC and its
petitioner failed to establish the existence of the following corporate officers may be prosecuted for violation of Sections
circumstances indicating fraud in the settlement of LMCEC’s 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure
tax liabilities: (1) there must be intentional and substantial to Supply Correct and Accurate Information and Pay Tax).
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 Petitioner filed the criminal complaint against the private
circumstances. First, petitioner miserably failed to explain why respondents for violation of the following provisions of the
the assessment notices were unnumbered; second, the claim NIRC, as amended:
that the tax fraud investigation was precipitated by an alleged
"informant" has not been corroborated nor was it clearly SEC. 254. Attempt to Evade or Defeat Tax. – Any person who
established, hence there is no other conclusion but that the willfully attempts in any manner to evade or defeat any tax
Bureau engaged in a "fishing expedition"; and furthermore, imposed under this Code or the payment thereof shall, in
petitioner’s course of action is contrary to Section 235 of the addition to other penalties provided by law, upon conviction
NIRC allowing only once in a given taxable year such thereof, be punished by a fine of not less than Thirty thousand
examination and inspection of the taxpayer’s books of pesos (P30,000) but not more than One hundred thousand
accounts and other accounting records. There was no pesos (P100,000) and suffer imprisonment of not less than two
convincing proof presented by petitioner to show that the case (2) years but not more than four (4) years: Provided, That the
of LMCEC falls under the exceptions provided in Section 235. conviction or acquittal obtained under this Section shall not be
Respondent Secretary duly considered the issuance of a bar to the filing of a civil suit for the collection of taxes.
Certificate of Immunity from Audit and Letter of Termination
dated June 1, 1999 issued to LMCEC.31
SEC. 255. Failure to File Return, Supply Correct and Accurate
Information, Pay Tax, Withhold and Remit Tax and Refund
Anent the earlier case filed against the same taxpayer (I.S. No. Excess Taxes Withheld on Compensation. – Any person
00-956), the Secretary of Justice found petitioner to have required under this Code or by rules and regulations
engaged in forum shopping in view of the fact that while there promulgated thereunder to pay any tax, make a return, keep
is still pending an appeal from the Resolution of the City any record, or supply any correct and accurate information,
Prosecutor of Quezon City in said case, petitioner hurriedly who willfully fails to pay such tax, make such return, keep such
filed the instant case, which not only involved the same parties record, or supply such correct and accurate information, or
but also similar substantial issues (the joint complaint-affidavit withhold or remit taxes withheld, or refund excess taxes
also alleged the issuance of LA No. 00009361 dated August withheld on compensations at the time or times required by law
25, 2000). Clearly, the evidence of litis pendentia is present. or rules and regulations shall, in addition to other penalties
Finally, respondent Secretary noted that if indeed LMCEC provided by law, upon conviction thereof, be punished by a fine
committed fraud in the settlement of its tax liabilities, then at of not less than Ten thousand pesos (P10,000) and suffer
the outset, it should have been discovered by the agents of imprisonment of not less than one (1) year but not more than
petitioner, and consequently petitioner should not have issued ten (10) years.
the Letter of Termination and the Certificate of Immunity From
Audit. Petitioner thus should have been more circumspect in
x x x x (Emphasis supplied.)
the issuance of said documents.32

Respondent Secretary concurred with the Chief State

Its motion for reconsideration having been denied, petitioner
Prosecutor’s conclusion that there is insufficient evidence to
challenged the ruling of respondent Secretary via a certiorari
establish probable cause to charge private respondents under
petition in the CA.
the above provisions, based on the following findings: (1) the
tax deficiencies of LMCEC for taxable years 1997, 1998 and
On October 31, 2006, the CA rendered the assailed 1999 have all been settled or terminated, as in fact LMCEC
decision33 denying the petition and concurred with the findings was issued a Certificate of Immunity and Letter of Termination,
and conclusions of respondent Secretary. Petitioner’s motion and availed of the ERAP and VAP programs; (2) there was no
for reconsideration was likewise denied by the appellate
prior determination of the existence of fraud; (3) the of the preliminary investigation on LMCEC’s correct tax
assessment notices are unnumbered, hence irregular and liabilities for taxable years 1997, 1998 and 1999.
suspect; (4) the books of accounts and other accounting
records may be subject to audit examination only once in a In the Details of Discrepancies attached as Annex B of the
given taxable year and there is no proof that the case falls PAN,42 private respondents were already notified that
under the exceptions provided in Section 235 of the NIRC; and inasmuch as the revenue officers were not given the
(5) petitioner committed forum shopping when it filed the opportunity to examine LMCEC’s books of accounts,
instant case even as the earlier criminal complaint (I.S. No. 00- accounting records and other documents, said revenue officers
956) dismissed by the City Prosecutor of Quezon City was still gathered information from third parties. Such procedure is
pending appeal. authorized under Section 5 of the NIRC, which provides:

Petitioner argues that with the finality of the assessment due to SEC. 5. Power of the Commissioner to Obtain Information, and
failure of the private respondents to challenge the same in to Summon, Examine, and Take Testimony of Persons. – In
accordance with Section 228 of the NIRC, respondent ascertaining the correctness of any return, or in making a
Secretary has no jurisdiction and authority to inquire into its return when none has been made, or in determining the liability
validity. Respondent taxpayer is thereby allowed to do of any person for any internal revenue tax, or in collecting any
indirectly what it cannot do directly – to raise a collateral attack such liability, or in evaluating tax compliance, the
on the assessment when even a direct challenge of the same Commissioner is authorized:
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 (A) To examine any book, paper, record or other data
jurisprudence, such circumstance not being an element of the which may be relevant or material to such inquiry;
offense. Worse, the final, conclusive and undisputable
evidence detailing a crime under our taxation laws is swept (B) To obtain on a regular basis from any person
under the rug so easily on mere conspiracy theories imputed other than the person whose internal revenue tax
on persons who are not even the subject of the complaint. liability is subject to audit or investigation, or from any
office or officer of the national and local governments,
We grant the petition. government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-
owned or -controlled corporations, any information
There is no dispute that prior to the filing of the complaint with such as, but not limited to, costs and volume of
the DOJ, the report on the tax fraud investigation conducted on production, receipts or sales and gross incomes of
LMCEC disclosed that it made substantial underdeclarations in taxpayers, and the names, addresses, and financial
its income tax returns for 1997, 1998 and 1999. Pursuant to statements of corporations, mutual fund companies,
RR No. 12-99,38 a PAN was sent to and received by LMCEC insurance companies, regional operating
on February 22, 2001 wherein it was notified of the proposed headquarters of multinational companies, joint
assessment of deficiency taxes amounting to ₱430,958,005.90 accounts, associations, joint ventures or consortia
(income tax - ₱318,606,380.19 and VAT - ₱112,351,625.71) and registered partnerships, and their members;
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 (C) To summon the person liable for tax or required to
basis and also for having been filed beyond the 15-day file a return, or any officer or employee of such
reglementary period.40 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
As mentioned in the PAN, the revenue officers were not given the person liable for tax, or any other person, to
the opportunity to examine LMCEC’s books of accounts and appear before the Commissioner or his duly
other accounting records because its officers failed to comply authorized representative at a time and place
with the subpoena duces tecum earlier issued, to verify its specified in the summons and to produce such books,
alleged underdeclarations of income reported by the Bureau’s papers, records, or other data, and to give testimony;
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: (D) To take such testimony of the person concerned,
under oath, as may be relevant or material to such
inquiry; x x x
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 x x x x (Emphasis supplied.)
papers, or to furnish information as required under the
pertinent provisions of this Code, neglects to appear or to Private respondents’ assertions regarding the qualifications of
produce such books of accounts, records, memoranda, or the "informer" of the Bureau deserve scant consideration. We
other papers, or to furnish such information, shall, upon have held that the lack of consent of the taxpayer under
conviction, be punished by a fine of not less than Five investigation does not imply that the BIR obtained the
thousand pesos (P5,000) but not more than Ten thousand information from third parties illegally or that the information
pesos (P10,000) and suffer imprisonment of not less than one received is false or malicious. Nor does the lack of consent
(1) year but not more than two (2) years. preclude the BIR from assessing deficiency taxes on the
taxpayer based on the documents.43 In the same vein, herein
It is clear that I.S. No. 00-956 involves a separate offense and private respondents cannot be allowed to escape criminal
hence litis pendentia is not present considering that the prosecution under Sections 254 and 255 of the NIRC by mere
outcome of I.S. No. 00-956 is not determinative of the issue as imputation of a "fictitious" or disqualified informant under
to whether probable cause exists to charge the private Section 282 simply because other than disclosure of the official
respondents with the crimes of attempt to evade or defeat tax registry number of the third party "informer," the Bureau
and willful failure to supply correct and accurate information insisted on maintaining the confidentiality of the identity and
and pay tax defined and penalized under Sections 254 and personal circumstances of said "informer."
255, respectively. For the crime of tax evasion in particular,
compliance by the taxpayer with such subpoena, if any had Subsequently, petitioner sent to LMCEC by constructive
been issued, is irrelevant. As we held in Ungab v. Cusi, service allowed under Section 3 of RR No. 12-99, assessment
Jr.,41 "[t]he crime is complete when the [taxpayer] has x x x notice and formal demand informing the said taxpayer of the
knowingly and willfully filed [a] fraudulent [return] with intent to law and the facts on which the assessment is made, as
evade and defeat x x x the tax." Thus, respondent Secretary required by Section 228 of the NIRC. Respondent Secretary,
erred in holding that petitioner committed forum shopping when however, fully concurred with private respondents’ contention
it filed the present criminal complaint during the pendency of its that the assessment notices were invalid for being
appeal from the City Prosecutor’s dismissal of I.S. No. 00-956 unnumbered and the tax liabilities therein stated have already
involving the act of disobedience to the summons in the course been settled and/or terminated.
We do not agree. 5. Alabang Commercial Corporation

A notice of assessment is: 6. Philam Properties Corporation

[A] declaration of deficiency taxes issued to a [t]axpayer who 7. SM Investments, Inc.

fails to respond to a Pre-Assessment Notice (PAN) within the
prescribed period of time, or whose reply to the PAN was 8. Shoemart, Inc.
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 9. Philippine Securities Corporation
audit shall be given due course.
10. Makati Development Corporation
The formal letter of demand calling for payment of the
taxpayer’s deficiency tax or taxes shall state the fact, the law, From the documents gathered and the data obtained therein,
rules and regulations or jurisprudence on which the the substantial underdeclaration as defined under Section
assessment is based, otherwise the formal letter of 248(B) of the NIRC of 1997 by your corporation of its income
demand and the notice of assessment shall be void.44 had been confirmed. x x x x46 (Emphasis supplied.)

As it is, the formality of a control number in the assessment In the same letter, Assistant Commissioner Percival T. Salazar
notice is not a requirement for its validity but rather the informed private respondents that the estimated tax liabilities
contents thereof which should inform the taxpayer of the arising from LMCEC’s underdeclaration amounted to
declaration of deficiency tax against said taxpayer. Both the ₱186,773,600.84 in 1997, ₱150,069,323.81 in 1998 and
formal letter of demand and the notice of assessment shall be ₱163,220,111.13 in 1999. These figures confirmed that the
void if the former failed to state the fact, the law, rules and non-declaration by LMCEC for the taxable years 1997, 1998
regulations or jurisprudence on which the assessment is and 1999 of an amount exceeding 30% income 47 declared in
based, which is a mandatory requirement under Section 228 of its return is considered a substantial underdeclaration of
the NIRC. income, which constituted prima facie evidence of false or
fraudulent return under Section 248(B)48 of the NIRC, as
Section 228 of the NIRC provides that the taxpayer shall be amended.49
informed in writing of the law and the facts on which the
assessment is made. Otherwise, the assessment is void. To On the alleged settlement of the assessed tax deficiencies by
implement the provisions of Section 228 of the NIRC, RR No. private respondents, respondent Secretary found the latter’s
12-99 was enacted. Section 3.1.4 of the revenue regulation claim as meritorious on the basis of the Certificate of Immunity
reads: From Audit issued on December 6, 1999 pursuant to RR No. 2-
99 and Letter of Termination dated June 1, 1999 issued by
3.1.4. Formal Letter of Demand and Assessment Notice. – The Revenue Region No. 7 Chief of Assessment Division Ruth
formal letter of demand and assessment notice shall be issued Vivian G. Gandia. Petitioner, however, clarified that the
by the Commissioner or his duly authorized certificate of immunity from audit covered only income tax for
representative. The letter of demand calling for payment of the year 1997 and does not include VAT and withholding
the taxpayer’s deficiency tax or taxes shall state the facts, taxes, while the Letter of Termination involved tax liabilities for
the law, rules and regulations, or jurisprudence on which taxable year 1997 (EWT, VAT and income taxes) but which
the assessment is based, otherwise, the formal letter of was submitted for review of higher authorities as per the
demand and assessment notice shall be void. The same Certification of RD No. 40 District Officer Pablo C. Cabreros,
shall be sent to the taxpayer only by registered mail or by Jr.50 For 1999, private respondents supposedly availed of the
personal delivery. x x x.45 (Emphasis supplied.) VAP pursuant to RR No. 8-2001.

The Formal Letter of Demand dated August 7, 2002 contains RR No. 2-99 issued on February 7, 1999 explained in its Policy
not only a detailed computation of LMCEC’s tax deficiencies Statement that considering the scarcity of financial and human
but also details of the specified discrepancies, explaining the resources as well as the time constraints within which the
legal and factual bases of the assessment. It also reiterated Bureau has to "clean the Bureau’s backlog of unaudited tax
that in the absence of accounting records and other documents returns in order to keep updated and be focused with the most
necessary for the proper determination of the company’s current accounts" in preparation for the full implementation of a
internal revenue tax liabilities, the investigating revenue computerized tax administration, the said revenue regulation
officers resorted to the "Best Evidence Obtainable" as provided was issued "providing for last priority in audit and investigation
in Section 6(B) of the NIRC (third party information) and in of tax returns" to accomplish the said objective "without,
accordance with the procedure laid down in RMC No. 23-2000 however, compromising the revenue collection that would have
dated November 27, 2000. Annex "A" of the Formal Letter of been generated from audit and enforcement activities." The
Demand thus stated: program named as "Economic Recovery Assistance Payment
(ERAP) Program" granted immunity from audit and
investigation of income tax, VAT and percentage tax returns for
Thus, to verify the validity of the information previously 1998. It expressly excluded withholding tax returns (whether
provided by the informant, the assigned revenue officers for income, VAT, or percentage tax purposes). Since such
resorted to third party information. Pursuant to Section 5(B) of immunity from audit and investigation does not preclude the
the NIRC of 1997, access letters requesting for information and collection of revenues generated from audit and enforcement
the submission of certain documents (i.e., Certificate of Income activities, it follows that the Bureau is likewise not barred from
Tax Withheld at Source and/or Alphabetical List showing the collecting any tax deficiency discovered as a result of tax fraud
income payments made to L.M. Camus Engineering investigations. Respondent Secretary’s opinion that RR No. 2-
Corporation for the taxable years 1997 to 1999) were sent to 99 contains the feature of a tax amnesty is thus misplaced.
the various clients of the subject corporation, including but not
limited to the following:
Tax amnesty is a general pardon to taxpayers who want to
start a clean tax slate. It also gives the government a chance to
1. Ayala Land Inc. collect uncollected tax from tax evaders without having to go
through the tedious process of a tax case.51 Even assuming
2. Filinvest Alabang Inc. 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
3. D.M. Consunji, Inc. 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
4. SM Prime Holdings, Inc. liberally in favor of the taxing authority.52
For the same reason, the availment by LMCEC of VAP under particularly true in matters involving taxation. The errors of
RR No. 8-2001 as amended by RR No. 10-2001, through certain administrative officers should never be allowed to
payment supposedly made in October 29, 2001 before the said jeopardize the government’s financial position.54
program ended on October 31, 2001, did not amount to
settlement of its assessed tax deficiencies for the period 1997 Respondent Secretary’s other ground for assailing the course
to 1999, nor immunity from prosecution for filing fraudulent of action taken by petitioner in proceeding with the audit and
return and attempt to evade or defeat tax. As correctly investigation of LMCEC -- the alleged violation of the general
asserted by petitioner, from the express terms of the aforesaid rule in Section 235 of the NIRC allowing the examination and
revenue regulations, LMCEC is not qualified to avail of the inspection of taxpayer’s books of accounts and other
VAP granting taxpayers the privilege of last priority in the audit accounting records only once in a taxable year -- is likewise
and investigation of all internal revenue taxes for the taxable untenable. As correctly pointed out by petitioner, the discovery
year 2000 and all prior years under certain conditions, of substantial underdeclarations of income by LMCEC for
considering that first, it was issued a PAN on February 19, taxable years 1997, 1998 and 1999 upon verified information
2001, and second, it was the subject of investigation as a provided by an "informer" under Section 282 of the NIRC, as
result of verified information filed by a Tax Informer under well as the necessity of obtaining information from third parties
Section 282 of the NIRC duly recorded in the BIR Official to ascertain the correctness of the return filed or evaluation of
Registry as Confidential Information (CI) No. 29-200053 even tax compliance in collecting taxes (as a result of the
prior to the issuance of the PAN. disobedience to the summons issued by the Bureau against
the private respondents), are circumstances warranting
Section 1 of RR No. 8-2001 provides: exception from the general rule in Section 235.55

SECTION 1. COVERAGE. – x x x As already stated, the substantial underdeclared income in the

returns filed by LMCEC for 1997, 1998 and 1999 in amounts
Any person, natural or juridical, including estates and trusts, equivalent to more than 30% (the computation in the final
liable to pay any of the above-cited internal revenue taxes for assessment notice showed underdeclarations of almost 200%)
the above specified period/s who, due to inadvertence or constitutes prima facie evidence of fraudulent return under
otherwise, erroneously paid his internal revenue tax liabilities Section 248(B) of the NIRC. Prior to the issuance of the
or failed to file tax return/pay taxes may avail of the Voluntary preliminary and final notices of assessment, the revenue
Assessment Program (VAP), except those falling under any of officers conducted a preliminary investigation on the
the following instances: information and documents showing substantial
understatement of LMCEC’s tax liabilities which were provided
by the Informer, following the procedure under RMO No. 15-
1.1 Those covered by a Preliminary Assessment 95.56 Based on the prima facie finding of the existence of fraud,
Notice (PAN), Final Assessment Notice (FAN), or petitioner issued LA No. 00009361 for the TFD to conduct a
Collection Letter issued on or before July 31, 2001; or formal fraud investigation of LMCEC.57 Consequently,
respondent Secretary’s ruling that the filing of criminal
1.2 Persons under investigation as a result of verified complaint for violation of Sections 254 and 255 of the NIRC
information filed by a Tax Informer under Section 282 cannot prosper because of lack of prior determination of the
of the Tax Code of 1997, duly processed and existence of fraud, is bereft of factual basis and contradicted by
recorded in the BIR Official Registry Book on or the evidence on record.
before July 31, 2001;
Tax assessments by tax examiners are presumed correct and
1.3 Tax fraud cases already filed and pending in made in good faith, and all presumptions are in favor of the
courts for adjudication; and correctness of a tax assessment unless proven
otherwise.58 We have held that a taxpayer’s failure to file a
x x x x (Emphasis supplied.) 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
Moreover, private respondents cannot invoke LMCEC’s interposing the defenses of legality or validity of the
availment of VAP to foreclose any subsequent audit of its assessment and prescription of the Government’s right to
account books and other accounting records in view of the assess.59 Indeed, any objection against the assessment should
strong finding of underdeclaration in LMCEC’s payment of have been pursued following the avenue paved in Section 229
correct income tax liability by more than 30% as supported by (now Section 228) of the NIRC on protests on assessments of
the written report of the TFD detailing the facts and the law on internal revenue taxes.60
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 Records bear out that the assessment notice and Formal
amended by RR No. 10-2001 provides: 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
SEC. 2. TAXPAYER’S BENEFIT FROM AVAILMENT OF THE formal demand; neither did they appeal to the Court of Tax
VAP. – A taxpayer who has availed of the VAP shall not be Appeals. Section 228 of the NIRC61 provides the remedy to
audited except upon authorization and approval of the dispute a tax assessment within a certain period of time. It
Commissioner of Internal Revenue when there is strong states that an assessment may be protested by filing a request
evidence or finding of understatement in the payment of for reconsideration or reinvestigation within 30 days from
taxpayer’s correct tax liability by more than thirty percent (30%) receipt of the assessment by the taxpayer. No such
as supported by a written report of the appropriate office administrative protest was filed by private respondents seeking
detailing the facts and the law on which such finding is based: reconsideration of the August 7, 2002 assessment notice and
Provided, however, that any VAP payment should be allowed formal letter of demand. Private respondents cannot belatedly
as tax credit against the deficiency tax due, if any, in case the assail the said assessment, which they allowed to lapse into
concerned taxpayer has been subjected to tax audit. finality, by raising issues as to its validity and correctness
during the preliminary investigation after the BIR has referred
xxxx the matter for prosecution under Sections 254 and 255 of the
NIRC.
Given the explicit conditions for the grant of immunity from
audit under RR No. 2-99, RR No. 8-2001 and RR No. 10-2001, As we held in Marcos II v. Court of Appeals62:
we hold that respondent Secretary gravely erred in declaring
that petitioner is now estopped from assessing any tax It is not the Department of Justice which is the government
deficiency against LMCEC after issuance of the agency tasked to determine the amount of taxes due upon the
aforementioned documents of immunity from subject estate, but the Bureau of Internal Revenue, whose
audit/investigation and settlement of tax liabilities. It is determinations and assessments are presumed correct and
axiomatic that the State can never be in estoppel, and this is made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the Appeals (CTA) en banc in C.T.A. EB. CRIM. No. 001 which
performance of official duties, an assessment will not be denied petitioner’s Motion for Extension of Time to File Petition
disturbed. Even an assessment based on estimates is prima for Review. Petitioner intended to file the Petition for Review
facie valid and lawful where it does not appear to have been with the CTA en banc to appeal the Resolutions dated 23
arrived at arbitrarily or capriciously. The burden of proof is February 20063 and 11 May 20064 of the CTA First Division in
upon the complaining party to show clearly that the C.T.A. Crim. Case No. 0-012 denying, respectively, her Motion
assessment is erroneous. Failure to present proof of error in to Quash the Information filed against her for violation of
the assessment will justify the judicial affirmance of said Section 255, in relation to Sections 254 and 248(B) of the
assessment. x x x. National Internal Revenue Code (NIRC), as amended; and her
Motion for Reconsideration.
Moreover, these objections to the assessments should have
been raised, considering the ample remedies afforded the There is no controversy as to the facts that gave rise to the
taxpayer by the Tax Code, with the Bureau of Internal Revenue present Petition.
and the Court of Tax Appeals, as described earlier, and cannot
be raised now via Petition for Certiorari, under the pretext of On 19 May 2005, then Bureau of Internal Revenue (BIR)
grave abuse of discretion. The course of action taken by the Commissioner Guillermo L. Parayno, Jr. wrote to the
petitioner reflects his disregard or even repugnance of the Department of Justice (DOJ) Secretary Raul M. Gonzales a
established institutions for governance in the scheme of a well- letter5 regarding the possible filing of criminal charges against
ordered society. The subject tax assessments having become petitioner. BIR Commissioner Parayno began his letter with the
final, executory and enforceable, the same can no longer be following statement:
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 I have the honor to refer to you for preliminary
of the absence of sufficient attack against the actuations of investigation and filing of an information in court if
government. (Emphasis supplied.) evidence so warrants, the herein attached Joint
Affidavit of RODERICK C. ABAD, STIMSON P.
CUREG, VILMA V. CARONAN, RHODORA L.
The determination of probable cause is part of the discretion DELOS REYES under Group Supervisor TEODORA
granted to the investigating prosecutor and ultimately, the V. PURINO, of the National Investigation Division,
Secretary of Justice. However, this Court and the CA possess BIR National Office Building, BIR Road, Diliman,
the power to review findings of prosecutors in preliminary Quezon City, recommending the criminal prosecution
investigations. Although policy considerations call for the of MS. JUDY ANNE LUMAGUI
widest latitude of deference to the prosecutor’s findings, courts SANTOS for substantial underdeclaration of
should never shirk from exercising their power, when the income, which constitutes as prima
circumstances warrant, to determine whether the prosecutor’s facie evidence of false or fraudulent return under
findings are supported by the facts, or by the law. In so doing, Section 248(B) of the NIRC and punishable under
courts do not act as prosecutors but as organs of the judiciary, Sections 254 and 255 of the Tax Code.
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 In said letter, BIR Commissioner Parayno summarized the
to review does not preclude this Court and the CA from findings of the investigating BIR officers that petitioner, in her
intervening and exercising our own powers of review with Annual Income Tax Return for taxable year 2002 filed with the
respect to the DOJ’s findings, such as in the exceptional case BIR, declared an income of P8,033,332.70 derived from her
in which grave abuse of discretion is committed, as when a talent fees solely from ABS-CBN; initial documents gathered
clear sufficiency or insufficiency of evidence to support a from the BIR offices and those given by petitioner’s accountant
finding of probable cause is ignored.64 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
WHEREFORE, the petition is GRANTED. The Decision dated movies and product endorsements; the estimated tax liability
October 31, 2006 and Resolution dated March 6, 2007 of the arising from petitioner’s underdeclaration amounted
Court of Appeals in CA-G.R. SP No. 93387 are hereby to P1,718,925.52, including incremental penalties; the non-
REVERSED and SET ASIDE. The Secretary of Justice is declaration by petitioner of an amount equivalent to at least
hereby DIRECTED to order the Chief State Prosecutor to file 84.18% of the income declared in her return was considered a
before the Regional Trial Court of Quezon City, National substantial underdeclaration of income, which
Capital Judicial Region, the corresponding Information against constituted prima facie evidence of false or fraudulent return
L. M. Camus Engineering Corporation, represented by its under Section 248(B)6 of the NIRC, as amended; and
President Luis M. Camus and Comptroller Lino D. Mendoza, petitioner’s failure to account as part of her income the
for Violation of Sections 254 and 255 of the National Internal professional fees she received from sources other than ABS-
Revenue Code of 1997. CBN and her underdeclaration of the income she received
from ABS-CBN amounted to manifest violations of Sections
No costs. 2547 and 255,8 as well as Section 248(B) of the NIRC, as
amended.
SO ORDERED.
After an exchange of affidavits and other pleadings by the
parties, Prosecution Attorney Olivia Laroza-Torrevillas issued a
4.3
Resolution9 dated 21 October 2005 finding probable cause and
recommending the filing of a criminal information against
G.R. No. 173176             August 26, 2008 petitioner for violation of Section 255 in relation to Sections 254
and 248(B) of the NIRC, as amended. The said Resolution was
JUDY ANNE L. SANTOS, petitioner, approved by Chief State Prosecutor Jovencito R. Zuno.
vs.
PEOPLE OF THE PHILIPPINES and BUREAU OF Pursuant to the 21 October 2005 DOJ Resolution, an
INTERNAL REVENUE, respondents. Information10 for violation of Section 255 in relation to Sections
254 and 248(B) of the NIRC, as amended, was filed with the
DECISION CTA on 3 November 2005 and docketed as C.T.A. Crim. Case
No. 0-012. However, the CTA First Division, after noting
several discrepancies in the Information filed, required the
CHICO-NAZARIO, J.: State Prosecutor to clarify and explain the same, and to submit
the original copies of the parties’ affidavits, memoranda, and all
Before this Court is a Petition for Review on Certiorari1 under other evidence on record.11
Rule 45 of the Revised Rules of Court filed by petitioner Judy
Anne L. Santos (Santos) seeking the reversal and setting aside Consequently, Prosecution Attorney Torrevillas, on behalf of
of the Resolution,2 dated 19 June 2006, of the Court of Tax respondent People, submitted on 1 December 2005 a
Compliance with Ex Parte Motion to Admit Attached Crim. Case No. 0-012. As stated above, a resolution
Information.12 Prosecution Attorney Torrevillas moved that the denying a motion to quash is not a proper subject of
documents submitted be admitted as part of the record of the an appeal to the Court En Banc under Section 11 of
case and the first Information be substituted by the attached R.A. No. 9282 because a ruling denying a motion to
second Information. The second Information13 addressed the quash is only an interlocutory order, as such, it cannot
discrepancies noted by the CTA in the first Information, by now be made the subject of an appeal pursuant to said law
reading thus: and the Rules of Court. Section 1 of Rule 41 of the
Rules of Court provides that "no appeal may be taken
The undersigned Prosecution Attorney of the from an interlocutory order" and Section 1 (i) of Rule
Department of Justice hereby accuses JUDY ANNE 50 provides for the dismissal of an appeal on the
SANTOS y Lumagui of the offense of violation of ground that "the order or judgment appealed from is
Section 255, of Republic Act No. 8424, otherwise not appealable". Time and again, the Supreme Court
known as the "Tax Reform Act of 1997," as amended, had ruled that the remedy of the accused in case of
committed as follows: 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
"That on or about the 15th day of April, 2003, authorized by law.
at Quezon City, Philippines, and within the
jurisdiction of this Honorable Court, the
above-named accused did then and there, Since a denial of a Motion to Quash is not appealable,
willfully, unlawfully, and feloniously file a granting petitioner’s Motion for Extension of Time to
false and fraudulent income tax return for File Petition for Review will only be an exercise in
taxable year 2002 by indicating therein a futility considering that the dismissal of the Petition for
gross income of P8,033,332.70 when in truth Review that will be filed by way of appeal is mandated
and in fact her correct income for taxable both by law and jurisprudence.22
year 2002 is P16,396,234.70 or a gross
underdeclaration/difference of P8,362,902 Ultimately, the CTA en banc decreed:
resulting to an income tax deficiency
of P1,395,116.24 excluding interest and WHEREFORE, premises considered, petitioner’s
penalties thereon of P1,319,500.94 or a total Motion for Extension of Time to File Petition for
income tax deficiency of P2,714,617.18 to Review filed on June 1, 2006 is hereby DENIED for
the damage and prejudice of the government lack of merit.23
of the same amount.["]
Now comes petitioner before this Court raising the sole issue
In a Resolution14 dated 8 December 2005, the CTA First of:
Division granted the People’s Ex Parte Motion and admitted
the second Information.
WHETHER A RESOLUTION OF A CTA DIVISION
DENYING A MOTION TO QUASH IS A PROPER
The CTA First Division then issued on 9 December 2005 a SUBJECT OF AN APPEAL TO THE CTA EN
warrant for the arrest of petitioner.15 The tax court lifted and BANC UNDER SECTION 11 OF REPUBLIC ACT
recalled the warrant of arrest on 21 December 2005 after NO. 9282, AMENDING SECTION 18 OF REPUBLIC
petitioner voluntarily appeared and submitted herself to its ACT NO. 1125.24
jurisdiction and filed the required bail bond in the amount
of P20,000.00.16
Section 18 of Republic Act No. 1125,25 as amended by
Republic Act No. 9282,26 provides:
On 10 January 2006, petitioner filed with the CTA First Division
a Motion to Quash17 the Information filed in C.T.A. Crim. Case
No. 0-012 on the following grounds: 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
1. The facts alleged in the INFORMATION do not and Customs Code or the Local Government Code
constitute an offense; shall be maintained, except as herein provided, until
and unless an appeal has been previously filed with
2. The officer who filed the information had no the CTA and disposed of in accordance with the
authority to do so; provisions of this Act.

3. The Honorable Court of Tax Appeals has no A party adversely affected by a resolution of a
jurisdiction over the subject matter of the case; and Division of the CTA on a motion for reconsideration or
new trial, may file a petition for review with the
4. The information is void ab initio, being violative of CTA en banc.
due process, and the equal protection of the laws.
Petitioner’s primary argument is that a resolution of a CTA
In a Resolution18 dated 23 February 2006, the CTA First Division denying a motion to quash is a proper subject of an
Division denied petitioner’s Motion to Quash and accordingly appeal to the CTA en banc under Section 18 of Republic Act
scheduled her arraignment on 2 March 2006 at 9:00 a.m. No. 1125, as amended, because the law does not say that only
Petitioner filed a Motion for Reconsideration and/or a resolution that constitutes a final disposition of a case may
Reinvestigation,19 which was again denied by the CTA First be appealed to the CTA en banc. If the interpretation of the law
Division in a Resolution20 dated 11 May 2006. 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.
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 The Court finds no merit in the petitioner’s assertion.
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 The petition for review under Section 18 of Republic Act
banc on 16 June 2006. However, in its Resolution21 dated 19 No. 1125, as amended, may be new to the CTA, but it is
June 2006, the CTA en banc denied petitioner’s Motion for actually a mode of appeal long available in courts of
Extension of Time to File Petition for Review, ratiocinating that: general jurisdiction.

In the case before Us, the petitioner is asking for an Petitioner is invoking a very narrow and literal reading of
extension of time to file her Petition for Review to Section 18 of Republic Act No. 1125, as amended.
appeal the denial of her motion to quash in C.T.A.
Indeed, the filing of a petition for review with the CTA en Although the filing of a petition for review with the CTA en
banc from a decision, resolution, or order of a CTA Division is banc from a decision, resolution, or order of the CTA Division,
a remedy newly made available in proceedings before the was newly made available to the CTA, such mode of appeal
CTA, necessarily adopted to conform to and address the has long been available in Philippine courts of general
changes in the CTA. jurisdiction. Hence, the Revised CTA Rules no longer
elaborated on it but merely referred to existing rules of
There was no need for such rule under Republic Act No. 1125, procedure on petitions for review and appeals, to wit:
prior to its amendment, since the CTA then was composed
only of one Presiding Judge and two Associate Judges. 27 Any RULE 7
two Judges constituted a quorum and the concurrence of two PROCEDURE IN THE COURT OF TAX APPEALS
Judges was necessary to promulgate any decision thereof.28
SEC. 1. Applicability of the Rules of the Court of
The amendments introduced by Republic Act No. 9282 to Appeals. – The procedure in the Court en banc or in
Republic Act No. 1125 elevated the rank of the CTA to a Divisions in original and in appealed cases shall be
collegiate court, with the same rank as the Court of Appeals, the same as those in petitions for review and appeals
and increased the number of its members to one Presiding before the Court of Appeals pursuant to the
Justice and five Associate Justices.29 The CTA is now allowed applicable provisions of Rules 42, 43, 44 and 46 of
to sit en banc or in two Divisions with each Division consisting the Rules of Court, except as otherwise provided for
of three Justices. Four Justices shall constitute a quorum for in these Rules.
sessions en banc, and the affirmative votes of four members of
the Court en banc are necessary for the rendition of a decision RULE 8
or resolution; while two Justices shall constitute a quorum for PROCEDURE IN CIVIL CASES
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 xxxx

In A.M. No. 05-11-07-CTA, the Revised CTA Rules, this Court SEC. 4. Where to appeal; mode of appeal. –
delineated the jurisdiction of the CTA en banc31 and in
Divisions.32 Section 2, Rule 4 of the Revised CTA Rules xxxx
recognizes the exclusive appellate jurisdiction of the CTA en
banc to review by appeal the following decisions, resolutions, (b) An appeal from a decision or resolution of the
or orders of the CTA Division: Court in Division on a motion for reconsideration or
new trial shall be taken to the Court by petition for
SEC. 2. Cases within the jurisdiction of the Court en review as provided in Rule 43 of the Rules of
banc. – The Court en banc shall exercise exclusive Court. The Court en banc shall act on the appeal.
appellate jurisdiction to review by appeal the
following: xxxx

(a) Decisions or resolutions on motions for RULE 9

reconsideration or new trial of the Court in Divisions in PROCEDURE IN CRIMINAL CASES
the exercise of its exclusive appellate jurisdiction
over:
SEC. 1. Review of cases in the Court. – The review of
criminal cases in the Court en banc or in Division shall
(1) Cases arising from administrative be governed by the applicable provisions of Rule 124
agencies – Bureau of Internal Revenue, of the Rules of Court.
Bureau of Customs, Department of Finance,
Department of Trade and Industry,
Department of Agriculture; xxxx

(2) Local tax cases decided by the Regional SEC. 9. Appeal; period to appeal. –
Trial Courts in the exercise of their original
jurisdiction; and xxxx

(3) Tax collection cases decided by the (b) An appeal to the Court en banc in criminal cases
Regional Trial Courts in the exercise of their decided by the Court in Division shall be taken by
original jurisdiction involving final and filing a petition for review as provided in Rule 43 of
executory assessments for taxes, fees, the Rules of Court within fifteen days from receipt of
charges and penalties, where the principal a copy of the decision or resolution appealed from.
amount of taxes and penalties claimed is The Court may, for good cause, extend the time for
less than one million pesos; filing of the petition for review for an additional period
not exceeding fifteen days. (Emphasis ours.)
xxxx
Given the foregoing, the petition for review to be filed with the
(f) Decisions, resolutions or orders on motions for CTA en banc as the mode for appealing a decision, resolution,
reconsideration or new trial of the Court in Division in or order of the CTA Division, under Section 18 of Republic Act
the exercise of its exclusive original jurisdiction over No. 1125, as amended, is not a totally new remedy, unique to
cases involving criminal offenses arising from the CTA, with a special application or use therein. To the
violations of the National Internal Revenue Code or contrary, the CTA merely adopts the procedure for petitions for
the Tariff and Customs Code and other laws review and appeals long established and practiced in other
administered by the Bureau of Internal Revenue or Philippine courts. Accordingly, doctrines, principles, rules, and
Bureau of Customs. 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.
(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 General rule: The denial of a motion to quash is an
criminal offenses mentioned in the preceding interlocutory order which is not the proper subject of an
subparagraph; x x x. appeal or a petition for certiorari.
According to Section 1, Rule 41 of the Revised Rules of Court, appeal has been perfected." And in the
governing appeals from the Regional Trial Courts (RTCs) to abovecited Veluz case, this Court held that "If the trial
the Court of Appeals, an appeal may be taken only from a court should discover or be convinced that it had
judgment or final order that completely disposes of the case or committed an error in its judgment, or had done an
of a matter therein when declared by the Rules to be injustice, before the same has become final, it may,
appealable. Said provision, thus, explicitly states that no upon its own motion or upon a motion of the parties,
appeal may be taken from an interlocutory order.33 correct such error in order to do justice between the
parties. . . . It would seem to be the very height of
The Court distinguishes final judgments and orders from absurdity to prohibit a trial judge from correcting an
interlocutory orders in this wise: 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
Section 2, Rule 41 of the Revised Rules of Court instance is not legally prevented from revoking the
provides that "(o)nly final judgments or orders shall be interlocutory order of another judge in the very
subject to appeal." Interlocutory or incidental litigation subsequently assigned to him for judicial
judgments or orders do not stay the progress of an action."
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 Another recognized reason of the law in permitting appeal only
judgment is interlocutory or final is this: "Does it leave from a final order or judgment, and not from an interlocutory or
something to be done in the trial court with respect to incidental one, is to avoid multiplicity of appeals in a single
the merits of the case? If it does, it is interlocutory; if it action, which must necessarily suspend the hearing and
does not, it is final". A court order is final in character decision on the merits of the case during the pendency of the
if it puts an end to the particular matter resolved or appeal. If such appeal were allowed, the trial on the merits of
settles definitely the matter therein disposed of, such the case would necessarily be delayed for a considerable
that no further questions can come before the court length of time, and compel the adverse party to incur
except the execution of the order. The term "final" unnecessary expenses, for one of the parties may interpose as
judgment or order signifies a judgment or an order many appeals as incidental questions may be raised by him,
which disposes of the cause as to all the parties, and interlocutory orders rendered or issued by the lower
reserving no further questions or directions for future court.37
determination. The order or judgment may validly
refer to the entire controversy or to some definite and There is no dispute that a court order denying a motion to
separate branch thereof. "In the absence of a quash is interlocutory. The denial of the motion to quash
statutory definition, a final judgment, order or decree means that the criminal information remains pending with the
has been held to be x x x one that finally disposes of, court, which must proceed with the trial to determine whether
adjudicates, or determines the rights, or some right or the accused is guilty of the crime charged therein. Equally
rights of the parties, either on the entire controversy settled is the rule that an order denying a motion to quash,
or on some definite and separate branch thereof, and being interlocutory, is not immediately appealable,38 nor can it
which concludes them until it is reversed or set aside." be the subject of a petition for certiorari. Such order may only
The central point to consider is, therefore, the effects be reviewed in the ordinary course of law by an appeal from
of the order on the rights of the parties. A court order, the judgment after trial.39
on the other hand, is merely interlocutory in character
if it is provisional and leaves substantial proceeding to The Court cannot agree in petitioner’s contention that there
be had in connection with its subject. The word would exist a procedural void following the denial of her Motion
"interlocutory" refers to "something intervening to Quash by the CTA First Division in its Resolutions dated 23
between the commencement and the end of a suit February 2006 and 11 May 2006, leaving her helpless. The
which decides some point or matter but is not a final remedy of an accused from the denial of his or her motion to
decision of the whole controversy."34 quash has already been clearly laid down as follows:

In other words, after a final order or judgment, the court should An order denying a Motion to Acquit (like an order
have nothing more to do in respect of the relative rights of the denying a motion to quash) is interlocutory and not a
parties to the case. Conversely, "an order that does not finally final order. It is, therefore, not appealable. Neither can
dispose of the case and does not end the Court's task of it be the subject of a petition for certiorari. Such order
adjudicating the parties' contentions in determining their rights of denial may only be reviewed, in the ordinary course
and liabilities as regards each other, but obviously indicates of law, by an appeal from the judgment, after trial. As
that other things remain to be done by the Court, is stated in Collins vs. Wolfe, and reiterated in Mill vs.
interlocutory."35 Yatco, the accused, after the denial of his motion to
quash, should have proceeded with the trial of the
The rationale for barring the appeal of an interlocutory order case in the court below, and if final judgment is
was extensively discussed in Matute v. Court of rendered against him, he could then appeal, and,
Appeals,36 thus: upon such appeal, present the questions which he
sought to be decided by the appellate court in a
It is settled that an "interlocutory order or decree petition for certiorari.
made in the progress of a case is always under the
control of the court until the final decision of the suit, In Acharon vs. Purisima, the procedure was well
and may be modified or rescinded upon sufficient defined, thus:
grounds shown at any time before final judgment . . ."
Of similar import is the ruling of this Court declaring "Moreover, when the motion to quash filed
that "it is rudimentary that such (interlocutory) orders by Acharon to nullify the criminal cases filed
are subject to change in the discretion of the court." against him was denied by the Municipal
Moreover, one of the inherent powers of the court is Court of General Santos his remedy was not
"To amend and control its process and orders so as to to file a petition for certiorari but to go to trial
make them conformable to law and justice. In the without prejudice on his part to reiterate the
language of Chief Justice Moran, paraphrasing the special defenses he had invoked in his
ruling in Veluz vs. Justice of the Peace of Sariaya, motion and, if, after trial on the merits, an
"since judges are human, susceptible to mistakes, adverse decision is rendered, to appeal
and are bound to administer justice in accordance therefrom in the manner authorized by law.
with law, they are given the inherent power of This is the procedure that he should have
amending their orders or judgments so as to make followed as authorized by law and
them conformable to law and justice, and they can do precedents. Instead, he took the usual step
so before they lose their jurisdiction of the case, that of filing a writ of certiorari before the Court of
is before the time to appeal has expired and no First Instance which in our opinion is
 unwarranted it being contrary to the usual to a petition for certiorari is proper. A party must not be allowed
course of law."40 to delay litigation by the sheer expediency of filing a petition
for certiorari under Rule 65 of the Revised Rules of Court
Hence, the CTA en banc herein did not err in denying based on scant allegations of grave abuse.49
petitioner’s Motion for Extension of Time to File Petition for
Review, when such Petition for Review is the wrong remedy to A writ of certiorari is not intended to correct every controversial
assail an interlocutory order denying her Motion to Quash. interlocutory ruling: it is resorted to only to correct a grave
abuse of discretion or a whimsical exercise of judgment
While the general rule proscribes the appeal of an interlocutory equivalent to lack of jurisdiction. Its function is limited to
order, there are also recognized exceptions to the same. The keeping an inferior court within its jurisdiction and to relieve
general rule is not absolute. Where special circumstances persons from arbitrary acts – acts which courts or judges have
clearly demonstrate the inadequacy of an appeal, then the no power or authority in law to perform. It is not designed to
special civil action of certiorari or prohibition may exceptionally correct erroneous findings and conclusions made by the
be allowed.41 This Court recognizes that under certain courts.50
situations, recourse to extraordinary legal remedies, such as a
petition for certiorari, is considered proper to question the The Petition for Review which petitioner intended to file before
denial of a motion to quash (or any other interlocutory order) in the CTA en banc relied on two grounds: (1) the lack of
the interest of a "more enlightened and substantial justice";42 or authority of Prosecuting Attorney Torrevillas to file the
to promote public welfare and public policy;43 or when the Information; and (2) the filing of the said Information in violation
cases "have attracted nationwide attention, making it essential of petitioner’s constitutional rights to due process and equal
to proceed with dispatch in the consideration thereof";44 or protection of the laws.
when the order was rendered with grave abuse of
discretion.45 Certiorari is an appropriate remedy to assail an Anent the first ground, petitioner argues that the Information
interlocutory order (1) when the tribunal issued such order was filed without the approval of the BIR Commissioner in
without or in excess of jurisdiction or with grave abuse of violation of Section 220 of NIRC, as amended, which provides:
discretion; and (2) when the assailed interlocutory order is
patently erroneous, and the remedy of appeal would not afford
adequate and expeditious relief.46 SEC. 220. Form and Mode of Proceeding in Actions
Arising under this Code. - Civil and criminal actions
and proceedings instituted in behalf of the
Recourse to a petition for certiorari to assail an interlocutory Government under the authority of this Code or other
order is now expressly recognized in the ultimate paragraph of law enforced by the Bureau of Internal Revenue shall
Section 1, Rule 41 of the Revised Rules of Court on the be brought in the name of the Government of the
subject of appeal, which states: Philippines and shall be conducted by legal officers of
the Bureau of Internal Revenue but no civil or criminal
In all the above instances where the judgment or final action for the recovery of taxes or the enforcement of
order is not appealable, the aggrieved party may file any fine, penalty or forfeiture under this Code shall be
an appropriate special civil action under Rule 65. filed in court without the approval of the
Commissioner.
As to whether the CTA en banc, under its expanded jurisdiction
in Republic Act No. 9282, has been granted jurisdiction over Petitioner’s argument must fail in light of BIR Commissioner
special civil actions for certiorari is not raised as an issue in the Parayno’s letter dated 19 May 2005 to DOJ Secretary
Petition at bar, thus, precluding the Court from making a Gonzales referring "for preliminary investigation and filing of
definitive pronouncement thereon. However, even if such an an information in court if evidence so warrants," the findings
issue is answered in the negative, it would not substantially of the BIR officers recommending the criminal prosecution of
affect the ruling of this Court herein, for a party whose motion petitioner. In said letter, BIR Commissioner Parayno already
to quash had been denied may still seek recourse, under gave his prior approval to the filing of an information in court
exceptional and meritorious circumstances, via a special civil should the DOJ, based on the evidence submitted, find
action for certiorari with this Court, refuting petitioner’s probable cause against petitioner during the preliminary
assertion of a procedural void. investigation. Section 220 of the NIRC, as amended, simply
requires that the BIR Commissioner approve the institution of
The CTA First Division did not commit grave abuse of civil or criminal action against a tax law violator, but it does not
discretion in denying petitioner’s Motion to Quash. describe in what form such approval must be given. In this
case, BIR Commissioner Parayno’s letter of 19 May 2005
already states his express approval of the filing of an
Assuming that the CTA en banc, as an exception to the information against petitioner and his signature need not
general rule, allowed and treated petitioner’s Petition for appear on the Resolution of the State Prosecutor or the
Review in C.T.A. EB. CRIM. No. 001 as a special civil action Information itself.
for certiorari, 47 it would still be dismissible for lack of merit.
Still on the purported lack of authority of Prosecution Attorney
An act of a court or tribunal may only be considered as Torrevillas to file the Information, petitioner asserts that it is the
committed in grave abuse of discretion when the same was City Prosecutor under the Quezon City Charter, who has the
performed in a capricious or whimsical exercise of judgment, authority to investigate and prosecute offenses allegedly
which is equivalent to lack of jurisdiction. The abuse of committed within the jurisdiction of Quezon City, such as
discretion must be so patent and gross as to amount to an petitioner’s case.
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 The Court is not persuaded. Under Republic Act No. 537, the
manner by reason of passion or personal hostility. In this Revised Charter of Quezon City, the City Prosecutor shall have
connection, it is only upon showing that the court acted without the following duties relating to the investigation and
or in excess of jurisdiction or with grave abuse of discretion prosecution of criminal offenses:
that an interlocutory order such as that involved in this case
may be impugned. Be that as it may, it must be emphasized SEC. 28. The City Attorney - His assistants - His
that this practice is applied only under certain exceptional duties. –
circumstances to prevent unnecessary delay in the
administration of justice and so as not to unduly burden the xxxx
courts.48
(g) He shall also have charge of the prosecution of all
Certiorari is not available to correct errors of procedure or crimes, misdemeanors, and violations of city
mistakes in the judge’s findings and conclusions of law and ordinances, in the Court of First Instance and the
fact. It is only in the presence of extraordinary circumstances municipal courts of the city, and shall discharge all the
evincing a patent disregard of justice and fair play where resort
 duties in respect to the criminal prosecutions enjoined As regards petitioner’s second ground in her intended Petition
by law upon provincial fiscals. for Review with the CTA en banc, she asserts that she has
been denied due process and equal protection of the laws
(h) He shall cause to be investigated all charges of when similar charges for violation of the NIRC, as amended,
crimes, misdemeanors, and violations of ordinances against Regina Encarnacion A. Velasquez (Velasquez) were
and have the necessary information or complaints dismissed by the DOJ in its Resolution dated 10 August 2005
prepared or made against the persons accused. He or in I.S. No. 2005-330 for the reason that Velasquez’s tax liability
any of his assistants may conduct such investigations was not yet fully determined when the charges were filed.
by taking oral evidence of reputable witnesses, and
for this purpose may issue subpoena, summon The Court is unconvinced.
witnesses to appear and testify under oath before
him, and the attendance or evidence of an absent or First, a motion to quash should be based on a defect in the
recalcitrant witness may be enforced by application to information which is evident on its face.56 The same cannot be
the municipal court or the Court of First Instance. No said herein. The Information against petitioner appears valid on
witness summoned to testify under this section shall its face; and that it was filed in violation of her constitutional
be under obligation to give any testimony which tend rights to due process and equal protection of the laws is not
to incriminate himself. evident on the face thereof. As pointed out by the CTA First
Division in its 11 May 2006 Resolution, the more appropriate
Evident from the foregoing is that the City Prosecutor has the recourse petitioner should have taken, given the dismissal of
power to investigate crimes, misdemeanors, and violations of similar charges against Velasquez, was to appeal the
ordinances committed within the territorial jurisdiction of the Resolution dated 21 October 2005 of the Office of the State
city, and which can be prosecuted before the trial courts of the Prosecutor recommending the filing of an information against
said city. The charge against petitioner, however, is already her with the DOJ Secretary.57
within the exclusive original jurisdiction of the CTA,51 as the
Information states that her gross underdeclaration resulted in Second, petitioner cannot claim denial of due process when
an income tax deficiency of P1,395,116.24, excluding interest she was given the opportunity to file her affidavits and other
and penalties. The City Prosecutor does not have the authority pleadings and submit evidence before the DOJ during the
to appear before the CTA, which is now of the same rank as preliminary investigation of her case and before the Information
the Court of Appeals. was filed against her. Due process is merely an opportunity to
be heard. In addition, preliminary investigation conducted by
In contrast, the DOJ is the principal law agency of the the DOJ is merely inquisitorial. It is not a trial of the case on the
Philippine government which shall be both its legal counsel merits. Its sole purpose is to determine whether a crime has
and prosecution arm.52 It has the power to investigate the been committed and whether the respondent therein is
commission of crimes, prosecute offenders and administer the probably guilty of the crime. It is not the occasion for the full
probation and correction system.53 Under the DOJ is the Office and exhaustive display of the parties’ evidence. Hence, if the
of the State Prosecutor whose functions are described as investigating prosecutor is already satisfied that he can
follows: reasonably determine the existence of probable cause based
on the parties’ evidence thus presented, he may terminate the
Sec. 8. Office of the Chief State Prosecutor. - The proceedings and resolve the case.58
Office of the Chief State Prosecutor shall have the
following functions: Third, petitioner cannot likewise aver that she has been denied
equal protection of the laws.
(1) Assist the Secretary in the performance of powers
and functions of the Department relative to its role as The equal protection clause exists to prevent undue favor or
the prosecution arm of the government; privilege. It is intended to eliminate discrimination and
oppression based on inequality. Recognizing the existence of
(2) Implement the provisions of laws, executive orders real differences among men, the equal protection clause does
and rules, and carry out the policies, plans, programs not demand absolute equality. It merely requires that all
and projects of the Department relative to the persons shall be treated alike, under like circumstances and
investigation and prosecution of criminal cases; conditions, both as to the privileges conferred and liabilities
enforced.59
(3) Assist the Secretary in exercising supervision and
control over the National Prosecution Service as Petitioner was not able to duly establish to the satisfaction of
constituted under P.D. No. 1275 and/or otherwise this Court that she and Velasquez were indeed similarly
hereinafter provided; and 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
(4) Perform such other functions as may be provided in their defense - yet, they were treated differently.
by law or assigned by the Secretary.54
Furthermore, that the Prosecution Attorney dismissed what
As explained by CTA First Division in its Resolution dated 11 were supposedly similar charges against Velasquez did not
May 2006: compel Prosecution Attorney Torrevillas to rule the same way
on the charges against petitioner. In People v. Dela
[T]he power or authority of the Chief State Prosecutor Piedra,60 this Court explained that:
Jovencito Zuño, Jr. and his deputies in the
Department of Justice to prosecute cases is national The prosecution of one guilty person while others
in scope; and the Special Prosecutor’s authority to equally guilty are not prosecuted, however, is not, by
sign and file informations in court proceeds from the itself, a denial of the equal protection of the laws.
exercise of said person’s authority to conduct Where the official action purports to be in conformity
preliminary investigations.55 to the statutory classification, an erroneous or
mistaken performance of the statutory duty, although
Moreover, there is nothing in the Revised Quezon City Charter a violation of the statute, is not without more a denial
which would suggest that the power of the City Prosecutor to of the equal protection of the laws. The unlawful
investigate and prosecute crimes, misdemeanors, and administration by officers of a statute fair on its face,
violations of ordinances committed within the territorial resulting in its unequal application to those who are
jurisdiction of the city is to the exclusion of the State entitled to be treated alike, is not a denial of equal
Prosecutors. In fact, the Office of the State Prosecutor protection unless there is shown to be present in it an
exercises control and supervision over City Prosecutors under element of intentional or purposeful discrimination.
Executive Order No. 292, otherwise known as the This may appear on the face of the action taken with
Administrative Code of 1987. respect to a particular class or person, or it may only
 be shown by extrinsic evidence showing a SO ORDERED.
discriminatory design over another not to be inferred
from the action itself. But a discriminatory purpose
4.4
is not presumed, there must be a showing of
"clear and intentional discrimination." Appellant
has failed to show that, in charging appellant in court, G.R. No. 177982              October 17, 2008
that there was a "clear and intentional discrimination"
on the part of the prosecuting officials. FITNESS BY DESIGN, INC., petitioner,
vs.
The discretion of who to prosecute depends on the COMMISSIONER ON INTERNAL REVENUE, respondent.
prosecution’s sound assessment whether the
evidence before it can justify a reasonable belief that DECISION
a person has committed an offense. The
presumption is that the prosecuting officers
regularly performed their duties, and this CARPIO MORALES, J.:
presumption can be overcome only by proof to
the contrary, not by mere speculation. Indeed, On March 17, 2004, the Commissioner on Internal Revenue
appellant has not presented any evidence to (respondent) assessed Fitness by Design, Inc. (petitioner) for
overcome this presumption. The mere allegation that deficiency income taxes for the tax year 1995 in the total
appellant, a Cebuana, was charged with the amount of ₱10,647,529.69.1 Petitioner protested the
commission of a crime, while a Zamboangueña, the assessment on the ground that it was issued beyond the three-
guilty party in appellant’s eyes, was not, is insufficient year prescriptive period under Section 203 of the Tax
to support a conclusion that the prosecution officers Code.2 Additionally, petitioner claimed that since it was
denied appellant equal protection of the laws. incorporated only on May 30, 1995, there was no basis to
assume that it had already earned income for the tax year
There is also common sense practicality in sustaining 1995.3
appellant’s prosecution.
On February 1, 2005, respondent issued a warrant of distraint
While all persons accused of crime are to be and/or levy against petitioner,4 drawing petitioner to file on
treated on a basis of equality before the law, it March 1, 2005 a Petition for Review (with Motion to Suspend
does not follow that they are to be protected in Collection of Income Tax, Value Added Tax, Documentary
the commission of crime. It would be Stamp Tax and Surcharges and Interests subject of this
unconscionable, for instance, to excuse a defendant Petition)5 before the Court of Tax Appeals (CTA) before which
guilty of murder because others have murdered with it reiterated its defense of prescription. The petition was
impunity. The remedy for unequal enforcement of docketed as CTA Case No. 7160.
the law in such instances does not lie in the
exoneration of the guilty at the expense of In his Answer,6 respondent alleged:
society x x x. Protection of the law will be extended to
all persons equally in the pursuit of their lawful The right of the respondent to assess petitioner for deficiency
occupations, but no person has the right to demand income tax, VAT and Documentary Stamp Tax for the year
protection of the law in the commission of a crime. 1995 has not prescribed pursuant to Section 222(a) of the
1997 Tax Code. Petitioner’s 1995 Income Tax Return (ITR)
Likewise, [i]f the failure of prosecutors to enforce the filed on April 11, 1996 was false and fraudulent for its
criminal laws as to some persons should be deliberate failure to declare its true sales. Petitioner declared in
converted into a defense for others charged with its 1995 Income Tax Return that it was on its pre-operation
crime, the result would be that the trial of the district stage and has not declared its income. Investigation by the
attorney for nonfeasance would become an issue in revenue officers of the respondent, however, disclosed that it
the trial of many persons charged with heinous crimes has been operating/doing business and had sales operations
and the enforcement of law would suffer a complete for the year 1995 in the total amount of ₱7,156,336.08 which it
breakdown. (Emphasis ours.) failed to report in its 1995 ITR. Thus, for the year 1995,
petitioner filed a fraudulent annual income return with intent to
In the case at bar, no evidence of a clear and intentional evade tax. Likewise, petitioner failed to file Value-Added Tax
discrimination against petitioner was shown, whether by (VAT) Return and reported the amount of P7,156,336.08 as its
Prosecution Attorney Torrevillas in recommending the filing of gross sales for the year 1995. Hence, for failure to file a VAT
Information against petitioner or by the CTA First Division in return and for filing a fraudulent income tax return for the
denying petitioner’s Motion to Quash. The only basis for year 1995, the corresponding taxes may be assessed at
petitioner’s claim of denial of equal protection of the laws was any time within ten (10) years after the discovery  of such
the dismissal of the charges against Velasquez while those omission or fraud pursuant to Section 222(a) of the 1997 Tax
against her were not. Code.

And lastly, the Resolutions of the CTA First Division dated 23 The subject deficiency tax assessments have already become
February 2006 and 11 May 2006 directly addressed the final, executory and demandable for failure of the petitioner to
arguments raised by petitioner in her Motion to Quash and file a protest within the reglementary period provided for by
Motion for Reconsideration, respectively, and explained the law. The "alleged protest" allegedly filed on June 25, 2004 at
reasons for the denial of both Motions. There is nothing to the Legal Division, Revenue Region No. 8, Makati City is
sustain a finding that these Resolutions were rendered nowhere to be found in the BIR Records nor reflected in the
capriciously, whimsically, or arbitrarily, as to constitute grave Record Book of the Legal Division as normally done by our
abuse of discretion amounting to lack or excess of jurisdiction. receiving clerk when she receive[s] any document. The
respondent, therefore, has legal basis to collect the tax liability
either by distraint and levy or civil action.7 (Emphasis and
In sum, the CTA en banc did not err in denying petitioner’s underscoring supplied)
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 The aforecited Section 222(a)8 of the 1997 Tax Code provides:
denying her Motion to Quash. The Resolution is interlocutory
and, thus, unappealable. Even if her Petition for Review is to In the case of a false or fraudulent return with intent to evade
be treated as a petition for certiorari, it is dismissible for lack of tax or of failure to file a return, the tax may be assessed, or a
merit. proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the
WHEREFORE, premises considered, the instant Petition for discovery of the falsity, fraud, or omission: Provided, That in a
Review is hereby DENIED. Costs against petitioner. fraud assessment which has become final and executory, the
fact of fraud shall be judicially taken cognizance of in the civil reveal the identity of the informer since 1) the purpose of the
or criminal action for the collection thereof. (Underscoring subpoena is to elicit from him the whereabouts of the original
supplied) accounting records, documents and receipts owned by the
Petitioner and not to discover if he is the informer since the
The Bureau of Internal Revenue (BIR) in fact filed on March identity of the informer is not relevant to the issues raised; 2)
10, 2005 a criminal complaint before the Department of Justice RA 2338 cannot legally justify violation of the Petitioner’s
against the officers and accountant of petitioner for violation of property rights by a person, whether he is an informer or not,
the provisions of "The National Internal Revenue Code of since such RA cannot allow such invasion of property rights
1977, as amended,9 covering the taxable year 1995." The otherwise RA 2338 would run counter to the constitutional
criminal complaint was docketed as I.S. No. 2005-203. mandate that "no person shall be deprive[d] of life, liberty or
property without due process of law."
On motion of petitioner in CTA Case No. 7160, a preliminary
hearing on the issue of prescription10 was conducted during III.
which petitioner’s former bookkeeper attested that a former
colleague – certified public accountant Leonardo Sablan x x x in holding that the issuance of subpoena ad testificandum
(Sablan) – illegally took custody of petitioner’s accounting would constitute a violation of the prohibition to reveal the
records, invoices, and official receipts and turned them over to identity of the informer because compliance with such
the BIR.11 prohibition has been rendered moot and academic by the
voluntary admissions of the Respondent himself.
On petitioner’s request, a subpoena ad testificandum was
issued to Sablan for the hearing before the CTA scheduled on IV.
September 4, 2006 but he failed to appear.12
x x x in holding that the constitutional right of an accused to
Petitioner thus requested for the issuance of another examine the witness against him does not exist in this case.
subpoena ad testificandum to Sablan for the hearing The Petitioner’s liability for tax deficiency assessment which is
scheduled on October 23, 2006,13 and of subpoena duces the main issue in the Petition for Review is currently pending at
tecum to the chief of the National Investigation Division of the the Honorable Second Division. Therefore, it is a prejudicial
BIR for the production of the Affidavit of the Informer bearing question raised in the criminal case filed by the herein
on the assessment in question.14 Petitioner’s requests were Respondent against the officers of the Petitioner with the
granted.15 Department of Justice.

During the scheduled hearing of the case on October 23, 2006, V.

on respondent’s counsel’s manifestation that he was not
furnished a copy of petitioner’s motion for the issuance of x x x in dismissing the request for subpoena ad testificandum
subpoenaes, the CTA ordered petitioner to file a motion for the because the Opposition thereto submitted by the Respondent
issuance of subpoenas and to furnish respondent’s counsel a was not promptly filed as provided by the Rules of Court thus,
copy thereof.16 Petitioner complied with the CTA order.17 it is respectfully submitted that, Respondent has waived his
right to object thereto.
In a related move, petitioner submitted written interrogatories
addressed to Sablan and to Henry Sarmiento and Marinella VI.
German, revenue officers of the National Investigation Division
of the BIR.18
x x x when the Honorable Court of Tax Appeals ruled that the
purpose of the Petitioner in requesting for written
By Resolution  of January 15, 2007, the CTA denied
19
interrogatories is to annoy, embarrass, or oppress the witness
petitioner’s Motion for Issuance of Subpoenas and disallowed because such ruling has no factual basis since Respondent
the submission by petitioner of written interrogatories to never alleged nor proved that the witnesses to whom the
Sablan, who is not a party to the case, and the revenue interrogatories are addressed will be annoyed, embarrassed or
officers,20 it finding that the testimony, documents, and oppressed; besides the only obvious purpose of the Petitioner
admissions sought are not relevant.21 Besides, the CTA found is to know the whereabouts of accounting records and
that to require Sablan to testify would violate Section 2 of documents which are in the possession of the witnesses to
Republic Act No. 2338, as implemented by Section 12 of whom the interrogatories are directed and to ultimately get
Finance Department Order No. 46-66, proscribing the possession thereof. Granting without admitting that there is
revelation of identities of informers of violations of internal annoyance, embarrassment or oppression; the same is not
revenue laws, except when the information is proven to be unreasonable.
malicious or false.22
VII.
In any event, the CTA held that there was no need to issue a
subpoena duces tecum to obtain the Affidavit of the Informer
as the same formed part of the BIR records of the case, the x x x when it failed to rule that the BIR officers and employees
production of which had been ordered by it.23 are not covered by the prohibition under RA 2338 and do not
have the authority to withhold from the taxpayer documents
owned by such taxpayer.
Petitioner’s Motion for Reconsideration24 of the CTA Resolution
of January 15, 2007 was denied,25 hence, the present Petition
for Certiorari26 which imputes grave abuse of discretion to the VIII.
CTA
x x x when it required the "clear and unequivocal proof" of
I. relevance of the documents as a condition precedent for the
issuance of subpoena duces tecum.
x x x in holding that the legality of the mode of acquiring the
documents which are the bases of the above discussed IX.
deficiency tax assessments, the subject matter of the Petition
for Review now pending in the Honorable Second Division, is x x x when it quashed the subpoena duces tecum as the
not material and relevant to the issue of prescription. Honorable Court had issued an outstanding order to the
Respondent to certify and forward to the CTA all the records of
II. the case because up to the date of this Petition the BIR
records have not been submitted yet to the CTA.27
x x x in holding that Mr. Leonardo Sablan’s testimony, if
allowed, would violate RA 2338 which prohibits the BIR to Grave abuse of discretion implies such capricious and
whimsical exercise of judgment as equivalent to lack of
jurisdiction or, in other words, when the power is exercised in lack of consent does not, however, imply that the BIR obtained
an arbitrary or despotic manner by reason of passion or them illegally or that the information received is false or
personal hostility, and it must be so patent and gross as to malicious. Nor does the lack of consent preclude the BIR from
amount to an evasion of positive duty or a virtual refusal of assessing deficiency taxes on petitioner based on the
duty enjoined or to act at all in contemplation of law.28 documents. Thus Section 5 of the Tax Code provides:

The Court finds that the issuance by the CTA of the questioned In ascertaining the correctness of any return, or in making a
resolutions was not tainted by arbitrariness. return when none has been made, or in determining the liability
of any person for any internal revenue tax, or in collecting any
The fact that Sablan was not a party to the case aside, the such liability, or in evaluating tax compliance, the
testimonies, documents, and admissions sought by petitioner Commissioner is authorized:
are not indeed relevant to the issue before the CTA. For in
requesting the issuance of the subpoenas and the submission (A) To examine any book, paper, record or other data which
of written interrogatories, petitioner sought to establish that its may be relevant or material to such query;
accounting records and related documents, invoices, and
receipts which were the bases of the assessment against it (B) To obtain on a regular basis from any person other than
were illegally obtained. The only issues, however, which the person whose internal revenue tax liability is subject
surfaced during the preliminary hearing before the CTA, were to audit or investigation, or from any office or officer of the
whether respondent’s issuance of assessment against national and local governments, government agencies and
petitioner had prescribed and whether petitioner’s tax return instrumentalities, including the Bangko Sentral ng Pilipinas and
was false or fraudulent. government-owned and –controlled corporations, any
information such as, but not limited to, costs and volume of
Besides, as the CTA held, the subpoenas and answers to the production, receipts or sales and gross incomes of taxpayers,
written interrogatories would violate Section 2 of Republic Act and the names, addresses, and financial statements of
No. 2338 as implemented by Section 12 of Finance corporations, mutual fund companies, insurance companies,
Department Order No. 46-66. regional operating headquarters of multinational companies,
joint accounts, associations, joint ventures or consortia and
Petitioner claims, however, that it only intended to elicit registered partnerships and their members;
information on the whereabouts of the documents it needs in
order to refute the assessment, and not to disclose the identity (C) To summon the person liable for tax or required to file a
of the informer.29 Petitioner’s position does not persuade. The return, or any officer or employee of such person, or any
interrogatories addressed to Sablan and the revenue officers person having possession, custody, or care of the books
show that they were intended to confirm petitioner’s belief that of accounts and other accounting records containing
Sablan was the informer. Thus the questions for Sablan read: entries relating to the business of the person liable for tax,
or any other person, to appear before the Commissioner or
1. Under what circumstances do you know petitioner his duly authorized representatives at a time and place
corporation? Please state in what capacity, the date or period specified in the summons and to produce such books, papers,
you obtained said knowledge. records, or other data, and to give testimony;

2. Do you know a Ms. Elnora Carpio, who from 1995 to the (D) To take such testimony of the person concerned, under
early part of 1996 was the book keeper of petitioner? Please oath, as may be relevant or material to such inquiry; and
state how you came to know of Ms. Carpio.
(E) To cause revenue officers and employees to make a
3. At the time that Ms. Carpio was book keeper of petitioner did canvass from time to time of any revenue district or region and
she consult you or show any accounting documents and inquire after and concerning all persons therein who may be
records of petitioner? liable to pay any internal revenue tax, and all persons owning
or having the care, management or possession of any object
with respect to which a tax is imposed.
4. What documents, if any, did you obtain from petitioner?
x x x x (Emphasis and underscoring supplied)
5. Were these documents that you obtained from petitioner
submitted to the Bureau of Internal Revenue (BIR)? Please
describe said documents and under what circumstances the The law thus allows the BIR access to all relevant or material
same were submitted. records and data in the person of the taxpayer,32 and the BIR
can accept documents which cannot be admitted in a judicial
proceeding where the Rules of Court are strictly observed.33 To
6. Was the consent of the petitioner, its officers or employees require the consent of the taxpayer would defeat the intent of
obtained when the documents that you obtained were the law to help the BIR assess and collect the correct amount
submitted to the BIR? Please state when and from whom the of taxes.
consent was obtained.
Petitioner’s invocation of the rights of an accused in a criminal
7. Did you execute an affidavit as an informer in the prosecution to cross examine the witness against him and to
assessment which was issued by the BIR against petitioner for have compulsory process issued to secure the attendance of
the tax year 1995 and other years?30 (Underscoring supplied) witnesses and the production of other evidence in his behalf
does not lie. CTA Case No. 7160 is not a criminal prosecution,
while the questions for the revenue officers read: and even granting that it is related to I.S. No. 2005-203, the
respondents in the latter proceeding are the officers and
1. Where did you obtain the documents, particularly the accountant of petitioner-corporation, not petitioner. From the
invoices and official receipts, which [were] used by your office complaint and supporting affidavits in I.S. No. 2005-203,
as evidence and as basis of the assessment for deficiency Sablan does not even appear to be a witness against the
income tax and value added tax for the tax year 1995 issued respondents therein.34
against petitioner?
AT ALL EVENTS, issuance of subpoena duces tecum for the
2. Do you know Mr. Leonardo Sablan? Please state under production of the documents requested by the petitioner –
what circumstance you came to know Mr. Sablan? which documents petitioner claims to be crucial to its
31
 (Underscoring supplied) defense35 – is unnecessary in view of the CTA order for
respondent to certify and forward to it all the records of the
case.36 If the order has not been complied with, the CTA can
Petitioner impugns the manner in which the documents in enforce it by citing respondent for indirect contempt.37
question reached the BIR, Sablan having allegedly submitted
them to the BIR without its (petitioner’s) consent. Petitioner’s
WHEREFORE, in light of the foregoing disquisition, the petition In case of conflict between national and local laws
is DISMISSED. with respect to tax exemption privileges in the [SSEZ],
the same shall be resolved in favor of the latter;
Costs against petitioner.
(d) No exchange control policy shall be applied and
SO ORDERED. free markets for foreign exchange, gold, securities
and future shall be allowed and maintained in the
[SSEZ]; (emphasis supplied)
4.5
On January 24, 1995, then Secretary of Finance Roberto F. De
G.R. No. 163445             December 18, 2007 Ocampo, through the recommendation of then Commissioner
of Internal Revenue (CIR) Liwayway Vinzons-Chato, issued
ASIA INTERNATIONAL AUCTIONEERS, INC. and SUBIC Revenue Regulations [Rev. Reg.] No. 1-95,2 providing the
BAY MOTORS CORPORATION, petitioners, "Rules and Regulations to Implement the Tax Incentives
vs. Provisions Under Paragraphs (b) and (c) of Section 12, [R.A.]
HON. GUILLERMO L. PARAYNO, JR., in his capacity as No. 7227, [o]therwise known as the Bases Conversion and
Commissioner of the Bureau of Internal Revenue (BIR), Development Act of 1992." Subsequently, Rev. Reg. No. 12-
THE REGIONAL DIRECTOR, BIR, Region III, THE 973 was issued providing for the "Regulations Implementing
REVENUE DISTRICT OFFICER, BIR, Special Economic Sections 12(c) and 15 of [R.A.] No. 7227 and Sections 24(b)
Zone, and OFFICE OF THE SOLICITOR and (c) of [R.A.] No. 7916 Allocating Two Percent (2%) of the
GENERAL, respondents. Gross Income Earned by All Businesses and Enterprises
Within the Subic, Clark, John Hay, Poro Point Special
Economic Zones and other Special Economic Zones under
DECISION PEZA." On September 27, 1999, Rev. Reg. No. 16-994 was
issued "Amending [RR] No. 1-95, as amended, and other
PUNO, C.J.: related Rules and Regulations to Implement the Provisions of
paragraphs (b) and (c) of Section 12 of [R.A.] No. 7227,
otherwise known as the ‘Bases Conversion and Development
At bar is a petition for review on certiorari seeking the reversal
Act of 1992’ Relative to the Tax Incentives Granted to
of the decision1 of the Court of Appeals (CA) in CA-G.R. SP
Enterprises Registered in the Subic Special Economic and
No. 79329 declaring the Regional Trial Court (RTC) of
Freeport Zone."
Olongapo City, Branch 74, without jurisdiction over Civil Case
No. 275-0-2003.
On June 3, 2003, then CIR Guillermo L. Parayno, Jr. issued
Revenue Memorandum Circular (RMC) No. 31-2003 setting
The facts are undisputed.
the "Uniform Guidelines on the Taxation of Imported Motor
Vehicles through the Subic Free Port Zone and Other Freeport
Congress enacted Republic Act (R.A.) No. 7227 creating the Zones that are Sold at Public Auction." The assailed portions of
Subic Special Economic Zone (SSEZ) and extending a number the RMC read:
of economic or tax incentives therein. Section 12 of the law
provides:
II. Tax treatments on the transactions involved in the
importation of motor vehicles through the SSEFZ and other
(a) Within the framework and subject to the mandate legislated Freeport zones and subsequent sale thereof through
and limitations of the Constitution and the pertinent public auction.—Pursuant to existing revenue issuances, the
provisions of the Local Government Code, the [SSEZ] following are the uniform tax treatments that are to be adopted
shall be developed into a self-sustaining, industrial, on the different transactions involved in the importation of
commercial, financial and investment center to motor vehicles through the SSEFZ and other legislated
generate employment opportunities in and around the Freeport zones that are subsequently sold through public
zone and to attract and promote productive foreign auction:
investments;
A. Importation of motor vehicles into the freeport zones
(b) The [SSEZ] shall be operated and managed as a
separate customs territory ensuring free flow or
1. Motor vehicles that are imported into the Freeport
movement of goods and capital within, into and
zones for exclusive use within the zones are, as a
exported out of the [SSEZ], as well as provide
general rule, exempt from customs duties, taxes and
incentives such as tax and duty-free importations of
other charges, provided that the importer-consignee is
raw materials, capital and equipment. However,
a registered enterprise within such freeport zone.
exportation or removal of goods from the territory
However, should these motor vehicles be brought out
of the [SSEZ] to the other parts of the Philippine
into the customs territory without returning to the
territory shall be subject to customs duties and
freeport zones, the customs duties, taxes and other
taxes under the Customs and Tariff Code and
charges shall be paid to the BOC before release
other relevant tax laws of the Philippines;
thereof from its custody.

(c) The provision of existing laws, rules and

xxx
regulations to the contrary notwithstanding, no taxes,
local and national, shall be imposed within the
[SSEZ]. In lieu of paying taxes, three percent (3%) of 3. For imported motor vehicles that are imported by
the gross income earned by all businesses and persons that are not duly registered enterprises of the
enterprise within the [SSEZ] shall be remitted to the freeport zones, or that the same are intended for
National Government, one percent (1%) each to the public auction within the freeport zones, the importer-
local government units affected by the declaration of consignee/auctioneer shall pay the value-added tax
the zone in proportion to their population area, and (VAT) and excise tax to the BOC before the
other factors. In addition, there is hereby established registration thereof under its name with the LTO
a development fund of one percent (1%) of the gross and/or the conduct of the public auction.
income earned by all business and enterprise within
the [SSEZ] to be utilized for the development of xxx
municipalities outside the City of Olongapo and the
Municipality of Subic, and other municipalities
contiguous to the base areas. B. Subsequent sale/public auction of the motor vehicles
 1. Scenario One – The public auction is conducted by 2.That the total income generated
the consignee of the imported motor vehicles within by the consignee-seller from
the freeport zone sources within the customs territory
does not exceed thirty percent
xxx (30%) of the total income derived
from all sources.
1.2. In case the consignee-auctioneer is a
registered enterprise and/or locator not B. In case the consignee-seller is a
entitled to the preferential tax treatment or if registered enterprise and/or locator not
the same is entitled from such incentive but entitled to the preferential tax treatment or if
its total income from the customs territory the same is entitled from such incentive but
exceeds 30% of its entire income derived its total income from the customs territory
from the customs territory and the freeport exceeds thirty percent (30%) of its entire
zone, the income derived from the public income derived from the customs territory
auction shall be subjected to the regular and the freeport zone, the sales or income
internal revenue taxes imposed by the Tax derived from the public auction/negotiated
Code. sale shall be subjected to the regular internal
revenue taxes imposed by the Tax Code.
The consignee-seller shall also observe the
xxx compliance requirements prescribed by the
Tax Code. When public auction or
1.4. In the event that the winning bidder shall negotiated sale is conducted within or
bring the motor vehicles into the customs outside of the freeport zone, the following tax
territory, the winning bidder shall be deemed treatment shall be observed:
the importer thereof and shall be liable to
pay the VAT and excise tax, if applicable, 1. Value Added Tax (VAT)/
based on the winning bid price. However, in Percentage Tax (PT) – VAT or PT
cases where the consignee-auctioneer has shall be imposed on every public
already paid the VAT and excise tax on the auction or negotiated sale.
motor vehicles before the registration thereof
with LTO and the conduct of public auction,
the additional VAT and excise tax shall be 2. Excise Tax – The imposition of
paid by winning bidder resulting from the excise tax on public auction or
difference between the winning bid price and negotiated sale shall be held in
the value used by the consignee-auctioneer abeyance pending verification that
in payment of such taxes. For excise tax the importer’s selling price used as
purposes, in case the winning bid price is a basis by the Bureau of Customs
lower than the total costs to import, in computing the excise tax is
reconditioning/rehabilitation of the motor correctly determined.
vehicles, and other administrative and selling
expenses, the basis for the computation of Petitioners Asia International Auctioneers, Inc. (AIAI) and
the excise tax shall be the total costs plus Subic Bay Motors Corporation are corporations organized
ten percent (10%) thereof. The additional under Philippine laws with principal place of business within
VAT and excise taxes shall be paid to the the SSEZ. They are engaged in the importation of mainly
BIR before the auctioned motor vehicles are secondhand or used motor vehicles and heavy transportation
registered with the LTO. or construction equipment which they sell to the public through
auction.
1.5 In case the services of a professional
auctioneer is employed for the public Petitioners filed a complaint before the RTC of Olongapo City,
auction, the final withholding tax of 25%, in praying for the nullification of RMC No. 31-2003 for being
case he/she is a non-resident citizen or unconstitutional and an ultra vires act. The complaint was
alien, or the expanded withholding tax of docketed as Civil Case No. 275-0-2003 and raffled to Branch
20%, in case he/she is a resident citizen or 74. Subsequently, petitioners filed their "First Amended
alien, shall be withheld by the consignee- Complaint to Declare Void, Ultra Vires, and Unconstitutional
auctioneer from the amount of consideration [RMC] No. 31-2003 dated June 3, 2003 and [RMC] No. 32-
to be paid to the professional auctioneer and 2003 dated June 5, 2003, with Application for a Writ of
shall be remitted accordingly to the BIR. Temporary Restraining Order and Preliminary Injunction"6 to
enjoin respondents from implementing the questioned RMCs
This was later amended by RMC No. 32-2003,5 to wit: while the case is pending. Particularly, they question
paragraphs II(A)(1) and (3), II(B)(1.2), (1.4) and (1.5) of RMC
No. 31-2003 and paragraphs II(A)(2) and (B) of RMC No. 32-
II. The imported motor vehicles after its release from 2003. Before a responsive pleading was filed, petitioners filed
Customs custody are sold through public their Second Amended Complaint7 to include Rev. Reg. Nos.
auction/negotiated sale by the consignee within or 1-95, 12-97 and 16-99 dated January 24, 1995, August 7, 1997
outside of the Freeport Zone: and September 27, 1999, respectively, which allegedly contain
some identical provisions as the questioned RMCs, but without
A. The gross income earned by the changing the cause of action in their First Amended Complaint.
consignee-seller from the public
auction/negotiated sale of the imported The Office of the Solicitor General (OSG) submitted its
vehicles shall be subject to the preferential "Comment (In Opposition to the Application for Issuance of a
tax rate of five percent (5%) in lieu of the Writ of Preliminary Injunction)."8 Respondents CIR, Regional
internal revenue taxes imposed by the Director and Revenue District Officer submitted their joint
National Internal Revenue Code of 1997, "Opposition (To The Prayer for Preliminary Injunction and/or
provided that the following conditions are Temporary Restraining Order by Petitioners)."9
present:
Then Secretary of Finance Jose Isidro N. Camacho filed a
1.That the consignee-seller is a Motion to Dismiss the case against him, alleging that he is not
duly registered enterprise entitled to a party to the suit and petitioners have no cause of action
such preferential tax rate as well as against him.10 Respondents CIR, BIR Regional Director and
a registered taxpayer with the BIR Revenue District Officer also filed their joint Motion to
Bureau of Internal Revenue (BIR). Dismiss on the grounds that "[t]he trial court has no jurisdiction
over the subject matter of the complaint" and "[a] condition
precedent, that is, exhaustion of administrative remedies, has the Court at Olongapo City was properly and legally
not been complied with."11 Petitioners filed their "Motion to issued.22
Expunge from the Records the Respondents[’] Motion to
Dismiss"12 for allegedly failing to comply with Section 4, Rule Petitioners contend that there were fatal procedural defects in
15 of the Rules of Court. To this, the respondents filed their respondents’ petition for certiorari with the CA. They point out
Opposition.13 that the CA resolved the issue of jurisdiction without waiting for
the lower court to first rule on the issue. Also, respondents did
Meantime, BIR Revenue District Officer Rey Asterio L. Tambis not file a motion for reconsideration of the trial court’s order
sent a 10-Day Preliminary Notice14 to the president of petitioner granting the writ of preliminary injunction before filing the
AIAI for unpaid VAT on auction sales conducted on June 6-8, petition with the CA.
2003, as per RMC No. 32-2003.
The arguments are unmeritorious.
On August 1, 2003, the trial court issued its order15 granting the
application for a writ of preliminary injunction. The dispositive Jurisdiction is defined as the power and authority of a court to
portion of the order states: hear, try and decide a case.23 The issue is so basic that it may
be raised at any stage of the proceedings, even on appeal.24 In
WHEREFORE, premises considered, petitioners’ fact, courts may take cognizance of the issue even if not raised
application for the issuance of a writ of preliminary by the parties themselves.25 There is thus no reason to
injunction is hereby GRANTED. Let the writ issue preclude the CA from ruling on this issue even if allegedly, the
upon the filing and approval by the court of an same has not yet been resolved by the trial court.
injunction bond in the amount of Php 1 Million.
As to respondents’ failure to file a motion for reconsideration,
SO ORDERED.16 we agree with the ruling of the CA, which states:

Consequently, respondents CIR, the BIR Regional Director of It is now settled that the filing of a motion for
Region III, the BIR Revenue District Officer of the SSEZ, and reconsideration is not always sine qua non before
the OSG filed with the CA a petition for certiorari under Rule 65 availing of the remedy of certiorari.26 Hence, the
of the Rules of Court with prayer for the issuance of a general rule of requiring a motion for reconsideration
Temporary Restraining Order and/or Writ of Preliminary finds no application in a case where what is precisely
Injunction to enjoin the trial court from exercising jurisdiction being assailed is lack of jurisdiction of the respondent
over the case.17 court.27 And considering also the urgent necessity for
resolving the issues raised herein, where further delay
Meantime, BIR Regional Director Danilo A. Duncano sent a could prejudice the interests of the government,28 the
Preliminary Assessment Notice18 to the President of AIAI, haste with which the Solicitor General raised these
informing him of the VAT due from the company for the auction issues before this Court becomes understandable.29
sales conducted on June 6-8, 2003 as per RMC No. 32-2003,
plus surcharge, interest and compromise penalty. Thereafter, a Now, to the main issue: does the trial court have jurisdiction
Formal Letter of Demand19 was sent to the President of over the subject matter of this case?
petitioner AIAI by the Officer-in-Charge of the BIR Office of the
Regional Director. Petitioners contend that jurisdiction over the case at bar
properly pertains to the regular courts as this is "an action to
On March 31, 2004, the CA issued its assailed decision, the declare as unconstitutional, void and against the provisions of
dispositive portion of which states: [R.A. No.] 7227" the RMCs issued by the CIR. They explain
that they "do not challenge the rate, structure or figures of the
WHEREFORE, the petition is GRANTED. Public imposed taxes, rather they challenge the authority of the
respondent Regional Trial Court, Branch 74, of respondent Commissioner to impose and collect the said
Olongapo City is hereby declared bereft of jurisdiction taxes." They claim that the challenge on the authority of the
to take cognizance of Civil Case No. 275-0-2003. CIR to issue the RMCs does not fall within the jurisdiction of
Accordingly, said Civil Case No. 275-0-2003 is the Court of Tax Appeals (CTA).
hereby DISMISSED and the assailed Order dated
August 1, 2003, ANNULLED and SET ASIDE. Petitioners’ arguments do not sway.

SO ORDERED.20 R.A. No. 1125, as amended, states:

Hence, this Petition for Review on Certiorari 21 with an Sec. 7. Jurisdiction.—The Court of Tax Appeals shall
application for a temporary restraining order and a writ of exercise exclusive appellate jurisdiction to review by
preliminary injunction to enjoin respondents "from pursuing appeal, as herein provided—
sending letters of assessments to petitioners." Petitioners raise
the following issues: (1) Decisions of the Commissioner of Internal
Revenue in cases involving disputed
[a] [W]hether a petition for certiorari under Rule 65 of assessments, refunds of internal revenue taxes, fees
the New Rules is proper where the issue raised or other charges, penalties imposed in relation
therein has not yet been resolved at the first instance thereto, or other matters arising under the National
by the Court where the original action was filed, and, Internal Revenue Code or other laws or part of law
necessarily, without first filing a motion for administered by the Bureau of Internal Revenue; x
reconsideration; x x (emphases supplied)

[b] [W]hich Court- the regular courts of justice We have held that RMCs are considered
established under Batas Pambansa Blg. 129 or the administrative rulings which are issued from time to time by the
Court of Tax Appeals – is the proper court of CIR.30
jurisdiction to hear a case to declare Revenue
Memorandum Circulars unconstitutional and against Rodriguez v. Blaquera31 is in point. This case involves
an existing law where the challenge does not involve Commonwealth Act No. 466, as amended by R.A. No. 84,
the rate and figures of the imposed taxes; which imposed upon firearm holders the duty to pay an initial
license fee of P15 and an annual fee of P10 for each firearm,
[c] [D]ependent on an affirmative resolution of the with the exception that in case of "bona fide and active
second issue in favor of the regular courts of justice, members of duly organized gun clubs and accredited by the
whether the writ of preliminary injunction granted by Provost Marshal General," the annual fee is reduced to P5 for
each firearm. Pursuant to this, the CIR issued General Circular Tax Code "to make rulings or opinions in connection with the
No. V-148 which stated that "bona fide and active members of implementation of the provisions of internal revenue laws,
duly organized gun clubs and accredited by the Provost including ruling on the classification of articles of sales and
Marshal General… shall pay an initial fee of fifteen pesos and similar purposes." The Court held that under R.A. No. 1125 (An
an annual fee of five pesos for each firearm held on license Act Creating the Court of Tax Appeals), as amended, such
except caliber .22 revolver or rifle." The General Circular rulings of the CIR are appealable to the CTA.
further provided that "[m]ere membership in the gun club does
not, as a matter of right, entitle the member to the reduced In the case at bar, the assailed revenue regulations and
rates prescribed by law. The licensee must be accredited by revenue memorandum circulars are actually rulings or opinions
the Chief of Constabulary… [and] the firearm covered by the of the CIR on the tax treatment of motor vehicles sold at public
license of the member must be of the target model in order that auction within the SSEZ to implement Section 12 of R.A. No.
he may be entitled to the reduced rates." Rodriguez, as 7227 which provides that "exportation or removal of goods
manager of the Philippine Rifle and Pistol Association, Inc., a from the territory of the [SSEZ] to the other parts of the
duly accredited gun club, in behalf of the members who have Philippine territory shall be subject to customs duties and taxes
paid under protest the regular annual fee of P10, filed an action under the Customs and Tariff Code and other relevant tax laws
in the Court of First Instance (now RTC) of Manila for the of the Philippines." They were issued pursuant to the power of
nullification of the circular and the refund of P5. On the issue of the CIR under Section 4 of the National Internal Revenue
jurisdiction, plaintiff similarly contended that the action was not Code,34 viz:
an appeal from a ruling of the CIR but merely an attempt to
nullify General Circular No. V-148, hence, not within the
jurisdiction of the CTA. The Court, in finding this argument Section 4. Power of the Commissioner to Interpret
unmeritorious, explained: 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
We find no merit in this pretense. General Circular jurisdiction of the Commissioner, subject to
No. V-148 directs the officers charged with the review by the Secretary of Finance.
collection of taxes and license fees to adhere strictly
to the interpretation given by the defendant to the
statutory provision above mentioned, as set forth in The power to decide disputed assessments, refunds
the circular. The same incorporates, therefore, a of internal revenue taxes, fees or other charges,
decision of the Collector of Internal Revenue (now penalties imposed in relation thereto, or other
Commissioner of Internal Revenue) on the manner of matters arising under this Code or other laws or
enforcement of said statute, the administration of portions thereof administered by the Bureau of
which is entrusted by law to the Bureau of Internal Internal Revenue is vested in the Commissioner,
Revenue. As such, it comes within the purview of subject to the exclusive appellate jurisdiction of
[R.A.] No. 1125, section 7 of which provides that the the Court of Tax Appeals. (emphases supplied)
[CTA] "shall exercise exclusive appellate jurisdiction
to review by appeal * * * decisions of the Collector of Petitioners point out that the CA based its decision on Section
Internal Revenue in * * * matters arising under the 7 of R.A. No. 1125 that the CTA "shall exercise exclusive
National Internal Revenue Code or other law or part appellate jurisdiction to review by appeal…" decisions of the
of law administered by the Bureau of Internal CIR. They argue that in the instant case, there is no decision of
Revenue." Besides, it is plain from plaintiff’s original the respondent CIR on any disputed assessment to speak of
complaint that one of its main purposes was to secure as what is being questioned is purely the authority of the CIR
an order for the refund of the sums collected in to impose and collect value-added and excise taxes.
excess of the amount he claims to be due by way of
annual fee from the gun club members, regardless of Petitioners’ failure to ask the CIR for a reconsideration of the
the class of firearms they have. Although the prayer assailed revenue regulations and RMCs is another reason why
for reimbursement has been eliminated from his the instant case should be dismissed. It is settled that the
amended complaint, it is only too obvious that the premature invocation of the court's intervention is fatal to one's
nullification of General Circular No. V-148 is merely a cause of action. If a remedy within the administrative
step preparatory to a claim for refund. machinery can still be resorted to by giving the administrative
officer every opportunity to decide on a matter that comes
Similarly, in CIR v. Leal,32 pursuant to Section 116 of within his jurisdiction, then such remedy must first be
Presidential Decree No. 1158 (The National Internal Revenue exhausted before the court’s power of judicial review can be
Code, as amended) which states that "[d]ealers in securities sought.35 The party with an administrative remedy must not
shall pay a tax equivalent to six (6%) per centum of their gross only initiate the prescribed administrative procedure to obtain
income. Lending investors shall pay a tax equivalent to five relief but also pursue it to its appropriate conclusion before
(5%) per cent, of their gross income," the CIR issued Revenue seeking judicial intervention in order to give the administrative
Memorandum Order (RMO) No. 15-91 imposing 5% lending agency an opportunity to decide the matter itself correctly and
investor’s tax on pawnshops based on their gross income and prevent unnecessary and premature resort to the court. 36
requiring all investigating units of the BIR to investigate and
assess the lending investor’s tax due from them. The issuance Petitioners’ insistence for this Court to rule on the merits of the
of RMO No. 15-91 was an offshoot of the CIR’s finding that the case would only prove futile. Having declared the court a
pawnshop business is akin to that of "lending investors" as quo without jurisdiction over the subject matter of the instant
defined in Section 157(u) of the Tax Code. Subsequently, the case, any further disquisition would be obiter dictum.
CIR issued RMC No. 43-91 subjecting pawn tickets to
documentary stamp tax. Respondent therein, Josefina Leal,
owner and operator of Josefina’s Pawnshop, asked for a IN VIEW WHEREOF, the petition is DENIED.
reconsideration of both RMO No. 15-91 and RMC No. 43-91,
but the same was denied by petitioner CIR. Leal then filed a SO ORDERED.
petition for prohibition with the RTC of San Mateo, Rizal,
seeking to prohibit petitioner CIR from implementing the
revenue orders. The CIR, through the OSG, filed a motion to 4.6
dismiss on the ground of lack of jurisdiction. The RTC denied
the motion. Petitioner filed a petition for certiorari and G.R. No. 163583             August 20, 2008
prohibition with the CA which dismissed the petition "for lack of
basis." In reversing the CA, dissolving the Writ of Preliminary
BRITISH AMERICAN TOBACCO, petitioner,
Injunction issued by the trial court and ordering the dismissal of
vs.
the case before the trial court, the Supreme Court held that
JOSE ISIDRO N. CAMACHO, in his capacity as Secretary
"[t]he questioned RMO No. 15-91 and RMC No. 43-91 are
of the Department of Finance and GUILLERMO L.
actually rulings or opinions of the Commissioner implementing
PARAYNO, JR., in his capacity as Commissioner of the
the Tax Code on the taxability of pawnshops." They were
Bureau of Internal Revenue, respondents.
issued pursuant to the CIR’s power under Section 24533 of the
Philip Morris Philippines Manufacturing, Inc., fortune
tobacco, corp., MIGHTY CORPORATION, and JT For the above purpose, net retail price shall mean the
InTERNATIONAL, S.A., respondents-in-intervention. price at which the cigarette is sold on retail in 20
major supermarkets in Metro Manila (for brands of
DECISION cigarettes marketed nationally), excluding the amount
intended to cover the applicable excise tax and the
value-added tax. For brands which are marketed only
YNARES-SANTIAGO, J.: outside Metro Manila, the net retail price shall mean
the price at which the cigarette is sold in five major
This petition for review assails the validity of: (1) Section 145 of supermarkets in the region excluding the amount
the National Internal Revenue Code (NIRC), as recodified by intended to cover the applicable excise tax and the
Republic Act (RA) 8424; (2) RA 9334, which further amended value-added tax.
Section 145 of the NIRC on January 1, 2005; (3) Revenue
Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue The classification of each brand of cigarettes
Memorandum Order No. 6-2003. Petitioner argues that the based on its average net retail price as of October
said provisions are violative of the equal protection and 1, 1996, as set forth in Annex "D" of this Act, shall
uniformity clauses of the Constitution. remain in force until revised by Congress.
(Emphasis supplied)
RA 8240, entitled "An Act Amending Sections 138, 139, 140,
and 142 of the NIRC, as Amended and For Other Purposes," As such, new brands of cigarettes shall be taxed according to
took effect on January 1, 1997. In the same year, Congress their current net retail price while existing or "old" brands
passed RA 8424 or The Tax Reform Act of 1997, re-codifying shall be taxed based on their net retail price as of October 1,
the NIRC. Section 142 was renumbered as Section 145 of the 1996.
NIRC.
To implement RA 8240, the Bureau of Internal Revenue (BIR)
Paragraph (c) of Section 145 provides for four tiers of tax rates issued Revenue Regulations No. 1-97,2 which classified the
based on the net retail price per pack of cigarettes. To existing brands of cigarettes as those duly registered or active
determine the applicable tax rates of existing cigarette brands, brands prior to January 1, 1997. New brands, or those
a survey of the net retail prices per pack of cigarettes was registered after January 1, 1997, shall be initially assessed at
conducted as of October 1, 1996, the results of which were their suggested retail price until such time that the appropriate
embodied in Annex "D" of the NIRC as the duly registered, survey to determine their current net retail price is conducted.
existing or active brands of cigarettes. Pertinent portion of the regulations reads –

Paragraph (c) of Section 145, 1 states – SECTION 2. Definition of Terms.

SEC. 145. Cigars and cigarettes. – xxxx

xxxx 3. Duly registered or existing brand of cigarettes –

shall include duly registered, existing or active brands
(c) Cigarettes packed by machine. – There shall be of cigarettes, prior to January 1, 1997.
levied, assessed and collected on cigarettes packed
by machine a tax at the rates prescribed below: xxxx

(1) If the net retail price (excluding the excise 6. New Brands – shall mean brands duly registered
tax and the value-added tax) is above Ten after January 1, 1997 and shall include duly
pesos (P10.00) per pack, the tax shall be registered, inactive brands of cigarette not sold in
Thirteen pesos and forty-four centavos commercial quantity before January 1, 1997.
(P13.44) per pack;
Section 4. Classification and Manner of Taxation of
(2) If the net retail price (excluding the excise Existing Brands, New Brands and Variant of Existing
tax and the value-added tax) exceeds Six Brands.
pesos and fifty centavos (P6.50) but does
not exceed Ten pesos (10.00) per pack, the
tax shall be Eight pesos and ninety-six xxxx
centavos (P8.96) per pack;
B. New Brand
(3) If the net retail price (excluding the excise
tax and the value-added tax) is Five pesos New brands shall be classified according to their
(P5.00) but does not exceed Six pesos and current net retail price. In the meantime that the
fifty centavos (P6.50) per pack, the tax shall current net retail price has not yet been established,
be Five pesos and sixty centavos (P5.60) the suggested net retail price shall be used to
per pack; determine the specific tax classification. Thereafter, a
survey shall be conducted in 20 major supermarkets
(4) If the net retail price (excluding the excise or retail outlets in Metro Manila (for brands of
tax and the value-added tax) is below Five cigarette marketed nationally) or in five (5) major
pesos (P5.00) per pack, the tax shall be One supermarkets or retail outlets in the region (for brands
peso and twelve centavos (P1.12) per pack. which are marketed only outside Metro Manila) at
which the cigarette is sold on retail in reams/cartons,
three (3) months after the initial removal of the new
Variants of existing brands of cigarettes which are brand to determine the actual net retail price
introduced in the domestic market after the effectivity excluding the excise tax and value added tax which
of this Act shall be taxed under the highest shall then be the basis in determining the specific tax
classification of any variant of that brand. classification. In case the current net retail price is
higher than the suggested net retail price, the former
xxxx shall prevail. Any difference in specific tax due shall
be assessed and collected inclusive of increments as
New brands shall be classified according to provided for by the National Internal Revenue Code,
their current net retail price. as amended.
In June 2001, petitioner British American Tobacco introduced lifted the writ of preliminary injunction. The dispositive portion
into the market Lucky Strike Filter, Lucky Strike Lights and of the decision reads:
Lucky Strike Menthol Lights cigarettes, with a suggested retail
price of P9.90 per pack.3 Pursuant to Sec. 145 (c) quoted WHEREFORE, premises considered, the instant
above, the Lucky Strike brands were initially assessed the Petition is hereby DISMISSED for lack of merit. The
excise tax at P8.96 per pack. Writ of Preliminary Injunction previously issued is
hereby lifted and dissolved.
On February 17, 2003, Revenue Regulations No. 9-
2003,4 amended Revenue Regulations No. 1-97 by providing, SO ORDERED.16
among others, a periodic review every two years or earlier of
the current net retail price of new brands and variants thereof
for the purpose of establishing and updating their tax Petitioner brought the instant petition for review directly with
classification, thus: this Court on a pure question of law.

For the purpose of establishing or updating the tax While the petition was pending, RA 9334 (An Act Increasing
classification of new brands and variant(s) thereof, The Excise Tax Rates Imposed on Alcohol And Tobacco
their current net retail price shall be reviewed Products, Amending For The Purpose Sections 131, 141, 143,
periodically through the conduct of survey or any 144, 145 and 288 of the NIRC of 1997, As Amended), took
other appropriate activity, as mentioned above, every effect on January 1, 2005. The statute, among others,–
two (2) years unless earlier ordered by the
Commissioner. However, notwithstanding any (1) increased the excise tax rates provided in paragraph (c) of
increase in the current net retail price, the tax Section 145;
classification of such new brands shall remain in force
until the same is altered or changed through the (2) mandated that new brands of cigarettes shall initially be
issuance of an appropriate Revenue Regulations. classified according to their suggested net retail price, until
such time that their correct tax bracket is finally determined
Pursuant thereto, Revenue Memorandum Order No. 6- under a specified period and, after which, their classification
20035 was issued on March 11, 2003, prescribing the shall remain in force until revised by Congress;
guidelines and procedures in establishing current net retail
prices of new brands of cigarettes and alcohol products. (3) retained Annex "D" as tax base of those surveyed as of
October 1, 1996 including the classification of brands for the
Subsequently, Revenue Regulations No. 22-20036 was same products which, although not set forth in said Annex "D,"
issued on August 8, 2003 to implement the revised tax were registered on or before January 1, 1997 and were being
classification of certain new brands introduced in the market commercially produced and marketed on or after October 1,
after January 1, 1997, based on the survey of their current net 1996, and which continue to be commercially produced and
retail price. The survey revealed that Lucky Strike Filter, Lucky marketed after the effectivity of this Act. Said classification
Strike Lights, and Lucky Strike Menthol Lights, are sold at the shall remain in force until revised by Congress; and
current net retail price of P22.54, P22.61 and P21.23, per
pack, respectively.7 Respondent Commissioner of the Bureau (4) provided a legislative freeze on brands of cigarettes
of Internal Revenue thus recommended the applicable tax rate introduced between the period January 2, 199717 to December
of P13.44 per pack inasmuch as Lucky Strike’s average net 31, 2003, such that said cigarettes shall remain in the
retail price is above P10.00 per pack. classification under which the BIR has determined them to
belong as of December 31, 2003, until revised by Congress.
Thus, on September 1, 2003, petitioner filed before the
Regional Trial Court (RTC) of Makati, Branch 61, a petition for Pertinent portions, of RA 9334, provides:
injunction with prayer for the issuance of a temporary
restraining order (TRO) and/or writ of preliminary injunction,
docketed as Civil Case No. 03-1032. Said petition sought to SEC. 145. Cigars and Cigarettes. –
enjoin the implementation of Section 145 of the NIRC,
Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and xxxx
Revenue Memorandum Order No. 6-2003 on the ground that
they discriminate against new brands of cigarettes, in violation
(C) Cigarettes Packed by Machine. – There shall be
of the equal protection and uniformity provisions of the
levied, assessed and collected on cigarettes packed
Constitution.
by machine a tax at the rates prescribed below:

Respondent Commissioner of Internal Revenue filed an

(1) If the net retail price (excluding the excise tax and
Opposition8 to the application for the issuance of a TRO. On
the value-added tax) is below Five pesos (P5.00) per
September 4, 2003, the trial court denied the application for
pack, the tax shall be:
TRO, holding that the courts have no authority to restrain the
collection of taxes.9 Meanwhile, respondent Secretary of
Finance filed a Motion to Dismiss,10 contending that the petition Effective on January 1, 2005, Two pesos (P2.00) per
is premature for lack of an actual controversy or urgent pack;
necessity to justify judicial intervention.
Effective on January 1, 2007, Two pesos and twenty-
In an Order dated March 4, 2004, the trial court denied the three centavos (P2.23) per pack;
motion to dismiss and issued a writ of preliminary injunction to
enjoin the implementation of Revenue Regulations Nos. 1-97, Effective on January 1, 2009, Two pesos and forty-
9-2003, 22-2003 and Revenue Memorandum Order No. 6- seven centavos (P2.47) per pack; and
2003.11 Respondents filed a Motion for Reconsideration12 and
Supplemental Motion for Reconsideration.13 At the hearing on
Effective on January 1, 2011, Two pesos and
the said motions, petitioner and respondent Commissioner of
seventy-two centavos (P2.72) per pack.
Internal Revenue stipulated that the only issue in this case is
the constitutionality of the assailed law, order, and
regulations.14 (2) If the net retail price (excluding the excise tax and
the value-added tax) is Five pesos (P5.00) but does
not exceed Six pesos and fifty centavos (P6.50) per
On May 12, 2004, the trial court rendered a
pack, the tax shall be:
decision15 upholding the constitutionality of Section 145 of the
NIRC, Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and
Revenue Memorandum Order No. 6-2003. The trial court also Effective on January 1, 2005, Six pesos and thirty-five
centavos (P6.35) per pack;
Effective on January 1, 2007, Six pesos and seventy- brands and brands introduced between January 1,
four centavos (P6.74) per pack; 1997 and December 31, 2003 shall not be revised
except by an act of Congress.
Effective on January 1, 2009, Seven pesos and
fourteen centavos (P7.14) per pack; and Net retail price, as determined by the Bureau of
Internal Revenue through a price survey to be
Effective on January 1, 2011, Seven pesos and fifty- conducted by the Bureau of Internal Revenue itself, or
six centavos (P7.56) per pack. the National Statistics Office when deputized for the
purpose by the Bureau of Internal Revenue, shall
mean the price at which the cigarette is sold in retail
(3) If the net retail price (excluding the excise tax and in at least twenty (20) major supermarkets in Metro
the value-added tax) exceeds Six pesos and fifty Manila (for brands of cigarettes marketed nationally),
centavos (P6.50) but does not exceed Ten pesos excluding the amount intended to cover the applicable
(P10.00) per pack, the tax shall be: excise tax and the value-added tax. For brands which
are marketed only outside Metro Manila, the "net retail
Effective on January 1, 2005, Ten pesos and thirty- price" shall mean the price at which the cigarette is
five centavos (10.35) per pack; sold in at least five (5) major supermarkets in the
region excluding the amount intended to cover the
Effective on January 1, 2007, Ten pesos and eighty- applicable excise tax and value-added tax.
eight centavos (P10.88) per pack;
The classification of each brand of cigarettes
Effective on January 1, 2009, Eleven pesos and forty- based on its average net retail price as of October
three centavos (P11.43) per pack; and 1, 1996, as set forth in Annex "D", including the
classification of brands for the same products
which, although not set forth in said Annex "D",
Effective on January 1, 2011, Twelve pesos (P12.00) were registered and were being commercially
per pack. produced and marketed on or after October 1,
1996, and which continue to be commercially
(4) If the net retail price (excluding the excise tax and produced and marketed after the effectivity of this
the value-added tax) is above Ten pesos (P10.00) per Act, shall remain in force until revised by
pack, the tax shall be: Congress. (Emphasis added)

Effective on January 1, 2005, Twenty-five pesos Under RA 9334, the excise tax due on petitioner’s products
(P25.00) per pack; was increased to P25.00 per pack. In the implementation
thereof, respondent Commissioner assessed petitioner’s
importation of 911,000 packs of Lucky Strike cigarettes at the
Effective on January 1, 2007, Twenty-six pesos and
increased tax rate of P25.00 per pack, rendering it liable for
six centavos (P26.06) per pack;
taxes in the total sum of P22,775,000.00.18

Effective on January 1, 2009, Twenty-seven pesos

Hence, petitioner filed a Motion to Admit Attached
and sixteen centavos (P27.16) per pack; and
Supplement19 and a Supplement20 to the petition for review,
assailing the constitutionality of RA 9334 insofar as it retained
Effective on January 1, 2011, Twenty-eight pesos and Annex "D" and praying for a downward classification of Lucky
thirty centavos (P28.30) per pack. Strike products at the bracket taxable at P8.96 per pack.
Petitioner contended that the continued use of Annex "D" as
xxxx the tax base of existing brands of cigarettes gives undue
protection to said brands which are still taxed based on their
price as of October 1996 notwithstanding that they are now
New brands, as defined in the immediately following
sold at the same or even at a higher price than new brands like
paragraph, shall initially be classified according to
Lucky Strike. Thus, old brands of cigarettes such as Marlboro
their suggested net retail price.
and Philip Morris which, like Lucky Strike, are sold at or more
than P22.00 per pack, are taxed at the rate of P10.88 per pack,
New brands shall mean a brand registered after the while Lucky Strike products are taxed at P26.06 per pack.
date of effectivity of R.A. No. 8240.
In its Comment to the supplemental petition, respondents,
Suggested net retail price shall mean the net retail through the Office of the Solicitor General (OSG), argued that
price at which new brands, as defined above, of the passage of RA 9334, specifically the provision imposing a
locally manufactured or imported cigarettes are legislative freeze on the classification of cigarettes introduced
intended by the manufacturer or importer to be sold into the market between January 2, 1997 and December 31,
on retail in major supermarkets or retail outlets in 2003, rendered the instant petition academic. The OSG claims
Metro Manila for those marketed nationwide, and in that the provision in Section 145, as amended by RA 9334,
other regions, for those with regional markets. At the prohibiting the reclassification of cigarettes introduced during
end of three (3) months from the product launch, the said period, "cured’ the perceived defect of Section 145
Bureau of Internal Revenue shall validate the considering that, like the cigarettes under Annex "D,"
suggested net retail price of the new brand against petitioner’s brands and other brands introduced between
the net retail price as defined herein and determine January 2, 1997 and December 31, 2003, shall remain in the
the correct tax bracket under which a particular new classification under which the BIR has placed them and only
brand of cigarette, as defined above, shall be Congress has the power to reclassify them.
classified. After the end of eighteen (18) months from
such validation, the Bureau of Internal Revenue shall
On March 20, 2006, Philip Morris Philippines Manufacturing
revalidate the initially validated net retail price against
Incorporated filed a Motion for Leave to Intervene with
the net retail price as of the time of revalidation in
attached Comment-in-Intervention.21 This was followed by the
order to finally determine the correct tax bracket
Motions for Leave to Intervene of Fortune Tobacco
under which a particular new brand of cigarettes shall
Corporation,22 Mighty Corporation, 23 and JT International, S.A.,
be classified; Provided however, That brands of
with their respective Comments-in-Intervention. The
cigarettes introduced in the domestic market
Intervenors claim that they are parties-in-interest who stand to
between January 1, 1997 [should be January 2,
be affected by the ruling of the Court on the constitutionality of
1997] and December 31, 2003 shall remain in the
Section 145 of the NIRC and its Annex "D" because they are
classification under which the Bureau of Internal
manufacturers of cigarette brands which are included in the
Revenue has determined them to belong as of
said Annex. Hence, their intervention is proper since the
December 31, 2003. Such classification of new
protection of their interest cannot be addressed in a separate Constitution vests the power of judicial review or the power to
proceeding. declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation
According to the Intervenors, no inequality exists because in the courts, including the regional trial courts. This is within
cigarettes classified by the BIR based on their net retail price the scope of judicial power, which includes the authority of the
as of December 31, 2003 now enjoy the same status courts to determine in an appropriate action the validity of the
quo provision that prevents the BIR from reclassifying acts of the political departments. Judicial power includes the
cigarettes included in Annex "D." It added that the Court has duty of the courts of justice to settle actual controversies
no power to pass upon the wisdom of the legislature in involving rights which are legally demandable and enforceable,
retaining Annex "D" in RA 9334; and that the nullification of and to determine whether or not there has been a grave abuse
said Annex would bring about tremendous loss of revenue to of discretion amounting to lack or excess of jurisdiction on the
the government, chaos in the collection of taxes, illicit trade of part of any branch or instrumentality of the Government.26
cigarettes, and cause decline in cigarette demand to the
detriment of the farmers who depend on the tobacco industry. In Drilon v. Lim,27 it was held:

Intervenor Fortune Tobacco further contends that petitioner is We stress at the outset that the lower court had
estopped from questioning the constitutionality of Section 145 jurisdiction to consider the constitutionality of Section
and its implementing rules and regulations because it entered 187, this authority being embraced in the general
into the cigarette industry fully aware of the existing tax system definition of the judicial power to determine what are
and its consequences. Petitioner imported cigarettes into the the valid and binding laws by the criterion of their
country knowing that its suggested retail price, which will be conformity to the fundamental law. Specifically, B.P.
the initial basis of its tax classification, will be confirmed and 129 vests in the regional trial courts jurisdiction over
validated through a survey by the BIR to determine the correct all civil cases in which the subject of the litigation is
tax that would be levied on its cigarettes. incapable of pecuniary estimation, even as the
accused in a criminal action has the right to question
Moreover, Fortune Tobacco claims that the challenge to the in his defense the constitutionality of a law he is
validity of the BIR issuances should have been brought by charged with violating and of the proceedings taken
petitioner before the Court of Tax Appeals (CTA) and not the against him, particularly as they contravene the Bill of
RTC because it is the CTA which has exclusive appellate Rights. Moreover, Article X, Section 5(2), of the
jurisdiction over decisions of the BIR in tax disputes. Constitution vests in the Supreme Court appellate
jurisdiction over final judgments and orders of lower
courts in all cases in which the constitutionality or
On August 7, 2006, the OSG manifested that it interposes no validity of any treaty, international or executive
objection to the motions for intervention.24 Therefore, agreement, law, presidential decree, proclamation,
considering the substantial interest of the intervenors, and in order, instruction, ordinance, or regulation is in
the higher interest of justice, the Court admits their question.
intervention.
The petition for injunction filed by petitioner before the RTC is a
Before going into the substantive issues of this case, we must direct attack on the constitutionality of Section 145(C) of the
first address the matter of jurisdiction, in light of Fortune NIRC, as amended, and the validity of its implementing rules
Tobacco’s contention that petitioner should have brought its and regulations. In fact, the RTC limited the resolution of the
petition before the Court of Tax Appeals rather than the subject case to the issue of the constitutionality of the assailed
regional trial court. provisions. The determination of whether the assailed law and
its implementing rules and regulations contravene the
The jurisdiction of the Court of Tax Appeals is defined in Constitution is within the jurisdiction of regular courts. The
Republic Act No. 1125, as amended by Republic Act No. 9282. Constitution vests the power of judicial review or the power to
Section 7 thereof states, in pertinent part: declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation
Sec. 7. Jurisdiction. — The CTA shall exercise: in the courts, including the regional trial courts.28 Petitioner,
therefore, properly filed the subject case before the RTC.

a. Exclusive appellate jurisdiction to review by appeal,

as herein provided: We come now to the issue of whether petitioner is estopped
from assailing the authority of the Commissioner of Internal
Revenue. Fortune Tobacco raises this objection by pointing out
1. Decisions of the Commissioner of Internal Revenue that when petitioner requested the Commissioner for a ruling
in cases involving disputed assessments, refunds of that its Lucky Strike Soft Pack cigarettes was a "new brand"
internal revenue taxes, fees or other charges, rather than a variant of an existing brand, and thus subject to a
penalties in relation thereto, or other matters arising lower specific tax rate, petitioner executed an undertaking to
under the National Internal Revenue or other laws comply with the procedures under existing regulations for the
administered by the Bureau of Internal Revenue; assessment of deficiency internal revenue taxes.

2. Inaction by the Commissioner of Internal Revenue Fortune Tobacco argues that petitioner, after invoking the
in cases involving disputed assessments, refunds of authority of the Commissioner of Internal Revenue, cannot
internal revenue taxes, fees or other charges, later on turn around when the ruling is adverse to it.
penalties in relations thereto, or other matters arising
under the National Internal Revenue Code or other
laws administered by the Bureau of Internal Revenue, Estoppel, an equitable principle rooted in natural justice,
where the National Internal Revenue Code provides a prevents persons from going back on their own acts and
specific period of action, in which case the inaction representations, to the prejudice of others who have relied on
shall be deemed a denial; xxx.25 them.29 The principle is codified in Article 1431 of the Civil
Code, which provides:

While the above statute confers on the CTA jurisdiction to

resolve tax disputes in general, this does not include cases Through estoppel, an admission or representation is rendered
where the constitutionality of a law or rule is challenged. Where conclusive upon the person making it and cannot be denied or
what is assailed is the validity or constitutionality of a law, or a disproved as against the person relying thereon.
rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts Estoppel can also be found in Rule 131, Section 2 (a) of the
have jurisdiction to pass upon the same. The determination of Rules of Court, viz:
whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution Sec. 2. Conclusive presumptions. — The following
is within the jurisdiction of the regular courts. Indeed, the are instances of conclusive presumptions:
 (a) Whenever a party has by his own declaration, act Effective on January 1, 2011, Two pesos
or omission, intentionally and deliberately led another and seventy-two centavos (P2.72) per pack.
to believe a particular thing true, and to act upon such
belief, he cannot, in any litigation arising out of such (2) If the net retail price (excluding the excise tax and
declaration, act or omission be permitted to falsify it. the value-added tax) is Five pesos (P5.00) but does
not exceed Six pesos and fifty centavos (P6.50) per
The elements of estoppel are: first, the actor who usually must pack, the tax shall be:
have knowledge, notice or suspicion of the true facts,
communicates something to another in a misleading way, Effective on January 1, 2005, Six pesos and
either by words, conduct or silence; second, the other in fact thirty-five centavos (P6.35) per pack;
relies, and relies reasonably or justifiably, upon that
communication; third, the other would be harmed materially if
the actor is later permitted to assert any claim inconsistent with Effective on January 1, 2007, Six pesos and
his earlier conduct; and fourth, the actor knows, expects or seventy-four centavos (P6.74) per pack;
foresees that the other would act upon the information given or
that a reasonable person in the actor's position would expect or Effective on January 1, 2009, Seven pesos
foresee such action.30 and fourteen centavos (P7.14) per pack; and

In the early case of Kalalo v. Luz,31 the elements of estoppel, Effective on January 1, 2011, Seven pesos
as related to the party to be estopped, are: (1) conduct and fifty-six centavos (P7.56) per pack.
amounting to false representation or concealment of material
facts; or at least calculated to convey the impression that the (3) If the net retail price (excluding the excise tax and
facts are other than, and inconsistent with, those which the the value-added tax) exceeds Six pesos and fifty
party subsequently attempts to assert; (2) intent, or at least centavos (P6.50) but does not exceed Ten pesos
expectation that this conduct shall be acted upon by, or at least (P10.00) per pack, the tax shall be:
influence, the other party; and (3) knowledge, actual or
constructive, of the real facts.
Effective on January 1, 2005, Ten pesos and
thirty-five centavos (10.35) per pack;
We find that petitioner was not guilty of estoppel. When it made
the undertaking to comply with all issuances of the BIR, which
at that time it considered as valid, petitioner did not commit any Effective on January 1, 2007, Ten pesos and
false misrepresentation or misleading act. Indeed, petitioner eighty-eight centavos (P10.88) per pack;
cannot be faulted for initially undertaking to comply with, and
subjecting itself to the operation of Section 145(C), and only Effective on January 1, 2009, Eleven pesos
later on filing the subject case praying for the declaration of its and forty-three centavos (P11.43) per pack;
unconstitutionality when the circumstances change and the law and
results in what it perceives to be unlawful discrimination. The
mere fact that a law has been relied upon in the past and all
Effective on January 1, 2011, Twelve pesos
that time has not been attacked as unconstitutional is not a
(P12.00) per pack.
ground for considering petitioner estopped from assailing its
validity. For courts will pass upon a constitutional question only
when presented before it in bona fide cases for determination, (4) If the net retail price (excluding the excise tax and
and the fact that the question has not been raised before is not the value-added tax) is above Ten pesos (P10.00) per
a valid reason for refusing to allow it to be raised later.32 pack, the tax shall be:

Now to the substantive issues. Effective on January 1, 2005, Twenty-five

pesos (P25.00) per pack;
To place this case in its proper context, we deem it necessary
to first discuss how the assailed law operates in order to Effective on January 1, 2007, Twenty-six
identify, with precision, the specific provisions which, according pesos and six centavos (P26.06) per pack;
to petitioner, have created a grossly discriminatory
classification scheme between old and new brands. The Effective on January 1, 2009, Twenty-seven
pertinent portions of RA 8240, as amended by RA 9334, are pesos and sixteen centavos (P27.16) per
reproduced below for ready reference: pack; and

SEC. 145. Cigars and Cigarettes. – Effective on January 1, 2011, Twenty-eight

pesos and thirty centavos (P28.30) per pack.
xxxx
xxxx
(C) Cigarettes Packed by Machine. – There shall be
levied, assessed and collected on cigarettes packed New brands, as defined in the immediately following
by machine a tax at the rates prescribed below: paragraph, shall initially be classified according to
their suggested net retail price.
(1) If the net retail price (excluding the excise tax and
the value-added tax) is below Five pesos (P5.00) per New brands shall mean a brand registered after the
pack, the tax shall be: date of effectivity of R.A. No. 8240.

Effective on January 1, 2005, Two pesos Suggested net retail price shall mean the net retail
(P2.00) per pack; price at which new brands, as defined above, of
locally manufactured or imported cigarettes are
Effective on January 1, 2007, Two pesos intended by the manufacturer or importer to be sold
and twenty-three centavos (P2.23) per pack; on retail in major supermarkets or retail outlets in
Metro Manila for those marketed nationwide, and in
other regions, for those with regional markets. At the
Effective on January 1, 2009, Two pesos
end of three (3) months from the product launch, the
and forty-seven centavos (P2.47) per pack;
Bureau of Internal Revenue shall validate the
and
suggested net retail price of the new brand against
the net retail price as defined herein and determine
the correct tax bracket under which a particular new
 brand of cigarette, as defined above, shall be had net retail prices ranging from P6.78 to P6.84 while Philip
classified. After the end of eighteen (18) months from Morris had net retail prices ranging from P7.39 to P7.48. Thus,
such validation, the Bureau of Internal Revenue shall pursuant to RA 8240,39 Marlboro and Philip Morris were
revalidate the initially validated net retail price against classified under the high-priced tax bracket and subjected to
the net retail price as of the time of revalidation in an excise tax rate of P8.96 per pack. Petitioner then presented
order to finally determine the correct tax bracket evidence showing that after the lapse of about seven years or
under which a particular new brand of cigarettes shall sometime in 2004, Marlboro’s and Philip Morris’ net retail
be classified; Provided however, That brands of prices per pack both increased to about P15.59.40 This meant
cigarettes introduced in the domestic market between that they would fall under the premium-priced tax bracket, with
January 1, 1997 [should be January 2, 1997] and a higher excise tax rate of P13.44 per pack,41 had they been
December 31, 2003 shall remain in the classification classified based on their 2004 net retail prices. However, due
under which the Bureau of Internal Revenue has to the legislative classification freeze, they continued to be
determined them to belong as of December 31, 2003. classified under the high-priced tax bracket with a lower excise
Such classification of new brands and brands tax rate. Petitioner thereafter deplores the fact that its Lucky
introduced between January 1, 1997 and December Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol
31, 2003 shall not be revised except by an act of Lights cigarettes, introduced in the market sometime in 2001
Congress. and validated by a BIR survey in 2003, were found to have net
retail prices of P11.53, P11.59 and P10.34,42 respectively,
Net retail price, as determined by the Bureau of which are lower than those of Marlboro and Philip Morris.
Internal Revenue through a price survey to be However, since petitioner’s cigarettes were newly introduced
conducted by the Bureau of Internal Revenue itself, or brands in the market, they were taxed based on their current
the National Statistics Office when deputized for the net retail prices and, thus, fall under the premium-priced tax
purpose by the Bureau of Internal Revenue, shall bracket with a higher excise tax rate of P13.44 per pack. This
mean the price at which the cigarette is sold in retail unequal tax treatment between Marlboro and Philip Morris, on
in at least twenty (20) major supermarkets in Metro the one hand, and Lucky Strike, on the other, is the crux of
Manila (for brands of cigarettes marketed nationally), petitioner’s contention that the legislative classification freeze
excluding the amount intended to cover the applicable violates the equal protection and uniformity of taxation clauses
excise tax and the value-added tax. For brands which of the Constitution.
are marketed only outside Metro Manila, the "net retail
price" shall mean the price at which the cigarette is It is apparent that, contrary to its assertions, petitioner is not
sold in at least five (5) major supermarkets in the only questioning the undue favoritism accorded to brands
region excluding the amount intended to cover the under Annex "D," but the entire mechanism and philosophy of
applicable excise tax and value-added tax. the law which freezes the tax classification of a cigarette brand
based on its current net retail price. Stated differently, the
The classification of each brand of cigarettes based alleged discrimination arising from the legislative classification
on its average net retail price as of October 1, 1996, freeze between the brands under Annex "D" and petitioner’s
as set forth in Annex "D", including the classification newly introduced brands arose only because the former were
of brands for the same products which, although not classified based on their "current" net retail price as of October
set forth in said Annex "D", were registered and were 1, 1996 and petitioner’s newly introduced brands were
being commercially produced and marketed on or classified based on their "current" net retail price as of 2003.
after October 1, 1996, and which continue to be Without this corresponding freezing of the classification of
commercially produced and marketed after the petitioner’s newly introduced brands based on their current net
effectivity of this Act, shall remain in force until revised retail price, it would be impossible to establish that a disparate
by Congress. tax treatment occurred between the Annex "D" brands and
petitioner’s newly introduced brands.
As can be seen, the law creates a four-tiered system which we
may refer to as the low-priced,33 medium-priced,34 high- This clarification is significant because, under these
priced,35 and premium-priced36 tax brackets. When a brand is circumstances, a declaration of unconstitutionality would
introduced in the market, the current net retail price is necessarily entail nullifying the whole mechanism of the law
determined through the aforequoted specified procedure. The and not just Annex "D." Consequently, if the assailed law is
current net retail price is then used to classify under which tax declared unconstitutional on equal protection grounds, the
bracket the brand belongs in order to finally determine the entire method by which a brand of cigarette is classified would
corresponding excise tax rate on a per pack basis. The have to be invalidated. As a result, no method to classify
assailed feature of this law pertains to the mechanism where, brands under Annex "D" as well as new brands would be left
after a brand is classified based on its current net retail price, behind and the whole Section 145 of the NIRC, as amended,
the classification is frozen and only Congress can thereafter would become inoperative.43
reclassify the same. From a practical point of view, Annex "D"
is merely a by-product of the whole mechanism and philosophy To simplify the succeeding discussions, we shall refer to the
of the assailed law. That is, the brands under Annex "D" were whole mechanism and philosophy of the assailed law which
also classified based on their current net retail price, the only freezes the tax classification of a cigarette brand based on its
difference being that they were the first ones so classified current net retail price and which, thus, produced different
since they were the only brands surveyed as of October 1, classes of brands based on the time of their introduction in the
1996, or prior to the effectivity of RA 8240 on January 1, market (starting with the brands in Annex "D" since they were
1997.37 the first brands so classified as of October 1, 1996) as
the classification freeze provision.44
Due to this legislative classification scheme, it is possible that
over time the net retail price of a previously classified brand, As thus formulated, the central issue is whether or not
whether it be a brand under Annex "D" or a new brand the classification freeze provision violates the equal protection
classified after the effectivity of RA 8240 on January 1, and uniformity of taxation clauses of the Constitution.
1997, would increase (due to inflation, increase of production
costs, manufacturer’s decision to increase its prices, etc.) to a In Sison, Jr. v. Ancheta,45 this Court, through Chief Justice
point that its net retail price pierces the tax bracket to which it Fernando, explained the applicable standard in deciding equal
was previously classified.38 Consequently, even if its present protection and uniformity of taxation challenges:
day net retail price would make it fall under a higher tax
bracket, the previously classified brand would continue to be
subject to the excise tax rate under the lower tax bracket by Now for equal protection. The applicable standard to
virtue of the legislative classification freeze. avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in
the exercise of the police power or the power of
Petitioner claims that this is what happened in 2004 to the eminent domain is to demonstrate "that the
Marlboro and Philip Morris brands, which were permanently governmental act assailed, far from being inspired by
classified under Annex "D." As of October 1, 1996, Marlboro the attainment of the common weal was prompted by
 the spirit of hostility, or at the very least, discrimination fair and substantial relation to the object of the
that finds no support in reason. It suffices then that legislation.49 Since every law has in its favor the presumption of
the laws operate equally and uniformly on all persons constitutionality, the burden of proof is on the one attacking the
under similar circumstances or that all persons must constitutionality of the law to prove beyond reasonable doubt
be treated in the same manner, the conditions not that the legislative classification is without rational basis.50 The
being different, both in the privileges conferred and presumption of constitutionality can be overcome only by the
the liabilities imposed. Favoritism and undue most explicit demonstration that a classification is a hostile and
preference cannot be allowed. For the principle is that oppressive discrimination against particular persons and
equal protection and security shall be given to every classes, and that there is no conceivable basis which might
person under circumstances, which if not identical are support it.51
analogous. If law be looks upon in terms of burden or
charges, those that fall within a class should be A legislative classification that is reasonable does not offend
treated in the same fashion, whatever restrictions cast the constitutional guaranty of the equal protection of the laws.
on some in the group equally binding on the rest." The classification is considered valid and reasonable provided
That same formulation applies as well to taxation that: (1) it rests on substantial distinctions; (2) it is germane to
measures. The equal protection clause is, of course, the purpose of the law; (3) it applies, all things being equal, to
inspired by the noble concept of approximating the both present and future conditions; and (4) it applies equally to
ideal of the laws's benefits being available to all and all those belonging to the same class.52
the affairs of men being governed by that serene and
impartial uniformity, which is of the very essence of
the idea of law. There is, however, wisdom, as well as The first, third and fourth requisites are satisfied.
realism, in these words of Justice Frankfurter: "The The classification freeze provision was inserted in the law for
equality at which the 'equal protection' clause aims is reasons of practicality and expediency. That is, since a new
not a disembodied equality. The Fourteenth brand was not yet in existence at the time of the passage of
Amendment enjoins 'the equal protection of the laws,' RA 8240, then Congress needed a uniform mechanism to fix
and laws are not abstract propositions. They do not the tax bracket of a new brand. The current net retail price,
relate to abstract units A, B and C, but are similar to what was used to classify the brands under Annex
expressions of policy arising out of specific difficulties, "D" as of October 1, 1996, was thus the logical and practical
addressed to the attainment of specific ends by the choice. Further, with the amendments introduced by RA 9334,
use of specific remedies. The Constitution does not the freezing of the tax classifications now expressly applies not
require things which are different in fact or opinion to just to Annex "D" brands but to newer brands introduced after
be treated in law as though they were the the effectivity of RA 8240 on January 1, 1997 and any new
same." Hence the constant reiteration of the view brand that will be introduced in the future.53 (However, as will
that classification if rational in character is be discussed later, the intent to apply the freezing mechanism
allowable. As a matter of fact, in a leading case of to newer brands was already in place even prior to the
Lutz v. Araneta, this Court, through Justice J.B.L. amendments introduced by RA 9334 to RA 8240.) This does
Reyes, went so far as to hold "at any rate, it is not explain, however, why the classification is "frozen" after its
inherent in the power to tax that a state be free to determination based on current net retail price and how this is
select the subjects of taxation, and it has been germane to the purpose of the assailed law. An examination of
repeatedly held that 'inequalities which result from a the legislative history of RA 8240 provides interesting answers
singling out of one particular class for taxation, or to this question.
exemption infringe no constitutional limitation.'"
RA 8240 was the first of three parts in the Comprehensive Tax
Petitioner likewise invoked the kindred concept of Reform Package then being pushed by the Ramos
uniformity. According to the Constitution: "The rule of Administration. It was enacted with the following objectives
taxation shall be uniform and equitable." This stated in the Sponsorship Speech of Senator Juan Ponce
requirement is met according to Justice Laurel in Enrile (Senator Enrile), viz:
Philippine Trust Company v. Yatco, decided in 1940,
when the tax "operates with the same force and effect First, to evolve a tax structure which will promote fair
in every place where the subject may be found." He competition among the players in the industries
likewise added: "The rule of uniformity does not call concerned and generate buoyant and stable revenue
for perfect uniformity or perfect equality, because this for the government.
is hardly attainable." The problem of classification did
not present itself in that case. It did not arise until nine Second, to ensure that the tax burden is equitably
years later, when the Supreme Court held: "Equality distributed not only amongst the industries affected
and uniformity in taxation means that all taxable but equally amongst the various levels of our society
articles or kinds of property of the same class shall be that are involved in various markets that are going to
taxed at the same rate. The taxing power has the be affected by the excise tax on distilled spirits,
authority to make reasonable and natural fermented liquor, cigars and cigarettes.
classifications for purposes of taxation, . . . As
clarified by Justice Tuason, where "the differentiation"
complained of "conforms to the practical dictates of In the case of firms engaged in the industries
justice and equity" it "is not discriminatory within the producing the products that we are about to tax, this
meaning of this clause and is therefore uniform." means relating the tax burden to their market
There is quite a similarity then to the standard of share, not only in terms of quantity, Mr. President, but
equal protection for all that is required is that the tax in terms of value.
"applies equally to all persons, firms and corporations
placed in similar situation."46 (Emphasis supplied) In case of consumers, this will mean evolving a multi-
tiered rate structure so that low-priced products are
In consonance thereto, we have held that "in our jurisdiction, subject to lower tax rates and higher-priced products
the standard and analysis of equal protection challenges in the are subject to higher tax rates.
main have followed the ‘rational basis’ test, coupled with a
deferential attitude to legislative classifications and a Third, to simplify the tax administration and
reluctance to invalidate a law unless there is a showing of a compliance with the tax laws that are about to unfold
clear and unequivocal breach of the Constitution."47 Within the in order to minimize losses arising from inefficiencies
present context of tax legislation on sin products which neither and tax avoidance scheme, if not outright tax
contains a suspect classification nor impinges on a evasion.54
fundamental right, the rational-basis test thus finds application.
Under this test, a legislative classification, to survive an equal
In the initial stages of the crafting of the assailed law, the
protection challenge, must be shown to rationally further a
Department of Finance (DOF) recommended to Congress a
legitimate state interest.48 The classifications must be
shift from the then existing ad valorem taxation system to a
reasonable and rest upon some ground of difference having a
specific taxation system with respect to sin products, including
cigarettes. The DOF noted that the ad valorem taxation system on the increase in the consumer price index as determined by
was a source of massive tax leakages because the taxpayer the Commissioner of Internal Revenue subject to certain
was able to evade paying the correct amount of taxes through guidelines. The evident intent was to prevent inflation from
the undervaluation of the price of cigarettes using various eroding the value of the excise taxes that would be collected
marketing arms and dummy corporations. In order to address from cigarettes over time by adjusting the tax rate and tax
this problem, the DOF proposed a specific taxation system brackets based on the increase in the consumer price index.
where the cigarettes would be taxed based on volume or on a Further, under this proposal, old brands as well as new brands
per pack basis which was believed to be less susceptible to introduced thereafter would be subjected to a resurvey and
price manipulation. The reason was that the BIR would only reclassification based on their respective values at the end of
need to monitor the sales volume of cigarettes, from which it every two years in order to align them with the adjustment of
could easily compute the corresponding tax liability of cigarette the excise tax rate and tax brackets due to the movement in
manufacturers. Thus, the DOF suggested the use of a three- the consumer price index.55
tiered system which operates in substantially the same manner
as the four-tiered system under RA 8240 as earlier discussed. Of course, we now know that the DOF proposal, insofar as the
The proposal of the DOF was embodied in House Bill (H.B.) periodic adjustment of tax rates and tax brackets, and the
No. 6060, the pertinent portions of which states— periodic resurvey and reclassification of cigarette brands are
concerned, did not gain approval from Congress. The House
SEC. 142. Cigars and cigarettes.— and Senate pushed through with their own versions of the
excise tax system on beers and cigarettes both denominated
(c) Cigarettes packed by machine.— There shall be as H.B. No. 7198. For convenience, we shall refer to the bill
levied, assessed and collected on cigarettes packed deliberated upon by the House as the House Version and that
by machine a tax at the rates prescribed below: of the Senate as the Senate Version.

(1) If the manufacturer’s or importer’s wholesale price The House’s Committee on Ways and Means, then chaired by
(net of excise tax and value-added tax) per pack Congressman Exequiel B. Javier (Congressman Javier),
exceeds four pesos and twenty centavos (P4.20), the roundly rejected the DOF proposal. Instead, in its Committee
tax shall be seven pesos and fifty centavos (P7.50); Report submitted to the plenary, it proposed a different excise
tax system which used a specific tax as a basic tax with an ad
valorem comparator. Further, it deleted the proposal to have a
(2) If the manufacturer’s or importer’s wholesale price periodic adjustment of tax rates and the tax brackets as well as
(net of excise tax and value-added tax) per pack periodic resurvey and reclassification of cigarette brands, to
exceeds three pesos and ninety centavos (P3.90) but wit:
does not exceed four pesos and twenty centavos
(P4.20), the tax shall be five pesos and fifty centavos
(P5.50): provided, that after two (2) years from the The rigidity of the specific tax system calls for the
effectivity of this Act, cigarettes otherwise subject to need for frequent congressional intervention to adjust
tax under this subparagraph shall be taxed under the tax rates to inflation and to keep pace with the
subparagraph (1) above. expanding needs of government for more revenues.
The DOF admits this flaw inherent in the tax system it
proposed. Hence, to obviate the need for remedial
(3) If the manufacturer’s or importer’s wholesale price legislation, the DOF is asking Congress to grant to the
(net of excise tax and value-added tax) per pack does Commissioner the power to revise, one, the specific
not exceeds three pesos and ninety centavos (P3.90), tax rates: and two, the price levels of beer and
the tax rate shall be one peso (P1.00). cigarettes. What the DOF is asking, Mr. Speaker, is
for Congress to delegate to the Commissioner of
Variants of existing brands and new brands of Internal Revenue the power to fix the tax rates and
cigarettes packed by machine to be introduced in the classify the subjects of taxation based on their price
domestic market after the effectivity of this Act, shall levels for purposes of fixing the tax rates. While we
be taxed under paragraph (c)(1) hereof. sympathize with the predicament of the DOF, it is not
for Congress to abdicate such power. The power
The rates of specific tax on cigars and cigarettes sought to be delegated to be exercised by the
under paragraphs (a), (b), and (c) hereof, Commissioner of Internal Revenue is a legislative
including the price levels for purposes of power vested by the Constitution in Congress
classifying cigarettes packed by machine, shall be pursuant to Section 1, Article VI of the Constitution.
revised upward two (2) years after the effectivity Where the power is vested, there it must remain— in
of this Act and every two years thereafter by the Congress, a body of representatives elected by the
Commissioner of Internal Revenue, subject to the people. Congress may not delegate such power,
approval of the Secretary of Finance, taking into much less abdicate it.
account the movement of the consumer price
index for cigars and cigarettes as established by xxxx
the National Statistics Office: provided, that the
increase in taxes and/or price levels shall be Moreover, the grant of such power, if at all
equal to the present change in such consumer constitutionally permissible, to the Commissioner of
price index for the two-year Internal Revenue is fraught with ethical implications.
period: provided, further, that the President, upon The debates on how much revenue will be raised,
the recommendation of the Secretary of Finance, how much money will be taken from the pockets of
may suspend or defer the adjustment in price taxpayers, will inexorably shift from the democratic
levels and tax rates when the interest of the Halls of Congress to the secret and non-transparent
national economy and general welfare so require, corridors of unelected agencies of government, the
such as the need to obviate unemployment, and Department of Finance and the Bureau of Internal
economic and social dislocation: provided, finally, Revenue, which are not accountable to our people.
that the revised price levels and tax rates We cannot countenance the shift for ethical reasons,
authorized herein shall in all cases be rounded off lest we be accused of betraying the trust reposed on
to the nearest centavo and shall be in force and this Chamber by the people. x x x
effect on the date of publication thereof in a
newspaper of general circulation. x x x (Emphasis
supplied) A final point on this proposal, Mr. Speaker, is the
exercise of the taxing power of the Commissioner of
Internal Revenue which will be triggered by inflation
What is of particular interest with respect to the proposal of the rates based on the consumer price index. Simply
DOF is that it contained a provision for the periodic adjustment stated, Mr. Speaker, the specific tax rates will be fixed
of the excise tax rates and tax brackets, and a corresponding by the Commissioner depending on the price levels of
periodic resurvey and reclassification of cigarette brands based beers and cigarettes as determined by the
 consumers’ price index. This is a novel idea, if not xxx
necessarily weird in the field of taxation. What if the
brewer or the cigarette manufacturer sells at a price The rates of specific tax on cigars and cigarettes
below the consumers’ price index? Will it be taxed on under subparagraph (a), (b) and (c) hereof,
the basis of the consumer’s price index which is over including the net retail prices for purposes of
and above its wholesale or retail price as the case classification, shall be adjusted on the sixth of
may be? This is a weird form of exaction where the January three years after the effectivity of this Act
tax is based not on what the brewer or manufacturer and every three years thereafter. The adjustment
actually realized but on an imaginary wholesale or shall be in accordance with the inflation rate
retail price. This amounts to a taxation based on measured by the average increase in the
presumptive price levels and renders the specific tax consumer price index over the three-year period.
a presumptive tax. We hope, the DOF and the BIR The adjusted tax rates and net price levels shall
will also honor a presumptive tax payment. be in force on the eighth of January.

Moreover, specific tax rates based on price levels tied Within the period hereinabove mentioned, the
to consumer’s price index as proposed by the DOF Secretary of Finance shall direct the conduct of a
engenders anti-trust concerns. The proposal if survey of retail prices of each brand of cigarettes
enacted into law will serve as a barrier to the entry of in coordination with the Bureau of Internal
new players in the beer and cigarette industries which Revenue and the National Statistics Office.
are presently dominated by shared monopolies. A
new player in these industries will be denied business
flexibility to fix its price levels to promote its product For purposes of this Section, net retail price shall
and penetrate the market as the price levels are mean the price at which the cigarette is sold on retail
dictated by the consumer price index. The proposed in 20 major supermarkets in Metro Manila (for brands
tax regime, Mr. Speaker, will merely enhance the of cigarettes marketed nationally), excluding the
stranglehold of the oligopolies in the beer and amount intended to cover the applicable excise tax
cigarette industries, thus, reversing the government’s and the value-added tax. For brands which are
policy of dismantling monopolies and combinations in marketed only outside Metro Manila, the net retail
restraint of trade.56 price shall mean the price at which the cigarette is
sold in five major supermarkets in the region
excluding the amount intended to cover the applicable
For its part, the Senate’s Committee on Ways and Means, then excise tax and the value-added tax.
chaired by Senator Juan Ponce Enrile (Senator Enrile),
developed its own version of the excise tax system on
cigarettes. The Senate Version consisted of a four-tiered The classification of each brand of cigarettes in
system and, interestingly enough, contained a periodic excise the initial year of implementation of this Act shall
tax rate and tax bracket adjustment as well as a periodic be based on its average net retail price as of
resurvey and reclassification of brands provision ("periodic October 1, 1996. The said classification by brand
adjustment and reclassification provision," for brevity) to be shall remain in force until January 7, 2000.
conducted by the DOF in coordination with the BIR and the
National Statistics Office based on the increase in the New brands shall be classified according to their
consumer price index— similar to the one proposed by the current net retail price.57 (Emphasis supplied)
DOF, viz:
During the period of interpellations, the late Senator Raul S.
SEC. 4 Section 142 of the National Internal Revenue Roco (Senator Roco) expressed doubts as to the legality and
Code, as amended, is hereby further amended to wisdom of putting a periodic adjustment and reclassification
read as follows: provision:

"SEC. 142. Cigars and cigarettes. – Senator Enrile: This will be the first time that a tax
burden will be allowed to be automatically adjusted
xxxx upwards based on a system of indexing tied up with
the Consumers Price Index (CPI). Although I must
add that we have adopted a similar system in
(c) Cigarettes packed by machine. – There shall be adjusting the personal tax exemption from income tax
levied, assessed and collected on cigarettes packed of our individual taxpayers.
by machine a tax at the rates prescribed below:
Senator Roco: They are not exactly the same, Mr.
(1) If the net retail price (excluding the excise tax and President. But even then, we do note that this the first
the value-added tax) is above Ten pesos (P10.00) per time we are trying to put an automatic adjustment. My
pack, the tax shall be Twelve pesos (P12.00) per concern is, why do we propose now this automatic
pack; adjustment? What is the reason that impels the
committee? Maybe we can be enlightened and maybe
(2) If the net retail price (excluding the excise tax and we shall embrace it forthwith. But what is the reason?
the value-added tax) exceeds Six pesos and fifty
centavos (P6.50) per pack, the tax shall be Eight Senator Enrile: Mr. President, we will recall that in the
pesos (P8.00) per pack; House of Representatives, it has adopted a tax
proposal on these products based on a specific tax as
(3) If the net retail price (excluding the excise tax and a basic tax with an ad valorem comparator. The
the value-added tax) is Five pesos (P5.00) up to Six Committee on Ways and Means of the Senate has
pesos and fifty centavos (P6.50) per pack, the tax not seen it fit to adopt this system, but it recognized
shall be Five pesos (P5.00) per pack; the possibility that there may be an occasion where
the price movement in the country might
(4) If the net retail price (excluding the excise tax and unwarrantedly move upwards, in which case, if we
the value-added tax) is below Five pesos (P5.00) per peg the government to a specific tax rate of P6.30,
pack, the tax shall be One peso (P1.00) per pack. P9.30 and P12.30 for beer, since we are talking of
beer, 58 the government might lose in the process.
Variants of existing brands of cigarettes which are
introduced in the domestic market after the effectivity In order to consider the interest of the government in
of this Act shall be taxed under the highest this, Mr. President, and in order to obviate the
classification of any variant of that brand. possibility that some of these products categorized
under the different tiers with different specific tax rates
from moving upwards and piercing their own tiers and The only difference is, who will make the judgment?
thereby expose themselves to an incremental tax of Should it be Congress?
higher magnitude, it was felt that we should adopt a
system where, in spite of any escalation in the price of Senator Enrile: Mr. President, forgive me for
these products in the future, the tax rates could be answering sooner than I should. My understanding of
adjusted upwards so that none of these products the Constitution is that all revenue measures must
would leave their own tier. That was the basic emanate from the House. That is all the Constitution
principle under which we crafted this portion of the tax says.
proposal.
Now, it does not say that the judgment call must
Senator Roco: Mr. President, we certainly share the belong to the House. The judgment call can belong
judgment of the distinguished gentleman as regards both to the House and to the Senate. We can change
the comparator provision in the House of whatever proposal the House did. Precisely, we are
Representatives and we appreciate the reasons now crafting a measure, and we are saying that this is
given. But we are under the impression that the the rate subject to an adjustment which we also
House also, aside from the comparator, has an provide. We are not giving any unusual power to the
adjustment clause that is fixed. It has fixed rates for Secretary of Finance because we tell him, "This is the
the adjustment. So that one of the basic differences formula that you must adopt in arriving at the
between the Senate proposed version now and the adjustment so that you do not have to come back to
House version is that, the House of Representatives us."59
has manifested its will and judgment as regards the
tax to which we will adjust, whereas the Senate
version relegates fundamentally that judgment to the Apart from his doubts as to the legality of the delegation of
Department of Finance. taxing power to the DOF and BIR, Senator Roco also voiced
out his concern about the possible abuse and corruption that
will arise from the periodic adjustment and reclassification
Senator Enrile: That is correct, Mr. President, provision. Continuing—
because we felt that in imposing a fixed adjustment,
we might be fixing an amount that is either too high or
too low. We cannot foresee the economic trends in Senator Roco: Mr. President, if that is the argument,
this country over a period of two years, three years, that the distinguished gentleman has a different legal
let alone ten years. So we felt that a mechanism interpretation, we will then now examine the choice.
ought to be adopted in order to serve the interest of Because his legal interpretation is different from mine,
the government, the interest of the producers, and the then the issues becomes: Is it more advantageous
interest of the consuming public. that this judgment be exercised by the House?
Should we not concur or modify in terms of the
exercise by the House of its power or are we
Senator Roco: This is where, Mr. President, my policy better off giving this judgment call to the
difficulties start. Under the Constitution— I think it is Department of Finance?
Article VI, Section 24, and it was the distinguished
chairman of the Committee on Ways and Means who
made this Chamber very conscious of this provision— Let me now submit, Mr. President, that in so
revenue measures and tariff measures shall originate doing, it is more advantageous to fix the rate so
exclusively from the House of Representatives. that even if we modify the rates identified by
Congress, it is better and less susceptible to
abuse.
The reason for this, Mr. President, is, there is a long
history why the House of Representatives must
originate judgments on tax. The House members For instance, Mr. President, would the gentlemen
represent specific districts. They represent specific wish to demonstrate to us how this will be done? On
constituencies, and the whole history of page 8, lines 5 to 9, there is a provision here as to
parliamentarism, the whole history of Congress as an when the Secretary of Finance shall direct the
institution is founded on the proposition that the direct conduct of survey of retail prices of each brand of
representatives of the people must speak about fermented liquor in coordination with the Bureau of
taxes. Internal Revenue and the National Statistics Office.

Mr. President, while the Senate can concur and can These offices are not exactly noted, Mr. President, for
introduce amendments, the proposed change here is having been sanctified by the Holy Spirit in their noble
radical. This is the policy difficulty that I wish to clarify intentions. x x x60 (Emphasis supplied)
with the gentleman because the judgment call now on
the amount of tax to be imposed is not coming from Pressing this point, Senator Roco continued his query:
Congress. It is shifted to the Department of Finance.
True, the Secretary of Finance may have been the Senator Roco: x x x [On page 8, lines 5 to 9] it says
best finance officer two years ago and now the best that during the two-year period, the Secretary of
finance officer in Asia, but that does not make him Finance shall direct the conduct of the survey. How?
qualified to replace the judgment call of the House of When? Which retail prices and what brand shall he
Representatives. That is my first difficulty. consider? When he coordinates with the Bureau of
Internal Revenue, what is the Bureau of Internal
Senator Enrile: Mr. President, precisely the law, in Revenue supposed to be doing? What is the National
effect, authorizes this rate beforehand. The Statistics Office supposed to be doing, and under
computation of the rate is the only thing that was left what guides and standards?
to the Department of Finance as a tax implementor of
Congress. This is not unusual because we have May the gentleman wish to demonstrate how this will
already, as I said, adopted a system similar to this. If be done? My point, Mr. President, is, by giving the
we adjust the personal exemption of an individual Secretary of Finance, the BIR and the National
taxpayer, we are in effect adjusting the applicable tax Statistics Office discretion over a two-year period
rate to him. will invite corruption and arbitrariness, which is
more dangerous than letting the House of
Senator Roco: But the point I was trying to Representatives and this Chamber set the
demonstrate, Mr. President, is that we depart adjustment rate. Why not set the adjustment rate?
precisely from the mandate of the Constitution that Why should Congress not exercise that judgment
judgment on revenue must emanate from Congress. now? x x x
Here, it is shifted to the Department of Finance for no
visible or patent reason insofar as I could understand.
 Senator Enrile: x x x we can also further, later on, seek amendments to
this automatic adjustment clause in some manner.
Senator Roco: x x x We respectfully submit that the
Chairman consider choosing the judgment of this Senator Enrile: Mr. President, I cannot foresee any
Chamber and the House of Representatives over a anti-competitiveness of this provision with respect to a
delegated judgment of the Department of Finance. new entrant, because a new entrant will not just come
in without studying the market. He is a lousy
Again, it is not to say that I do not trust the businessman if he will just come in without studying
Department of Finance. It has won awards, and I also the market. If he comes in, he will determine at what
trust the undersecretary. But that is beside the point. retail price level he will market his product, and he will
Tomorrow, they may not be there.61 (Emphasis be coming under any of the tiers depending upon his
supplied) net retail price. Therefore, I do not see how this
particular provision will affect a new entrant.
This point was further dissected by the two senators. There
was a genuine difference of opinion as to which system— one Senator Roco: Be that as it may, Mr. President, we
with a fixed excise tax rate and classification or the other with a obviously will not resort to debate until this evening,
periodic adjustment of excise tax rate and reclassification— and we will have to look for other ways of resolving
was less susceptible to abuse, as the following exchanges the policy options.
show:
Let me just close that particular area of my
Senator Enrile: Mr. President, considering the interpellation, by summarizing the points we were
sensitivity of these products from the viewpoint of hoping could be clarified.
exerted pressures because of the understandable
impact of this measure on the pockets of the major 1. That the automatic adjustment clause is at
players producing these products, the committee felt best questionable in law.
that perhaps to lessen such pressures, it is best that
we now establish a norm where the tax will be 2. It is corruption-friendly in the sense that it
adjusted without incurring too much political shifts the discretion from the House of
controversy as has happened in the case of this Representatives and this Chamber to the
proposal. Secretary of Finance, no matter how saintly
he may be.
Senator Roco: But that is exactly the same reason we
say we must rely upon Congress because Congress, 3. There is,— although the judgment call of
if it is subjected to pressure, at least balances off the gentleman disagrees— to our view, an
because of political factors. anticompetitive situation that is geared at…63

When the Secretary of Finance is now subjected to After these lengthy exchanges, it appears that the views of
pressure, are we saying that the Secretary of Finance Senator Enrile were sustained by the Senate Body because
and the Department of Finance is better-suited to the Senate Version was passed on Third Reading without
withstand the pressure? Or are we saying "Let the substantially altering the periodic adjustment and
Finance Secretary decide whom to yield"? reclassification provision.

I am saying that the temptation and the pressure on It was actually at the Bicameral Conference Committee level
the Secretary of Finance is more dangerous and more where the Senate Version underwent major changes. The
corruption-friendly than ascertaining for ourselves Senate Panel prevailed upon the House Panel to abandon the
now a fixed rate of increase for a fixed period. basic excise tax rate and ad valorem comparator as the means
to determine the applicable excise tax rate. Thus, the Senate’s
Senator Enrile: Mr. President, perhaps the gentleman four-tiered system was retained with minor adjustments as to
may not agree with this representation, but in my the excise tax rate per tier. However, the House Panel
humble opinion, this formulation is less susceptible to prevailed upon the Senate Panel to delete the power of the
pressure because there is a definite point of reference DOF and BIR to periodically adjust the excise tax rate and tax
which is the consumer price index, and that consumer brackets, and periodically resurvey and reclassify the cigarette
price index is not going to be used only for this brands based on the increase in the consumer price index.
purpose. The CPI is used for a national purpose, and
there is less possibility of tinkering with it.62 In lieu thereof, the classification of existing brands based on
their average net retail price as of October 1, 1996 was
Further, Senator Roco, like Congressman Javier, expressed "frozen" and a fixed across-the-board 12% increase in the
the view that the periodic adjustment and reclassification excise tax rate of each tier after three years from the effectivity
provision would create an anti-competitive atmosphere. Again, of the Act was put in place. There is a dearth of discussion in
Senators Roco and Enrile had genuine divergence of opinions the deliberations as to the applicability of the freezing
on this matter, to wit: mechanism to new brands after their classification is
determined based on their current net retail price. But a plain
Senator Roco: x x x On the marketing level, an reading of the text of RA 8240, even before its amendment by
adjustment clause may, in fact, be disadvantageous RA 9334, as well as the previously discussed deliberations
to both companies, whether it is the Lucio Tan would readily lead to the conclusion that the intent of Congress
companies or the San Miguel companies. If we have was to likewise apply the freezing mechanism to new brands.
to adjust our marketing position every two years Precisely, Congress rejected the proposal to allow the DOF
based on the adjustment clause, the established and BIR to periodically adjust the excise tax rate and tax
company may survive, but the new ones will have brackets as well as to periodically resurvey and reclassify
tremendous difficulty. Therefore, this provision tends cigarettes brands which would have encompassed old and
to indicate an anticompetitive bias. new brands alike. Thus, it would be absurd for us to conclude
that Congress intended to allow the periodic reclassification of
new brands by the BIR after their classification is determined
It is good for San Miguel and the Lucio Tan based on their current net retail price. We shall return to this
companies, but the new companies— assuming there point when we tackle the second issue.
may be new companies and we want to encourage
them because of the old point of liberalization— will
be at a disadvantage under this situation. If this In explaining the changes made at the Bicameral Conference
observation will find receptivity in the policy Committee level, Senator Enrile, in his report to the Senate
consideration of the distinguished Gentleman, maybe plenary, noted that the fixing of the excise tax rates was done
to avoid confusion.64 Congressman Javier, for his part, tax evasion."69 RA 9334 did not alter this classification freeze
reported to the House plenary the reasons for fixing the excise provision of RA 8240. On the contrary, Congress affirmed this
tax rate and freezing the classification, thus: freezing mechanism by clarifying the wording of the law. We
can thus reasonably conclude, as the deliberations on RA
Finally, this twin feature, Mr. Speaker, fixed specific 9334 readily show, that the administrative concerns in tax
tax rates and frozen classification, rejects the Senate administration, which moved Congress to enact
version which seeks to abdicate the power of the classification freeze provision in RA 8240, were merely
Congress to tax by pegging the rates as well as the continued by RA 9334. Indeed, administrative concerns may
classification of sin products to consumer price provide a legitimate, rational basis for legislative
index which practically vests in the Secretary of classification.70 In the case at bar, these administrative
Finance the power to fix the rates and to classify concerns in the measurement and collection of excise taxes on
the products for tax purposes.65 (Emphasis sin products are readily apparent as afore-discussed.
supplied)
Aside from the major concern regarding the elimination of
Congressman Javier later added that the frozen classification potential areas for abuse and corruption from the tax
was intended to give stability to the industry as the BIR would administration of sin products, the legislative deliberations also
be prevented from tinkering with the classification since it show that the classification freeze provision was intended to
would remain unchanged despite the increase in the net retail generate buoyant and stable revenues for government. With
prices of the previously classified brands.66 This would also the frozen tax classifications, the revenue inflow would remain
assure the industry players that there would be no new stable and the government would be able to predict with a
impositions as long as the law is unchanged.67 greater degree of certainty the amount of taxes that a cigarette
manufacturer would pay given the trend in its sales volume
over time. The reason for this is that the previously classified
From the foregoing, it is quite evident that the classification cigarette brands would be prevented from moving either
freeze provision could hardly be considered arbitrary, or upward or downward their tax brackets despite the changes in
motivated by a hostile or oppressive attitude to unduly favor their net retail prices in the future and, as a result, the amount
older brands over newer brands. Congress was unequivocal in of taxes due from them would remain predictable.
its unwillingness to delegate the power to periodically adjust The classification freeze provision would, thus, aid in the
the excise tax rate and tax brackets as well as to periodically revenue planning of the government.71
resurvey and reclassify the cigarette brands based on the
increase in the consumer price index to the DOF and the BIR.
Congress doubted the constitutionality of such delegation of All in all, the classification freeze provision addressed
power, and likewise, considered the ethical implications Congress’s administrative concerns in the simplification of tax
thereof. Curiously, the classification freeze provision was put in administration of sin products, elimination of potential areas for
place of the periodic adjustment and reclassification provision abuse and corruption in tax collection, buoyant and stable
because of the belief that the latter would foster an anti- revenue generation, and ease of projection of
competitive atmosphere in the market. Yet, as it is, this same revenues. Consequently, there can be no denial of the equal
criticism is being foisted by petitioner upon the classification protection of the laws since the rational-basis test is amply
freeze provision. satisfied.

To our mind, the classification freeze provision was in the main Going now to the contention of petitioner that the classification
the result of Congress’s earnest efforts to improve the freeze provision unduly favors older brands over newer brands,
efficiency and effectivity of the tax administration over sin we must first contextualize the basis of this claim. As
products while trying to balance the same with other state previously discussed, the evidence presented by the petitioner
interests. In particular, the questioned provision addressed merely showed that in 2004, Marlboro and Philip Morris, on the
Congress’s administrative concerns regarding delegating too one hand, and Lucky Strike, on the other, would have been
much authority to the DOF and BIR as this will open the tax taxed at the same rate had the classification freeze
system to potential areas for abuse and corruption. Congress provision been not in place. But due to the operation of
may have reasonably conceived that a tax system which would the classification freeze provision, Lucky Strike was taxed
give the least amount of discretion to the tax implementers higher. From here, petitioner generalizes that this differential
would address the problems of tax avoidance and tax evasion. tax treatment arising from the classification freeze
provision adversely impacts the fairness of the playing field in
the industry, particularly, between older and newer brands.
To elaborate a little, Congress could have reasonably foreseen Thus, it is virtually impossible for new brands to enter the
that, under the DOF proposal and the Senate Version, the market.
periodic reclassification of brands would tempt the cigarette
manufacturers to manipulate their price levels or bribe the tax
implementers in order to allow their brands to be classified at a Petitioner did not, however, clearly demonstrate the exact
lower tax bracket even if their net retail prices have already extent of such impact. It has not been shown that the net retail
migrated to a higher tax bracket after the adjustment of the tax prices of other older brands previously classified under this
brackets to the increase in the consumer price index. classification system have already pierced their tax brackets,
Presumably, this could be done when a resurvey and and, if so, how this has affected the overall competition in the
reclassification is forthcoming. As briefly touched upon in the market. Further, it does not necessarily follow that newer
Congressional deliberations, the difference of the excise tax brands cannot compete against older brands because price is
rate between the medium-priced and the high-priced tax not the only factor in the market as there are other factors like
brackets under RA 8240, prior to its amendment, was P3.36. consumer preference, brand loyalty, etc. In other words, even if
For a moderately popular brand which sells around 100 million the newer brands are priced higher due to the differential tax
packs per year, this easily translates to P336,000,000.68 The treatment, it does not mean that they cannot compete in the
incentive for tax avoidance, if not outright tax evasion, would market especially since cigarettes contain addictive ingredients
clearly be present. Then again, the tax implementers may use so that a consumer may be willing to pay a higher price for a
the power to periodically adjust the tax rate and reclassify the particular brand solely due to its unique formulation. It may
brands as a tool to unduly oppress the taxpayer in order for the also be noted that in 2003, the BIR surveyed 29 new
government to achieve its revenue targets for a given year. brands72 that were introduced in the market after the effectivity
of RA 8240 on January 1, 1997, thus negating the sweeping
generalization of petitioner that the classification freeze
Thus, Congress sought to, among others, simplify the whole provision has become an insurmountable barrier to the entry of
tax system for sin products to remove these potential areas of new brands. Verily, where there is a claim of breach of the due
abuse and corruption from both the side of the taxpayer and process and equal protection clauses, considering that they
the government. Without doubt, the classification freeze are not fixed rules but rather broad standards, there is a need
provision was an integral part of this overall plan. This is in line for proof of such persuasive character as would lead to such a
with one of the avowed objectives of the assailed law "to conclusion. Absent such a showing, the presumption of validity
simplify the tax administration and compliance with the tax must prevail.73
laws that are about to unfold in order to minimize losses arising
from inefficiencies and tax avoidance scheme, if not outright
Be that as it may, petitioner’s evidence does suggest that, at In fine, petitioner may have valid reasons to disagree with the
least in 2004, Philip Morris and Marlboro, older brands, would policy decision of Congress and the method by which the latter
have been taxed at the same rate as Lucky Strike, a newer sought to achieve the same. But its remedy is with Congress
brand, due to certain conditions (i.e., the increase of the older and not this Court. As succinctly articulated in Vance v.
brands’ net retail prices beyond the tax bracket to which they Bradley:77
were previously classified after the lapse of some time) were it
not for the classification freeze provision. It may be conceded The Constitution presumes that, absent some reason
that this has adversely affected, to a certain extent, the ability to infer antipathy, even improvident decisions will
of petitioner to competitively price its newer brands vis-à- eventually be rectified by the democratic process, and
vis the subject older brands. Thus, to a limited extent, the that judicial intervention is generally unwarranted no
assailed law seems to derogate one of its avowed matter how unwisely we may think a political branch
objectives, i.e. promoting fair competition among the players in has acted. Thus, we will not overturn such a statute
the industry. Yet, will this occurrence, by itself, render the unless the varying treatment of different groups or
assailed law unconstitutional on equal protection grounds? persons is so unrelated to the achievement of any
combination of legitimate purposes that we can only
We answer in the negative. conclude that the legislature's actions were
irrational.78
Whether Congress acted improvidently in derogating, to a
limited extent, the state’s interest in promoting fair competition We now tackle the second issue.
among the players in the industry, while pursuing other state
interests regarding the simplification of tax administration of sin Petitioner asserts that Revenue Regulations No. 1-97, as
products, elimination of potential areas for abuse and amended by Revenue Regulations No. 9-2003, Revenue
corruption in tax collection, buoyant and stable revenue Regulations No. 22-2003 and Revenue Memorandum Order
generation, and ease of projection of revenues through No. 6-2003, are invalid insofar as they empower the BIR to
the classification freeze provision, and whether the questioned reclassify or update the classification of new brands of
provision is the best means to achieve these state interests, cigarettes based on their current net retail prices every two
necessarily go into the wisdom of the assailed law which we years or earlier. It claims that RA 8240, even prior to its
cannot inquire into, much less overrule. The classification amendment by RA 9334, did not authorize the BIR to conduct
freeze provision has not been shown to be precipitated by a said periodic resurvey and reclassification.
veiled attempt, or hostile attitude on the part of Congress to
unduly favor older brands over newer brands. On the contrary,
we must reasonably assume, owing to the respect due a co- The questioned provisions are found in the following sections
equal branch of government and as revealed by the of the assailed issuances:
Congressional deliberations, that the enactment of the
questioned provision was impelled by an earnest desire to (1) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations
improve the efficiency and effectivity of the tax administration No. 1-97, as amended by Section 2 of Revenue Regulations 9-
of sin products. For as long as the legislative classification is 2003, viz:
rationally related to furthering some legitimate state interest, as
here, the rational-basis test is satisfied and the constitutional For the purpose of establishing or updating the tax
challenge is perfunctorily defeated. classification of new brands and variant(s) thereof,
their current net retail price shall be reviewed
We do not sit in judgment as a supra-legislature to decide, periodically through the conduct of survey or any
after a law is passed by Congress, which state interest is other appropriate activity, as mentioned above, every
superior over another, or which method is better suited to two (2) years unless earlier ordered by the
achieve one, some or all of the state’s interests, or what these Commissioner. However, notwithstanding any
interests should be in the first place. This policy-determining increase in the current net retail price, the tax
power, by constitutional fiat, belongs to Congress as it is its classification of such new brands shall remain in force
function to determine and balance these interests or choose until the same is altered or changed through the
which ones to pursue. Time and again we have ruled that the issuance of an appropriate Revenue Regulations.
judiciary does not settle policy issues. The Court can only
declare what the law is and not what the law should be. Under (2) Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers
our system of government, policy issues are within the domain Assistance Division II) II(b) of Revenue Memorandum Order
of the political branches of government and of the people No. 6-2003, insofar as pertinent to cigarettes packed by
themselves as the repository of all state power.74 Thus, the machine, viz:
legislative classification under the classification freeze
provision, after having been shown to be rationally related to
achieve certain legitimate state interests and done in good II. POLICIES AND GUIDELINES
faith, must, perforce, end our inquiry.
1. The conduct of survey covered by this Order, for
Concededly, the finding that the assailed law seems to purposes of determining the current retail prices of
derogate, to a limited extent, one of its avowed objectives (i.e. new brands of cigarettes and alcohol products
promoting fair competition among the players in the industry) introduced in the market on or after January 1, 1997,
would suggest that, by Congress’s own standards, the current shall be undertaken in the following instances:
excise tax system on sin products is imperfect. But, certainly,
we cannot declare a statute unconstitutional merely because it xxxx
can be improved or that it does not tend to achieve all of its
stated objectives.75 This is especially true for tax legislation
b. For reclassification of new brands of said excisable
which simultaneously addresses and impacts multiple state
products that were introduced in the market after
interests.76 Absent a clear showing of breach of constitutional
January 1, 1997.
limitations, Congress, owing to its vast experience and
expertise in the field of taxation, must be given sufficient
leeway to formulate and experiment with different tax systems xxxx
to address the complex issues and problems related to tax
administration. Whatever imperfections that may occur, the 4. The determination of the current retail prices of new
same should be addressed to the democratic process to refine brands of the aforesaid excisable products shall be
and evolve a taxation system which ideally will achieve most, if initiated as follows:
not all, of the state’s objectives.
xxxx

b. After the lapse of the prescribed two-year period or

as the Commissioner may otherwise direct, the
 appropriate tax reclassification of these brands based as prescribed under existing revenue laws and
on the current net retail prices thereof shall be regulations, is complied with. In addition, the names
determined by a survey to be conducted upon a and designations of revenue officers selected to
written directive by the Commissioner. conduct the survey shall be clearly indicated opposite
the names of the establishments to be surveyed.
For this purpose, a memorandum order to the
Assistant Commissioner, Large Taxpayers Service, There is merit to the contention.
Heads, Excise Tax Areas, and Regional Directors of
all Revenue Regions, except Revenue Region Nos. 4, In order to implement RA 8240 following its effectivity on
5, 6, 7, 8 and 9, shall be issued by the Commissioner January 1, 1997, the BIR issued Revenue Regulations No. 1-
for the submission of the list of major 97, dated December 13, 1996, which mandates a one-time
supermarkets/retail outlets where the above excisable classification only.79 Upon their launch, new brands shall be
products are being sold, as well as the list of selected initially taxed based on their suggested net retail price.
revenue officers who shall be designated to conduct Thereafter, a survey shall be conducted within three (3)
the said activity(ies). months to determine their current net retail prices and, thus, fix
their official tax classifications. However, the BIR made a
xxxx turnaround by issuing Revenue Regulations No. 9-2003, dated
February 17, 2003, which partly amended Revenue
6. The results of the survey conducted in Revenue Regulations No. 1-97, by authorizing the BIR to periodically
Region Nos. 4 to 9 shall be submitted directly to the reclassify new brands (i.e., every two years or earlier) based
Chief, LT Assistance Division II (LTAD II), National on their current net retail prices. Thereafter, the BIR issued
Office for consolidation. On the other hand, the results Revenue Memorandum Order No. 6-2003, dated March 11,
of the survey conducted in Revenue Regions other 2003, prescribing the guidelines on the implementation of
than Revenue Region Nos. 4 to 9, shall be submitted Revenue Regulations No. 9-2003. This was patent error on the
to the Office of the Regional Director for regional part of the BIR for being contrary to the plain text and
consolidation. The consolidated regional survey, legislative intent of RA 8240.
together with the accomplished survey forms shall be
transmitted to the Chief, LTAD II for national It is clear that the afore-quoted portions of Revenue
consolidation within three (3) days from date of actual Regulations No. 1-97, as amended by Section 2 of Revenue
receipt from the survey teams. The LTAD II shall be Regulations 9-2003, and Revenue Memorandum Order No. 6-
responsible for the evaluation and analysis of the 2003 unjustifiably emasculate the operation of Section 145 of
submitted survey forms and the preparation of the the NIRC because they authorize the Commissioner of Internal
recommendation for the updating/revision of the tax Revenue to update the tax classification of new brands every
classification of each brand of cigarettes and alcohol two years or earlier subject only to its issuance of the
products. The said recommendation, duly validated by appropriate Revenue Regulations, when nowhere in Section
the ACIR, LTS, shall be submitted to the 145 is such authority granted to the Bureau. Unless expressly
Commissioner for final review within ten (10) days granted to the BIR, the power to reclassify cigarette brands
from the date of actual receipt of complete reports remains a prerogative of the legislature which cannot be
from all the surveying Offices. usurped by the former.

7. Upon final review by the Commissioner of the More importantly, as previously discussed, the clear legislative
revised tax classification of the different new brands intent was for new brands to benefit from the same freezing
of cigarettes and alcohol products, the appropriate mechanism accorded to Annex "D" brands. To reiterate, in
revenue regulations shall be prepared and submitted enacting RA 8240, Congress categorically rejected the DOF
for approval by the Secretary of Finance. proposal and Senate Version which would have empowered
the DOF and BIR to periodically adjust the excise tax rate and
xxxx tax brackets, and to periodically resurvey and reclassify
cigarette brands. (This resurvey and reclassification would
have naturally encompassed both old and new brands.) It
III. PROCEDURES would thus, be absurd for us to conclude that Congress
intended to allow the periodic reclassification of new brands by
xxxx the BIR after their classification is determined based on their
current net retail price while limiting the freezing of the
Large Taxpayers Assistance Division II classification to Annex "D" brands. Incidentally, Senator Ralph
G. Recto expressed the following views during the
deliberations on RA 9334, which later amended RA 8240:
xxxx
Senator Recto: Because, like I said, when Congress
1. Perform the following preparatory procedures on agreed to adopt a specific tax system [under R.A.
the identification of brands to be surveyed, 8240], when Congress did not index the brackets, and
supermarkets/retail outlets where the survey shall be Congress did not index the rates but only provided for
conducted, and the personnel selected to conduct the a one rate increase in the year 2000, we shifted
survey. from ad valorem which was based on value to a
system of specific which is based on volume.
xxxx Congress then, in effect, determined the classification
based on the prices at that particular period of time
and classified these products accordingly.
b. On the tax reclassification of new brands

Of course, Congress then decided on what will

i. Submit a master list of registered brands covered by
happen to the new brands or variants of existing
the survey pursuant to the provisions of Item II.2 of
brands. To favor government, a variant would be
this Order containing the complete description of each
classified as the highest rate of tax for that particular
brand, existing net retail price and the corresponding
brand. In case of a new brand, Mr. President, then the
tax rate thereof.
BIR should classify them. But I do not think it was the
intention of Congress then to give the BIR the
ii. Submit to the ACIR, LTS, a list of major authority to reclassify them every so often. I do not
supermarkets/retail outlets within the territorial think it was the intention of Congress to allow the BIR
jurisdiction of the concerned revenue regions where to classify a new brand every two years, for example,
the survey will be conducted to be used as basis in because it will be arbitrary for the BIR to do so. x x
the issuance of Mission Orders. Ensure that the x80 (Emphasis supplied)
minimum number of establishments to be surveyed,
For these reasons, the amendments introduced by RA 9334 to cigarettes introduced in the domestic market between
RA 8240, insofar as the freezing mechanism is concerned, January 1, 1997 and December 31, 2003 shall remain
must be seen merely as underscoring the legislative intent in the classification under which the Bureau of Internal
already in place then, i.e. new brands as being covered by the Revenue has determined them to belong as of
freezing mechanism after their classification based on their December 31, 2003. Such classification of new
current net retail prices. brands and brands introduced between January 1,
1997 and December 31, 2003 shall not be revised
Unfortunately for petitioner, this result will not cause a except by an act of Congress. (Emphasis supplied)
downward reclassification of Lucky Strike. It will be recalled
that petitioner introduced Lucky Strike in June 2001. However, Thus, Revenue Regulations No. 9-2003 and Revenue
as admitted by petitioner itself, the BIR did not conduct the Memorandum Order No. 6-2003 should be deemed modified
required market survey within three months from product by the above provisions from the date of effectivity of RA 9334
launch. As a result, Lucky Strike was never classified based on on January 1, 2005.
its actual current net retail price. Petitioner failed to timely seek
redress to compel the BIR to conduct the requisite market In sum, Section 4(B)(e)(c), 2nd paragraph of Revenue
survey in order to fix the tax classification of Lucky Strike. In Regulations No. 1-97, as amended by Section 2 of Revenue
the meantime, Lucky Strike was taxed based on Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III
its suggested net retail price of P9.90 per pack, which is within (Large Tax Payers Assistance Division II) II(b) of Revenue
the high-priced tax bracket. It was only after the lapse of two Memorandum Order No. 6-2003, as pertinent to cigarettes
years or in 2003 that the BIR conducted a market survey which packed by machine, are invalid insofar as they grant the BIR
was the first time that Lucky Strike’s actual current net retail the power to reclassify or update the classification of new
price was surveyed and found to be from P10.34 to P11.53 per brands every two years or earlier. Further, these provisions are
pack, which is within the premium-priced tax bracket. The case deemed modified upon the effectivity of RA 9334 on January 1,
of petitioner falls under a situation where there was no 2005 insofar as the manner of determining the permanent
reclassification based on its current net retail price which would classification of new brands is concerned.
have been invalid as previously explained. Thus, we cannot
grant petitioner’s prayer for a downward reclassification of
Lucky Strike because it was never reclassified by the BIR We now tackle the last issue.
based on its actual current net retail price.
Petitioner contends that RA 8240, as amended by RA 9334,
It should be noted though that on August 8, 2003, the BIR and its implementing rules and regulations violate the General
issued Revenue Regulations No. 22-2003 which implemented Agreement on Tariffs and Trade (GATT) of 1947, as amended,
the revised tax classifications of new brands based on their specifically, Paragraph 2, Article III, Part II:
current net retail prices through the market survey conducted
pursuant to Revenue Regulations No. 9-2003. Annex "A" of 2. The products of the territory of any contracting
Revenue Regulations No. 22-2003 lists the result of the market party imported into the territory of any other
survey and the corresponding recommended tax classification contracting party shall not be subject, directly or
of the new brands therein aside from Lucky Strike. However, indirectly, to internal taxes or other internal charges of
whether these other brands were illegally reclassified based on any kind in excess of those applied, directly or
their actual current net retail prices by the BIR must be indirectly, to like domestic products. Moreover, no
determined on a case-to-case basis because it is possible that contracting party shall otherwise apply internal taxes
these brands were classified based on their actual current net or other internal charges to imported or domestic
retail price for the first time in the year 2003 just like Lucky products in a manner contrary to the principles set
Strike. Thus, we shall not make any pronouncement as to the forth in paragraph 1.
validity of the tax classifications of the other brands listed
therein. It claims that it is the duty of this Court to correct, in favor of the
GATT, whatever inconsistency exists between the assailed law
Finally, it must be noted that RA 9334 introduced changes in and the GATT in order to prevent triggering the international
the manner by which the current net retail price of a new brand dispute settlement mechanism under the GATT-WTO
is determined and how its classification is permanently fixed, to Agreement.
wit:
We disagree.
New brands, as defined in the immediately following
paragraph, shall initially be classified according to The classification freeze provision uniformly applies to all
their suggested net retail price. newly introduced brands in the market, whether imported or
locally manufactured. It does not purport to single out imported
New brands shall mean a brand registered after the cigarettes in order to unduly favor locally produced ones.
date of effectivity of R.A. No. 8240 [on January 1, Further, petitioner’s evidence was anchored on the alleged
1997]. unequal tax treatment between old and new brands which
involves a different frame of reference vis-à-vis local and
Suggested net retail price shall mean the net retail imported products. Petitioner has, therefore, failed to clearly
price at which new brands, as defined above, of prove its case, both factually and legally, within the parameters
locally manufactured or imported cigarettes are of the GATT.
intended by the manufacture or importer to be sold on
retail in major supermarkets or retail outlets in Metro At any rate, even assuming arguendo that petitioner was able
Manila for those marketed nationwide, and in other to prove that the classification freeze provision violates the
regions, for those with regional markets. At the end GATT, the outcome would still be the same. The GATT is a
of three (3) months from the product launch, the treaty duly ratified by the Philippine Senate and under Article
Bureau of Internal Revenue shall validate the VII, Section 2181 of the Constitution, it merely acquired the
suggested net retail price of the new brand status of a statute.82 Applying the basic principles of statutory
against the net retail price as defined herein and construction in case of irreconcilable conflict between statutes,
determine the correct tax bracket under which a RA 8240, as amended by RA 9334, would prevail over the
particular new brand of cigarette, as defined GATT either as a later enactment by Congress or as a special
above, shall be classified. After the end of law dealing with the taxation of sin products. Thus, in Abbas v.
eighteen (18) months from such validation, the Commission on Elections,83 we had occasion to explain:
Bureau of Internal Revenue shall revalidate the
initially validated net retail price against the net Petitioners premise their arguments on the
retail price as of the time of revalidation in order assumption that the Tripoli Agreement is part of the
to finally determine the correct tax bracket under law of the land, being a binding international
which a particular new brand of cigarettes shall agreement. The Solicitor General asserts that the
be classified; Provided however, That brands of
 Tripoli Agreement is neither a binding treaty, not DECISION
having been entered into by the Republic of the
Philippines with a sovereign state and ratified CARPIO, J.:
according to the provisions of the 1973 or 1987
Constitutions, nor a binding international agreement.
The Cases
We find it neither necessary nor determinative of the
case to rule on the nature of the Tripoli Agreement G.R. No. 187485 is a petitiOn for review1 assailing the
and its binding effect on the Philippine Government Decision2 promulgated on 25 March 2009 as well as the
whether under public international or internal Resolution3 promulgated on 24 April 2009 by the Court of Tax
Philippine law. In the first place, it is now the Appeals En Banc (CTA EB) in CTA EB No. 408. The CTA EB
Constitution itself that provides for the creation of an affirmed the 29 November 2007 Amended Decision4 as well as
autonomous region in Muslim Mindanao. The the 11 July 2008 Resolution5 of the Second Division of the
standard for any inquiry into the validity of R.A. No. Court of Tax Appeals (CTA Second Division) in CTA Case No.
6734 would therefore be what is so provided in the 6647. The CTA Second Division ordered the Commissioner of
Constitution. Thus, any conflict between the Internal Revenue (Commissioner) to refund or issue a tax
provisions of R.A. No. 6734 and the provisions of the credit for P483,797,599.65 to San Roque Power Corporation
Tripoli Agreement will not have the effect of enjoining (San Roque) for unutilized input value-added tax (VAT) on
the implementation of the Organic Act. Assuming for purchases of capital goods and services for the taxable year
the sake of argument that the Tripoli Agreement is a 2001.
binding treaty or international agreement, it would
then constitute part of the law of the land. But as G.R. No. 196113 is a petition for review 6 assailing the
internal law it would not be superior to R.A. No. 6734, Decision7 promulgated on 8 December 2010 as well as the
an enactment of the Congress of the Philippines, Resolution8 promulgated on 14 March 2011 by the CTA EB in
rather it would be in the same class as the latter CTA EB No. 624. In its Decision, the CTA EB reversed the 8
[SALONGA, PUBLIC INTERNATIONAL LAW 320 (4th January 2010 Decision9 as well as the 7 April 2010
ed., 1974), citing Head Money Cases, 112 U.S. 580 Resolution10of the CTA Second Division and granted the CIR’s
(1884) and Foster v. Nelson, 2 Pet. 253 (1829)]. petition for review in CTA Case No. 7574. The CTA EB
Thus, if at all, R.A. No. 6734 would be amendatory of dismissed, for having been prematurely filed, Taganito Mining
the Tripoli Agreement, being a subsequent law. Only Corporation’s (Taganito) judicial claim for P8,365,664.38 tax
a determination by this Court that R.A. No. 6734 refund or credit.
contravenes the Constitution would result in the
granting of the reliefs sought. (Emphasis supplied) G.R. No. 197156 is a petition for review11 assailing the
Decision12promulgated on 3 December 2010 as well as the
WHEREFORE, the petition is PARTIALLY GRANTED and the Resolution13 promulgated on 17 May 2011 by the CTA EB in
decision of the Regional Trial Court of Makati, Branch 61, in CTA EB No. 569. The CTA EB affirmed the 20 July 2009
Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. Decision as well as the 10 November 2009 Resolution of the
As modified, this Court declares that: CTA Second Division in CTA Case No. 7687. The CTA Second
Division denied, due to prescription, Philex Mining
(1) Section 145 of the NIRC, as amended by Republic Act No. Corporation’s (Philex) judicial claim for P23,956,732.44 tax
9334, is CONSTITUTIONAL; and that refund or credit.

(2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations On 3 August 2011, the Second Division of this Court
No. 1-97, as amended by Section 2 of Revenue Regulations 9- resolved14 to consolidate G.R. No. 197156 with G.R. No.
2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax 196113, which were pending in the same Division, and with
Payers Assistance Division II) II(b) of Revenue Memorandum G.R. No. 187485, which was assigned to the Court En Banc.
Order No. 6-2003, insofar as pertinent to cigarettes packed by The Second Division also resolved to refer G.R. Nos. 197156
machine, are INVALID insofar as they grant the BIR the power and 196113 to the Court En Banc, where G.R. No. 187485, the
to reclassify or update the classification of new brands every lower-numbered case, was assigned.
two years or earlier.
G.R. No. 187485
SO ORDERED. CIR v. San Roque Power Corporation

The Facts
4.7

The CTA EB’s narration of the pertinent facts is as follows:

G.R. No. 187485               February 12, 2013

[CIR] is the duly appointed Commissioner of Internal Revenue,

COMMISSIONER OF INTERNAL REVENUE, Petitioner, empowered, among others, to act upon and approve claims for
vs. refund or tax credit, with office at the Bureau of Internal
SAN ROQUE POWER CORPORATION, Respondent. Revenue ("BIR") National Office Building, Diliman, Quezon
City.
X----------------------------X
[San Roque] is a domestic corporation duly organized and
G.R. No. 196113 existing under and by virtue of the laws of the Philippines with
principal office at Barangay San Roque, San Manuel,
TAGANITO MINING CORPORATION, Petitioner, Pangasinan. It was incorporated in October 1997 to design,
vs. construct, erect, assemble, own, commission and operate
COMMISSIONER OF INTERNAL REVENUE, Respondent. power-generating plants and related facilities pursuant to and
under contract with the Government of the Republic of the
Philippines, or any subdivision, instrumentality or agency
x----------------------------x thereof, or any governmentowned or controlled corporation, or
other entity engaged in the development, supply, or distribution
G.R. No. 197156 of energy.

PHILEX MINING CORPORATION, Petitioner, As a seller of services, [San Roque] is duly registered with the
vs. BIR with TIN/VAT No. 005-017-501. It is likewise registered
COMMISSIONER OF INTERNAL REVENUE, Respondent. with the Board of Investments ("BOI") on a preferred pioneer
status, to engage in the design, construction, erection,
assembly, as well as to own, commission, and operate electric
power-generating plants and related activities, for which it was (Exhibits M-6, O-6, OO-1 & QQ-1). This means that the
issued Certificate of Registration No. 97-356 on February 11, claimed input taxes of ₱560,200,823.14 did not form part of the
1998. excess input taxes of ₱83,692,257.83, as of the second
quarter of 2002 that was to be carried-over to the succeeding
On October 11, 1997, [San Roque] entered into a Power quarters. Further, [San Roque’s] claim for refund/tax credit
Purchase Agreement ("PPA") with the National Power certificate of excess input VAT was filed within the two-year
Corporation ("NPC") to develop hydro-potential of the Lower prescriptive period reckoned from the dates of filing of the
Agno River and generate additional power and energy for the corresponding quarterly VAT returns.
Luzon Power Grid, by building the San Roque Multi-Purpose
Project located in San Manuel, Pangasinan. The PPA For the first, second, third, and fourth quarters of 2001, [San
provides, among others, that [San Roque] shall be responsible Roque] filed its VAT returns on April 25, 2001, July 25, 2001,
for the design, construction, installation, completion, testing October 23, 2001 and January 24, 2002, respectively (Exhibits
and commissioning of the Power Station and shall operate and "H, J, L, and N"). These returns were all subsequently
maintain the same, subject to NPC instructions. During the amended on March 28, 2003 (Exhibits "I, K, M, and O"). On the
cooperation period of twenty-five (25) years commencing from other hand, [San Roque] originally filed its separate claims for
the completion date of the Power Station, NPC will take and refund on July 10, 2001, October 10, 2001, February 21, 2002,
pay for all electricity available from the Power Station. and May 9, 2002 for the first, second, third, and fourth quarters
of 2001, respectively, (Exhibits "EE, FF, GG, and HH") and
On the construction and development of the San Roque Multi- subsequently filed amended claims for all quarters on March
Purpose Project which comprises of the dam, spillway and 28, 2003 (Exhibits "II, JJ, KK, and LL"). Moreover, the Petition
power plant, [San Roque] allegedly incurred, excess input VAT for Review was filed on April 10, 2003. Counting from the
in the amount of ₱559,709,337.54 for taxable year 2001 which respective dates when [San Roque] originally filed its VAT
it declared in its Quarterly VAT Returns filed for the same year. returns for the first, second, third and fourth quarters of 2001,
[San Roque] duly filed with the BIR separate claims for refund, the administrative claims for refund (original and amended)
in the total amount of ₱559,709,337.54, representing unutilized and the Petition for Review fall within the two-year prescriptive
input taxes as declared in its VAT returns for taxable year period.18
2001.
San Roque filed a Motion for New Trial and/or Reconsideration
However, on March 28, 2003, [San Roque] filed amended on 7 April 2006. In its 29 November 2007 Amended
Quarterly VAT Returns for the year 2001 since it increased its Decision,19 the CTA Second Division found legal basis to
unutilized input VAT to the amount of ₱560,200,283.14. partially grant San Roque’s claim. The CTA Second Division
Consequently, [San Roque] filed with the BIR on even date, ordered the Commissioner to refund or issue a tax credit in
separate amended claims for refund in the aggregate amount favor of San Roque in the amount of ₱483,797,599.65, which
of ₱560,200,283.14. represents San Roque’s unutilized input VAT on its purchases
of capital goods and services for the taxable year 2001. The
CTA based the adjustment in the amount on the findings of the
[CIR’s] inaction on the subject claims led to the filing by [San independent certified public accountant. The following reasons
Roque] of the Petition for Review with the Court [of Tax were cited for the disallowed claims: erroneous computation;
Appeals] in Division on April 10, 2003. failure to ascertain whether the related purchases are in the
nature of capital goods; and the purchases pertain to capital
Trial of the case ensued and on July 20, 2005, the case was goods. Moreover, the reduction of claims was based on the
submitted for decision.15 following: the difference between San Roque’s claim and that
appearing on its books; the official receipts covering the
The Court of Tax Appeals’ Ruling: Division claimed input VAT on purchases of local services are not
within the period of the claim; and the amount of VAT cannot
be determined from the submitted official receipts and invoices.
The CTA Second Division initially denied San Roque’s claim. The CTA Second Division denied San Roque’s claim for refund
In its Decision16 dated 8 March 2006, it cited the following as or tax credit of its unutilized input VAT attributable to its zero-
bases for the denial of San Roque’s claim: lack of recorded rated or effectively zero-rated sales because San Roque had
zero-rated or effectively zero-rated sales; failure to submit no record of such sales for the four quarters of 2001.
documents specifically identifying the purchased
goods/services related to the claimed input VAT which were
included in its Property, Plant and Equipment account; and The dispositive portion of the CTA Second Division’s 29
failure to prove that the related construction costs were November 2007 Amended Decision reads:
capitalized in its books of account and subjected to
depreciation. WHEREFORE, [San Roque’s] "Motion for New Trial and/or
Reconsideration" is hereby PARTIALLY GRANTED and this
The CTA Second Division required San Roque to show that it Court’s Decision promulgated on March 8, 2006 in the instant
complied with the following requirements of Section 112(B) of case is hereby MODIFIED.
Republic Act No. 8424 (RA 8424)17 to be entitled to a tax
refund or credit of input VAT attributable to capital goods Accordingly, [the CIR] is hereby ORDERED to REFUND or in
imported or locally purchased: (1) it is a VAT-registered entity; the alternative, to ISSUE A TAX CREDIT CERTIFICATE in
(2) its input taxes claimed were paid on capital goods duly favor of [San Roque] in the reduced amount of Four Hundred
supported by VAT invoices and/or official receipts; (3) it did not Eighty Three Million Seven Hundred Ninety Seven Thousand
offset or apply the claimed input VAT payments on capital Five Hundred Ninety Nine Pesos and Sixty Five Centavos
goods against any output VAT liability; and (4) its claim for (₱483,797,599.65) representing unutilized input VAT on
refund was filed within the two-year prescriptive period both in purchases of capital goods and services for the taxable year
the administrative and judicial levels. 2001.

The CTA Second Division found that San Roque complied with SO ORDERED.20
the first, third, and fourth requirements, thus:
The Commissioner filed a Motion for Partial Reconsideration
The fact that [San Roque] is a VAT registered entity is admitted on 20 December 2007. The CTA Second Division issued a
(par. 4, Facts Admitted, Joint Stipulation of Facts, Records, p. Resolution dated 11 July 2008 which denied the CIR’s motion
157). It was also established that the instant claim of for lack of merit.
₱560,200,823.14 is already net of the ₱11,509.09 output tax
declared by [San Roque] in its amended VAT return for the first The Court of Tax Appeals’ Ruling: En Banc
quarter of 2001. Moreover, the entire amount of
₱560,200,823.14 was deducted by [San Roque] from the total
available input tax reflected in its amended VAT returns for the The Commissioner filed a Petition for Review before the CTA
last two quarters of 2001 and first two quarters of 2002 EB praying for the denial of San Roque’s claim for refund or
tax credit in its entirety as well as for the setting aside of the 29
November 2007 Amended Decision and the 11 July 2008 In consonance therewith, the following amendments are being
Resolution in CTA Case No. 6647. introduced to RMC No. 42-2003, to wit:

The CTA EB dismissed the CIR’s petition for review and I.) A-17 of Revenue Memorandum Circular No. 42-2003 is
affirmed the challenged decision and resolution. hereby revised to read as follows:

The CTA EB cited Commissioner of Internal Revenue v. In cases where the taxpayer has filed a "Petition for
Toledo Power, Inc.21 and Revenue Memorandum Circular No. Review" with the Court of Tax Appeals involving a claim
49-03,22 as its bases for ruling that San Roque’s judicial claim for refund/TCC that is pending at the administrative
was not prematurely filed. The pertinent portions of the agency (Bureau of Internal Revenue or OSS-DOF), the
Decision state: administrative agency and the tax court may act on the
case separately. While the case is pending in the tax court
More importantly, the Court En Banc has squarely and and at the same time is still under process by the
exhaustively ruled on this issue in this wise: administrative agency, the litigation lawyer of the BIR, upon
receipt of the summons from the tax court, shall request from
the head of the investigating/processing office for the docket
It is true that Section 112(D) of the abovementioned containing certified true copies of all the documents pertinent
provision applies to the present case. However, what the to the claim. The docket shall be presented to the court as
petitioner failed to consider is Section 112(A) of the same evidence for the BIR in its defense on the tax credit/refund
provision. The respondent is also covered by the two (2) year case filed by the taxpayer. In the meantime, the
prescriptive period. We have repeatedly held that the claim for investigating/processing office of the administrative agency
refund with the BIR and the subsequent appeal to the Court of shall continue processing the refund/TCC case until such time
Tax Appeals must be filed within the two-year period. that a final decision has been reached by either the CTA or the
administrative agency.
Accordingly, the Supreme Court held in the case of Atlas
Consolidated Mining and Development Corporation vs. If the CTA is able to release its decision ahead of the
Commissioner of Internal Revenue that the two-year evaluation of the administrative agency, the latter shall
prescriptive period for filing a claim for input tax is reckoned cease from processing the claim. On the other hand, if the
from the date of the filing of the quarterly VAT return and administrative agency is able to process the claim of the
payment of the tax due. If the said period is about to expire taxpayer ahead of the CTA and the taxpayer is amenable to
but the BIR has not yet acted on the application for refund, the findings thereof, the concerned taxpayer must file a motion
the taxpayer may interpose a petition for review with this to withdraw the claim with the CTA.23 (Emphasis supplied)
Court within the two year period.
G.R. No. 196113
In the case of Gibbs vs. Collector, the Supreme Court held that Taganito Mining Corporation v. CIR
if, however, the Collector (now Commissioner) 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 Court of Tax The Facts
Appeals before the end of the two-year period without awaiting
the decision of the Collector. The CTA Second Division’s narration of the pertinent facts is
as follows:
Furthermore, in the case of Commissioner of Customs and
Commissioner of Internal Revenue vs. The Honorable Court of Petitioner, Taganito Mining Corporation, is a corporation duly
Tax Appeals and Planters Products, Inc., the Supreme Court organized and existing under and by virtue of the laws of the
held that the taxpayer need not wait indefinitely for a Philippines, with principal office at 4th Floor, Solid Mills
decision or ruling which may or may not be forthcoming Building, De La Rosa St., Lega[s]pi Village, Makati City. It is
and which he has no legal right to expect. It is disheartening duly registered with the Securities and Exchange Commission
enough to a taxpayer to keep him waiting for an indefinite with Certificate of Registration No. 138682 issued on March 4,
period of time for a ruling or decision of the Collector (now 1987 with the following primary purpose:
Commissioner) of Internal Revenue on his claim for refund. It
would make matters more exasperating for the taxpayer if we To carry on the business, for itself and for others, of mining
were to close the doors of the courts of justice for such a relief lode and/or placer mining, developing, exploiting, extracting,
until after the Collector (now Commissioner) of Internal milling, concentrating, converting, smelting, treating, refining,
Revenue, would have, at his personal convenience, given his preparing for market, manufacturing, buying, selling,
go signal. exchanging, shipping, transporting, and otherwise producing
and dealing in nickel, chromite, cobalt, gold, silver, copper,
This Court ruled in several cases that once the petition is filed, lead, zinc, brass, iron, steel, limestone, and all kinds of ores,
the Court has already acquired jurisdiction over the claims and metals and their by-products and which by-products thereof of
the Court is not bound to wait indefinitely for no reason for every kind and description and by whatsoever process the
whatever action respondent (herein petitioner) may take. At same can be or may hereafter be produced, and generally and
stake are claims for refund and unlike disputed without limit as to amount, to buy, sell, locate, exchange, lease,
assessments, no decision of respondent (herein acquire and deal in lands, mines, and mineral rights and claims
petitioner) is required before one can go to this and to conduct all business appertaining thereto, to purchase,
Court. (Emphasis supplied and citations omitted) locate, lease or otherwise acquire, mining claims and rights,
timber rights, water rights, concessions and mines, buildings,
Lastly, it is apparent from the following provisions of Revenue dwellings, plants machinery, spare parts, tools and other
Memorandum Circular No. 49-03 dated August 18, 2003, that properties whatsoever which this corporation may from time to
[the CIR] knows that claims for VAT refund or tax credit filed time find to be to its advantage to mine lands, and to explore,
with the Court [of Tax Appeals] can proceed simultaneously work, exercise, develop or turn to account the same, and to
with the ones filed with the BIR and that taxpayers need not acquire, develop and utilize water rights in such manner as
wait for the lapse of the subject 120-day period, to wit: may be authorized or permitted by law; to purchase, hire,
make, construct or otherwise, acquire, provide, maintain,
equip, alter, erect, improve, repair, manage, work and operate
In response to [the] request of selected taxpayers for adoption private roads, barges, vessels, aircraft and vehicles, private
of procedures in handling refund cases that are aligned to the telegraph and telephone lines, and other communication
statutory requirements that refund cases should be elevated to media, as may be needed by the corporation for its own
the Court of Tax Appeals before the lapse of the period purpose, and to purchase, import, construct, machine,
prescribed by law, certain provisions of RMC No. 42-2003 are fabricate, or otherwise acquire, and maintain and operate
hereby amended and new provisions are added thereto. bridges, piers, wharves, wells, reservoirs, plumes,
watercourses, waterworks, aqueducts, shafts, tunnels,
furnaces, cook ovens, crushing works, gasworks, electric lights
 and power plants and compressed air plants, chemical works
of all kinds, concentrators, smelters, smelting plants, and
refineries, matting plants, warehouses, workshops, factories,
dwelling houses, stores, hotels or other buildings, engines, 64,677,530.78 204,364.17 5,811,130.73 6,015,4
machinery, spare parts, tools, implements and other works,
conveniences and properties of any description in connection
with or which may be directly or indirectly conducive to any of
the objects of the corporation, and to contribute to, subsidize or 480,784,287.30 144,887.67 - 144,887
otherwise aid or take part in any operations;

and is a VAT-registered entity, with Certificate of Registration

(BIR Form No. 2303) No. OCN 8RC0000017494. Likewise, 350,212,345.02 473,598.03 - 473,598
[Taganito] is registered with the Board of Investments (BOI) as
an exporter of beneficiated nickel silicate and chromite ores,
with BOI Certificate of Registration No. EP-88-306.
P1,446,854,034.68 P2,314,730.43 P6,050,933.95 P8,365,
Respondent, on the other hand, is the duly appointed
Commissioner of Internal Revenue vested with authority to
exercise the functions of the said office, including inter alia, the On November 14, 2006, [Taganito] filed with [the CIR], through
power to decide refunds of internal revenue taxes, fees and BIR’s Large Taxpayers Audit and Investigation Division II
other charges, penalties imposed in relation thereto, or other (LTAID II), a letter dated November 13, 2006 claiming a tax
matters arising under the National Internal Revenue Code credit/refund of its supposed input VAT amounting to
(NIRC) or other laws administered by Bureau of Internal ₱8,365,664.38 for the period covering January 1, 2004 to
Revenue (BIR) under Section 4 of the NIRC. He holds office at December 31, 2004. On the same date, [Taganito] likewise
the BIR National Office Building, Diliman, Quezon City. filed an Application for Tax Credits/Refunds for the period
covering January 1, 2005 to December 31, 2005 for the same
[Taganito] filed all its Monthly VAT Declarations and Quarterly amount.
Vat Returns for the period January 1, 2005 to December 31,
2005. For easy reference, a summary of the filing dates of the On November 29, 2006, [Taganito] sent again another letter
original and amended Quarterly VAT Returns for taxable year dated November 29, 2004 to [the CIR], to correct the period of
2005 of [Taganito] is as follows: the above claim for tax credit/refund in the said amount of
₱8,365,664.38 as actually referring to the period covering
Quarter Nature of Mode of filing Filing Date January 1, 2005 to December 31, 2005.
the Return
As the statutory period within which to file a claim for refund for
said input VAT is about to lapse without action on the part of
1st Original Electronic April 15, 2005the [CIR], [Taganito] filed the instant Petition for Review on
February 17, 2007.

Amended Electronic July 20, 2005

In his Answer filed on March 28, 2007, [the CIR] interposes the
following defenses:
Amended Electronic October 18, 2006
4. [Taganito’s] alleged claim for refund is subject to
administrative investigation/examination by the
2nd Original Electronic July 20, 2005 Bureau of Internal Revenue (BIR);

Amended Electronic October 18, 2006 5. The amount of ₱8,365,664.38 being claimed by
[Taganito] as alleged unutilized input VAT on
domestic purchases of goods and services and on
3rd Original Electronic October 19, 2005 importation of capital goods for the period January 1,
2005 to December 31, 2005 is not properly
documented;
Amended Electronic October 18, 2006
6. [Taganito] must prove that it has complied with the
provisions of Sections 112 (A) and (D) and 229 of the
4th Original Electronic January 20, 2006
National Internal Revenue Code of 1997 (1997 Tax
Code) on the prescriptive period for claiming tax
Amended Electronic October 18, 2006 refund/credit;

7. Proof of compliance with the prescribed checklist of

requirements to be submitted involving claim for VAT
As can be gleaned from its amended Quarterly VAT Returns, refund pursuant to Revenue Memorandum Order No.
[Taganito] reported zero-rated sales amounting to 53-98, otherwise there would be no sufficient
P1,446,854,034.68; input VAT on its domestic purchases and compliance with the filing of administrative claim
importations of goods (other than capital goods) and services for refund, the administrative claim thereof being
amounting to P2,314,730.43; and input VAT on its domestic mere proforma, which is a condition sine qua non
purchases and importations of capital goods amounting to prior to the filing of judicial claim in accordance
P6,050,933.95, the details of which are summarized as follows: with the provision of Section 229 of the 1997 Tax
Code. Further, Section 112 (D) of the Tax Code, as
amended, requires the submission of complete
Zero-Rated Sales Input VAT on Input VAT on Total Input VATdocuments in support of the application filed with
Domestic Domestic the BIR before the 120-day audit period shall apply,
Purchases and Purchases and and before the taxpayer could avail of judicial
Importations Importations remedies as provided for in the law. Hence,
of Goods and of Capital [Taganito’s] failure to submit proof of compliance with
Services Goods the above-stated requirements warrants immediate
dismissal of the petition for review.

P551,179,871.58 P1,491,880.56 P239,803.22 P1,731,683.78

 8. [Taganito] must prove that it has complied with the The pertinent portions of the CTA Second Division’s Decision
invoicing requirements mentioned in Sections 110 read:
and 113 of the 1997 Tax Code, as amended, in
relation to provisions of Revenue Regulations No. 7- Finally, records show that [Taganito’s] administrative claim filed
95. on November 14, 2006, which was amended on November 29,
2006, and the Petition for Review filed with this Court on
9. In an action for refund/credit, the burden of proof is February 14, 2007 are well within the two-year prescriptive
on the taxpayer to establish its right to refund, and period, reckoned from March 31, 2005, June 30, 2005,
failure to sustain the burden is fatal to the claim for September 30, 2005, and December 31, 2005, respectively,
refund/credit (Asiatic Petroleum Co. vs. Llanes, 49 the close of each taxable quarter covering the period January
Phil. 466 cited in Collector of Internal Revenue vs. 1, 2005 to December 31, 2005.
Manila Jockey Club, Inc., 98 Phil. 670);
In fine, [Taganito] sufficiently proved that it is entitled to a tax
10. Claims for refund are construed strictly against the credit certificate in the amount of ₱8,249,883.33 representing
claimant for the same partake the nature of exemption unutilized input VAT for the four taxable quarters of 2005.
from taxation (Commissioner of Internal Revenue
vs. Ledesma, 31 SCRA 95) and as such, they are WHEREFORE, premises considered, the instant Petition for
looked upon with disfavor (Western Minolco Corp. Review is hereby PARTIALLY GRANTED. Accordingly, [the
vs. Commissioner of Internal Revenue, 124 SCRA CIR] is hereby ORDERED to REFUND to [Taganito] the
1211). amount of EIGHT MILLION TWO HUNDRED FORTY NINE
THOUSAND EIGHT HUNDRED EIGHTY THREE PESOS AND
SPECIAL AND AFFIRMATIVE DEFENSES THIRTY THREE CENTAVOS (P8,249,883.33) representing its
unutilized input taxes attributable to zero-rated sales from
11. The Court of Tax Appeals has no jurisdiction to entertain January 1, 2005 to December 31, 2005.
the instant petition for review for failure on the part of
[Taganito] to comply with the provision of Section 112 (D) of SO ORDERED.27
the 1997 Tax Code which provides, thus:
The Commissioner filed a Motion for Partial Reconsideration
Section 112. Refunds or Tax Credits of Input Tax. – on 29 January 2010. Taganito, in turn, filed a
Comment/Opposition on the Motion for Partial Reconsideration
x x x           x x x          x x x on 15 February 2010.

(D) Period within which refund or Tax Credit of Input Taxes In a Resolution28 dated 7 April 2010, the CTA Second Division
shall be Made. – In proper cases, the Commissioner shall denied the CIR’s motion. The CTA Second Division ruled that
grant a refund or issue the tax credit certificate for creditable the legislature did not intend that Section 112 (Refunds or Tax
input taxes within one hundred (120) days from the date of Credits of Input Tax) should be read in isolation from Section
submission of complete documents in support of the 229 (Recovery of Tax Erroneously or Illegally Collected) or vice
application filed in accordance with Subsections (A) and versa. The CTA Second Division applied the mandatory statute
(B) hereof. of limitations in seeking judicial recourse prescribed under
Section 229 to claims for refund or tax credit under Section
112.
In cases of full or partial denial 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 The Court of Tax Appeals’ Ruling: En Banc
affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the On 29 April 2010, the Commissioner filed a Petition for Review
one hundred twenty dayperiod, appeal the decision or the before the CTA EB assailing the 8 January 2010 Decision and
unacted claim with the Court of Tax Appeals. (Emphasis the 7 April 2010 Resolution in CTA Case No. 7574 and praying
supplied.) that Taganito’s entire claim for refund be denied.

12. As stated, [Taganito] filed the administrative claim for In its 8 December 2010 Decision,29 the CTA EB granted the
refund with the Bureau of Internal Revenue on November 14, CIR’s petition for review and reversed and set aside the
2006. Subsequently on February 14, 2007, the instant petition challenged decision and resolution.
was filed. Obviously the 120 days given to the Commissioner
to decide on the claim has not yet lapsed when the petition The CTA EB declared that Section 112(A) and (B) of the 1997
was filed. The petition was prematurely filed, hence it must be Tax Code both set forth the reckoning of the two-year
dismissed for lack of jurisdiction. prescriptive period for filing a claim for tax refund or credit over
input VAT to be the close of the taxable quarter when the sales
During trial, [Taganito] presented testimonial and documentary were made. The CTA EB also relied on this Court’s rulings in
evidence primarily aimed at proving its supposed entitlement to the cases of Commissioner of Internal Revenue v. Aichi
the refund in the amount of ₱8,365,664.38, representing input Forging Company of Asia, Inc. (Aichi) 30 and Commisioner of
taxes for the period covering January 1, 2005 to December 31, Internal Revenue v. Mirant Pagbilao Corporation
2005. [The CIR], on the other hand, opted not to present (Mirant).31 Both Aichi and Mirant ruled that the two-year
evidence. Thus, in the Resolution promulgated on January 22, prescriptive period to file a refund for input VAT arising from
2009, this case was submitted for decision as of such date, zero-rated sales should be reckoned from the close of the
considering [Taganito’s] "Memorandum" filed on January 19, taxable quarter when the sales were made. Aichi further
2009 and [the CIR’s] "Memorandum" filed on December 19, emphasized that the failure to await the decision of the
2008.24 Commissioner or the lapse of 120-day period prescribed in
Section 112(D) amounts to a premature filing.
The Court of Tax Appeals’ Ruling: Division
The CTA EB found that Taganito filed its administrative claim
The CTA Second Division partially granted Taganito’s claim. In on 14 November 2006, which was well within the period
its Decision25 dated 8 January 2010, the CTA Second Division prescribed under Section 112(A) and (B) of the 1997 Tax
found that Taganito complied with the requirements of Section Code. However, the CTA EB found that Taganito’s judicial
112(A) of RA 8424, as amended, to be entitled to a tax refund claim was prematurely filed. Taganito filed its Petition for
or credit of input VAT attributable to zero-rated or effectively Review before the CTA Second Division on 14 February 2007.
zero-rated sales.26 The judicial claim was filed after the lapse of only 92 days from
the filing of its administrative claim before the CIR, in violation
of the 120-day period prescribed in Section 112(D) of the 1997
Tax Code.
The dispositive portion of the Decision states: In [her] Answer, respondent CIR alleged the following special
and affirmative defenses:
WHEREFORE, the instant Petition for Review is hereby
GRANTED. The assailed Decision dated January 8, 2010 and 4. Claims for refund are strictly construed against the
Resolution dated April 7, 2010 of the Special Second Division taxpayer as the same partake the nature of an
of this Court are hereby REVERSED and SET ASIDE. Another exemption;
one is hereby entered DISMISSING the Petition for Review
filed in CTA Case No. 7574 for having been prematurely filed. 5. The taxpayer has the burden to show that the taxes
were erroneously or illegally paid. Failure on the part
SO ORDERED.32 of [Philex] to prove the same is fatal to its cause of
action;
In his dissent,33 Associate Justice Lovell R. Bautista insisted
that Taganito timely filed its claim before the CTA. Justice 6. [Philex] should prove its legal basis for claiming for
Bautista read Section 112(C) of the 1997 Tax Code (Period the amount being refunded.37
within which Refund or Tax Credit of Input Taxes shall be
Made) in conjunction with Section 229 (Recovery of Tax The Court of Tax Appeals’ Ruling: Division
Erroneously or Illegally Collected). Justice Bautista also relied
on this Court’s ruling in Atlas Consolidated Mining and
Development Corporation v. Commissioner of Internal The CTA Second Division, in its Decision dated 20 July 2009,
Revenue (Atlas),34 which stated that refundable or creditable denied Philex’s claim due to prescription. The CTA Second
input VAT and illegally or erroneously collected national Division ruled that the two-year prescriptive period specified in
internal revenue tax are the same, insofar as both are Section 112(A) of RA 8424, as amended, applies not only to
monetary amounts which are currently in the hands of the the filing of the administrative claim with the BIR, but also to
government but must rightfully be returned to the taxpayer. the filing of the judicial claim with the CTA. Since Philex’s claim
Justice Bautista concluded: covered the 3rd quarter of 2005, its administrative claim filed
on 20 March 2006 was timely filed, while its judicial claim filed
on 17 October 2007 was filed late and therefore barred by
Being merely permissive, a taxpayer claimant has the option of prescription.
seeking judicial redress for refund or tax credit of excess or
unutilized input tax with this Court, either within 30 days from
receipt of the denial of its claim, or after the lapse of the 120- On 10 November 2009, the CTA Second Division denied
day period in the event of inaction by the Commissioner, Philex’s Motion for Reconsideration.
provided that both administrative and judicial remedies must be
undertaken within the 2-year period.35 The Court of Tax Appeals’ Ruling: En Banc

Taganito filed its Motion for Reconsideration on 29 December Philex filed a Petition for Review before the CTA EB praying for
2010. The Commissioner filed an Opposition on 26 January a reversal of the 20 July 2009 Decision and the 10 November
2011. The CTA EB denied for lack of merit Taganito’s motion 2009 Resolution of the CTA Second Division in CTA Case No.
in a Resolution36 dated 14 March 2011. The CTA EB did not 7687.
see any justifiable reason to depart from this Court’s rulings
in Aichi and Mirant. The CTA EB, in its Decision38 dated 3 December 2010, denied
Philex’s petition and affirmed the CTA Second Division’s
G.R. No. 197156 Decision and Resolution.
Philex Mining Corporation v. CIR
The pertinent portions of the Decision read:
The Facts
In this case, while there is no dispute that [Philex’s]
The CTA EB’s narration of the pertinent facts is as follows: administrative claim for refund was filed within the two-year
prescriptive period; however, as to its judicial claim for
[Philex] is a corporation duly organized and existing under the refund/credit, records show that on March 20, 2006, [Philex]
laws of the Republic of the Philippines, which is principally applied the administrative claim for refund of unutilized input
engaged in the mining business, which includes the exploration VAT in the amount of ₱23,956,732.44 with the One Stop Shop
and operation of mine properties and commercial production Center of the Department of Finance, per Application No.
and marketing of mine products, with office address at 27 52490. From March 20, 2006, which is also presumably the
Philex Building, Fairlaine St., Kapitolyo, Pasig City. date [Philex] submitted supporting documents, together with
the aforesaid application for refund, the CIR has 120 days, or
until July 18, 2006, within which to decide the claim. Within 30
[The CIR], on the other hand, is the head of the Bureau of days from the lapse of the 120-day period, or from July 19,
Internal Revenue ("BIR"), the government entity tasked with 2006 until August 17, 2006, [Philex] should have elevated its
the duties/functions of assessing and collecting all national claim for refund to the CTA. However, [Philex] filed its Petition
internal revenue taxes, fees, and charges, and enforcement of for Review only on October 17, 2007, which is 426 days way
all forfeitures, penalties and fines connected therewith, beyond the 30- day period prescribed by law.
including the execution of judgments in all cases decided in its
favor by [the Court of Tax Appeals] and the ordinary courts,
where she can be served with court processes at the BIR Head Evidently, the Petition for Review in CTA Case No. 7687 was
Office, BIR Road, Quezon City. filed 426 days late. Thus, the Petition for Review in CTA Case
No. 7687 should have been dismissed on the ground that the
Petition for Review was filed way beyond the 30-day
On October 21, 2005, [Philex] filed its Original VAT Return for prescribed period; thus, no jurisdiction was acquired by the
the third quarter of taxable year 2005 and Amended VAT CTA in Division; and not due to prescription.
Return for the same quarter on December 1, 2005.
WHEREFORE, premises considered, the instant Petition for
On March 20, 2006, [Philex] filed its claim for refund/tax credit Review is hereby DENIED DUE COURSE, and accordingly,
of the amount of ₱23,956,732.44 with the One Stop Shop DISMISSED. The assailed Decision dated July 20, 2009,
Center of the Department of Finance. However, due to [the dismissing the Petition for Review in CTA Case No. 7687 due
CIR’s] failure to act on such claim, on October 17, 2007, to prescription, and Resolution dated November 10, 2009
pursuant to Sections 112 and 229 of the NIRC of 1997, as denying [Philex’s] Motion for Reconsideration are hereby
amended, [Philex] filed a Petition for Review, docketed as AFFIRMED, with modification that the dismissal is based on
C.T.A. Case No. 7687. the ground that the Petition for Review in CTA Case No. 7687
was filed way beyond the 30-day prescribed period to appeal.
SO ORDERED.39 (B) Excess Output or Input Tax. — If at the end of any taxable
quarter the output tax exceeds the input tax, the excess shall
G.R. No. 187485 be paid by the VAT-registered person. If the input tax
CIR v. San Roque Power Corporation exceeds the output tax, the excess shall be carried over to
the succeeding quarter or quarters: [Provided, That the
input tax inclusive of input VAT carried over from the previous
The Commissioner raised the following grounds in the Petition quarter that may be credited in every quarter shall not exceed
for Review: seventy percent (70%) of the output VAT:]43 Provided,
however, That any input tax attributable to zero-rated sales
I. The Court of Tax Appeals En Banc erred in holding by a VAT-registered person may at his option be refunded
that [San Roque’s] claim for refund was not or credited against other internal revenue taxes, subject to
prematurely filed. the provisions of Section 112.

II. The Court of Tax Appeals En Banc erred in Section 112:44

affirming the amended decision of the Court of Tax
Appeals (Second Division) granting [San Roque’s] Sec. 112. Refunds or Tax Credits of Input Tax. —
claim for refund of alleged unutilized input VAT on its
purchases of capital goods and services for the
taxable year 2001 in the amount of (A) Zero-Rated or Effectively Zero-Rated Sales.
P483,797,599.65. 40 — 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
G.R. No. 196113 when the sales were made, apply for the issuance
Taganito Mining Corporation v. CIR of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales,
Taganito raised the following grounds in its Petition for Review: except transitional input tax, to the extent that such
input tax has not been applied against output tax:
I. The Court of Tax Appeals En Banc committed Provided, however, That in the case of zero-rated
serious error and acted with grave abuse of discretion sales under Section 106(A)(2) (a)(1), (2) and (B) and
tantamount to lack or excess of jurisdiction in Section 108(B)(1) and (2), the acceptable foreign
erroneously applying the Aichi doctrine in violation of currency exchange proceeds thereof had been duly
[Taganito’s] right to due process. accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged
II. The Court of Tax Appeals committed serious error in zero-rated or effectively zero-rated sale and also in
and acted with grave abuse of discretion amounting to taxable or exempt sale of goods or properties or
lack or excess of jurisdiction in erroneously services, and the amount of creditable input tax due
interpreting the provisions of Section 112 (D).41 or paid cannot be directly and entirely attributed to
any one of the transactions, it shall be allocated
G.R. No. 197156 proportionately on the basis of the volume of sales.
Philex Mining Corporation v. CIR
(B) Capital Goods.- A VAT — registered person may
Philex raised the following grounds in its Petition for Review: apply for the issuance of a tax credit certificate or
refund of input taxes paid on capital goods imported
or locally purchased, to the extent that such input
I. The CTA En Banc erred in denying the petition due
taxes have not been applied against output taxes.
to alleged prescription. The fact is that the petition
The application may be made only within two (2)
was filed with the CTA within the period set by
years after the close of the taxable quarter when the
prevailing court rulings at the time it was filed.
importation or purchase was made.

II. The CTA En Banc erred in retroactively applying

(C) Cancellation of VAT Registration. — A person
the Aichi ruling in denying the petition in this instant
whose registration has been cancelled due to
case.42
retirement from or cessation of business, or due to
changes in or cessation of status under Section
The Court’s Ruling 106(C) of this Code may, within two (2) years from the
date of cancellation, apply for the issuance of a tax
For ready reference, the following are the provisions of the Tax credit certificate for any unused input tax which may
Code applicable to the present cases: be used in payment of his other internal revenue
taxes
Section 105:
(D) Period within which Refund or Tax Credit of Input
Taxes shall be Made. — In proper cases, the
Persons Liable. — Any person who, in the course of trade
Commissioner shall grant a refund or issue the tax
or business, sells, barters, exchanges, leases goods or
credit certificate for creditable input taxes within one
properties, renders services, and any person who imports
hundred twenty (120) days from the date of
goods shall be subject to the value-added tax
submission of complete documents in support of
(VAT) imposed in Sections 106 to 108 of this Code.
the application filed in accordance with Subsection (A)
and (B) hereof.
The value-added tax is an indirect tax and the amount of
tax may be shifted or passed on to the buyer, transferee or
In case of full or partial denial of the claim for tax
lessee of the goods, properties or services. This rule shall
refund or tax credit, or the failure on the part of the
likewise apply to existing contracts of sale or lease of goods,
Commissioner to act on the application within the
properties or services at the time of the effectivity of Republic
period prescribed above, the taxpayer affected
Act No. 7716.
may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration
xxxx of the one hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax
Section 110(B): Appeals.

Sec. 110. Tax Credits. — (E) Manner of Giving Refund. — Refunds shall be

made upon warrants drawn by the Commissioner or
 by his duly authorized representative without the inaction "deemed a denial," that the taxpayer can take to the
necessity of being countersigned by the Chairman, CTA for review. Without a decision or an "inaction x x x
Commission on Audit, the provisions of the deemed a denial" of the Commissioner, the CTA has no
Administrative Code of 1987 to the contrary jurisdiction over a petition for review.49
notwithstanding: Provided, that refunds under this
paragraph shall be subject to post audit by the San Roque’s failure to comply with the 120-
Commission on Audit. day mandatory period renders its petition for review with the
CTA void. Article 5 of the Civil Code provides, "Acts executed
Section 229: against provisions of mandatory or prohibitory laws shall be
void, except when the law itself authorizes their validity." San
Recovery of Tax Erroneously or Illegally Collected. — No suit Roque’s void petition for review cannot be legitimized by the
or proceeding shall be maintained in any court for the recovery CTA or this Court because Article 5 of the Civil Code states
of any national internal revenue tax hereafter alleged to have that such void petition cannot be legitimized "except when the
been erroneously or illegally assessed or collected, or of any law itself authorizes [its] validity." There is no law authorizing
penalty claimed to have been collected without authority, or of the petition’s validity.
any sum alleged to have been excessively or in any manner
wrongfully collected, until a claim for refund or credit has It is hornbook doctrine that a person committing a void act
been duly filed with the Commissioner; but such suit or contrary to a mandatory provision of law cannot claim or
proceeding may be maintained, whether or not such tax, acquire any right from his void act. A right cannot spring in
penalty, or sum has been paid under protest or duress. favor of a person from his own void or illegal act. This doctrine
is repeated in Article 2254 of the Civil Code, which states, "No
In any case, no such suit or proceeding shall be filed after the vested or acquired right can arise from acts or omissions which
expiration of two (2) years from the date of payment of the are against the law or which infringe upon the rights of
tax or penalty regardless of any supervening cause that may others."50 For violating a mandatory provision of law in filing its
arise after payment: Provided, however, That the petition with the CTA, San Roque cannot claim any right
Commissioner may, even without a written claim therefor, arising from such void petition. Thus, San Roque’s petition with
refund or credit any tax, where on the face of the return upon the CTA is a mere scrap of paper.
which payment was made, such payment appears clearly to
have been erroneously paid. This Court cannot brush aside the grave issue of the
mandatory and jurisdictional nature of the 120-day period just
(All emphases supplied) because the Commissioner merely asserts that the case was
prematurely filed with the CTA and does not question the
entitlement of San Roque to the refund. The mere fact that a
I. Application of the 120+30 Day Periods taxpayer has undisputed excess input VAT, or that the tax was
admittedly illegally, erroneously or excessively collected from
a. G.R. No. 187485 - CIR v. San Roque Power Corporation him, does not entitle him as a matter of right to a tax refund or
credit. Strict compliance with the mandatory and jurisdictional
On 10 April 2003, a mere 13 days after it filed its amended conditions prescribed by law to claim such tax refund or credit
administrative claim with the Commissioner on 28 March 2003, is essential and necessary for such claim to prosper. Well-
San Roque filed a Petition for Review with the CTA docketed settled is the rule that tax refunds or credits, just like tax
as CTA Case No. 6647. From this we gather two crucial exemptions, are strictly construed against the
facts: first, San Roque did not wait for the 120-day period to taxpayer.51 The burden is on the taxpayer to show that he has
lapse before filing its judicial claim; second, San Roque filed its strictly complied with the conditions for the grant of the tax
judicial claim more than four (4) refund or credit.
years before the Atlas45 doctrine, which was promulgated by
the Court on 8 June 2007. This Court cannot disregard mandatory and jurisdictional
conditions mandated by law simply because the Commissioner
Clearly, San Roque failed to comply with the 120-day waiting chose not to contest the numerical correctness of the claim for
period, the time expressly given by law to the Commissioner to tax refund or credit of the taxpayer. Non-compliance with
decide whether to grant or deny San Roque’s application for mandatory periods, non-observance of prescriptive periods,
tax refund or credit. It is indisputable that compliance with the and non-adherence to exhaustion of administrative
120-day waiting period is mandatory and jurisdictional. The remedies bar a taxpayer’s claim for tax refund or credit,
waiting period, originally fixed at 60 days only, was part of the whether or not the Commissioner questions the numerical
provisions of the first VAT law, Executive Order No. 273, which correctness of the claim of the taxpayer. This Court should not
took effect on 1 January 1988. The waiting period was establish the precedent that non-compliance with mandatory
extended to 120 days effective 1 January 1998 under RA 8424 and jurisdictional conditions can be excused if the claim is
or the Tax Reform Act of 1997. Thus, the waiting period has otherwise meritorious, particularly in claims for tax refunds or
been in our statute books for more than fifteen (15) credit. Such precedent will render meaningless compliance
years before San Roque filed its judicial claim. with mandatory and jurisdictional requirements, for then every
tax refund case will have to be decided on the numerical
correctness of the amounts claimed, regardless of non-
Failure to comply with the 120-day waiting period violates a compliance with mandatory and jurisdictional conditions.
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition
premature and thus without a cause of action, with the effect San Roque cannot also claim being misled, misguided or
that the CTA does not acquire jurisdiction over the taxpayer’s confused by the Atlas doctrine because San Roque filed its
petition. Philippine jurisprudence is replete with cases petition for review with the CTA more than four years
upholding and reiterating these doctrinal principles.46 before Atlas was promulgated. The Atlas doctrine did not
exist at the time San Roque failed to comply with the 120- day
period. Thus, San Roque cannot invoke the Atlas doctrine as
The charter of the CTA expressly provides that its jurisdiction is an excuse for its failure to wait for the 120-day period to lapse.
to review on appeal "decisions of the Commissioner of In any event, the Atlas doctrine merely stated that the two-year
Internal Revenue in cases involving x x x refunds of internal prescriptive period should be counted from the date of
revenue taxes."47 When a taxpayer prematurely files a judicial payment of the output VAT, not from the close of the taxable
claim for tax refund or credit with the CTA without waiting for quarter when the sales involving the input VAT were
the decision of the Commissioner, there is no "decision" of the made. The Atlas doctrine does not interpret, expressly or
Commissioner to review and thus the CTA as a court of special impliedly, the 120+3052 day periods.
jurisdiction has no jurisdiction over the appeal. The charter of
the CTA also expressly provides that if the Commissioner fails
to decide within "a specific period" required by law, such In fact, Section 106(b) and (e) of the Tax Code of 1977 as
"inaction shall be deemed a denial"48 of the application for amended, which was the law cited by the Court in Atlas as the
tax refund or credit. It is the Commissioner’s decision, or applicable provision of the law did not yet provide for the 30-
day period for the taxpayer to appeal to the CTA from the
 decision or inaction of the Commissioner.53 Thus, Roque knowingly violated the mandatory 120-day period, and it
the Atlas doctrine cannot be invoked by anyone to cannot blame anyone but itself.
disregard compliance with the 30-day mandatory and
jurisdictional period. Also, the difference between Section 112(C) also expressly grants the taxpayer a 30-day
the Atlas doctrine on one hand, and the Mirant54 doctrine on period to appeal to the CTA the decision or inaction of the
the other hand, is a mere 20 days. The Atlas doctrine counts Commissioner, thus:
the two-year prescriptive period from the date of payment of
the output VAT, which means within 20 days after the close of
the taxable quarter. The output VAT at that time must be paid x x x the taxpayer affected may, within thirty (30) days from
at the time of filing of the quarterly tax returns, which were to the receipt of the decision denying the claim or after the
be filed "within 20 days following the end of each quarter." expiration of the one hundred twenty day-period, appeal
the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied)
Thus, in Atlas, the three tax refund claims listed below were
deemed timely filed because the administrative claims filed
with the Commissioner, and the petitions for review filed with This law is clear, plain, and unequivocal. Following the well-
the CTA, were all filed within two years from the date of settled verba legis doctrine, this law should be applied exactly
payment of the output VAT, following Section 229: 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
Date of Filing Return Date of Filing Date the
of Commissioner’s
Filing decision, or if the Commissioner does not
d act on
& Payment of Tax Administrative Claim Petition With CTAthe 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.
er, 1990 20 July 1990 21 August 1990 20 July 1992
Quarter b. G.R. No. 196113 - Taganito Mining Corporation v. CIR

Like San Roque, Taganito also filed its petition for review with
the1992
CTA without waiting for the 120-day period to lapse. Also,
er, 1990 18 October 1990 21 November 1990 9 October
like San Roque, Taganito filed its judicial claim before the
Quarter promulgation of the Atlas doctrine. Taganito filed a Petition for
1990 Review on 14 February 2007 with the CTA. This is almost four
months before the adoption of the Atlas doctrine on 8 June
2007. Taganito is similarly situated as San Roque - both
er, 1990 20 January 1991 19 February 1991 14 January 1993 claim being misled, misguided, or confused by
cannot
Quarter the Atlas doctrine.
1990
However, Taganito can invoke BIR Ruling No. DA-489-
0357 dated 10 December 2003, which expressly ruled that the
Atlas paid the output VAT at the time it filed the quarterly tax "taxpayer-claimant need not wait for the lapse of the 120-
returns on the 20th, 18th, and 20th day after the close of the day period before it could seek judicial relief with the CTA
taxable quarter. Had the twoyear prescriptive period been by way of Petition for Review." Taganito filed its judicial
counted from the "close of the taxable quarter" as expressly claim after the issuance of BIR Ruling No. DA-489-03 but
stated in the law, the tax refund claims of Atlas would have before the adoption of the Aichi doctrine. Thus, as will be
already prescribed. In contrast, the Mirant doctrine counts the explained later, Taganito is deemed to have filed its judicial
two-year prescriptive period from the "close of the taxable claim with the CTA on time.
quarter when the sales were made" as expressly stated in the
law, which means the last day of the taxable quarter. The 20- c. G.R. No. 197156 – Philex Mining Corporation v. CIR
day difference55 between the Atlas doctrine and the
later Mirant doctrine is not material to San Roque’s claim Philex (1) filed on 21 October 2005 its original VAT Return for
for tax refund. the third quarter of taxable year 2005; (2) filed on 20 March
2006 its administrative claim for refund or credit; (3) filed on 17
Whether the Atlas doctrine or the Mirant doctrine is applied to October 2007 its Petition for Review with the CTA. The close of
San Roque is immaterial because what is at issue in the the third taxable quarter in 2005 is 30 September 2005, which
present case is San Roque’s non-compliance with the 120-day is the reckoning date in computing the two-year prescriptive
mandatory and jurisdictional period, which is counted from the period under Section 112(A).
date it filed its administrative claim with the Commissioner. The
120-day period may extend beyond the two-year prescriptive Philex timely filed its administrative claim on 20 March 2006,
period, as long as the administrative claim is filed within the within the two-year prescriptive period. Even if the two-year
two-year prescriptive period. However, San Roque’s fatal prescriptive period is computed from the date of payment of
mistake is that it did not wait for the Commissioner to decide the output VAT under Section 229, Philex still filed its
within the 120-day period, a mandatory period whether administrative claim on time. Thus, the Atlas doctrine is
the Atlas or the Mirant doctrine is applied. immaterial in this case. The Commissioner had until 17 July
2006, the last day of the 120-day period, to decide Philex’s
At the time San Roque filed its petition for review with the CTA, claim. Since the Commissioner did not act on Philex’s claim on
the 120+30 day mandatory periods were already in the law. or before 17 July 2006, Philex had until 17 August 2006, the
Section 112(C)56 expressly grants the Commissioner 120 days last day of the 30-day period, to file its judicial claim. The CTA
within which to decide the taxpayer’s claim. The law is clear, EB held that 17 August 2006 was indeed the last day for
plain, and unequivocal: "x x x the Commissioner shall grant a Philex to file its judicial claim. However, Philex filed its
refund or issue the tax credit certificate for creditable input Petition for Review with the CTA only on 17 October 2007, or
taxes within one hundred twenty (120) days from the date of four hundred twenty-six (426) days after the last day of filing. In
submission of complete documents." Following the verba short, Philex was late by one year and 61 days in filing its
legis doctrine, this law must be applied exactly as worded judicial claim. As the CTA EB correctly found:
since it is clear, plain, and unequivocal. The taxpayer cannot
simply file a petition with the CTA without waiting for the Evidently, the Petition for Review in C.T.A. Case No. 7687
Commissioner’s decision within the 120-day mandatory and was filed 426 days late. Thus, the Petition for Review in
jurisdictional period. The CTA will have no jurisdiction because C.T.A. Case No. 7687 should have been dismissed on the
there will be no "decision" or "deemed a denial" decision of the ground that the Petition for Review was filed way beyond the
Commissioner for the CTA to review. In San Roque’s case, it 30-day prescribed period; thus, no jurisdiction was acquired by
filed its petition with the CTA a mere 13 days after it filed its the CTA Division; x x x58 (Emphasis supplied)
administrative claim with the Commissioner. Indisputably, San
Unlike San Roque and Taganito, Philex’s case is not one of his administrative claim for refund or credit within the
premature filing but of late filing. Philex did not file any petition first 610 days of the two-year prescriptive
with the CTA within the 120-day period. Philex did not also file period. Otherwise, the filing of the administrative
any petition with the CTA within 30 days after the expiration of claim beyond the first 610 days will result in the
the 120-day period. Philex filed its judicial claim long after the appeal to the CTA being filed beyond the two-year
expiration of the 120-day period, in fact 426 days after the prescriptive period. Thus, if the taxpayer files his
lapse of the 120-day period. In any event, whether governed administrative claim on the 611th day, the
by jurisprudence before, during, or after the Atlas case, Commissioner, with his 120-day period, will have until
Philex’s judicial claim will have to be rejected because of the 731st day to decide the claim. If the
late filing. Whether the two-year prescriptive period is counted Commissioner decides only on the 731st day, or does
from the date of payment of the output VAT following not decide at all, the taxpayer can no longer file his
the Atlas doctrine, or from the close of the taxable quarter judicial claim with the CTA because the two-year
when the sales attributable to the input VAT were made prescriptive period (equivalent to 730 days) has
following the Mirant and Aichi doctrines, Philex’s judicial claim lapsed. The 30-day period granted by law to the
was indisputably filed late. taxpayer to file an appeal before the CTA becomes
utterly useless, even if the taxpayer complied with the
The Atlas doctrine cannot save Philex from the late filing of its law by filing his administrative claim within the two-
judicial claim. The inaction of the Commissioner on Philex’s year prescriptive period.
claim during the 120-day period is, by express provision of law,
"deemed a denial" of Philex’s claim. Philex had 30 days from The theory that the 30-day period must fall within the two-year
the expiration of the 120-day period to file its judicial claim with prescriptive period adds a condition that is not found in the law.
the CTA. Philex’s failure to do so rendered the "deemed a It results in truncating 120 days from the 730 days that the law
denial" decision of the Commissioner final and inappealable. grants the taxpayer for filing his administrative claim with the
The right to appeal to the CTA from a decision or "deemed a Commissioner. This Court cannot interpret a law to defeat,
denial" decision of the Commissioner is merely a statutory wholly or even partly, a remedy that the law expressly grants in
privilege, not a constitutional right. The exercise of such clear, plain, and unequivocal language.
statutory privilege requires strict compliance with the conditions
attached by the statute for its exercise.59 Philex failed to Section 112(A) and (C) must be interpreted according to its
comply with the statutory conditions and must thus bear the clear, plain, and unequivocal language. The taxpayer can file
consequences. his administrative claim for refund or credit at anytime within
the two-year prescriptive period. If he files his claim on the last
II. Prescriptive Periods under Section 112(A) and (C) day of the two-year prescriptive period, his claim is still filed on
time. The Commissioner will have 120 days from such filing to
There are three compelling reasons why the 30-day period decide the claim. If the Commissioner decides the claim on the
need not necessarily fall within the two-year prescriptive 120th day, or does not decide it on that day, the taxpayer still
period, as long as the administrative claim is filed within the has 30 days to file his judicial claim with the CTA. This is not
two-year prescriptive period. only the plain meaning but also the only logical interpretation of
Section 112(A) and (C).
First, Section 112(A) clearly, plainly, and
unequivocally provides that the taxpayer "may, within III. "Excess" Input VAT and "Excessively" Collected Tax
two (2) years after the close of the taxable quarter
when the sales were made, apply for the issuance The input VAT is not "excessively" collected as understood
of a tax credit certificate or refund of the creditable under Section 229 because at the time the input VAT is
input tax due or paid to such sales." In short, the law collected the amount paid is correct and proper. The input
states that the taxpayer may apply with the VAT is a tax liability of, and legally paid by, a VAT-registered
Commissioner for a refund or credit "within two (2) seller61 of goods, properties or services used as input by
years," which means at anytime within two years. another VAT-registered person in the sale of his own goods,
Thus, the application for refund or credit may be filed properties, or services. This tax liability is true even if the seller
by the taxpayer with the Commissioner on the last passes on the input VAT to the buyer as part of the purchase
day of the two-year prescriptive period and it will still price. The second VAT-registered person, who is not legally
strictly comply with the law. The twoyear prescriptive liable for the input VAT, is the one who applies the input VAT
period is a grace period in favor of the taxpayer and as credit for his own output VAT.62 If the input VAT is in fact
he can avail of the full period before his right to apply "excessively" collected as understood under Section 229, then
for a tax refund or credit is barred by prescription. it is the first VAT-registered person - the taxpayer who is
legally liable and who is deemed to have legally paid for the
Second, Section 112(C) provides that the input VAT - who can ask for a tax refund or credit under
Commissioner shall decide the application for refund Section 229 as an ordinary refund or credit outside of the VAT
or credit "within one hundred twenty (120) days from System. In such event, the second VAT-registered taxpayer
the date of submission of complete documents in will have no input VAT to offset against his own output VAT.
support of the application filed in accordance with
Subsection (A)." The reference in Section 112(C) of In a claim for refund or credit of "excess" input VAT under
the submission of documents "in support of the Section 110(B) and Section 112(A), the input VAT is not
application filed in accordance with Subsection A" "excessively" collected as understood under Section 229. At
means that the application in Section 112(A) is the the time of payment of the input VAT the amount paid is the
administrative claim that the Commissioner must correct and proper amount. Under the VAT System, there is no
decide within the 120-day period. In short, the two- claim or issue that the input VAT is "excessively" collected, that
year prescriptive period in Section 112(A) refers to the is, that the input VAT paid is more than what is legally due. The
period within which the taxpayer can file an person legally liable for the input VAT cannot claim that he
administrative claim for tax refund or credit. Stated overpaid the input VAT by the mere existence of an "excess"
otherwise, the two-year prescriptive period does input VAT. The term "excess" input VAT simply means that the
not refer to the filing of the judicial claim with the input VAT available as credit exceeds the output VAT, not that
CTA but to the filing of the administrative claim the input VAT is excessively collected because it is more than
with the Commissioner. As held in Aichi, the what is legally due. Thus, the taxpayer who legally paid the
"phrase ‘within two years x x x apply for the issuance input VAT cannot claim for refund or credit of the input VAT as
of a tax credit or refund’ refers to applications for "excessively" collected under Section 229.
refund/credit with the CIR and not to appeals
made to the CTA." Under Section 229, the prescriptive period for filing a judicial
claim for refund is two years from the date of payment of the
Third, if the 30-day period, or any part of it, is required tax "erroneously, x x x illegally, x x x excessively or in any
to fall within the two-year prescriptive period manner wrongfully collected." The prescriptive period is
(equivalent to 730 days60), then the taxpayer must file reckoned from the date the person liable for the tax pays the
tax. Thus, if the input VAT is in fact "excessively" collected, because they all refer to payment of taxes not legally due.
that is, the person liable for the tax actually pays more than Under the VAT System, there is no claim or issue that the
what is legally due, the taxpayer must file a judicial claim for "excess" input VAT is "excessively or in any manner wrongfully
refund within two years from his date of payment. Only the collected." In fact, if the "excess" input VAT is an "excessively"
person legally liable to pay the tax can file the judicial collected tax under Section 229, then the taxpayer claiming to
claim for refund. The person to whom the tax is passed on apply such "excessively" collected input VAT to offset his
as part of the purchase price has no personality to file the output VAT may have no legal basis to make such offsetting.
judicial claim under Section 229.63 The person legally liable to pay the input VAT can claim a
refund or credit for such "excessively" collected tax, and thus
Under Section 110(B) and Section 112(A), the prescriptive there will no longer be any "excess" input VAT. This will upend
period for filing a judicial claim for "excess" input VAT is two the present VAT System as we know it.
years from the close of the taxable quarter when the sale was
made by the person legally liable to pay the output VAT. This IV. Effectivity and Scope of
prescriptive period has no relation to the date of payment of the Atlas , Mirant and Aichi Doctrines
the "excess" input VAT. The "excess" input VAT may have
been paid for more than two years but this does not bar the The Atlas doctrine, which held that claims for refund or credit of
filing of a judicial claim for "excess" VAT under Section 112(A), input VAT must comply with the two-year prescriptive period
which has a different reckoning period from Section 229. under Section 229, should be effective only from its
Moreover, the person claiming the refund or credit of the input promulgation on 8 June 2007 until its abandonment on 12
VAT is not the person who legally paid the input VAT. Such September 2008 in Mirant. The Atlas doctrine was limited to
person seeking the VAT refund or credit does not claim that the reckoning of the two-year prescriptive period from the date
the input VAT was "excessively" collected from him, or that he of payment of the output VAT. Prior to the Atlas doctrine, the
paid an input VAT that is more than what is legally due. He is two-year prescriptive period for claiming refund or credit of
not the taxpayer who legally paid the input VAT. input VAT should be governed by Section 112(A) following
the verba legis rule. The Mirant ruling, which abandoned
As its name implies, the Value-Added Tax system is a tax on the Atlas doctrine, adopted the verba legis rule, thus applying
the value added by the taxpayer in the chain of transactions. Section 112(A) in computing the two-year prescriptive period in
For simplicity and efficiency in tax collection, the VAT is claiming refund or credit of input VAT.
imposed not just on the value added by the taxpayer, but on
the entire selling price of his goods, properties or services. The Atlas doctrine has no relevance to the 120+30 day periods
However, the taxpayer is allowed a refund or credit on the VAT under Section 112(C) because the application of the 120+30
previously paid by those who sold him the inputs for his goods, day periods was not in issue in Atlas. The application of the
properties, or services. The net effect is that the taxpayer pays 120+30 day periods was first raised in Aichi, which adopted
the VAT only on the value that he adds to the goods, the verba legis rule in holding that the 120+30 day periods are
properties, or services that he actually sells. mandatory and jurisdictional. The language of Section 112(C)
is plain, clear, and unambiguous. When Section 112(C) states
Under Section 110(B), a taxpayer can apply his input VAT only that "the Commissioner shall grant a refund or issue the tax
against his output VAT. The only exception is when the credit within one hundred twenty (120) days from the date of
taxpayer is expressly "zero-rated or effectively zero-rated" submission of complete documents," the law clearly gives the
under the law, like companies generating power through Commissioner 120 days within which to decide the taxpayer’s
renewable sources of energy.64 Thus, a non zero-rated VAT- claim. Resort to the courts prior to the expiration of the 120-day
registered taxpayer who has no output VAT because he has no period is a patent violation of the doctrine of exhaustion of
sales cannot claim a tax refund or credit of his unused input administrative remedies, a ground for dismissing the judicial
VAT under the VAT System. Even if the taxpayer has sales but suit due to prematurity. Philippine jurisprudence is awash with
his input VAT exceeds his output VAT, he cannot seek a tax cases affirming and reiterating the doctrine of exhaustion of
refund or credit of his "excess" input VAT under the VAT administrative remedies.65 Such doctrine is basic and
System. He can only carry-over and apply his "excess" elementary.
input VAT against his future output VAT. If such "excess"
input VAT is an "excessively" collected tax, the taxpayer When Section 112(C) states that "the taxpayer affected may,
should be able to seek a refund or credit for such "excess" within thirty (30) days from receipt of the decision denying the
input VAT whether or not he has output VAT. The VAT System claim or after the expiration of the one hundred twenty-day
does not allow such refund or credit. Such "excess" input VAT period, appeal the decision or the unacted claim with the Court
is not an "excessively" collected tax under Section 229. The of Tax Appeals," the law does not make the 120+30 day
"excess" input VAT is a correctly and properly collected tax. periods optional just because the law uses the word "may."
However, such "excess" input VAT can be applied against the The word "may" simply means that the taxpayer may or may
output VAT because the VAT is a tax imposed only on the not appeal the decision of the Commissioner within 30 days
value added by the taxpayer. If the input VAT is in fact from receipt of the decision, or within 30 days from the
"excessively" collected under Section 229, then it is the person expiration of the 120-day period. Certainly, by no stretch of the
legally liable to pay the input VAT, not the person to whom the imagination can the word "may" be construed as making the
tax was passed on as part of the purchase price and claiming 120+30 day periods optional, allowing the taxpayer to file a
credit for the input VAT under the VAT System, who can file judicial claim one day after filing the administrative claim with
the judicial claim under Section 229. the Commissioner.

Any suggestion that the "excess" input VAT under the VAT The old rule66 that the taxpayer may file the judicial claim,
System is an "excessively" collected tax under Section 229 without waiting for the Commissioner’s decision if the two-year
may lead taxpayers to file a claim for refund or credit for such prescriptive period is about to expire, cannot apply because
"excess" input VAT under Section 229 as an ordinary tax that rule was adopted before the enactment of the 30-day
refund or credit outside of the VAT System. Under Section 229, period. The 30-day period was adopted precisely to do
mere payment of a tax beyond what is legally due can be away with the old rule, so that under the VAT System the
claimed as a refund or credit. There is no requirement under taxpayer will always have 30 days to file the judicial claim
Section 229 for an output VAT or subsequent sale of goods, even if the Commissioner acts only on the 120th day, or
properties, or services using materials subject to input VAT. does not act at all during the 120-day period. With the 30-
day period always available to the taxpayer, the taxpayer can
From the plain text of Section 229, it is clear that what can be no longer file a judicial claim for refund or credit of input VAT
refunded or credited is a tax that is "erroneously, x x x illegally, without waiting for the Commissioner to decide until the
x x x excessively or in any manner wrongfully collected." In expiration of the 120-day period.
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, To repeat, a claim for tax refund or credit, like a claim for tax
Section 229 should "apply only to instances of erroneous exemption, is construed strictly against the taxpayer. One of
payment or illegal collection of internal revenue taxes." the conditions for a judicial claim of refund or credit under the
Erroneous or wrongful payment includes excessive payment VAT System is compliance with the 120+30 day mandatory
and jurisdictional periods. Thus, strict compliance with the jurisdiction over such claim since equitable estoppel has set in
120+30 day periods is necessary for such a claim to prosper, as expressly authorized under Section 246 of the Tax Code.
whether before, during, or after the effectivity of
the Atlas doctrine, except for the period from the issuance of Section 4 of the Tax Code, a new provision introduced by RA
BIR Ruling No. DA-489-03 on 10 December 2003 to 6 October 8424, expressly grants to the Commissioner the power to
2010 when the Aichi doctrine was adopted, which again interpret tax laws, thus:
reinstated the 120+30 day periods as mandatory and
jurisdictional.
Sec. 4. Power of the Commissioner To Interpret Tax Laws and
To Decide Tax Cases. — The power to interpret the provisions
V. Revenue Memorandum Circular No. 49-03 (RMC 49-03) of this Code and other tax laws shall be under the exclusive
dated 15 April 2003 and original jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
There is nothing in RMC 49-03 that states, expressly or
impliedly, that the taxpayer need not wait for the 120-day The power to decide disputed assessments, refunds of internal
period to expire before filing a judicial claim with the CTA. RMC revenue taxes, fees or other charges, penalties imposed in
49-03 merely authorizes the BIR to continue processing the relation thereto, or other matters arising under this Code or
administrative claim even after the taxpayer has filed its judicial other laws or portions thereof administered by the Bureau of
claim, without saying that the taxpayer can file its judicial claim Internal Revenue is vested in the Commissioner, subject to the
before the expiration of the 120-day period. RMC 49-03 states: exclusive appellate jurisdiction of the Court of Tax Appeals.
"In cases where the taxpayer has filed a ‘Petition for Review’
with the Court of Tax Appeals involving a claim for refund/TCC
that is pending at the administrative agency (either the Bureau Since the Commissioner has exclusive and original
of Internal Revenue or the One- Stop Shop Inter-Agency Tax jurisdiction to interpret tax laws, taxpayers acting in good
Credit and Duty Drawback Center of the Department of faith should not be made to suffer for adhering to general
Finance), the administrative agency and the court may act on interpretative rules of the Commissioner interpreting tax laws,
the case separately." Thus, if the taxpayer files its judicial claim should such interpretation later turn out to be erroneous and be
before the expiration of the 120-day period, the BIR will reversed by the Commissioner or this Court. Indeed, Section
nevertheless continue to act on the administrative claim 246 of the Tax Code expressly provides that a reversal of a
because such premature filing cannot divest the Commissioner BIR regulation or ruling cannot adversely prejudice a taxpayer
of his statutory power and jurisdiction to decide the who in good faith relied on the BIR regulation or ruling prior to
administrative claim within the 120-day period. its reversal. Section 246 provides as follows:

On the other hand, if the taxpayer files its judicial claim after Sec. 246. Non-Retroactivity of Rulings. — Any revocation,
the 120- day period, the Commissioner can still continue to modification or reversal of any of the rules and
evaluate the administrative claim. There is nothing new in this regulations promulgated in accordance with the preceding
because even after the expiration of the 120-day period, the Sections or any of the rulings or circulars promulgated by the
Commissioner should still evaluate internally the administrative Commissioner shall not be given retroactive application if
claim for purposes of opposing the taxpayer’s judicial claim, or the revocation, modification or reversal will be prejudicial
even for purposes of determining if the BIR should actually to the taxpayers, except in the following cases:
concede to the taxpayer’s judicial claim. The internal
administrative evaluation of the taxpayer’s claim (a) Where the taxpayer deliberately misstates or omits
must necessarily continue to enable the BIR to oppose material facts from his return or any document
intelligently the judicial claim or, if the facts and the law warrant required of him by the Bureau of Internal Revenue;
otherwise, for the BIR to concede to the judicial claim, resulting
in the termination of the judicial proceedings. (b) Where the facts subsequently gathered by the
Bureau of Internal Revenue are materially different
What is important, as far as the present cases are from the facts on which the ruling is based; or
concerned, is that the mere filing by a taxpayer of a
judicial claim with the CTA before the expiration of the (c) Where the taxpayer acted in bad faith. (Emphasis
120-day period cannot operate to divest the Commissioner supplied)
of his jurisdiction to decide an administrative claim within
the 120-day mandatory period, unless the Commissioner
has clearly given cause for equitable estoppel to apply as Thus, a general interpretative rule issued by the Commissioner
expressly recognized in Section 246 of the Tax Code.67 may be relied upon by taxpayers from the time the rule is
issued up to its reversal by the Commissioner or this Court.
Section 246 is not limited to a reversal only by the
VI. BIR Ruling No. DA-489-03 dated 10 December 2003 Commissioner because this Section expressly states,
"Any revocation, modification or reversal" without specifying
BIR Ruling No. DA-489-03 does provide a valid claim for who made the revocation, modification or reversal. Hence, a
equitable estoppel under Section 246 of the Tax Code. BIR reversal by this Court is covered under Section 246.
Ruling No. DA-489-03 expressly states that the "taxpayer-
claimant need not wait for the lapse of the 120-day period Taxpayers should not be prejudiced by an erroneous
before it could seek judicial relief with the CTA by way of interpretation by the Commissioner, particularly on a difficult
Petition for Review." Prior to this ruling, the BIR held, as question of law. The abandonment of the Atlas doctrine
shown by its position in the Court of Appeals, 68 that the by Mirant and Aichi69 is proof that the reckoning of the
expiration of the 120-day period is mandatory and jurisdictional prescriptive periods for input VAT tax refund or credit is a
before a judicial claim can be filed. difficult question of law. The abandonment of the Atlas doctrine
did not result in Atlas, or other taxpayers similarly situated,
There is no dispute that the 120-day period is mandatory and being made to return the tax refund or credit they received or
jurisdictional, and that the CTA does not acquire jurisdiction could have received under Atlas prior to its abandonment. This
over a judicial claim that is filed before the expiration of the Court is applying Mirant and Aichi prospectively. Absent fraud,
120-day period. There are, however, two exceptions to this bad faith or misrepresentation, the reversal by this Court of a
rule. The first exception is if the Commissioner, through a general interpretative rule issued by the Commissioner, like the
specific ruling, misleads a particular taxpayer to prematurely reversal of a specific BIR ruling under Section 246, should also
file a judicial claim with the CTA. Such specific ruling is apply prospectively. As held by this Court in CIR v. Philippine
applicable only to such particular taxpayer. The second Health Care Providers, Inc.:70
exception is where the Commissioner, through a general
interpretative rule issued under Section 4 of the Tax Code, In ABS-CBN Broadcasting Corp. v. Court of Tax Appeals, this
misleads all taxpayers into filing prematurely judicial claims Court held that under Section 246 of the 1997 Tax Code, the
with the CTA. In these cases, the Commissioner cannot be Commissioner of Internal Revenue is precluded from
allowed to later on question the CTA’s assumption of adopting a position contrary to one previously taken
where injustice would result to the taxpayer. Hence, where filing its judicial claim prematurely without waiting for the 120-
an assessment for deficiency withholding income taxes was day period to expire, it was misled by BIR Ruling No. DA-489-
made, three years after a new BIR Circular reversed a 03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-
previous one upon which the taxpayer had relied upon, such 489-03, which shields the filing of its judicial claim from the vice
an assessment was prejudicial to the taxpayer. To rule of prematurity.
otherwise, opined the Court, would be contrary to the tenets of
good faith, equity, and fair play. Philex’s situation is not a case of premature filing of its judicial
claim but of late filing, indeed very late filing. BIR Ruling No.
This Court has consistently reaffirmed its ruling in ABS-CBN DA-489-03 allowed premature filing of a judicial claim, which
Broadcasting Corp.1âwphi1 in the later cases of Commissioner means non-exhaustion of the 120-day period for the
of Internal Revenue v. Borroughs, Ltd., Commissioner of Commissioner to act on an administrative claim. Philex cannot
Internal Revenue v. Mega Gen. Mdsg. Corp., Commissioner of claim the benefit of BIR Ruling No. DA-489-03 because Philex
Internal Revenue v. Telefunken Semiconductor (Phils.) Inc., did not file its judicial claim prematurely but filed it long after
and Commissioner of Internal Revenue v. Court of the lapse of the 30-day period following the expiration of the
Appeals. The rule is that the BIR rulings have no 120-day period. In fact, Philex filed its judicial claim 426 days
retroactive effect where a grossly unfair deal would result after the lapse of the 30-day period.
to the prejudice of the taxpayer, as in this case.
VII. Existing Jurisprudence
More recently, in Commissioner of Internal Revenue v.
Benguet Corporation, wherein the taxpayer was entitled to tax There is no basis whatsoever to the claim that in five cases this
refunds or credits based on the BIR’s own issuances but later Court had already made a ruling that the filing dates of the
was suddenly saddled with deficiency taxes due to its administrative and judicial claims are inconsequential, as long
subsequent ruling changing the category of the taxpayer’s as they are within the two-year prescriptive period. The effect
transactions for the purpose of paying its VAT, this Court ruled of the claim of the dissenting opinions is that San Roque’s
that applying such ruling retroactively would be prejudicial to failure to wait for the 120-day mandatory period to lapse is
the taxpayer. (Emphasis supplied) inconsequential, thus allowing San Roque to claim the tax
refund or credit. However, the five cases cited by the
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a dissenting opinions do not support even remotely the claim that
general interpretative rule applicable to all taxpayers or a this Court had already made such a ruling. None of these five
specific ruling applicable only to a particular taxpayer. cases mention, cite, discuss, rule or even hint that
compliance with the 120-day mandatory period is
BIR Ruling No. DA-489-03 is a general interpretative rule inconsequential as long as the administrative and judicial
because it was a response to a query made, not by a particular claims are filed within the two-year prescriptive period.
taxpayer, but by a government agency tasked with processing
tax refunds and credits, that is, the One Stop Shop Inter- In CIR v. Toshiba Information Equipment (Phils.), Inc.,71 the
Agency Tax Credit and Drawback Center of the issue was whether any output VAT was actually passed on to
Department of Finance. This government agency is also the Toshiba that it could claim as input VAT subject to tax credit or
addressee, or the entity responded to, in BIR Ruling No. DA- refund. The Commissioner argued that "although Toshiba may
489-03. Thus, while this government agency mentions in its be a VAT-registered taxpayer, it is not engaged in a VAT-
query to the Commissioner the administrative claim of Lazi Bay taxable business." The Commissioner cited Section 4.106-1 of
Resources Development, Inc., the agency was in fact asking Revenue Regulations No. 75 that "refund of input taxes on
the Commissioner what to do in cases like the tax claim of Lazi capital goods shall be allowed only to the extent that such
Bay Resources Development, Inc., where the taxpayer did not capital goods are used in VAT-taxable business." In the words
wait for the lapse of the 120-day period. of the Court, "Ultimately, however, the issue still to be resolved
herein shall be whether respondent Toshiba is entitled to the
Clearly, BIR Ruling No. DA-489-03 is a general interpretative tax credit/refund of its input VAT on its purchases of capital
rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 goods and services, to which this Court answers in the
from the time of its issuance on 10 December 2003 up to its affirmative." Nowhere in this case did the Court discuss, state,
reversal by this Court in Aichi on 6 October 2010, where this or rule that the filing dates of the administrative and judicial
Court held that the 120+30 day periods are mandatory and claims are inconsequential, as long as they are within the two-
jurisdictional year prescriptive period.

However, BIR Ruling No. DA-489-03 cannot be given In Intel Technology Philippines, Inc. v. CIR,72 the Court stated:
retroactive effect for four reasons: first, it is admittedly an "The issues to be resolved in the instant case are (1) whether
erroneous interpretation of the law; second, prior to its the absence of the BIR authority to print or the absence of the
issuance, the BIR held that the 120-day period was mandatory TIN-V in petitioner’s export sales invoices operates to forfeit its
and jurisdictional, which is the correct interpretation of the entitlement to a tax refund/credit of its unutilized input VAT
law; third, prior to its issuance, no taxpayer can claim that it attributable to its zero-rated sales; and (2) whether petitioner’s
was misled by the BIR into filing a judicial claim prematurely; failure to indicate "TIN-V" in its sales invoices automatically
and fourth, a claim for tax refund or credit, like a claim for tax invalidates its claim for a tax credit certification." Again,
exemption, is strictly construed against the taxpayer. nowhere in this case did the Court discuss, state, or rule that
the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year
San Roque, therefore, cannot benefit from BIR Ruling No. DA- prescriptive period.
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 In AT&T Communications Services Philippines, Inc. v.
was misled by the BIR into filing its judicial claim prematurely CIR,73 the Court stated: "x x x the CTA First Division,
because BIR Ruling No. DA-489-03 was issued only after San conceding that petitioner’s transactions fall under the
Roque filed its judicial claim. At the time San Roque filed its classification of zero-rated sales, nevertheless denied
judicial claim, the law as applied and administered by the BIR petitioner’s claim ‘for lack of substantiation,’ x x x." The
was that the Commissioner had 120 days to act on Court quoted the ruling of the First Division that "valid VAT
administrative claims. This was in fact the position of the BIR official receipts, and not mere sale invoices, should have
prior to the issuance of BIR Ruling No. DA-489-03. Indeed, been submitted" by petitioner to substantiate its claim. The
San Roque never claimed the benefit of BIR Ruling No. Court further stated: "x x x the CTA En Banc, x x x affirmed x x
DA-489-03 or RMC 49-03, whether in this Court, the CTA, x the CTA First Division," and "petitioner’s motion for
or before the Commissioner. reconsideration having been denied x x x, the present petition
for review was filed." Clearly, the sole issue in this case is
whether petitioner complied with the substantiation
Taganito, however, filed its judicial claim with the CTA on 14 requirements in claiming for tax refund or credit. Again,
February 2007, after the issuance of BIR Ruling No. DA-489- nowhere in this case did the Court discuss, state, or rule that
03 on 10 December 2003. Truly, Taganito can claim that in the filing dates of the administrative and judicial claims are
inconsequential, as long as they are within the two-year While this Court stated in the narration of facts in Cebu
prescriptive period. Toyo that the taxpayer "did not bother to wait for the Resolution
of its (administrative) claim by the CIR" before filing its judicial
In CIR v. Ironcon Builders and Development Corporation,74 the claim with the CTA, this issue was not raised before the Court.
Court put the issue in this manner: "Simply put, the sole issue Certainly, this statement of the Court is not a binding precedent
the petition raises is whether or not the CTA erred in granting that the taxpayer need not wait for the 120-day period to lapse.
respondent Ironcon’s application for refund of
its excess creditable VAT withheld." The Commissioner Any issue, whether raised or not by the parties, but not
argued that "since the NIRC does not specifically grant passed upon by the Court, does not have any value as
taxpayers the option to refund excess creditable VAT withheld, precedent. As this Court has explained as early as 1926:
it follows that such refund cannot be allowed." Thus, this case
is solely about whether the taxpayer has the right under the It is contended, however, that the question before us was
NIRC to ask for a cash refund of excess creditable VAT answered and resolved against the contention of the appellant
withheld. Again, nowhere in this case did the Court discuss, in the case of Bautista vs. Fajardo (38 Phil. 624). In that case
state, or rule that the filing dates of the administrative and no question was raised nor was it even suggested that said
judicial claims are inconsequential, as long as they are within section 216 did not apply to a public officer. That question was
the two-year prescriptive period. not discussed nor referred to by any of the parties interested in
that case. It has been frequently decided that the fact that a
In CIR v. Cebu Toyo Corporation,75 the issue was whether statute has been accepted as valid, and invoked and applied
Cebu Toyo was exempt or subject to VAT. Compliance with for many years in cases where its validity was not raised or
the 120-day period was never an issue in Cebu Toyo. As the passed on, does not prevent a court from later passing on its
Court explained: validity, where that question is squarely and properly raised
and presented. Where a question passes the Court sub
Both the Commissioner of Internal Revenue and the Office of silentio, the case in which the question was so passed is
the Solicitor General argue that respondent Cebu Toyo not binding on the Court (McGirr vs. Hamilton and Abreu,
Corporation, as a PEZA-registered enterprise, is exempt from 30 Phil. 563), nor should it be considered as a precedent.
national and local taxes, including VAT, under Section 24 of (U.S. vs. Noriega and Tobias, 31 Phil. 310; Chicote vs. Acasio,
Rep. Act No. 7916 and Section 109 of the NIRC. Thus, they 31 Phil. 401; U.S. vs. More, 3 Cranch [U.S.] 159, 172; U.S. vs.
contend that respondent Cebu Toyo Corporation is not entitled Sanges, 144 U.S. 310, 319; Cross vs. Burke, 146 U.S. 82.) For
to any refund or credit on input taxes it previously paid as the reasons given in the case of McGirr vs. Hamilton and
provided under Section 4.103-1 of Revenue Regulations No. 7- Abreu, supra, the decision in the case of Bautista vs. Fajardo,
95, notwithstanding its registration as a VAT taxpayer. For supra, can have no binding force in the interpretation of the
petitioner claims that said registration was erroneous and did question presented here.76 (Emphasis supplied)
not confer upon the respondent any right to claim recognition
of the input tax credit. In Cebu Toyo, the nature of the 120-day period, whether it is
mandatory or optional, was not even raised as an issue by any
The respondent counters that it availed of the income tax of the parties. The Court never passed upon this issue.
holiday under E.O. No. 226 for four years from August 7, 1995 Thus, Cebu Toyo does not constitute binding precedent on the
making it exempt from income tax but not from other taxes nature of the 120-day period.
such as VAT. Hence, according to respondent, its export
sales are not exempt from VAT, contrary to petitioner’s There is also the claim that there are numerous CTA decisions
claim, but its export sales is subject to 0% VAT. Moreover, allegedly supporting the argument that the filing dates of the
it argues that it was able to establish through a report certified administrative and judicial claims are inconsequential, as long
by an independent Certified Public Accountant that the input as they are within the two-year prescriptive period. Suffice it to
taxes it incurred from April 1, 1996 to December 31, 1997 were state that CTA decisions do not constitute precedents, and do
directly attributable to its export sales. Since it did not have any not bind this Court or the public. That is why CTA decisions are
output tax against which said input taxes may be offset, it had appealable to this Court, which may affirm, reverse or modify
the option to file a claim for refund/tax credit of its unutilized the CTA decisions as the facts and the law may warrant. Only
input taxes. decisions of this Court constitute binding precedents, forming
part of the Philippine legal system.77 As held by this Court
Considering the submission of the parties and the evidence on in The Philippine Veterans Affairs Office v. Segundo:78
record, we find the petition bereft of merit.
x x x Let it be admonished that decisions of the Supreme Court
Petitioner’s contention that respondent is not entitled to "applying or interpreting the laws or the Constitution . . . form
refund for being exempt from VAT is untenable. This part of the legal system of the Philippines," and, as it were,
argument turns a blind eye to the fiscal incentives granted to "laws" by their own right because they interpret what the laws
PEZA-registered enterprises under Section 23 of Rep. Act No. say or mean. Unlike rulings of the lower courts, which bind
7916. Note that under said statute, the respondent had two the parties to specific cases alone, our judgments are
options with respect to its tax burden. It could avail of an universal in their scope and application, and equally
income tax holiday pursuant to provisions of E.O. No. 226, thus mandatory in character. Let it be warned that to defy our
exempt it from income taxes for a number of years but not from decisions is to court contempt. (Emphasis supplied)
other internal revenue taxes such as VAT; or it could avail of
the tax exemptions on all taxes, including VAT under P.D. No. The same basic doctrine was reiterated by this Court in De
66 and pay only the preferential tax rate of 5% under Rep. Act Mesa v. Pepsi Cola Products Phils., Inc.:79
No. 7916. Both the Court of Appeals and the Court of Tax
Appeals found that respondent availed of the income tax The principle of stare decisis et non quieta movere is
holiday for four (4) years starting from August 7, 1995, as entrenched in Article 8 of the Civil Code, to wit:
clearly reflected in its 1996 and 1997 Annual Corporate Income
Tax Returns, where respondent specified that it was availing of
the tax relief under E.O. No. 226. Hence, respondent is not ART. 8. Judicial decisions applying or interpreting the laws or
exempt from VAT and it correctly registered itself as a VAT the Constitution shall form a part of the legal system of the
taxpayer. In fine, it is engaged in taxable rather than Philippines.
exempt transactions. (Emphasis supplied)
It enjoins adherence to judicial precedents. It requires our
Clearly, the issue in Cebu Toyo was whether the taxpayer courts to follow a rule already established in a final
was exempt from VAT or subject to VAT at 0% tax rate. If decision of the Supreme Court. That decision becomes a
subject to 0% VAT rate, the taxpayer could claim a refund or judicial precedent to be followed in subsequent cases by all
credit of its input VAT. Again, nowhere in this case did the courts in the land. The doctrine of stare decisis is based on the
Court discuss, state, or rule that the filing dates of the principle that once a question of law has been examined and
administrative and judicial claims are inconsequential, as long decided, it should be deemed settled and closed to further
as they are within the two-year prescriptive period. argument. (Emphasis supplied)
VIII. Revenue Regulations No. 7-95 Effective 1 January (D) Period within which Refund or Tax Credit of Input Taxes
1996 shall be made. — In proper cases, the Commissioner shall
grant the refund or issue the tax credit certificate for creditable
Section 4.106-2(c) of Revenue Regulations No. 7-95, by its input taxes within one hundred twenty (120) days from the
own express terms, applies only if the taxpayer files the judicial date of submission of complete documents in support of the
claim "after" the lapse of the 60-day period, a period with application filed in accordance with Subsections (A) and (B)
which San Roque failed to comply. Under Section 4.106-2(c), hereof.
the 60-day period is still mandatory and jurisdictional.
In case of full or partial denial of the claim for tax refund or
Moreover, it is a hornbook principle that a prior administrative tax credit, or the failure on the part of the Commissioner to
regulation can never prevail over a later contrary law, more so act on the application within the period prescribed above,
in this case where the later law was enacted precisely to the taxpayer affected may, within thirty (30) days from the
amend the prior administrative regulation and the law it receipt of the decision denying the claim or after the
implements. expiration of the hundred twenty day-period, appeal the
decision or the unacted claim with the Court of Tax
Appeals.
The laws and regulation involved are as follows:
There can be no dispute that under Section 106(d) of the 1977
1977 Tax Code, as amended by Republic Act No. 7716 Tax Code, as amended by RA 7716, the Commissioner has a
(1994) 60-day period to act on the administrative claim. This 60-day
period is mandatory and jurisdictional.
Sec. 106. Refunds or tax credits of creditable input tax. —
Did Section 4.106-2(c) of Revenue Regulations No. 7-95
(a) x x x x change this, so that the 60-day period is no longer mandatory
and jurisdictional? The obvious answer is no.
(d) Period within which refund or tax credit of input tax
shall be made - In proper cases, the Commissioner Section 4.106-2(c) itself expressly states that if, "after the
shall grant a refund or issue the tax credit for sixty (60) day period," the Commissioner fails to act on the
creditable input taxes within sixty (60) days from the administrative claim, the taxpayer may file the judicial claim
date of submission of complete documents in support even "before the lapse of the two (2) year period." Thus,
of the application filed in accordance with under Section 4.106-2(c) the 60-day period is still
subparagraphs (a) and (b) hereof. In case of full or mandatory and jurisdictional.
partial denial of the claim for tax refund or tax credit,
or the failure on the part of the Commissioner to Section 4.106-2(c) did not change Section 106(d) as amended
act on the application within the period prescribed by RA 7716, but merely implemented it, for two
above, the taxpayer affected may, within thirty reasons. First, Section 4.106-2(c) still expressly requires
(30) days from receipt of the decision denying the compliance with the 60-day period. This cannot be
claim or after the expiration of the sixty-day disputed.1âwphi1
period, appeal the decision or the unacted claim
with the Court of Tax Appeals.
Second, under the novel amendment introduced by RA 7716,
mere inaction by the Commissioner during the 60-day period
Revenue Regulations No. 7-95 (1996) is deemed a denial of the claim. Thus, Section 4.106-2(c)
states that "if no action on the claim for tax refund/credit has
Section 4.106-2. Procedures for claiming refunds or tax credits been taken by the Commissioner after the sixty (60) day
of input tax — (a) x x x period," the taxpayer "may" already file the judicial claim even
long before the lapse of the two-year prescriptive period. Prior
xxxx to the amendment by RA 7716, the taxpayer had to wait until
the two-year prescriptive period was about to expire if the
Commissioner did not act on the claim.80 With the amendment
(c) Period within which refund or tax credit of input taxes shall by RA 7716, the taxpayer need not wait until the two-year
be made. — In proper cases, the Commissioner shall grant a prescriptive period is about to expire before filing the judicial
tax credit/refund for creditable input taxes within sixty (60) days claim because mere inaction by the Commissioner during the
from the date of submission of complete documents in support 60-day period is deemed a denial of the claim. This is the
of the application filed in accordance with subparagraphs (a) meaning of the phrase "but before the lapse of the two (2)
and (b) above. year period" in Section 4.106-2(c). As Section 4.106- 2(c)
reiterates that the judicial claim can be filed only "after the
In case of full or partial denial of the claim for tax credit/refund sixty (60) day period," this period remains mandatory and
as decided by the Commissioner of Internal Revenue, the jurisdictional. Clearly, Section 4.106-2(c) did not amend
taxpayer may appeal to the Court of Tax Appeals within thirty Section 106(d) but merely faithfully implemented it.
(30) days from the receipt of said denial, otherwise the
decision will become final. However, if no action on the claim Even assuming, for the sake of argument, that Section 4.106-
for tax credit/refund has been taken by the Commissioner 2(c) of Revenue Regulations No. 7-95, an administrative
of Internal Revenue after the sixty (60) day period from the issuance, amended Section 106(d) of the Tax Code to make
date of submission of the application but before the lapse the period given to the Commissioner non-mandatory, still the
of the two (2) year period from the date of filing of the VAT 1997 Tax Code, a much later law, reinstated the original intent
return for the taxable quarter, the taxpayer may appeal to and provision of Section 106(d) by extending the 60-day period
the Court of Tax Appeals. to 120 days and re-adopting the original wordings of
Section 106(d). Thus, Section 4.106-2(c), a mere
xxxx administrative issuance, becomes inconsistent with Section
112(D), a later law. Obviously, the later law prevails over a
prior inconsistent administrative issuance.
1997 Tax Code

Section 112(D) of the 1997 Tax Code is clear, unequivocal,

Section 112. Refunds or Tax Credits of Input Tax —
and categorical that the Commissioner has 120 days to act on
an administrative claim. The taxpayer can file the judicial claim
(A) x x x (1) only within thirty days after the Commissioner partially
or fully denies the claim within the 120- day period, or
xxxx (2) only within thirty days from the expiration of the 120-
day period if the Commissioner does not act within the 120-
day period.
There can be no dispute that upon effectivity of the 1997 Tax G.R. No. 193301 is a petition for review 1 assailing the
Code on 1 January 1998, or more than five years before San Decision2 promulgated on 10 March 2010 as well as the
Roque filed its administrative claim on 28 March 2003, the Resolution3 promulgated on 28 July 2010 by the Court of Tax
law has been clear: the 120- day period is mandatory and Appeals En Banc (CTA En Banc) in CTA EB No. 513. The CTA
jurisdictional. San Roque’s claim, having been filed En Banc affirmed the 22 September 2008 Decision 4 as well as
administratively on 28 March 2003, is governed by the 1997 the 26 June 2009 Amended Decision5 of the First Division of
Tax Code, not the 1977 Tax Code. Since San Roque filed its the Court of Tax Appeals (CTA First Division) in CTA Case
judicial claim before the expiration of the 120-day mandatory Nos. 7227, 7287, and 7317. The CTA First Division denied
and jurisdictional period, San Roque’s claim cannot prosper. Mindanao II Geothermal Partnership’s (Mindanao II) claims for
refund or tax credit for the first and second quarters of taxable
San Roque cannot also invoke Section 4.106-2(c), which year 2003 for being filed out of time (CTA Case Nos. 7227 and
expressly provides that the taxpayer can only file the judicial 7287). The CTA First Division, however, ordered the
claim "after" the lapse of the 60-day period from the filing of
the administrative claim. San Roque filed its judicial claim Commissioner of Internal Revenue (CIR) to refund or credit to
just 13 days after filing its administrative claim. To recall, Mindanao II unutilized input value-added tax (VAT) for the third
San Roque filed its judicial claim on 10 April 2003, a mere 13 and fourth quarters of taxable year 2003 (CTA Case No. 7317).
days after it filed its administrative claim.
G.R. No. 194637 is a petition for review 6 assailing the
Even if, contrary to all principles of statutory construction as Decision7 promulgated on 31 May 2010 as well as the
well as plain common sense, we gratuitously apply now Amended Decision8 promulgated on 24 November 2010 by the
Section 4.106-2(c) of Revenue Regulations No. 7-95, still San CTA En Banc in CTA EB Nos. 476 and 483. In its Amended
Roque cannot recover any refund or credit because San Decision, the CTA En Banc reversed its 31 May 2010 Decision
Roque did not wait for the 60-day period to lapse, contrary and granted the CIR’s petition for review in CTA Case No. 476.
to the express requirement in Section 4.106-2(c). In short, The CTA En Banc denied Mindanao I Geothermal
San Roque does not even comply with Section 4.106-2(c). A Partnership’s (Mindanao I) claims for refund or tax credit for
claim for tax refund or credit is strictly construed against the the first (CTA Case No. 7228), second (CTA Case No. 7286),
taxpayer, who must prove that his claim clearly complies with third, and fourth quarters (CTA Case No. 7318) of 2003.
all the conditions for granting the tax refund or credit. San
Roque did not comply with the express condition for such Both Mindanao I and II are partnerships registered with the
statutory grant. Securities and Exchange Commission, value added taxpayers
registered with the Bureau of Internal Revenue (BIR), and
A final word. Taxes are the lifeblood of the nation. The Block Power Production Facilities accredited by the
Philippines has been struggling to improve its tax efficiency Department of Energy. Republic Act No. 9136, or the Electric
collection for the longest time with minimal success. Power Industry Reform Act of 2000 (EPIRA), effectively
Consequently, the Philippines has suffered the economic amended Republic Act No. 8424, or the Tax Reform Act of
adversities arising from poor tax collections, forcing the 1997 (1997 Tax Code),9 when it decreed that sales of power by
government to continue borrowing to fund the budget deficits. generation companies shall be subjected to a zero rate of
This Court cannot turn a blind eye to this economic malaise by VAT.10 Pursuant to EPIRA, Mindanao I and II filed with the CIR
being unduly liberal to taxpayers who do not comply with claims for refund or tax credit of accumulated unutilized and/or
statutory requirements for tax refunds or credits. The tax excess input taxes due to VAT zero-rated sales in 2003.
refund claims in the present cases are not a pittance. Many Mindanao I and II filed their claims in 2005.
other companies stand to gain if this Court were to rule
otherwise. The dissenting opinions will turn on its head the G.R. No. 193301
well-settled doctrine that tax refunds are strictly construed Mindanao II v. CIR
against the taxpayer.
The Facts
WHEREFORE, the Court hereby (1) GRANTS the petition of
the Commissioner of Internal Revenue in G.R. No. 187485
to DENY the P483,797,599.65 tax refund or credit claim of San G.R. No. 193301 covers three CTA First Division cases, CTA
Roque Power Corporation; (2) GRANTS the petition of Case Nos. 7227, 7287, and 7317, which were consolidated as
Taganito Mining Corporation in G.R. No. 196113 for a tax CTA EB No. 513. CTA Case Nos. 7227, 7287, and 7317 claim
refund or credit of P8,365,664.38; and (3) DENIES the petition a tax refund or credit of Mindanao II’s alleged excess or
of Philex Mining Corporation in G.R. No. 197156 for a tax unutilized input taxes due to VAT zero-rated sales. In CTA
refund or credit of P23,956,732.44. Case No. 7227, Mindanao II claims a tax refund or credit of
₱3,160,984.69 for the first quarter of 2003. In CTA Case No.
7287, Mindanao II claims a tax refund or credit of
SO ORDERED. ₱1,562,085.33 for the second quarter of 2003. In CTA Case
No. 7317, Mindanao II claims a tax refund or credit of
4.8 ₱3,521,129.50 for the third and fourth quarters of 2003.

G.R. No. 193301               March 11, 2013 The CTA First Division’s narration of the pertinent facts is as
follows:
MINDANAO II GEOTHERMAL PARTNERSHIP, Petitioner,
vs. xxxx
COMMISSIONER OF INTERNAL REVENUE, Respondent.
On March 11, 1997, [Mindanao II] allegedly entered into a Built
x-----------------------x (sic)-Operate-Transfer (BOT) contract with the Philippine
National Oil Corporation – Energy Development Company
(PNOC-EDC) for finance, engineering, supply, installation,
G.R. No. 194637 testing, commissioning, operation, and maintenance of a 48.25
megawatt geothermal power plant, provided that PNOC-EDC
MINDANAO I GEOTHERMAL PARTNERSHIP, Petitioner, shall supply and deliver steam to Mindanao II at no cost. In
vs. turn, Mindanao II shall convert the steam into electric capacity
COMMISSIONER OF INTERNAL REVENUE, Respondent. and energy for PNOC-EDC and shall deliver the same to the
National Power Corporation (NPC) for and in behalf of PNOC-
DECISION EDC. Mindanao II alleges that its sale of generated power and
delivery of electric capacity and energy of Mindanao II to NPC
for and in behalf of PNOC-EDC is its only revenue-generating
CARPIO, J.: activity which is in the ambit of VAT zero-rated sales under the
EPIRA Law, x x x.
 xxxx 5. That the claim for refund was filed within the two-
year prescriptive period.13
Hence, the amendment of the NIRC of 1997 modified the VAT
rate applicable to sales of generated power by generation With respect to the fifth requirement, the CTA First Division
companies from ten (10%) percent to zero (0%) percent. tabulated the dates of filing of Mindanao II’s return as well as
its administrative and judicial claims, and concluded that
In the course of its operation, Mindanao II makes domestic Mindanao II’s administrative and judicial claims were timely
purchases of goods and services and accumulates therefrom filed in compliance with this Court’s ruling in Atlas Consolidated
creditable input taxes. Pursuant to the provisions of the Mining and Development Corporation v. Commissioner of
National Internal Revenue Code (NIRC), Mindanao II alleges Internal Revenue (Atlas).14 The CTA First Division declared
that it can use its accumulated input tax credits to offset its that the two-year prescriptive period for filing a VAT refund
output tax liability. Considering, however that its only revenue- claim should not be counted from the close of the quarter but
generating activity is VAT zero-rated under RA No. 9136, from the date of the filing of the VAT return. As ruled in Atlas,
Mindanao II’s input tax credits remain unutilized. VAT liability or entitlement to a refund can only be determined
upon the filing of the quarterly VAT return.
Thus, on the belief that its sales qualify for VAT zero-rating,
Mindanao II adopted the VAT zero-rating of the EPIRA in Period Date Filing
computing for its VAT payable when it filed its QuarterlyCase
VAT No. Covered
Returns on the following dates: (2003)
Original Amended Administrative Judicial Cla
Return Return Return
Case No. Period Covered Date of Filing
(2003)
1st Quarter 23 April 2003 1 April 2004 13 April 2005 22 April 20
Original Return Amended Return

2nd Quarter 22 July 2003 1 April 2004 13 April 2005 7 July 2005
1st Quarter April 23, 2003 July 3, 2002 (sic),
April 1, 2004 &
3rd Quarter
October 22, 2004 25 Oct. 2003 1 April 2004 13 April 2005 9 Sept. 200

2nd Quarter July 22, 2003 April 1, 2004 4th Quarter 26 Jan. 2004 1 April 2004 13 April 2005 9 Sept. 200

3rd Quarter Oct. 27, 2003 April 1, 2004

Thus, counting from 23 April 2003, 22 July 2003, 25 October
2003, and 26 January 2004, when Mindanao II filed its VAT
4th Quarter Jan. 26, 2004 April 1, 2204 returns, its administrative claim filed on 13 April 2005 and
judicial claims filed on 22 April 2005, 7 July 2005, and 9
September 2005 were timely filed in accordance with Atlas.

Considering that it has accumulated unutilized creditable input

The CTA First Division found that Mindanao II is entitled to a
taxes from its only income-generating activity, Mindanao II filed
refund in the modified amount of ₱7,703,957.79, after
an application for refund and/or issuance of tax credit
disallowing ₱522,059.91 from input VAT16 and deducting
certificate with the BIR’s Revenue District Office at Kidapawan
₱18,181.82 from Mindanao II’s sale of a fully depreciated
City on April 13, 2005 for the four quarters of 2003.
₱200,000.00 Nissan Patrol. The input taxes amounting to
₱522,059.91 were disallowed for failure to meet invoicing
To date (September 22, 2008), the application for refund by requirements, while the input VAT on the sale of the Nissan
Mindanao II remains unacted upon by the CIR. Hence, these Patrol was reduced by ₱18,181.82 because the output VAT for
three petitions filed on April 22, 2005 covering the 1st quarter the sale was not included in the VAT declarations.
of 2003; July 7, 2005 for the 2nd quarter of 2003; and
September 9, 2005 for the 3rd and 4th quarters of 2003. At the
The dispositive portion of the CTA First Division’s 22
instance of Mindanao II, these petitions were consolidated on
September 2008 Decision reads:
March 15, 2006 as they involve the same parties and the same
subject matter. The only difference lies with the taxable periods
involved in each petition.11 WHEREFORE, the Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, the CIR is hereby ORDERED to
REFUND or to ISSUE A TAX CREDIT CERTIFICATE in the
The Court of Tax Appeals’ Ruling: Division
modified amount of SEVEN MILLION SEVEN HUNDRED
THREE THOUSAND NINE HUNDRED FIFTY SEVEN AND
In its 22 September 2008 Decision,12 the CTA First Division 79/100 PESOS (₱7,703,957.79) representing its unutilized
found that Mindanao II satisfied the twin requirements for VAT input VAT for the four (4) quarters of the taxable year 2003.
zero rating under EPIRA: (1) it is a generation company, and
(2) it derived sales from power generation. The CTA First
SO ORDERED.17
Division also stated that Mindanao II complied with five
requirements to be entitled to a refund:
Mindanao II filed a motion for partial reconsideration.18 It stated
that the sale of the fully depreciated Nissan Patrol is a one-
1. There must be zero-rated or effectively zero-rated
time transaction and is not incidental to its VAT zero-rated
sales;
operations. Moreover, the disallowed input taxes substantially
complied with the requirements for refund or tax credit.
2. That input taxes were incurred or paid;
The CIR also filed a motion for partial reconsideration. It
3. That such input VAT payments are directly argued that the judicial claims for the first and second quarters
attributable to zero-rated sales or effectively zero- of 2003 were filed beyond the period allowed by law, as stated
rated sales; in Section 112(A) of the 1997 Tax Code. The CIR further
stated that Section 229 is a general provision, and governs
4. That the input VAT payments were not applied cases not covered by Section 112(A). The CIR countered the
against any output VAT liability; and CTA First Division’s 22 September 2008 decision by citing this
Court’s ruling in Commisioner of Internal Revenue v. Mirant
Pagbilao Corporation (Mirant),19 which stated that unutilized
input VAT payments must be claimed within two years
reckoned from the close of the taxable quarter when the two (2) years after the close of the taxable quarter
relevant sales were made regardless of whether said tax was when such sales were made.
paid.
2. The Supreme Court is the ultimate arbiter whose
The CTA First Division denied Mindanao II’s motion for partial decisions all other courts should take bearings.
reconsideration, found the CIR’s motion for partial
reconsideration partly meritorious, and rendered an Amended 3. The words of the law are clear, plain, and free from
Decision20 on 26 June 2009. The CTA First Division stated that ambiguity; hence, it must be given its literal meaning
the claim for refund or credit with the BIR and the subsequent and applied without any interpretation.27
appeal to the CTA must be filed within the two-year period
prescribed under Section 229. The two-year prescriptive period
in Section 229 was denominated as a mandatory statute of G.R. No. 194637
limitations. Therefore, Mindanao II’s claims for refund for the Mindanao I v. CIR
first and second quarters of 2003 had already prescribed.
The Facts
The CTA First Division found that the records of Mindanao II’s
case are bereft of evidence that the sale of the Nissan Patrol is G.R. No. 194637 covers two cases consolidated by the CTA
not incidental to Mindanao II’s VAT zero-rated operations. EB: CTA EB Case Nos. 476 and 483. Both CTA EB cases
Moreover, Mindanao II’s submitted documents failed to consolidate three cases from the CTA Second Division: CTA
substantiate the requisites for the refund or credit claims. Case Nos. 7228, 7286, and 7318. CTA Case Nos. 7228, 7286,
and 7318 claim a tax refund or credit of Mindanao I’s
The CTA First Division modified its 22 September 2008 accumulated unutilized and/or excess input taxes due to VAT
Decision to read as follows: zero-rated sales. In CTA Case No. 7228, Mindanao I claims a
tax refund or credit of ₱3,893,566.14 for the first quarter of
2003. In CTA Case No. 7286, Mindanao I claims a tax refund
WHEREFORE, the Petition for Review is hereby PARTIALLY or credit of ₱2,351,000.83 for the second quarter of 2003. In
GRANTED. Accordingly, the CIR is hereby ORDERED to CTA Case No. 7318, Mindanao I claims a tax refund or credit
REFUND or to ISSUE A TAX CREDIT CERTIFICATE to of ₱7,940,727.83 for the third and fourth quarters of 2003.
Mindanao II Geothermal Partnership in the modified amount of
TWO MILLION NINE HUNDRED EIGHTY THOUSAND EIGHT
HUNDRED EIGHTY SEVEN AND 77/100 PESOS Mindanao I is similarly situated as Mindanao II. The CTA
(₱2,980,887.77) representing its unutilized input VAT for the Second Division’s narration of the pertinent facts is as follows:
third and fourth quarters of the taxable year 2003.
xxxx
SO ORDERED. 21

In December 1994, Mindanao I entered into a contract of Build-

Mindanao II filed a Petition for Review,  docketed as CTA EB
22 Operate-Transfer (BOT) with the Philippine National Oil
No. 513, before the CTA En Banc. Corporation – Energy Development Corporation (PNOC-EDC)
for the finance, design, construction, testing, commissioning,
operation, maintenance and repair of a 47-megawatt
The Court of Tax Appeals’ Ruling: En Banc geothermal power plant. Under the said BOT contract, PNOC-
EDC shall supply and deliver steam to Mindanao I at no cost.
On 10 March 2010, the CTA En Banc rendered its Decision23 in In turn, Mindanao I will convert the steam into electric capacity
CTA EB No. 513 and denied Mindanao II’s petition. The CTA and energy for PNOC-EDC and shall subsequently supply and
En Banc ruled that (1) Section 112(A) clearly provides that the deliver the same to the National Power Corporation (NPC), for
reckoning of the two-year prescriptive period for filing the and in behalf of PNOC-EDC.
application for refund or credit of input VAT attributable to zero-
rated sales or effectively zero-rated sales shall be counted Mindanao I’s 47-megawatt geothermal power plant project has
from the close of the taxable quarter when the sales were been accredited by the Department of Energy (DOE) as a
made; (2) the Atlas and Mirant cases applied different tax Private Sector Generation Facility, pursuant to the provision of
codes: Atlas applied the 1977 Tax Code while Mirant applied Executive Order No. 215, wherein Certificate of Accreditation
the 1997 Tax Code; (3) the sale of the fully-depreciated Nissan No. 95-037 was issued.
Patrol is incidental to Mindanao II’s VAT zero-rated
transactions pursuant to Section 105; (4) Mindanao II failed to
comply with the substantiation requirements provided under On June 26, 2001, Republic Act (R.A.) No. 9136 took effect,
Section 113(A) in relation to Section 237 of the 1997 Tax Code and the relevant provisions of the National Internal Revenue
as implemented by Section 4.104-1, 4.104-5, and 4.108-1 of Code (NIRC) of 1997 were deemed modified. R.A. No. 9136,
Revenue Regulation No. 7-95; and (5) the doctrine of also known as the "Electric Power Industry Reform Act of 2001
strictissimi juris on tax exemptions cannot be relaxed in the (EPIRA), was enacted by Congress to ordain reforms in the
present case. electric power industry, highlighting, among others, the
importance of ensuring the reliability, security and affordability
of the supply of electric power to end users. Under the
The dispositive portion of the CTA En Banc’s 10 March 2010 provisions of this Republic Act and its implementing rules and
Decision reads: regulations, the delivery and supply of electric energy by
generation companies became VAT zero-rated, which
WHEREFORE, on the basis of the foregoing considerations, previously were subject to ten percent (10%) VAT.
the Petition for Review en banc is DISMISSED for lack of
merit. Accordingly, the Decision dated September 22, 2008 xxxx
and the Amended Decision dated June 26, 2009 issued by the
First Division are AFFIRMED.
The amendment of the NIRC of 1997 modified the VAT rate
applicable to sales of generated power by generation
SO ORDERED.24 companies from ten (10%) percent to zero percent (0%). Thus,
Mindanao I adopted the VAT zero-rating of the EPIRA in
The CTA En Banc issued a Resolution25 on 28 July 2010 computing for its VAT payable when it filed its VAT Returns, on
denying for lack of merit Mindanao II’s Motion for the belief that its sales qualify for VAT zero-rating.
Reconsideration.26 The CTA En Banc highlighted the following
bases of their previous ruling: Mindanao I reported its unutilized or excess creditable input
taxes in its Quarterly VAT Returns for the first, second, third,
1. The Supreme Court has long decided that the claim and fourth quarters of taxable year 2003, which were
for refund of unutilized input VAT must be filed within subsequently amended and filed with the BIR.
On April 4, 2005, Mindanao I filed with the BIR separate WHEREFORE, premises considered, the CIR’s Motion for
administrative claims for the issuance of tax credit certificate Partial Reconsideration and Mindanao I’s Motion for Partial
on its alleged unutilized or excess input taxes for taxable year Reconsideration with Motion for Clarification are hereby
2003, in the accumulated amount of ₱14,185, 294.80. DENIED for lack of merit.

Alleging inaction on the part of CIR, Mindanao I elevated its SO ORDERED.34

claims before this Court on April 22, 2005, July 7, 2005, and
September 9, 2005 docketed as CTA Case Nos. 7228, 7286, The Ruling of the Court of Tax Appeals: En Banc
and 7318, respectively. However, on October 10, 2005,
Mindanao I received a copy of the letter dated September 30,
2003 (sic) of the BIR denying its application for tax On 31 May 2010, the CTA En Banc rendered its Decision35 in
credit/refund.28 CTA EB Case Nos. 476 and 483 and denied the petitions filed
by the CIR and Mindanao I. The CTA En Banc found no new
matters which have not yet been considered and passed upon
The Court of Tax Appeals’ Ruling: Division by the CTA Second Division in its assailed decision and
resolution.
On 24 October 2008, the CTA Second Division rendered its
Decision29 in CTA Case Nos. 7228, 7286, and 7318. The CTA The dispositive portion of the CTA En Banc’s 31 May 2010
Second Division found that (1) pursuant to Section 112(A), Decision reads:
Mindanao I can only claim 90.27% of the amount of
substantiated excess input VAT because a portion was not
reported in its quarterly VAT returns; (2) out of the WHEREFORE, premises considered, the Petitions for Review
₱14,185,294.80 excess input VAT applied for refund, only are hereby DISMISSED for lack of merit. Accordingly, the
₱11,657,447.14 can be considered substantiated excess input October 24, 2008 Decision and March 10, 2009 Resolution of
VAT due to disallowances by the Independent Certified Public the CTA Former Second Division in CTA Case Nos. 7228,
Accountant, adjustment on the disallowances per the CTA 7286, and 7318, entitled "Mindanao I Geothermal Partnership
Second Division’s further verification, and additional vs. Commissioner of Internal Revenue" are hereby AFFIRMED
disallowances per the CTA Second Division’s further in toto.
verification;
SO ORDERED.36
(3) Mindanao I’s accumulated excess input VAT for the second
quarter of 2003 that was carried over to the third quarter of Both the CIR and Mindanao I filed Motions for Reconsideration
2003 is net of the claimed input VAT for the first quarter of of the CTA En Banc’s 31 May 2010 Decision. In an Amended
2003, and the same procedure was done for the second, third, Decision promulgated on 24 November 2010, the CTA En
and fourth quarters of 2003; and (4) Mindanao I’s Banc agreed with the CIR’s claim that Section 229 of the NIRC
administrative claims were filed within the two-year prescriptive of 1997 is inapplicable in light of this Court’s ruling in Mirant.
period reckoned from the respective dates of filing of the The CTA En Banc also ruled that the procedure prescribed
quarterly VAT returns. under Section 112(D) now 112(C)37 of the 1997 Tax Code
should be followed first before the CTA En Banc can act on
The dispositive portion of the CTA Second Division’s 24 Mindanao I’s claim. The CTA En Banc reconsidered its 31 May
October 2008 Decision reads: 2010 Decision in light of this Court’s ruling in Commissioner of
Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi).38
WHEREFORE, premises considered, the consolidated
Petitions for Review are hereby PARTIALLY GRANTED.
Accordingly, the CIR is hereby ORDERED TO ISSUE A TAX The pertinent portions of the CTA En Banc’s 24 November
CREDIT CERTIFICATE in favor of Mindanao I in the reduced 2010 Amended Decision read:
amount of TEN MILLION FIVE HUNDRED TWENTY THREE
THOUSAND ONE HUNDRED SEVENTY SEVEN PESOS C.T.A. Case No. 7228:
AND 53/100 (₱10,523,177.53) representing Mindanao I’s
unutilized input VAT for the four quarters of the taxable year (1) For calendar year 2003, Mindanao I filed with the
2003. BIR its Quarterly VAT Returns for the First Quarter of
2003. Pursuant to Section 112(A) of the NIRC of
SO ORDERED.30 1997, as amended, Mindanao I has two years from
March 31, 2003 or until March 31, 2005 within which
Mindanao I filed a motion for partial reconsideration with to file its administrative claim for refund;
motion for Clarification31 on 11 November 2008. It claimed that
the CTA Second Division should not have allocated (2) On April 4, 2005, Mindanao I applied for an
proportionately Mindanao I’s unutilized creditable input taxes administrative claim for refund of unutilized input VAT
for the taxable year 2003, because the proportionate allocation for the first quarter of taxable year 2003 with the BIR,
of the amount of creditable taxes in Section 112(A) applies which is beyond the two-year prescriptive period
only when the creditable input taxes due cannot be directly and mentioned above.
entirely attributed to any of the zero-rated or effectively zero-
rated sales. Mindanao I claims that its unreported collection is C.T.A. Case No. 7286:
directly attributable to its VAT zero-rated sales. The CTA
Second Division denied Mindanao I’s motion and maintained
the proportionate allocation because there was a portion of the (1) For calendar year 2003, Mindanao I filed with the
gross receipts that was undeclared in Mindanao I’s gross BIR its Quarterly VAT Returns for the second quarter
receipts. of 2003. Pursuant to

The CIR also filed a motion for partial reconsideration 32 on 11 Section 112(A) of the NIRC of 1997, as amended,
November 2008. It claimed that Mindanao I failed to exhaust Mindanao I has two years from June 30, 2003, within
administrative remedies before it filed its petition for review. which to file its administrative claim for refund for the
The CTA Second Division denied the CIR’s motion, and cited second quarter of 2003, or until June 30, 2005;
Atlas33 as the basis for ruling that it is more practical and
reasonable to count the two-year prescriptive period for filing a (2) On April 4, 2005, Mindanao I applied an
claim for refund or credit of input VAT on zero-rated sales from administrative claim for refund of unutilized input VAT
the date of filing of the return and payment of the tax due. for the second quarter of taxable year 2003 with the
BIR, which is within the two-year prescriptive period,
The dispositive portion of the CTA Second Division’s 10 March provided under Section 112 (A) of the NIRC of 1997,
2009 Resolution reads: as amended;
 (3) The CIR has 120 days from April 4, 2005 (3) C.T.A. Case No. 7318
(presumably the date Mindanao I submitted the
supporting documents together with the application Petition for Review was filed beyond the 30-day
for refund) or until August 2, 2005, to decide the prescribed period to appeal to the CTA.
administrative claim for refund;
xxxx
(4) Within 30 days from the lapse of the 120-day
period or from August 3, 2005 to September 1, 2005,
Mindanao I should have elevated its claim for refund IN VIEW OF THE FOREGOING, the Commissioner of Internal
to the CTA in Division; Revenue’s Motion for Reconsideration is hereby GRANTED;
Mindanao I’s Motion for Partial Reconsideration is hereby
DENIED for lack of merit.
(5) However, on July 7, 2005, Mindanao I filed its
Petition for Review with this Court, docketed as CTA
Case No. 7286, even before the 120-day period for The May 31, 2010 Decision of this Court En Banc is hereby
the CIR to decide the claim for refund had lapsed on REVERSED.
August 2, 2005. The Petition for Review was,
therefore, prematurely filed and there was failure to Accordingly, the Petition for Review of the Commissioner of
exhaust administrative remedies; Internal Revenue in CTA EB No. 476 is hereby GRANTED and
the entire claim of Mindanao I Geothermal Partnership for the
xxxx first, second, third and fourth quarters of 2003 is hereby
DENIED.
C.T.A. Case No. 7318:
SO ORDERED.39
(1) For calendar year 2003, Mindanao I filed with the
BIR its Quarterly VAT Returns for the third and fourth The Issues
quarters of 2003. Pursuant to Section 112(A) of the
NIRC of 1997, as amended, Mindanao I therefore, G.R. No. 193301
has two years from September 30, 2003 and Mindanao II v. CIR
December 31, 2003, or until September 30, 2005 and Mindanao II raised the following grounds in its Petition for
December 31, 2005, respectively, within which to file Review:
its administrative claim for the third and fourth
quarters of 2003; I. The Honorable Court of Tax Appeals erred in
holding that the claim of Mindanao II for the 1st and
(2) On April 4, 2005, Mindanao I applied an 2nd quarters of year 2003 has already prescribed
administrative claim for refund of unutilized input VAT pursuant to the Mirant case.
for the third and fourth quarters of taxable year 2003
with the BIR, which is well within the two-year A. The Atlas case and Mirant case have
prescriptive period, provided under Section 112(A) of conflicting interpretations of the law as to the
the NIRC of 1997, as amended; reckoning date of the two year prescriptive
period for filing claims for VAT refund.
(3) From April 4, 2005, which is also presumably the
date Mindanao I submitted supporting documents, B. The Atlas case was not and cannot be
together with the aforesaid application for refund, the superseded by the Mirant case in light of
CIR has 120 days or until August 2, 2005, to decide Section 4(3), Article VIII of the 1987
the claim; Constitution.

(4) Within thirty (30) days from the lapse of the 120- C. The ruling of the Mirant case, which uses
day period or from August 3, 2005 until September 1, the close of the taxable quarter when the
2005 Mindanao I should have elevated its claim for sales were made as the reckoning date in
refund to the CTA; counting the two-year prescriptive period
cannot be applied retroactively in the case of
(5) However, Mindanao I filed its Petition for Review Mindanao II.
with the CTA in Division only on September 9, 2005,
which is 8 days beyond the 30-day period to appeal to II. The Honorable Court of Tax Appeals erred in
the CTA. interpreting Section 105 of the 1997 Tax Code, as
amended in that the sale of the fully depreciated
Evidently, the Petition for Review was filed way beyond the 30- Nissan Patrol is a one-time transaction and is not
day prescribed period. Thus, the Petition for Review should incidental to the VAT zero-rated operation of
have been dismissed for being filed late. Mindanao II.

In recapitulation: III. The Honorable Court of Tax Appeals erred in

denying the amount disallowed by the Independent
(1) C.T.A. Case No. 7228 Certified Public Accountant as Mindanao II
substantially complied with the requisites of the 1997
Tax Code, as amended, for refund/tax credit.
Claim for the first quarter of 2003 had already
prescribed for having been filed beyond the two-year
prescriptive period; A. The amount of ₱2,090.16 was brought
about by the timing difference in the
recording of the foreign currency deposit
(2) C.T.A. Case No. 7286 transaction.

Claim for the second quarter of 2003 should be B. The amount of ₱2,752.00 arose from the
dismissed for Mindanao I’s failure to comply with a out-of-pocket expenses reimbursed to SGV
condition precedent when it failed to exhaust & Company which is substantially
administrative remedies by filing its Petition for suppoerted [sic] by an official receipt.
Review even before the lapse of the 120-day period
for the CIR to decide the administrative claim;
C. The amount of ₱487,355.93 was
unapplied and/or was not included in
 Mindanao II’s claim for refund or tax credit under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)
for the year 2004 subject matter of CTA (1) and (2), the acceptable foreign currency exchange
Case No. 7507. proceeds thereof had been duly accounted for in accordance
with the rules and regulations of the Bangko Sentral ng
IV. The doctrine of strictissimi juris on tax exemptions Pilipinas (BSP): Provided, further, That where the taxpayer is
should be relaxed in the present case.40 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
G.R. No. 194637 directly and entirely attributed to any one of the transactions, it
Mindanao I v. CIR shall be allocated proportionately on the basis of the volume of
sales.
Mindanao I raised the following grounds in its Petition for
Review: xxxx

I. The administrative claim and judicial claim in CTA (D) Period within which Refund or Tax Credit of Input Taxes
Case No. 7228 were timely filed pursuant to the case shall be Made. - In proper cases, the Commissioner shall grant
of Atlas Consolidated Mining and Development a refund or issue the tax credit certificate for creditable input
Corporation vs. Commissioner of Internal Revenue, taxes within one hundred twenty (120) days from the date of
which was then the controlling ruling at the time of submission of complete documents in support of the
filing. application filed in accordance with Subsections (A) and (B)
hereof.
A. The recent ruling in the Commissioner of
Internal Revenue vs. Mirant Pagbilao In case of full or partial denial of the claim for tax refund or tax
Corporation, which uses the end of the credit, or the failure on the part of the Commissioner to act on
taxable quarter when the sales were made the application within the period prescribed above, the
as the reckoning date in counting the two- taxpayer affected may, within thirty (30) days from the receipt
year prescriptive period, cannot be applied of the decision denying the claim or after the expiration of the
retroactively in the case of Mindanao I. one hundred twenty day-period, appeal the decision or the
unacted claim with the Court of Tax Appeals.
B. The Atlas case promulgated by the Third
Division of this Honorable Court on June 8, x x x x 43 (Underscoring supplied)
2007 was not and cannot be superseded by
the Mirant Pagbilao case promulgated by the
Second Division of this Honorable Court on The relevant dates for G.R. No. 193301 (Mindanao II) are:
September 12, 2008 in light of the explicit
provision of Section 4(3), Article VIII of the
Period Close of Last day Actual date of Last day for
1987 Constitution.
covered by quarter for filing filing filing case
VAT Sales in when sales application application for with CTA45
II. Likewise, the recent ruling of this Honorable Court
2003 and were of tax tax refund/
in Commissioner of Internal Revenue vs. Aichi
Forging Company of Asia, Inc., cannot be applied amount made refund/tax credit with the
retroactively to Mindanao I in the present case. 41 credit CIR
certificate (administrative
In a Resolution dated 14 December 2011,  this Court resolved
42 with the claim)44
to consolidate G.R. Nos. 193301 and 194637 to avoid CIR
conflicting rulings in related cases.
1st Quarter, 31 March 31 March 13 April 2005 12 September
The Court’s Ruling
₱3,160,984.69 2003 2005 2005

Determination of Prescriptive Period

2nd Quarter, 30 June 30 June 13 April 2005 12 September
G.R. Nos. 193301 and 194637 both raise the question of the ₱1,562,085.33 2003 2005 2005
determination of the prescriptive period, or the interpretation of
Section 112 of the 1997 Tax Code, in light of our rulings in
Atlas and Mirant. 3rd and 4th 30 30 13 April 2005 12 September
Quarters, September September 2005
₱3,521,129.50 2003 2005
Mindanao II’s unutilized input VAT tax credit for the first and
second quarters of 2003, in the amounts of ₱3,160,984.69 and
₱1,562,085.33, respectively, are covered by G.R. No. 193301, 31 2 January
while Mindanao I’s unutilized input VAT tax credit for the first,
December 2006
second, third, and fourth quarters of 2003, in the amounts of
₱3,893,566.14, ₱2,351,000.83, and ₱7,940,727.83, 2003 (31
respectively, are covered by G.R. No. 194637. December
2005 being
Section 112 of the 1997 Tax Code a Saturday)

The pertinent sections of the 1997 Tax Code, the law

applicable at the time of Mindanao II’s and Mindanao I’s The relevant dates for G.R. No. 194637 (Minadanao I) are:
administrative and judicial claims, provide:

SEC. 112. Refunds or Tax Credits of Input Tax. -(A) Zero-rated Close of Last day Actual date of Last day for A
covered
or Effectively Zero-rated Sales. - Any VAT-registered person, by quarter for filing filing filing case o
whose sales are zero-rated or effectively zero-ratedVAT may, Sales in when sales application application for with CTA47 w
within two (2) years after the close of the taxable quarter2003
when and were of tax tax refund/ (j
the sales were made, apply for the issuance of a tax credit made refund/tax credit with the c
certificate or refund of creditable input tax due or paid credit CIR
attributable to such sales, except transitional input tax, to the
certificate (administrative
extent that such input tax has not been applied against output
tax: Provided, however, That in the case of zero-rated sales with the claim)46
 CIR law itself authorizes their validity." San Roque’s void petition for
review cannot be legitimized by the CTA or this Court because
Article 5 of the Civil Code states that such void petition cannot
Quarter, 31 March 31 March 4 April 2005 1 September be legitimized "except when the law itself authorizes its
3,566.14 2003 2005 2005 validity." There is no law authorizing the petition’s validity.

It is hornbook doctrine that a person committing a void act

Quarter, 30 June 30 June 4 April 2005 1 September contrary to a mandatory provision of law cannot claim or
1,000.83 2003 2005 2005 acquire any right from his void act. A right cannot spring in
favor of a person from his own void or illegal act. This doctrine
is repeated in Article 2254 of the Civil Code, which states, "No
30 30 4 April 2005 1 September vested or acquired right can arise from acts or omissions which
4th September September 2005 are against the law or which infringe upon the rights of others."
ers, 2003 2005 For violating a mandatory provision of law in filing its petition
0,727.83 with the CTA, San Roque cannot claim any right arising from
such void petition. Thus, San Roque’s petition with the CTA is
31 2 January a mere scrap of paper.
December 2006
2003 (31 This Court cannot brush aside the grave issue of the
December mandatory and jurisdictional nature of the 120-day period just
2005 being because the Commissioner merely asserts that the case was
a Saturday) prematurely filed with the CTA and does not question the
entitlement of San Roque to the refund. The mere fact that a
taxpayer has undisputed excess input VAT, or that the tax was
admittedly illegally, erroneously or excessively collected from
When Mindanao II and Mindanao I filed their respective him, does not entitle him as a matter of right to a tax refund or
administrative and judicial claims in 2005, neither Atlas nor credit. Strict compliance with the mandatory and jurisdictional
Mirant has been promulgated. Atlas was promulgated on 8 conditions prescribed by law to claim such tax refund or credit
June 2007, while Mirant was promulgated on 12 September is essential and necessary for such claim to prosper. Well-
2008. It is therefore misleading to state that Atlas was the settled is the rule that tax refunds or credits, just like tax
controlling doctrine at the time of filing of the claims. The 1997 exemptions, are strictly construed against the taxpayer.
Tax Code, which took effect on 1 January 1998, was the
applicable law at the time of filing of the claims in issue. As this The burden is on the taxpayer to show that he has strictly
Court explained in the recent consolidated cases of complied with the conditions for the grant of the tax refund or
Commissioner of Internal Revenue v. San Roque Power credit.
Corporation, Taganito Mining Corporation v. Commissioner of
Internal Revenue, and Philex Mining Corporation v.
This Court cannot disregard mandatory and jurisdictional
Commissioner of Internal Revenue (San Roque):48
conditions mandated by law simply because the Commissioner
chose not to contest the numerical correctness of the claim for
Clearly, San Roque failed to comply with the 120-day waiting tax refund or credit of the taxpayer. Non-compliance with
period, the time expressly given by law to the Commissioner to mandatory periods, non-observance of prescriptive periods,
decide whether to grant or deny San Roque’s application for and non-adherence to exhaustion of administrative remedies
tax refund or credit. It is indisputable that compliance with the bar a taxpayer’s claim for tax refund or credit, whether or not
120-day waiting period is mandatory and jurisdictional. The the Commissioner questions the numerical correctness of the
waiting period, originally fixed at 60 days only, was part of the claim of the taxpayer. This Court should not establish the
provisions of the first VAT law, Executive Order No. 273, which precedent that non-compliance with mandatory and
took effect on 1 January 1988. The waiting period was jurisdictional conditions can be excused if the claim is
extended to 120 days effective 1 January 1998 under RA 8424 otherwise meritorious, particularly in claims for tax refunds or
or the Tax Reform Act of 1997. Thus, the waiting period has credit. Such precedent will render meaningless compliance
been in our statute books for more than fifteen (15) years with mandatory and jurisdictional requirements, for then every
before San Roque filed its judicial claim. tax refund case will have to be decided on the numerical
correctness of the amounts claimed, regardless of non-
Failure to comply with the 120-day waiting period violates a compliance with mandatory and jurisdictional conditions.
mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition San Roque cannot also claim being misled, misguided or
premature and thus without a cause of action, with the effect confused by the Atlas doctrine because San Roque filed its
that the CTA does not acquire jurisdiction over the taxpayer’s petition for review with the CTA more than four years before
petition. Philippine jurisprudence is replete with cases Atlas was promulgated. The Atlas doctrine did not exist at the
upholding and reiterating these doctrinal principles. time San Roque failed to comply with the 120-day period.
Thus, San Roque cannot invoke the Atlas doctrine as an
The charter of the CTA expressly provides that its jurisdiction is excuse for its failure to wait for the 120-day period to lapse. In
to review on appeal "decisions of the Commissioner of Internal any event, the Atlas doctrine merely stated that the two-year
Revenue in cases involving x x x refunds of internal revenue prescriptive period should be counted from the date of
taxes." When a taxpayer prematurely files a judicial claim for payment of the output VAT, not from the close of the taxable
tax refund or credit with the CTA without waiting for the quarter when the sales involving the input VAT were made.
decision of the Commissioner, there is no "decision" of the The Atlas doctrine does not interpret, expressly or impliedly,
Commissioner to review and thus the CTA as a court of special the 120+30 day periods.49 (Emphases in the original; citations
jurisdiction has no jurisdiction over the appeal. The charter of omitted)
the CTA also expressly provides that if the Commissioner fails
to decide within "a specific period" required by law, such Prescriptive Period for
"inaction shall be deemed a denial" of the application for tax the Filing of Administrative Claims
refund or credit. It is the Commissioner’s decision, or inaction
"deemed a denial," that the taxpayer can take to the CTA for
In determining whether the administrative claims of Mindanao I
review. Without a decision or an "inaction x x x deemed a
and Mindanao II for 2003 have prescribed, we see no need to
denial" of the Commissioner, the CTA has no jurisdiction over
rely on either Atlas or Mirant. Section 112(A) of the 1997 Tax
a petition for review.
Code is clear: "Any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years
San Roque’s failure to comply with the 120-day mandatory after the close of the taxable quarter when the sales were
period renders its petition for review with the CTA void. Article made, apply for the issuance of a tax credit certificate or refund
5 of the Civil Code provides, "Acts executed against provisions of creditable input tax due or paid attributable to such sales x x
of mandatory or prohibitory laws shall be void, except when the x."
We rule on Mindanao I and II’s administrative claims for the x x x the taxpayer affected may, within thirty (30) days from the
first, second, third, and fourth quarters of 2003 as follows: receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or
(1) The last day for filing an application for tax refund the unacted claim with the Court of Tax Appeals. (Emphasis
or credit with the CIR for the first quarter of 2003 was supplied)
on 31 March 2005. Mindanao II filed its administrative
claim before the CIR on 13 April 2005, while This law is clear, plain, and unequivocal. Following the well-
Mindanao I filed its administrative claim before the settled verba legis doctrine, this law should be applied exactly
CIR on 4 April 2005. Both claims have prescribed, as worded since it is clear, plain, and unequivocal. As this law
pursuant to Section 112(A) of the 1997 Tax Code. states, the taxpayer may, if he wishes, appeal the decision of
the Commissioner to the CTA within 30 days from receipt of
(2) The last day for filing an application for tax refund the Commissioner’s decision, or if the Commissioner does not
or credit with the CIR for the second quarter of 2003 act on the taxpayer’s claim within the 120-day period, the
was on 30 June 2005. Mindanao II filed its taxpayer may appeal to the CTA within 30 days from the
administrative claim before the CIR on 13 April 2005, expiration of the 120-day period.
while Mindanao I filed its administrative claim before
the CIR on 4 April 2005. Both claims were filed on xxxx
time, pursuant to Section 112(A) of the 1997 Tax
Code. There are three compelling reasons why the 30-day period
need not necessarily fall within the two-year prescriptive
(3) The last day for filing an application for tax refund period, as long as the administrative claim is filed within the
or credit with the CIR for the third quarter of 2003 was two-year prescriptive period.
on 30 September 2005. Mindanao II filed its
administrative claim before the CIR on 13 April 2005, First, Section 112(A) clearly, plainly, and unequivocally
while Mindanao I filed its administrative claim before provides that the taxpayer "may, within two (2) years after the
the CIR on 4 April 2005. Both claims were filed on close of the taxable quarter when the sales were made, apply
time, pursuant to Section 112(A) of the 1997 Tax for the issuance of a tax credit certificate or refund of the
Code. creditable input tax due or paid to such sales." In short, the law
states that the taxpayer may apply with the Commissioner for a
(4) The last day for filing an application for tax refund refund or credit "within two (2) years," which means at anytime
or credit with the CIR for the fourth quarter of 2003 within two years. Thus, the application for refund or credit may
was on 2 January 2006. Mindanao II filed its be filed by the taxpayer with the Commissioner on the last day
administrative claim before the CIR on 13 April 2005, of the two-year prescriptive period and it will still strictly comply
while Mindanao I filed its administrative claim before with the law. The two-year prescriptive period is a grace period
the CIR on 4 April 2005. Both claims were filed on in favor of the taxpayer and he can avail of the full period
time, pursuant to Section 112(A) of the 1997 Tax before his right to apply for a tax refund or credit is barred by
Code. prescription.

Prescriptive Period for Second, Section 112(C) provides that the Commissioner shall
the Filing of Judicial Claims decide the application for refund or credit "within one hundred
twenty (120) days from the date of submission of complete
In determining whether the claims for the second, third and documents in support of the application filed in accordance
fourth quarters of 2003 have been properly appealed, we still with Subsection (A)." The reference in Section 112(C) of the
see no need to refer to either Atlas or Mirant, or even to submission of documents "in support of the application filed in
Section 229 of the 1997 Tax Code. The second paragraph of accordance with Subsection A" means that the application in
Section 112(C) of the 1997 Tax Code is clear: "In case of full or Section 112(A) is the administrative claim that the
partial denial of the claim for tax refund or tax credit, or the Commissioner must decide within the 120-day period. In short,
failure on the part of the Commissioner to act on the the two-year prescriptive period in Section 112(A) refers to the
application within the period prescribed above, the taxpayer period within which the taxpayer can file an administrative
affected may, within thirty (30) days from the receipt of the claim for tax refund or credit. Stated otherwise, the two-year
decision denying the claim or after the expiration of the one prescriptive period does not refer to the filing of the judicial
hundred twenty day-period, appeal the decision or the unacted claim with the CTA but to the filing of the administrative claim
claim with the Court of Tax Appeals." with the Commissioner. As held in Aichi, the "phrase ‘within
two years x x x apply for the issuance of a tax credit or refund’
refers to applications for refund/credit with the CIR and not to
The mandatory and jurisdictional nature of the 120+30 day appeals made to the CTA."
periods was explained in San Roque:
Third, if the 30-day period, or any part of it, is required to fall
At the time San Roque filed its petition for review with the CTA, within the two-year prescriptive period (equivalent to 730
the 120+30 day mandatory periods were already in the law. days), then the taxpayer must file his administrative claim for
Section 112(C) expressly grants the Commissioner 120 days refund or credit within the first 610 days of the two-year
within which to decide the taxpayer’s claim. The law is clear, prescriptive period. Otherwise, the filing of the administrative
plain, and unequivocal: "x x x the Commissioner shall grant a claim beyond the first 610 days will result in the appeal to the
refund or issue the tax credit certificate for creditable input CTA being filed beyond the two-year prescriptive period. Thus,
taxes within one hundred twenty (120) days from the date of if the taxpayer files his administrative claim on the 611th day,
submission of complete documents." Following the verba legis the Commissioner, with his 120-day period, will have until the
doctrine, this law must be applied exactly as worded since it is 731st day to decide the claim. If the Commissioner decides
clear, plain, and unequivocal. The taxpayer cannot simply file a only on the 731st day, or does not decide at all, the taxpayer
petition with the CTA without waiting for the Commissioner’s can no longer file his judicial claim with the CTA because the
decision within the 120-day mandatory and jurisdictional two-year prescriptive period (equivalent to 730 days) has
period. The CTA will have no jurisdiction because there will be lapsed. The 30-day period granted by law to the taxpayer to file
no "decision" or "deemed a denial" decision of the an appeal before the CTA becomes utterly useless, even if the
Commissioner for the CTA to review. In San Roque’s case, it taxpayer complied with the law by filing his administrative claim
filed its petition with the CTA a mere 13 days after it filed its within the two-year prescriptive period.
administrative claim with the Commissioner. Indisputably, San
Roque knowingly violated the mandatory 120-day period, and it
cannot blame anyone but itself. The theory that the 30-day period must fall within the two-year
prescriptive period adds a condition that is not found in the law.
It results in truncating 120 days from the 730 days that the law
Section 112(C) also expressly grants the taxpayer a 30-day grants the taxpayer for filing his administrative claim with the
period to appeal to the CTA the decision or inaction of the Commissioner. This Court cannot interpret a law to defeat,
Commissioner, thus:
wholly or even partly, a remedy that the law expressly grants in (1) Mindanao I filed its judicial claim for the second
clear, plain, and unequivocal language. quarter of 2003 before the CTA on 7 July 2005,
before the expiration of the 120-day period. Pursuant
Section 112(A) and (C) must be interpreted according to its to Section 112(C) of the 1997 Tax Code, Mindanao I’s
clear, plain, and unequivocal language. The taxpayer can file judicial claim for the second quarter of 2003 was
his administrative claim for refund or credit at anytime within prematurely filed. However, pursuant to San Roque’s
the two-year prescriptive period. If he files his claim on the last recognition of the effect of BIR Ruling No. DA-489-03,
day of the two-year prescriptive we rule that Mindanao I’s judicial claim for the second
quarter of 2003 qualifies under the exception to the
strict application of the 120+30 day periods.
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 (2) Mindanao I filed its judicial claim for the third
decide it on that day, the taxpayer still has 30 days to file his quarter of 2003 before the CTA on 9 September
judicial claim with the CTA. This is not only the plain meaning 2005. Mindanao I’s judicial claim for the third quarter
but also the only logical interpretation of Section 112(A) and of 2003 was thus filed after the prescriptive period,
(C).50 (Emphases in the original; citations omitted) pursuant to Section 112(C) of the 1997 Tax Code.

In San Roque, this Court ruled that "all taxpayers can rely on (3) Mindanao I filed its judicial claim for the fourth
BIR Ruling No. DA-489-03 from the time of its issuance on 10 quarter of 2003 before the CTA on 9 September
December 2003 up to its reversal in Aichi on 6 October 2010, 2005. Mindanao I’s judicial claim for the fourth quarter
where this Court held that the 120+30 day periods are of 2003 was thus filed after the prescriptive period,
mandatory and jurisdictional."51 We shall discuss later the pursuant to Section 112(C) of the 1997 Tax Code.
effect of San Roque’s recognition of BIR Ruling No. DA-489-03
on claims filed between 10 December 2003 and 6 October San Roque: Recognition of BIR Ruling No. DA-489-03
2010. Mindanao I and II filed their claims within this period.
In the consolidated cases of San Roque, the Court En
We rule on Mindanao I and II’s judicial claims for the second, Banc53 examined and ruled on the different claims for tax
third, and fourth quarters of 2003 as follows: refund or credit of three different companies. In San Roque, we
reiterated that "following the verba legis doctrine, Section
G.R. No. 193301 112(C) must be applied exactly as worded since it is clear,
Mindanao II v. CIR plain, and unequivocal. The taxpayer cannot simply file a
petition with the CTA without waiting for the Commissioner’s
decision within the 120-day mandatory and jurisdictional
Mindanao II filed its administrative claims for the second, third, period. The CTA will have no jurisdiction because there will be
and fourth quarters of 2003 on 13 April 2005. Counting 120 no ‘decision’ or ‘deemed a denial decision’ of the
days after filing of the administrative claim with the CIR (11 Commissioner for the CTA to review."
August 2005) and 30 days after the CIR’s denial by inaction,
the last day for filing a judicial claim with the CTA for the
second, third, and fourth quarters of 2003 was on 12 Notwithstanding a strict construction of any claim for tax
September 2005. However, the judicial claim cannot be filed exemption or refund, the Court in San Roque recognized that
earlier than 11 August 2005, which is the expiration of the 120- BIR Ruling No. DA-489-03 constitutes equitable estoppel54 in
day period for the Commissioner to act on the claim. favor of taxpayers. BIR Ruling No. DA-489-03 expressly states
that the "taxpayer-claimant need not wait for the lapse of the
120-day period before it could seek judicial relief with the CTA
(1) Mindanao II filed its judicial claim for the second by way of Petition for Review." This Court discussed BIR
quarter of 2003 before the CTA on 7 July 2005, Ruling No. DA-489-03 and its effect on taxpayers, thus:
before the expiration of the 120-day period. Pursuant
to Section 112(C) of the 1997 Tax Code, Mindanao
II’s judicial claim for the second quarter of 2003 was Taxpayers should not be prejudiced by an erroneous
prematurely filed. 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
However, pursuant to San Roque’s recognition of the periods for input VAT tax refund or credit is a difficult question
effect of BIR Ruling No. DA-489-03, we rule that of law. The abandonment of the Atlas doctrine did not result in
Mindanao II’s judicial claim for the second quarter of Atlas, or other taxpayers similarly situated, being made to
2003 qualifies under the exception to the strict return the tax refund or credit they received or could have
application of the 120+30 day periods. received under Atlas prior to its abandonment. This Court is
applying Mirant and Aichi prospectively. Absent fraud, bad faith
(2) Mindanao II filed its judicial claim for the third or misrepresentation, the reversal by this Court of a general
quarter of 2003 before the CTA on 9 September interpretative rule issued by the Commissioner, like the
2005. Mindanao II’s judicial claim for the third quarter reversal of a specific BIR ruling under Section 246, should also
of 2003 was thus filed on time, pursuant to Section apply prospectively. x x x.
112(C) of the 1997 Tax Code.
xxxx
(3) Mindanao II filed its judicial claim for the fourth
quarter of 2003 before the CTA on 9 September Thus, the only issue is whether BIR Ruling No. DA-489-03 is a
2005. Mindanao II’s judicial claim for the fourth general interpretative rule applicable to all taxpayers or a
quarter of 2003 was thus filed on time, pursuant to specific ruling applicable only to a particular taxpayer.
Section 112(C) of the 1997 Tax Code.
BIR Ruling No. DA-489-03 is a general interpretative rule
G.R. No. 194637 because it was a response to a query made, not by a particular
Mindanao I v. CIR taxpayer, but by a government agency tasked with processing
tax refunds and credits, that is, the One Stop Shop Inter-
Mindanao I filed its administrative claims for the second, third, Agency Tax Credit and Drawback Center of the Department of
and fourth quarters of 2003 on 4 April 2005. Counting 120 days Finance. This government agency is also the addressee, or the
after filing of the administrative claim with the CIR (2 August entity responded to, in BIR Ruling No. DA-489-03. Thus, while
2005) and 30 days after the CIR’s denial by inaction,52 the last this government agency mentions in its query to the
day for filing a judicial claim with the CTA for the second, third, Commissioner the administrative claim of Lazi Bay Resources
and fourth quarters of 2003 was on 1 September 2005. Development, Inc., the agency was in fact asking the
However, the judicial claim cannot be filed earlier than 2 Commissioner what to do in cases like the tax claim of Lazi
August 2005, which is the expiration of the 120-day period for Bay Resources Development, Inc., where the taxpayer did not
the Commissioner to act on the claim. wait for the lapse of the 120-day period.
 Clearly, BIR Ruling No. DA-489-03 is a general interpretative input VAT as provided in Section 112 of the 1997 Tax Code, as
rule. Thus, all taxpayers can rely on BIR Ruling No. DA-489-03 follows:
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 (1) An administrative claim must be filed with the CIR
Court held that the 120+30 day periods are mandatory and within two years after the close of the taxable quarter
jurisdictional. when the zero-rated or effectively zero-rated sales
were made.
xxxx
(2) The CIR has 120 days from the date of
Taganito, however, filed its judicial claim with the CTA on 14 submission of complete documents in support of the
February 2007, after the issuance of BIR Ruling No. DA-489- administrative claim within which to decide whether to
03 on 10 December 2003. Truly, Taganito can claim that in grant a refund or issue a tax credit certificate. The
filing its judicial claim prematurely without waiting for the 120- 120-day period may extend beyond the two-year
day period to expire, it was misled by BIR Ruling No. DA-489- period from the filing of the administrative claim if the
03. Thus, Taganito can claim the benefit of BIR Ruling No. DA- claim is filed in the later part of the two-year period. If
489-03, which shields the filing of its judicial claim from the vice the 120-day period expires without any decision from
of prematurity. (Emphasis in the original) the CIR, then the administrative claim may be
considered to be denied by inaction.
Summary of Administrative and Judicial Claims
(3) A judicial claim must be filed with the CTA within
G.R. No. 193301 30 days from the receipt of the CIR’s decision denying
Mindanao II v. CIR the administrative claim or from the expiration of the
120-day period without any action from the CIR.

Administrative Judicial Claim Action on Claim (4) All taxpayers, however, can rely on BIR Ruling No.
Claim 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
003 Filed late -- Deny, pursuant to
mandatory and jurisdictional 120+30 day periods.
Section 112(A) of the
1997 Tax Code "Incidental" Transaction

003 Filed on time Prematurely filed Grant, Mindanao II asserts

pursuant to that the sale of a fully depreciated Nissan
Patrol is not an incidental transaction in the course of its
BIR Ruling No. DA-489-03
business; hence, it is an isolated transaction that should not
have been subject to 10% VAT.
003 Filed on time Filed on time Grant, pursuant to
Section 112(C) Sectionof 105theof the 1997 Tax Code does not support Mindanao
1997 Tax Code II’s position:

SEC. 105. Persons Liable. - Any person who, in the course of

003 Filed on time Filed on time Grant, pursuant to
trade or business, sells barters, exchanges, leases goods or
Section 112(C) properties,
of the
renders services, and any person who imports
1997 Tax Code goods shall be subject to the value-added tax (VAT) imposed
in Sections 106 to 108 of this Code.

G.R. No. 194637 The value-added tax is an indirect tax and the amount of tax
Mindanao I v. CIR may be shifted or passed on to the buyer, transferee or lessee
of the goods, properties or services. This rule shall likewise
apply to existing contracts of sale or lease of goods, properties
Administrative Judicial Claim Action on Claim or services at the time of the effectivity of Republic Act No.
Claim 7716.

The phrase "in the course of trade or business" means the

003 Filed late -- Deny, pursuant to or pursuit of a commercial or an economic
regular conduct
Section 112(A) activity,
of including
the transactions incidental thereto, by any person
1997 Tax Code regardless of whether or not the person engaged therein is a
nonstock, nonprofit private organization (irrespective of the
disposition of its net income and whether or not it sells
003 Filed on time Prematurely filed Grant, pursuant
exclusively totomembers or their guests), or government entity.
BIR Ruling No. DA-489-03
The rule of regularity, to the contrary notwithstanding, services
as defined in this Code rendered in the Philippines by
003 Filed on time Filed late Grant, pursuant to
nonresident foreign persons shall be considered as being
Section 112(C) rendered
of the
in the course of trade or business. (Emphasis
1997 Tax Code supplied)

003 Filed on time Filed late Grant, Mindanao II to

pursuant relies on Commissioner of Internal Revenue v.
Section 112(C) Magsaysay
of Lines,
the Inc. (Magsaysay)55 and Imperial v. Collector
of Internal Revenue (Imperial)56 to justify its position.
1997 Tax Code
Magsaysay, decided under the NIRC of 1986, involved the sale
of vessels of the National Development Company (NDC) to
Magsaysay Lines, Inc. We ruled that the sale of vessels was
Summary of Rules on Prescriptive Periods Involving VAT not in the course of NDC’s trade or business as it was
involuntary and made pursuant to the Government’s policy for
privatization. Magsaysay, in quoting from the CTA’s decision,
We summarize the rules on the determination of the imputed upon Imperial the definition of "carrying on business."
prescriptive period for filing a tax refund or credit of unutilized Imperial, however, is an unreported case that merely stated
that "‘to engage’ is to embark in a business or to employ Petitioner Coca-Cola Bottlers Philippines, Inc. is a corporation
oneself therein."57 engaged in the business of manufacturing and selling
beverages and maintains a sales office located in the City of
Mindanao II’s sale of the Nissan Patrol is said to be an isolated Manila.
transaction.1âwphi1 However, it does not follow that an
isolated transaction cannot be an incidental transaction for On 25 February 2000, the City Mayor of Manila approved Tax
purposes of VAT liability. Indeed, a reading of Section 105 of Ordinance No. 7988, otherwise known as "Revised Revenue
the 1997 Tax Code would show that a transaction "in the Code of the City of Manila" repealing Tax Ordinance No. 7794
course of trade or business" includes "transactions incidental entitled, "Revenue Code of the City of Manila." Tax Ordinance
thereto." No. 7988 amended certain sections of Tax Ordinance No.
7794 by increasing the tax rates applicable to certain
Mindanao II’s business is to convert the steam supplied to it by establishments operating within the territorial jurisdiction of the
PNOC-EDC into electricity and to deliver the electricity to NPC. City of Manila, including herein petitioner.
In the course of its business, Mindanao II bought and
eventually sold a Nissan Patrol. Prior to the sale, the Nissan Aggrieved by said tax ordinance, petitioner filed a
Patrol was part of Mindanao II’s property, plant, and Petition3 before the Department of Justice (DOJ), against the
equipment. Therefore, the sale of the Nissan Patrol is an City of Manila and its Sangguniang Panlungsod, invoking
incidental transaction made in the course of Mindanao II’s Section 1874 of the Local Government Code of 1991 (Republic
business which should be liable for VAT. Act No. 7160). Said Petition questions the constitutionality or
legality of Section 21 of Tax Ordinance No. 7988. According to
Substantiation Requirements petitioner:

Mindanao II claims that the CTA’s disallowance of a total Section 21 of the Old Revenue Code of the City of Manila
amount of ₱492,198.09 is improper as it has substantially (Ordinance No. 7794, as amended) was reproduced verbatim
complied with the substantiation requirements of Section as Section 21 under the new Ordinance except for the last
113(A)58 in relation to Section 23759 of the 1997 Tax Code, as paragraph thereof which reads: "PROVIDED, that all registered
implemented by Section 4.104-1, 4.104-5 and 4.108-1 of businesses in the City of Manila that are already paying the
Revenue Regulation No. 7-95.60 aforementioned tax shall be exempted from payment thereof",
which was deleted; that said deletion would, in effect, impose
additional business tax on businesses, including herein
We are constrained to state that Mindanao II’s compliance with petitioner, that are already subject to business tax under the
the substantiation requirements is a finding of fact. The CTA other sections, specifically Sec. 14, of the New Revenue Code
En Banc evaluated the records of the case and found that the of the City of Manila, which imposition, petitioner claims, "is
transactions in question are purchases for services and that beyond or exceeds the limitation on the taxing power of the
Mindanao II failed to comply with the substantiation City of Manila under Sec. 143 (h) of the LGC of 1991; and that
requirements. We affirm the CTA En Banc’s finding of fact, deletion is a palpable and manifest violation of the Local
which in turn affirmed the finding of the CTA First Division. We Government Code of 1991, and the clear mandate of Article X,
see no reason to overturn their findings. Sec. 5 of the 1987 Constitution, hence Section 21 is "illegal
and unconstitutional."
WHEREFORE, we PARTIALLY GRANT the petitions. The
Decision of the Court of Tax Appeals En Bane in CT A EB No. On 17 August 2000, then DOJ Secretary Artemio G. Tuquero
513 promulgated on 10 March 2010, as well as the Resolution issued a Resolution declaring Tax Ordinance No. 7988 null
promulgated on 28 July 2010, and the Decision of the Court of and void and without legal effect, the pertinent portions of
Tax Appeals En Bane in CTA EB Nos. 476 and 483 which read:
promulgated on 31 May 2010, as well as the Amended
Decision promulgated on 24 November 2010, are AFFIRMED
with MODIFICATION. After a judicious scrutiny of the records of this case, in the light
of the pertinent provisions of the Local Government Code of
1991, this Department finds for the petitioner.
For G.R. No. 193301, the claim of Mindanao II Geothermal
Partnership for the first quarter of 2003 is DENIED while its
claims for the second, third, and fourth quarters of 2003 are The Local Government Code of 1991 provides:
GRANTED. For G.R. No. 19463 7, the claims of Mindanao I
Geothermal Partnership for the first, third, and fourth quarters "Section 188. Publication of Tax Ordinances and Revenue
of 2003 are DENIED while its claim for the second quarter of Measures. – Within ten (10) days after their approval, certified
2003 is GRANTED. true copies of all provincial, city and municipal tax ordinances
or revenue measures shall be published in full for three (3)
SO ORDERED. consecutive days in a newspaper of local circulation; Provided,
however, that in provinces, cities, and municipalities where
there are no newspapers or local circulations the same may be
5.1 posted in at least two (2) conspicuous and publicly accessible
places." (R.A. No. 7160) (stress supplied)
G.R. No. 156252             June 27, 2006
Upon the other hand, the Rules and Regulations Implementing
COCA-COLA BOTTLERS PHILIPPINES, INC., Petitioner, the Local Government Code of 1991, insofar as pertinent,
vs. mandates:
CITY OF MANILA, LIBERTY M. TOLEDO – City Treasurer
and JOSEPH SANTIAGO – Chief, Licensing "Art. 277. Publication of Tax Ordinances and Revenue
Division, Respondents. Measures. – (a) within ten (10) days after their approval,
certified true copies of all provincial, city and municipal tax
DECISION ordinances or revenue measures shall be published in full for
three (3) consecutive days in a newspaper of local
circulation provided that in provinces, cities and municipalities
CHICO-NAZARIO, J.: where there are no newspapers of local circulation, the same
may be posted in at least two (2) conspicuous and publicly
Before Us is a Petition for Review on Certiorari under Rule 45 accessible places.
of the 1997 Rules of Civil Procedure, assailing the Order1 of
the Regional Trial Court (RTC) of Manila, Branch 21, dated 8 If the tax ordinances or revenue measure contains penal
May 2002, dismissing petitioner’s Petition for Injunction, and provisions as authorized under Art. 279 of this Rule, the gist of
the Order2 dated 5 December 2002, denying petitioner’s such tax ordinance or revenue measure shall be published in a
Motion for Reconsideration. newspaper of general circulation within the province, posting of
such ordinance or measure shall be made in accessible and Ordinance No. 7988, inviting attention to Section 190 of the
conspicuous public places in all municipalities and cities of the Local Government Code (LGC) of 1991, quoted hereunder:
province to which the sanggunian enacting the ordinance or
revenue measure belongs. "Section 190. Attempt to Enforce Void or Suspended Tax
Ordinances and Revenue Measures.- The enforcement of any
xxx xxx xxx." tax ordinance or revenue measures after due notice of the
disapproval or suspension thereof shall be sufficient ground to
(emphasis ours) administrative disciplinary action against the local officials and
employees responsible therefore."
It is clear from the above-quoted provisions of R.A. No. 7160
and its implementing rules that the requirement of publication Be guided accordingly.6
is MANDATORY and leaves no choice. The use of the word
"shall" in both provisions is imperative, operating to impose a Despite the Resolution of the DOJ declaring Tax Ordinance
duty that may be enforced (Soco v. Militante, 123 SCRA 160, No. 7988 null and void and the directive of the BLGF that
167; Modern Coach Corp. v. Faver 173 SE 2d 497, 499). respondents cease and desist from enforcing said tax
ordinance, respondents continued to assess petitioner
Its essence is simply to inform the people and the entities who business tax for the year 2001 based on the tax rates
may likely be affected, of the existence of the tax measure. It prescribed under Tax Ordinance No. 7988. Thus, petitioner
bears emphasis, that, strict observance of the said procedural filed a Complaint with the RTC of Manila, Branch 21, on 17
requirement is the only safeguard against any unjust and January 2001, praying that respondents be enjoined from
unreasonable exercise of the taxing powers by ensuring that implementing the aforementioned tax ordinance.
the taxpayers are notified through publication of the existence
of the measure, and are therefore able to voice out their views On 28 November 2001, the RTC of Manila, Branch 21,
or objections to the said measure. For, after all, taxes are rendered a Decision in favor of petitioner, the decretal portion
obligatory exactions or enforced contributions corollary to of which states:
taking of property.
The defendants did not follow the procedure in the enactment
xxxx of Tax Ordinance No. 7988. The Court agrees with plaintiff’s
contention that the ordinance should first be published for three
In the case at bar, respondents, by its failure to file their (3) consecutive days in a newspaper of local circulation aside
comments and present documentary evidence to show that the from the posting of the same in at least four (4) conspicuous
mandatory requirement of law on publication, among other public places.
things, has been met, may be deemed to have waived its right
to controvert or dispute the documentary evidence submitted xxxx
by petitioner which indubitably show that subject tax ordinance
was published only once, i.e., on the May 22, 2000 issue of the WHEREFORE, premises considered, judgment is hereby
Philippine Post. Clearly, therefore, herein respondents failed to rendered declaring the injunction permanent. Defendants are
satisfy the requirement that said ordinance shall be published enjoined from implementing Tax Ordinance No. 7988. The
for three (3) consecutive days as required by law. bond posted by the plaintiff is hereby CANCELLED.7

xxxx During the pendency of the said case, the City Mayor of Manila
approved on 22 February 2001 Tax Ordinance No. 8011
In view of the foregoing, we find it unnecessary to pass upon entitled, "An Ordinance Amending Certain Sections of
the other issues raised by the petitioner. Ordinance No. 7988." Said tax ordinance was again
challenged by petitioner before the DOJ through a Petition
WHEREFORE, premises considered, Tax Ordinance No. 7988 questioning the legality of the aforementioned tax ordinance on
of the City of Manila is hereby declared NULL and VOID and the grounds that (1) said tax ordinance amends a tax
WITHOUT LEGAL EFFECT for having been enacted in ordinance previously declared null and void and without legal
contravention of the provisions of the Local Government Code effect by the DOJ; and (2) said tax ordinance was likewise not
of 1991 and its implementing rules and regulations.5 published upon its approval in accordance with Section 188 of
the Local Government Code of 1991.
The City of Manila failed to file a Motion for Reconsideration
nor lodge an appeal of said Resolution, thus, said Resolution On 5 July 2001, then DOJ Secretary Hernando Perez issued a
of the DOJ Secretary declaring Tax Ordinance No. 7988 null Resolution declaring Tax Ordinance No. 8011 null and void
and void has lapsed into finality. and legally not existing. According to the DOJ Secretary:

On 16 November 2000, Atty. Leonardo A. Aurelio wrote the After a careful examination/evaluation of the records of this
Bureau of Local Government Finance (BLGF) requesting in case and applying the pertinent provisions of the Local
behalf of his client, Singer Sewing Machine Company, an Government Code of 1991, this Department finds the instant
opinion on whether the Office of the City Treasurer of Manila petition of Coca-Cola Bottlers, Philippines, Inc. meritorious.
has the right to enforce Tax Ordinance No. 7988 despite the
Resolution, dated 17 August 2000, of the DOJ Secretary. It bears stress, at the outset, that the subject ordinance was
Acting on said letter, the BLGF Executive Director issued an passed and approved by the respondents principally to amend
Indorsement on 20 November 2000 ordering the City Treasurer Ordinance No. 7988 which was earlier nullified by this
of Manila to "cease and desist" from enforcing Tax Ordinance Department in its Resolution Dated August 17, 2000, also at
No. 7988. According to the BLGF: the instance of the herein petitioner. x x x

In the attached Resolution dated August 17, 2000 of the xxxx

Department of Justice, it is stated that "x x x Ordinance No.
7988 of the City of Manila is hereby declared NULL AND VOID x x x [T]he only logical conclusion, therefore, is that Ordinance
AND WITHOUT LEGAL EFFECT for having been enacted in No. 8011, subject herein, is also null and void, it being a mere
contravention of the provisions of the Local Government Code amendatory ordinance of Ordinance No. 7988 which, as earlier
of 1991 and its implementing rules and regulations." stated, had been nullified by this Department. An invalid or
unconstitutional law or ordinance does not, in legal
xxxx contemplation, exist (Manila Motors Co., Inc. vs. Flores, 99
Phil. 738). Where a statute which has been amended is invalid,
In view thereof, that Office is hereby instructed to cease and nothing, in effect, has been amended. As held in People vs.
desist from implementing the aforementioned Manila Tax Lim, 108 Phil. 1091:
"If an order or law sought to be amended is invalid, then it does Considering that Ordinance No. 7988 (Amended Revenue
not legally exist. There would be no occasion or need to Code of the City of Manila) has already been amended by
amend it; x x x" (at p. 1097) Ordinance No. 8011 entitled "An Ordinance Amending Certain
Sections of Ordinance No. 7988" approved by the City Mayor
Instead of amending Ordinance No. 7988, herein respondent of Manila on February 22, 2001, let the above-entitled case be
should have enacted another tax measure which strictly as it is hereby DISMISSED. Without pronouncement as to
complies with the requirements of law, both procedural and costs."10
substantive. The passage of the assailed ordinance did not
have the effect of curing the defects of Ordinance No. 7988 Petitioner’s Motion for Reconsideration of the abovequoted
which, any way, does not legally exist. Order was denied by the trial court in the second challenged
Order, dated 5 December 2002; hence the instant Petition.
xxxx
The case at bar revolves around the sole pivotal issue of
WHEREFORE, premises considered, Tax Ordinance No. 8011 whether or not Tax Ordinance No. 7988 is null and void and of
is hereby declared NULL and VOID and LEGALLY NOT no legal effect. However, respondents, in their Comment and
EXISTING.8 Memorandum, raise the procedural issue of whether or not the
instant Petition has complied with the requirements of the 1997
Rules on Civil Procedure; thus, the Court resolves to first pass
Respondent’s Motion for Reconsideration of the Resolution of upon this issue before tackling the substantial matters involved
the DOJ was subsequently denied in a Resolution,9 dated 12 in this case.
March 2002.
Respondents insist that the instant Petition raises questions of
The City of Manila appealed the DOJ Resolution, dated 12 fact that are proscribed under Rule 45 of the 1997 Rules of
March 2002, denying its Motion for Reconsideration of the Civil Procedure which states that Petitions for Certiorari before
Resolution nullifying Tax Ordinance No. 8011 before the RTC the Supreme Court shall raise only questions of law. We do not
of Manila, Branch 17, but the same was dismissed for lack of agree. There is a question of fact when doubt or controversy
jurisdiction in an Order, dated 2 December 2002. According to arises as to the truth or falsity of the alleged facts, when there
the trial court: is no dispute as to fact, the question of whether or not the
conclusion drawn therefrom is correct is a question of law.11 A
From whatever angle the recourse of herein petitioners was thorough reading of the Petition will reveal that petitioner does
viewed, either from the standpoint of Section 1, Rule 43, or not present an issue in which we are called to rule on the truth
Section 1 and the last sentence of the second paragraph of or falsity of any fact alleged in the case. Furthermore, the
Section 4, Rule 65 of the 1997 Rules of Civil Procedure, the resolution of whether or not the court a quo erred in dismissing
conclusion was inevitable that petitioners’ remedial measure petitioner’s case in light of the enactment of Tax Ordinance No.
from dispositions of the Secretary of Justice should have been 8011, allegedly amending Tax Ordinance No. 7988, does not
ventilated before the next judicial plane. x x x necessitate an incursion into the facts attending the case.

Accordingly, by reason of the foregoing premises, Civil Case Contrarily, it is respondents who actually raise questions of fact
No. 02-103372 for "Certiorari" is DISMISSED. before us. While accusing petitioner of raising questions of
fact, respondents, in the same breath, proceeded to allege that
Consequently, respondents appealed the foregoing Order, the RTC of Manila, Branch 21, in its Decision, dated 28
dated 2 December 2002, via a Petition for Review on Certiorari November 2001, failed to take into account the evidence
to the Supreme Court docketed as G.R. No. 157490. However, presented by respondents allegedly proving that Tax
said appeal was dismissed in our Resolution, dated 23 June Ordinance No. 7988 was published for four times in a
2003, the dispositive of which reads: newspaper of general circulation in accordance with the
requirements of law. A determination of whether or not the trial
court erred in concluding that Tax Ordinance No. 7988 was
Pursuant to Rule 45 and other related provisions of the 1997 indeed published for four times in a newspaper of general
Rules of Civil Procedure as amended governing appeals by circulation would clearly involve a calibration of the probative
certiorari to the Supreme Court, only petitions which are value of the evidence presented by respondents to prove such
accompanied by or which comply strictly with the requirements allegation. Therefore, said issue is a question of fact which this
specified therein shall be entertained. On the basis thereof, the Court, not being a trier of facts, will decline to pass upon.
Court resolves to DENY the instant petition for review on
certiorari of the orders of the Regional Trial Court, Manila,
Branch 17 dated December 2, 2002 and March 7, 2003 for the Respondents also point out that the Petition was not properly
late filing as the petition was filed beyond the reglementary verified and certified because Nelson Empalmado, the Vice
period of fifteen (15) days fixed in Sec. 2, Rule 45 in relation to President for Tax and Financial Services of Coca-Cola Bottlers
Sec. 5(a), Rule 56. Philippines, Inc. who verified the subject Petition was not duly
authorized to file said Petition. Respondents assert that
nowhere in the attached Secretary’s Certificate can it be found
The omnibus motion of petitioners for reconsideration of the the authority of Nelson Empalmado to institute the instant
resolution of April 23, 2003 which denied the motion for an Petition. Thus, there being a lack of proper verification,
extension of time to file a petition is DENIED for lack of merit. respondents contend that the Petition must be treated as a
mere scrap of paper, which has no legal effect as declared in
Respondents’ Motion for Reconsideration was subsequently Section 4, Rule 7 of the 1997 Rules of Civil Procedure.
denied in a Resolution, dated 11 August 2003, in which the
Court resolved as follows: An inspection of the Secretary’s Certificate attached to the
petition will show that Nelson Empalmado is not among those
Acting on the motion of petitioners for reconsideration of the designated as representative to prosecute claims in behalf of
resolution of June 23, 2003 which denied the petition for review Coca-Cola Bottlers Philippines, Inc. However, it would seem
on certiorari and considering that there is no compelling reason that the authority of Mr. Empalmado to file the instant Petition
to warrant a modification of this Court’s resolution, the Court emanated from a Special Power of Attorney signed by Ramon
resolves to DENY reconsideration with FINALITY. V. Lapez, Jr., Associate Legal Counsel/Assistant Corporate
Secretary of Coca-Cola Bottlers Philippines, Inc. and one of
those named in the Secretary’s Certificate as authorized to file
Meanwhile, on the basis of the enactment of Tax Ordinance
a Petition in behalf of the corporation. A careful perusal of said
No. 8011, the City of Manila filed a Motion for Reconsideration
Secretary’s Certificate will further reveal that the persons
with the RTC of Manila, Branch 21, of its Decision, dated 28
authorized therein to represent petitioner corporation in any
November 2001, which the court a quo granted in the herein
suit are also empowered to designate and appoint any
assailed Order dated 8 May 2002, the full text of which reads:
individual as attorney-in-fact of the corporation for the
prosecution of any suit. Accordingly, by virtue of the Special
Power of Attorney executed by Ramon V. Lapez, Jr.
authorizing Nelson Emplamado to file a Petition before the RESOLUTION
Supreme Court, the instant Petition has been properly verified,
in accordance with the 1997 Rules of Civil Procedure. MENDOZA, J.:

Having disposed of the procedural issues raised by Petitioner seeks a reconsideration of the decision of the
respondents, We now come to the pivotal issue in this petition. Second Division in this case. Because the decision bears
directly on issues involved in other cases brought by petitioner
It is undisputed from the facts of the case that Tax Ordinance before other Divisions of the Court, the motion for
No. 7988 has already been declared by the DOJ Secretary, in reconsideration was referred to the Court en banc for
its Order, dated 17 August 2000, as null and void and without resolution.1 The parties were heard in oral arguments by the
legal effect due to respondents’ failure to satisfy the Court en banc on January 21, 2003 and were later granted
requirement that said ordinance be published for three time to submit their memoranda. Upon the filing of the last
consecutive days as required by law. Neither is there quibbling memorandum by the City of Davao on February 10, 2003, the
on the fact that the said Order of the DOJ was never appealed motion was deemed submitted for resolution.
by the City of Manila, thus, it had attained finality after the
lapse of the period to appeal. To provide perspective, it will be helpful to restate the basic
facts.
Furthermore, the RTC of Manila, Branch 21, in its Decision
dated 28 November 2001, reiterated the findings of the DOJ Petitioner PLDT paid a franchise tax equal to three percent
Secretary that respondents failed to follow the procedure in the (3%) of its gross receipts. The franchise tax was paid "in lieu of
enactment of tax measures as mandated by Section 188 of the all taxes on this franchise or earnings thereof" pursuant to R.A.
Local Government Code of 1991, in that they failed to publish No. 7082 amending its charter, Act. No. 3436. The exemption
Tax Ordinance No. 7988 for three consecutive days in a from "all taxes on this franchise or earnings thereof" was
newspaper of local circulation. From the foregoing, it is evident subsequently withdrawn by R.A. No. 7160 (Local Government
that Tax Ordinance No. 7988 is null and void as said ordinance Code of 1991), which at the same time gave local government
was published only for one day in the 22 May 2000 issue of the units the power to tax businesses enjoying a franchise on the
Philippine Post in contravention of the unmistakable directive basis of income received or earned by them within their
of the Local Government Code of 1991. territorial jurisdiction. The Local Government Code (LGC) took
effect on January 1, 1992.
Despite the nullity of Tax Ordinance No. 7988, the court a quo,
in the assailed Order, dated 8 May 2002, went on to dismiss The pertinent provisions of the LGC state:
petitioner’s case on the force of the enactment of Tax
Ordinance No. 8011, amending Tax Ordinance No. 7988.
Significantly, said amending ordinance was likewise declared Sec. 137. Franchise Tax. — Notwithstanding any
null and void by the DOJ Secretary in a Resolution, dated 5 exemption granted by any law or other special law,
July 2001, elucidating that "[I]nstead of amending Ordinance the province may impose a tax on businesses
No. 7988, [herein] respondent should have enacted another enjoying a franchise, at a rate not exceeding fifty
tax measure which strictly complies with the requirements of percent (50%) of one percent (1%) of the gross
law, both procedural and substantive. The passage of the annual receipts for the preceding calendar year based
assailed ordinance did not have the effect of curing the defects on the incoming receipt, or realized, within its
of Ordinance No. 7988 which, any way, does not legally exist." territorial jurisdiction. . . .
Said Resolution of the DOJ Secretary had, as well, attained
finality by virtue of the dismissal with finality by this Court of Sec. 193. Withdrawal of Tax Exemption Privileges. —
respondents’ Petition for Review on Certiorari in G.R. No. Unless otherwise provided in this Code, tax
157490 assailing the dismissal by the RTC of Manila, Branch exemptions or incentives granted to, or presently
17, of its appeal due to lack of jurisdiction in its Order, dated 11 enjoyed by all persons, whether natural or juridical,
August 2003. including government-owned or -controlled
corporations, except local water districts, cooperatives
Based on the foregoing, this Court must reverse the Order of duly registered under R.A. No. 6938, non-stock and
the RTC of Manila, Branch 21, dismissing petitioner’s case as non-profit hospitals and educational institutions, are
there is no basis in law for such dismissal. The amending law, hereby withdrawn upon the effectivity of this Code.
having been declared as null and void, in legal contemplation,
therefore, does not exist. Furthermore, even if Tax Ordinance Pursuant to these provisions, the City of Davao enacted
No. 8011 was not declared null and void, the trial court should Ordinance No. 519, Series of 1992, which in pertinent part
not have dismissed the case on the reason that said tax provides:
ordinance had already amended Tax Ordinance No. 7988. As
held by this Court in the case of People v. Lim, 12 if an order or Notwithstanding any exemption granted by any law or
law sought to be amended is invalid, then it does not legally other special law, there is hereby imposed a tax on
exist, there should be no occasion or need to amend it.13 businesses enjoying a franchise, at a rate of Seventy-
five percent (75%) of one percent (1%) of the gross
WHEREFORE, premises considered, the instant Petition is annual receipts for the preceding calendar year based
hereby GRANTED. The Orders of the RTC of Manila, Branch on the income or receipts realized within the territorial
21, dated 8 May 2002 and 5 December 2002, respectively, are jurisdiction of Davao City.
hereby REVERSED and SET ASIDE.
Subsequently, Congress granted in favor of Globe Mackay
SO ORDERED. Cable and Radio Corp. (Globe)2 and Smart Information
Technologies, Inc. (Smart)3 franchises which contained "in lieu
of all taxes" provisos. In 1995, it enacted R.A. No. 7925 (Public
5.2
Telecommunications Policy of the Philippines), § 23 of which
provides that "Any advantage, favor, privilege, exemption, or
5.3 immunity granted under existing franchises, or may hereafter
be granted, shall ipso facto become part of previously granted
G.R. No. 143867            March 25, 2003 telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such
franchises." The law took effect on March 16, 1995.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
INC., petitioner,
vs. In January 1999, when PLDT applied for a mayor’s permit to
CITY OF DAVAO and ADELAIDA B. BARCELONA, in her operate its Davao Metro Exchange, it was required to pay the
capacity as the City Treasurer of Davao, respondents. local franchise tax for the first to the fourth quarter of 1999
which then had amounted to P3,681,985.72. PLDT challenged
the power of the city government to collect the local franchise Inc.,5 Isla Cellular Communications, Inc.,6 and Islatel
tax and demanded a refund of what it had paid as local Corporation.7
franchise tax for the year 1997 and for the first to the third
quarters of 1998. For this reason, it filed a petition in the We shall now turn to the other points raised in the motion for
Regional Trial Court of Davao. However, its petition was reconsideration of PLDT.
dismissed and its claim for exemption under R.A. No. 7925
was denied. The trial court ruled that the LGC had withdrawn
tax exemptions previously enjoyed by persons and entities and First. Petitioner contends that the legislative intent to promote
authorized local government units to impose a tax on the development of the telecommunications industry is evident
businesses enjoying franchises within their territorial in the use of words as "development," "growth," and "financial
jurisdictions, notwithstanding the grant of tax exemption to viability," and that the way to achieve this purpose is to grant
them. Petitioner, therefore, brought this appeal. tax exemption or exclusion to franchises belonging in this
industry. Furthermore, by using the words "advantage," "favor,"
"privilege," "exemption," and "immunity" and the terms "ipso
In its decision of August 22, 2001, this Court, through its facto," "immediately," and "unconditionally," Congress intended
Second Division, held that R.A. No. 7925, § 23 cannot be so to automatically extend whatever tax exemption or tax
interpreted as granting petitioner exemption from local taxes exclusion has been granted to the holder of a franchise
because the word "exemption," taking into consideration the enacted after the LGC to the holder of a franchise enacted
context of the law, does not mean "tax exemption." Hence this prior thereto, such as PLDT.
motion for reconsideration.
The contention is untenable. The thrust of the law is to promote
The question is whether, by virtue of R.A. No. 7925, § 23, the gradual deregulation of entry, pricing, and operations of all
PLDT is again entitled to exemption from the payment of local public telecommunications entities and thus to level the playing
franchise tax in view of the grant of tax exemption to Globe and field in the telecommunications industry. An intent to grant tax
Smart. exemption cannot even be discerned from the law. The records
of Congress are bereft of any discussion or even mention of
Petitioner contends that because their existing franchises tax exemption. To the contrary, what the Chairman of the
contain "in lieu of all taxes" clauses, the same grant of tax Committee on Transportation, Rep. Jerome V. Paras,
exemption must be deemed to have become ipso facto part of mentioned in his sponsorship of H.B. No. 14028, which
its previously granted telecommunications franchise. But the became R.A. No. 7925, were "equal access clauses" in
rule is that tax exemptions should be granted only by clear and interconnection agreements, not tax exemptions. He said:
unequivocal provision of law "expressed in a language too
plain to be mistaken."4 If, as PLDT contends, the word There is also a need to promote a level playing field in
"exemption" in R.A. No. 7925 means "tax exemption" and the telecommunications industry. New entities must
assuming for the nonce that the charters of Globe and of Smart be granted protection against dominant carriers
grant tax exemptions, then this runabout way of granting tax through the encouragement of equitable access
exemption to PLDT is not a direct, "clear and unequivocal" way charges and equal access clauses in interconnection
of communicating the legislative intent. agreements and the strict policing of predatory pricing
by dominant carriers. Equal access should be granted
But the best refutation of PLDT’s claim that R.A. No. 7925, § to all operators connecting into the interexchange
23 grants tax exemption is the fact that after its enactment on network. There should be no discrimination against
March 16, 1995, Congress granted several franchises any carrier in terms of priorities and/or quality of
containing both an "equality clause" similar to § 23 and an "in service.8
lieu of all taxes" clause. If the equality clause automatically
extends the tax exemption of franchises with "in lieu of all Nor does the term "exemption" in § 23 of R.A. No. 7925 mean
taxes" clauses, there would be no need in the same statute for tax exemption. The term refers to exemption from certain
the "in lieu of all taxes" clause in order to extend its tax regulations and requirements imposed by the National
exemption to other franchises not containing such clause. For Telecommunications Commission (NTC). For instance, R.A.
example, the franchise of Island Country Telecommunications, No. 7925, § 17 provides: "The Commission shall exempt any
Inc., granted under R.A. No. 7939 and which took effect on specific telecommunications service from its rate or tariff
March 22, 1995, contains the following provisions: regulations if the service has sufficient competition to ensure
fair and reasonable rates or tariffs." Another exemption granted
Sec. 8. Equality Clause. — If any subsequent by the law in line with its policy of deregulation is the
franchise for telecommunications service is awarded exemption from the requirement of securing permits from the
or granted by the Congress of the Philippines with NTC every time a telecommunications company imports
terms, privileges and conditions more favorable and equipment.9
beneficial than those contained in this Act, then the
same privileges or advantages shall ipso facto accrue Second. PLDT says that the policy of the law is to promote
to the herein grantee and be deemed part of this Act. healthy competition in the telecommunications
industry.10 According to PLDT, the LGC did not repeal the "in
Sec. 10. Tax Provisions. — The grantee shall be lieu of all taxes" provision in its franchise but only excluded
liable to pay the same taxes on their real estate, from it local taxes, such as the local franchise tax. However,
buildings and personal property exclusive of this some franchises, like those of Globe and Smart, which contain
franchise, as other persons or telecommunications "in lieu of all taxes" provisions were subsequently granted by
entities are now or hereafter may be required by law Congress, with the result that the holders of franchises granted
to pay. In addition hereto, the grantee, its successors prior to January 1, 1992, when the LGC took effect, had to pay
or assigns, shall pay a franchise tax equivalent to local franchise tax in view of the withdrawal of their local tax
three percent (3%) of all gross receipts transacted exemption. It is argued that it is this disparate situation which
under this franchise, and the said percentage shall R.A. No. 7925, § 23 seeks to rectify.
be in lieu of all taxes on this franchise or earnings
thereof; Provided, That the grantee shall continue to One can speak of healthy competition only between equals.
be liable for income taxes payable under Title II of the For this reason, the law seeks to break up monopoly in the
National Internal Revenue Code. The grantee shall telecommunications industry by gradually dismantling the
file the return with and pay the taxes due thereon to barriers to entry and granting to new telecommunications
the Commissioner of Internal Revenue or his duly entities protection against dominant carriers through equitable
authorized representatives in accordance with the access charges and equal access clauses in interconnection
National Revenue Code and the return shall be agreements and through the strict policing of predatory pricing
subject to audit by the Bureau of Internal Revenue. by dominant carriers.11 Interconnection among carriers is made
(Emphasis added) mandatory to prevent a dominant carrier from delaying the
establishment of connection with a new entrant and to deter
Similar provisions ("in lieu of all taxes" and equality clauses) the former from imposing excessive access charges.12
are also found in the franchises of Cruz Telephone Company,
That is also the reason there are franchises13 granted by Tax exemptions should be granted only by clear and
Congress after the effectivity of R.A. No. 7925 which do not unequivocal provision of law on the basis of language too plain
contain the "in lieu of all taxes" clause, just as there are to be mistaken.24 They cannot be extended by mere implication
franchises, also granted after March 16, 1995, which contain or inference. Thus, it was held in Home Insurance & Trust Co.
such exemption from other taxes.14 If, by virtue of § 23, the tax v. Tennessee25 that a law giving a corporation all the "powers,
exemption granted under existing franchises or thereafter rights reservations, restrictions, and liabilities" of another
granted is deemed applicable to previously granted franchises company does not give an exemption from taxation which the
(i.e., franchises granted before the effectivity of R.A. No. 7925 latter may possess. In Rochester R. Co. v. Rochester,26 the
on March 16, 1995), then those franchises granted after March U.S. Supreme Court, after reviewing cases involving the effect
16, 1995, which do not contain the "in lieu of all taxes" clause, of the transfer to one company of the powers and privileges of
are not entitled to tax exemption. The "in lieu of all taxes" another in conferring a tax exemption possessed by the latter,
provision in the franchises of Globe and Smart, which are held that a statute authorizing or directing the grant or transfer
relatively new entrants in the telecommunications industry, of the "privileges" of a corporation which enjoys immunity from
cannot thus be deemed applicable to PLDT, which had virtual taxation or regulation should not be interpreted as including
monopoly in the telephone service in the country for a long that immunity. Thus:
time,15 without defeating the very policy of leveling the playing
field of which PLDT speaks. We think it is now the rule, notwithstanding earlier
decisions and dicta to the contrary, that a statute
Third. Petitioner argues that the rule of strict construction of tax authorizing or directing the grant or transfer of the
exemptions does not apply to this case because the "in lieu of "privileges" of a corporation which enjoys immunity
all taxes" provision in its franchise is more a tax exclusion than from taxation or regulation should not be interpreted
a tax exemption. Rather, the applicable rule should be that tax as including that immunity. We, therefore, conclude
laws are to be construed most strongly against the government that the words "the estate, property, rights, privileges,
and in favor of the taxpayer. and franchises" did not embrace within their meaning
the immunity from the burden of paving enjoyed by
This is contrary to the uniform course of decisions16 of this the Brighton Railroad Company. Nor is there anything
Court which consider "in lieu of all taxes" provisions as in this, or any other statute, which tends to show that
granting tax exemptions. As such, it is a privilege to which the the legislature used the words with any larger
rule that tax exemptions must be interpreted strictly against the meaning than they would have standing alone. The
taxpayer and in favor of the taxing authority applies. Along with meaning is not enlarged, as faintly suggested, by the
the police power and eminent domain, taxation is one of the expression in the statute that they are to be held by
three necessary attributes of sovereignty. Consequently, the successor "fully and entirely, and without change
statutes in derogation of sovereignty, such as those containing and diminution," — words of unnecessary emphasis,
exemption from taxation, should be strictly construed in favor without which all included in "estate, property, rights,
of the state. A state cannot be stripped of this most essential privileges, and franchises" would pass, and with
power by doubtful words and of this highest attribute of which nothing more could pass. On the contrary, it
sovereignty by ambiguous language.17 appears, as clearly as it did in the Phoenix Fire
Insurance Company Case, that the legislature
intended to use the words "rights, franchises, and
Indeed, both in their nature and in their effect there is no privileges" in the restricted sense. . . .27
difference between tax exemption and tax exclusion.
Exemption is an immunity or privilege; it is freedom from a
charge or burden to which others are subjected.18 Exclusion, Fourth. It is next contended that, in any event, a special law
on the other hand, is the removal of otherwise taxable items prevails over a general law and that the franchise of petitioner
from the reach of taxation, e.g., exclusions from gross income giving it tax exemption, being a special law, should prevail over
and allowable deductions.19 Exclusion is thus also an immunity the LGC, giving local governments taxing power, as the latter
or privilege which frees a taxpayer from a charge to which is a general law. Petitioner further argues that as between two
others are subjected. Consequently, the rule that tax laws on the same subject matter which are irreconcilably
exemption should be applied in strictissimi juris against the inconsistent, that which is passed later prevails as it is the
taxpayer and liberally in favor of the government applies latest expression of legislative will.
equally to tax exclusions. To construe otherwise the "in lieu of
all taxes" provision invoked is to be inconsistent with the theory This proposition flies in the face of settled jurisprudence.
that R.A. No. 7925, § 23 grants tax exemption because of a In City Government of San Pablo, Laguna v. Reyes,28 this
similar grant to Globe and Smart. Court held that the phrase "in lieu of all taxes" found in special
franchises should give way to the peremptory language of §
Petitioner cites Cagayan Electric Power & Light Co., Inc. v. 193 of the LGC specifically providing for the withdrawal of such
Commissioner of Internal Revenue20 in support of its argument exemption privileges. Thus, the rule that a special law must
that a "tax exemption" is restored by a subsequent law re- prevail over the provisions of a later general law does not apply
enacting the "tax exemption." It contends that by virtue of R.A. as the legislative purpose to withdraw tax privileges enjoyed
No. 7925, its tax exemption or exclusion was restored by the under existing laws or charters is apparent from the express
grant of tax exemptions to Globe and Smart. Cagayan Electric provisions of §§ 137 and 193 of the LGC.
Power & Light Co., Inc., however, is not in point. For there, the
re-enactment of the exemption was made in an amendment to As to the alleged inconsistency between the LGC and R.A. No.
the charter of Cagayan Electric Power and Light Co. 7925, this Court has already explained in the decision under
reconsideration that no inconsistency exists and that the rule
Indeed, petitioner’s justification for its claim of tax exemption that the later law is the latest expression of the legislature does
rests on a strained interpretation of R.A. No. 7925, § 23. For not apply. The matter need not be further discussed.
petitioner’s claim for exemption is not based on an amendment
to its charter but on a circuitous reasoning involving inquiry into In any case, it is contended, the ruling of the Bureau of Local
the grant of tax exemption to other telecommunications Government Finance (BLGF) that petitioner’s exemption from
companies and the lack of such grant to others,21 when local taxes has been restored is a contemporaneous
Congress could more clearly and directly have granted tax construction of § 23 and, as such, it is entitled to great weight.
exemption to all franchise holders or amend the charter of
PLDT to again exempt it from tax if this had been its purpose. The ruling of the BLGF has been considered in this case. But
unlike the Court of Tax Appeals, which is a special court
The fact is that after petitioner’s tax exemption by R.A. No. created for the purpose of reviewing tax cases, the BLGF was
7082 had been withdrawn by the LGC,22 no amendment to re- created merely to provide consultative services and technical
enact its previous tax exemption has been made by Congress. assistance to local governments and the general public on
Considering that the taxing power of local government units local taxation and other related matters.29 Thus, the rule that
under R.A. No. 7160 is clear and is ordained by the the "Court will not set aside conclusions rendered by the CTA,
Constitution, petitioner has the heavy burden of justifying its which is, by the very nature of its function, dedicated
claim by a clear grant of exemption.23 exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject, unless "Sec. 3. Section 9 of the same Act is hereby amended
there has been an abuse or improvident exercise of to read as follows:
authority"30 cannot apply in the case of BLGF.
Sec. 9. . .
WHEREFORE, the motion for reconsideration is DENIED and
this denial is final. (b) The grantee shall further pay to the Treasurer of
the Philippines each year after the audit and approval
SO ORDERED. of the accounts as prescribed in this Act, one and
one-half per centum of all gross receipts from
Davide, Jr., C.J., Quisumbing, Corona, Carpio-Morales, business transacted under this franchise by the said
Callejo, Sr., and Azcuna, JJ., concur. grantee in the Philippines, in lieu of any and all
taxes of any kind, nature or description levied,
established or collected by any authority whatsoever,
Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, and Austria- municipal, provincial or national from which the
Martinez, JJ., join the dissent of J. Puno. grantee is hereby expressly exempted, effective from
Puno, J., please see dissent. the date of the approval of R.A. No.1618. . ."
Vitug, J., I concur; a statute effectively limiting the
constitutionally-delegated tax powers of LGU’s can only be
done in a clear and express manner. Section 5 provides:
Panganiban, J., no part. Same reason given in original
decision. "Sec. 5. Section twenty of the same Act is hereby
Carpio, J., see separate opinion. amended to read as follows:

Sec. 20. This franchise shall not be interpreted to

mean an exclusive grant of the privileges herein
provided for, however, in the event of any competing
individual, partnership, or corporation, receiving from
Dissenting Opinion the Congress of the Philippines a similar permit or
franchise more favorable than those herein granted or
PUNO, J.: tending to place the herein grantee at any
disadvantage, then such term or terms, shall ipso
The sole issue in the case at bar is whether petitioner facto become part of the terms hereof, and shall
Philippine Long Distance Telephone Company, Inc. (PLDT) is operate equally in favor of the grantee as in the case
liable to pay the franchise tax imposed by the City of Davao. of said competing individual, partnership or
The issue can be resolved only by untangling the different laws corporation."
dealing with local government and the telecommunications
industry. It is thus necessary to first lay down these laws. On March 27, 1992, Congress enacted Republic Act No. 7294
entitled "An Act granting Smart Information Technologies, Inc.
On January 1, 1992, the Local Government Code took effect. (SMART) a franchise to establish, maintain, lease and operate
The Code pertinently provides: integrated telecommunications/computer/electronic services,
and stations throughout the Philippines for public domestic and
international communications, and for other purposes." Section
"Sec. 137. Franchise Tax.- Notwithstanding any 9 of the Act provides:
exemption granted by any law or other special law,
the province may impose a tax on business enjoying
a franchise, at a rate not exceeding fifty percent "Section 9. Tax provisions.- The grantee, its
(50%) of one percent (1%) of the gross annual successors or assigns shall be liable to pay the same
receipts for the preceding calendar year based on the taxes on their real estate buildings and personal
incoming receipt, or realized, within its territorial property, exclusive of this franchise, as other persons
jurisdiction. . . or corporations which are now or hereafter may be
required by law to pay. In addition thereto, the
grantee, its successors or assigns shall pay a
Sec. 193. Withdrawal of Tax Exemption Privileges.- franchise tax equivalent to three percent (3%) of all
Unless otherwise provided in this Code, tax gross receipts of the business transacted under this
exemptions or incentives granted to, or presently franchise by the grantee, its successors or assigns
enjoyed by all persons, whether natural or juridical, and the said percentage shall be in lieu of all taxes on
including government-owned or controlled this franchise or earnings thereof. . ."
corporations, except local water districts, cooperatives
duly registered under R.A. No. 6938, non-stock and
non-profit hospitals and educational institutions, are On March 16, 1995, Republic Act No. 7925 entitled "Public
hereby withdrawn upon the effectivity of this Code." Telecommunications Policy" was enacted. Section 23 of the
Act states:
In accord with this Code, the City of Davao enacted Ordinance
No. 519, Series of 1992. It provides: "Section 23. Equality of Treatment in the
Telecommunications Industry.- Any advantage, favor,
privilege, exemption, or immunity granted under
"Notwithstanding any exemption granted by any law existing franchise, or may hereafter be granted,
or other special law, there is hereby imposed a tax on shall ipso facto become part of previously granted
business enjoying a franchise, at a rate of seventy- telecommunications franchises and shall be
five percent (75%) of one percent (1%) of the gross accorded immediately and unconditionally to the
annual receipts for the preceding calendar year based grantees of such franchises: Provided, however, that
on the income or receipts realized within the territorial the foregoing shall neither apply to nor affect
jurisdiction of Davao City." provisions of telecommunications franchises
concerning territory covered by the franchise, the life
On March 19, 1992, Congress enacted Republic Act No. 7229 span of the franchise, or the type of service
entitled "An Act approving the merger between Globe Mackay authorized by the franchise."
Cable and Radio Corporation and Clavecilla Radio System and
the consequent transfer of the franchise of Clavecilla Radio It also appears that after 1995, Congress enacted laws
System granted under Republic Act No. 402, as amended, granting franchises to other telecommunications companies.
to Globe Mackay Cable and Radio Corporation, extending the Some of these franchises contain the "in lieu of all taxes"
life of said franchise and repealing certain sections of RA No. clause as well as the "equality clause." The others, however,
402, as amended." Section 3 thereof provides: did not.1
On the basis of these laws, petitioner PLDT wrote to the City shall ipso facto become part of previously granted
Treasurer of Davao protesting the assessment of the local telecommunications franchise and shall be
franchise tax amounting to P3,681,985.75 for the year 1999. It accorded immediately and unconditionally to the
likewise claimed exemption from the payment of said franchise grantees of such franchises . . ."
tax on the basis of the opinion of the Bureau of Local
Government Finance (BLGF). The opinion holds that petitioner I cannot understand what is unclear in section 23. Favor,
is exempt from payment of franchise and business taxes privilege, exemption and immunity are ordinary words without
imposable by local government units upon the effectivity of any mystic meaning. The provision states without any flourish
Republic Act No. 7925 on March 16, 1995. The protest was that if any favor, privilege, exemption or immunity is granted in
denied by the City Treasurer of Davao. Petitioner challenged the franchise of any telecommunications company, it will be
the denial in Branch 13 of the RTC of Davao but was deemed granted to other telecommunications companies
unsuccessful. The trial court ruled that the Local Government with prior franchises. The grant is unequivocal for the provision
Code had withdrawn the tax exemption previously granted to directs that it is "ipso facto," and should be "immediately and
petitioner PLDT. unconditionally." The language of the law cannot be more
limpid, indeed, the work of a worthy wordsmith.
Petitioner thus filed a petition for review on certiorari with this
Court. On August 22, 2001, the Second Division of this Court Next, the majority holds that "x x x the best refutation of
denied the petition. It held: (1) petitioner’s claim of tax PLDT’s claim that RA No. 7925, section 23 grants tax
exemption is based on strained inferences; (b) the claim would exemption is the fact that after its enactment on March 16,
result in absurd consequences; (c) the word "exemption" in RA 1995, Congress granted several franchises containing both an
No, 7925, sec. 23 does not mean "tax exemption"; and (d) ‘equality clause’ similar to section 23 and an ‘in lieu of all taxes’
there can be no reliance on the alleged expertise of the BLGF clause."2 It cites the laws granting franchises to the Island
for the issue involves the interpretation of a law. Country Telecommunications, Inc., Cruz Telephone Company,
Inc., ISLA Cellular Communications, Inc., and Islatel
Petitioner contends in its Motion for Reconsideration, viz: Corporation.3

"A. THE ‘ABSURD CONSEQUENCES’ REFERRED I agree that all these subsequent laws should be considered
TO BY THE COURT AS ALLEGEDLY RESULTING and not only the laws granting exemptions to Smart and Globe.
FROM PETITIONER’S POSITION(,) HAVE NO With due respect, however, I have great difficulty following the
BASIS IN FACT AND IN LAW; IN ANY CASE, FOR flow of the logic of the majority. To my mind, the reiteration of
THE COURT TO SAY THAT PETITIONER’S the "equality clause" as well as the "in lieu of all taxes clause"
POSITION WOULD RESULT IN ABSURD in the telecommunications franchises granted by
CONSEQUENCES, IS TO QUESTION, UNDER THE Congress after March 16, 1995 fortifies the claim for exemption
GUISE OF INTERPRETATION, THE WISDOM OF of the petitioner. The reiteration of the clauses shows that
THE POLICY BEHIND REPUBLIC ACT NO. 7925. Congress never wavered in its touchstone policy of equalizing
the status of our companies in the telecommunications
B. THE PROVISIONS OF SECTION 23 OF industry. To be sure, Congress need not reiterate the "equality
REPUBLIC ACT NO. 7925 ARE CLEAR AND NEED clause" and the "in lieu of all taxes clause" in these subsequent
NO INTERPRETATION; ASSUMING THERE IS A telecommunications franchises for without it, Republic Act No.
NECESSITY FOR INTERPRETATION, THE RULING 7925, section 23 could still be availed of by them. The
OF THE BUREAU OF LOCAL GOVERNMENT reiteration is simply a stubborn stress on the importance of
FINANCE, WHICH IS A CONTEMPORANEOUS equality in the entire telecommunications industry but the
CONSTRUCTION OF SECTION 23 AND IS majority inexplicably reads it as denying the rule of equality to
THEREFORE ENTITLED TO GREAT WEIGHT, the petitioner. By treating alikes as unalike, the majority is
SHOULD BE CONSIDERED BY THE COURT. violating the equal protection clause of the Constitution.

C. SECTION 23 OF REPUBLIC ACT NO. 7925 Further to its stance that the law is vague, the majority parleys
CLEARLY GRANTS A TAX EXEMPTION OR TAX the proposition that "an intent to grant tax exemption cannot
EXCLUSION TO PETITIONER. even be discerned from the law." It quotes the sponsorship
speech of Rep. Jerome B. Paras of H.B. No. 14028, viz:4
D. THE AUTHORITIES ON STRICT
CONSTRUCTION CITED BY THE COURT HAVE NO "There is also a need to promote a level playing field
APPLICATION IN THIS CASE. in the telecommunications industry. New entities must
be granted protection against dominant carriers
through the encouragement of equitable access
E. THE ‘IN LIEU OF ALL TAXES’ PROVISION IN charges and equal access clauses in interconnection
PETITIONER’S FRANCHISE WAS DEEMED agreements and the strict policing of predatory pricing
RESTORED WITH REGARD TO LOCAL TAXES BY by dominant carriers. Equal access should be granted
SECTION 23 OF REPUBLIC ACT NO. 7925 IN to all operators connecting into the inter-exchange
RELATION TO THE FRANCHISES OF GLOBE network. There should he no discrimination against
TELECOM, INC. AND SMART COMMUNICATIONS, any carrier in terms of priorities and/or equality of
INC. service."

F. THE COURT FAILED TO CONSIDER THE Again, I do not see how this one-paragraph observation of
OTHER ARGUMENTS OF PETITIONER." Congressman Paras can serve as a crutch to support the
majority ruling. Congressman Paras merely clarified that the
Petitioner’s Motion for Reconsideration was elevated to the aim of the law is to promote a level playing field in the
Court en banc considering its significance and as similar cases telecommunications industry. And, doubtless, one way of
are pending decision in its other divisions. leveling the playing field is by granting equal access to all
operators connecting into the inter-exchange network. But this
The majority will now deny petitioner’s motion for is not all that has to be done to level the playing field. There
reconsideration. It holds that section 23 of Republic Act No. are other acts and practices that distort the playing field in the
7925 mandating equality of treatment in the telecommunications industry and they were addressed by
telecommunications industry and relied upon by the petitioner Congress. One destructive practice that can really dislevel the
is not "clear and unequivocal." Again, I quote section 23, viz: playing field is the imposition of discriminatory tax. Precisely to
eliminate these practices, Congress enacted section 23
decreeing for equality of treatment of all companies in the
"Sec. 23. Equality of Treatment in the telecommunications industry. By one sweep, it did away with
Telecommunications Industry - Any advantage, favor, the grant of unequal favors to telecommunication companies,
privilege, exemption, or immunity granted under which is anathema to fair competition in deregulated industries.
existing franchise or may hereafter be granted,
More untenable is the majority ruling that "exemption" in that "any advantage, favor, privilege, exemption, or immunity
section 23 does not refer to tax exemption but "exemptions granted under existing franchise, or may hereafter be granted,
from certain regulations and requirements imposed by the shall ipso facto become part of previously granted
National Telecommunications Commission" like for instance, telecommunications franchises and shall be accorded
exemption from securing permits for every import equipment. immediately and unconditionally to the grantees of such
The ruling is not based on any clear cut provision of law but is franchises xxx." A level playing field is indispensable to prevent
a mere surmise. It is all too easy for the law to define predatory pricing on the part of any player in the industry.
exemption as the majority interprets it but the law did not. I Without a level playing field, competition will be unfair and
submit that the majority reading of the word "exemption" prices in the industry will not be determined by market forces
collides with the basic rule in statutory construction that the but by unregulated greed. Inexplicably, the majority would deny
meaning of a word should be understood in light of the cluster to petitioner PLDT the right to a level playing field. Its reasons
of words to which it is associated. The word "exemption" is are tenuous to say the least. Its prime reason is that petitioner
clustered with the words "advantage, favor, privilege and PLDT had enjoyed virtual monopoly in the telephone service in
immunity." Its most natural meaning is that it refers, to and at the country for a long time.7 The monopoly status of petitioner
least includes, tax exemption. PLDT is past and should be viewed in its propel’ historical
perspective. In the early years of our economic history,
Petitioner has also called our attention to what would result monopolies in certain industries had to be allowed. They have
from the majority decision under reconsideration - "x x x the to be entertained in industries which are high-risk, capital
result is that while the holders of franchise granted prior to intensive and indispensable to economic growth. No company
January 1, 1992 when the LGC took effect, had to pay local will risk venture capital in these industries unless they are
franchise tax in view of the withdrawal of their local tax accorded favored treatment, usually a monopoly status, for a
exemption, those whose franchises were granted after January certain time. Even then, administrative mechanisms were put
1, 1992, because of the ‘in lieu of all taxes’ provisions in place to regulate their activities especially their pricing
contained therein, were exempted from such local tax."5 The policies to protect the interest of the consuming public. Indeed,
disparate treatment, petitioner contends, will not promote a great part of the United States would still be a wilderness if it
healthy competition in the telecommunications industry. The did not allow monopolies in its railroad and telecommunications
majority, however, dismisses petitioner’s fear by holding: industries. We adopted this proven strategy and allowed
monopolies in some of our industries like electric power,
transportation and telecommunications. It is in line with this
"One can speak of healthy competition only between strategy that Congress granted to petitioner PLDT a monopoly
equals. For this reason, the law seeks to break up status for a certain time. No company would then invest in our
monopoly in the telecommunications industry by telecommunications industry but petitioner PLDT did, assumed
gradually dismantling the barriers to entry and the risk and undeniably played a vital role in our economic
granting to new telecommunications entities development which cannot be dismissed as insignificant. For
protection against dominant carriers through equitable this reason, our Constitution does not ban monopolies as
access charges and equal access clauses in evil per se for they are not.
interconnection agreements and through the strict
policing of predatory pricing by dominant carriers.
Interconnection among carriers is made mandatory to It appears that a misappreciation of the past dominant role of
prevent a dominant carrier from delaying the petitioner PLDT in our telecommunications industry has
establishment of connection with a new entrant and to poisoned the position of the majority. The majority thinks that if
deter the former from imposing excessive access it orders equal tax treatment to petitioner vis-à-vis the other
charges. companies in the telecommunications industry, there will be
inequality because there is no parity between them in terms of
resources. Following this thought, the majority again surmises
"That is also the reason there are franchises granted that the strategy of Congress to achieve equality in the industry
by Congress after the effectivity of R.A. No. 7925 is to grant exemptions on a case to case basis. Thus, it holds
which do not contain the ‘in lieu of all taxes’ clause, that "that is xxx the reason there are franchises granted by
just as there are franchises, also granted after March Congress after the effectivity of R.A. No. 7925 which do not
16, 1995, which contain such exemption from other contain the ‘in lieu of all taxes’ clause, just as there are
taxes. If, by virtue of section 23, the tax exemption franchises, also granted after March 16, 1995, which contain
granted under existing franchises or thereafter such exemption from other taxes."8 Footnote no. 13 of the
granted is deemed applicable to previously granted majority decision cites a list of telecommunications companies
franchises (i.e., franchises granted before the whose franchises do not contain the "in lieu of all taxes" clause
effectivity of R.A. No. 7925 on March 16, 1995), then while footnote no. 14 cites the companies whose franchises
those franchises granted after March 16, 1995, which contain the said clause. A cursory glance at the companies in
do not contain the ‘in lieu of all taxes’ clause, are not footnote no. 13 will, however, show that they are not the giant-
entitled to tax exemption. The ‘in lieu of all taxes’ type which will explain why their franchises do not contain the
provision in the Franchises of Globe and Smart, which "in lieu of all taxes" clause. Similarly, there appears in footnote
are relatively new entrants in the telecommunications no. 14 big companies yet their franchises contain the aforesaid
industry, cannot thus be deemed applicable to PLDT, clause. Significantly, the majority does not cite the legislative
which had virtual monopoly in the telephone service in proceedings of the laws granting these franchises to support its
the country for a long time, without defeating the very ruling that the grant or non-grant of the "in lieu of all taxes"
policy of leveling the playing field of which PLDT clause in the franchises of the companies involved is part of
speaks."6 the strategy of Congress to equalize them and level the playing
field in the telecommunications industry. The ruling is an ex-
Again, I am unable to agree with the majority. With due cathedra pronouncement unsupported by any footnote. Again,
respect, the majority fails to grasp the processes of I submit the view that section 23 granted equal tax treatment
deregulation followed in the telecommunications industry. The to all telecommunications companies and to stress again, this
key move to take before deregulating is to break up the was done only after breaking up the monopoly in the industry.
monopoly or oligopoly in control of the industry. For with a Today, petitioner PLDT no longer controls the industry and
monopoly or oligopoly enjoying a stranglehold on the industry, there is no reason to treat it unequally from other companies.
the market forces cannot have a free play and prices in the The inclusion of the "in lieu of all taxes" clause in some
industry will be dictated by the lucre of commerce. For this franchises simply reiterates section 23 of Republic Act No.
reason. petitioner PLDT’s monopoly had to be broken. Among 7925. The non-inclusion of the clause in other franchises does
others, the law made interconnection among carriers not mean its non-grant for the exemption can be claimed under
mandatory and provided for equitable access charges and section 23 of Republic Act 7925 which still stands for it has not
equal access clauses in interconnection agreements. With this been repealed by any subsequent law. By insisting that
provision, the law busted the biggest barrier to the effective petitioner cannot claim its tax exemption because of its prior
entry of new players in the telecommunications industry. The dominant status, the majority is substituting its own concept of
next step in deregulation is to level the playing field. The equality from that of section 23, and it is restructuring the level
mechanism for leveling the playing field is installed in section playing field designed by the legislature. It is not our business
23 of the law which requires equality of treatment in the to construct the law hut to construe it for we are not another
telecommunications industry. In no uncertain terms, it orders chamber of Congress.
I vote to grant the Motion for Reconsideration. "Section 151. Scope of Taxing Powers. - Except as
otherwise provided in this Code, the city may levy the
taxes, fees, and charges which the province or
municipality may impose: Provided, however, That the
taxes, fees and charges levied and collected by highly
urbanized and independent component cities shall
Separate Opinion accrue to them and distributed in accordance with the
provisions of this Code.
Carpio, J.:
The rates of taxes that the city may levy may exceed
I concur in the result of the ponencia of Justice Vicente V. the maximum rates allowed for the province or
Mendoza that petitioner Philippine Long Distance Telephone municipality by not more than fifty percent (50%)
Company, Inc. (PLDT) is subject to the local franchise tax except the rates of professional and amusement
imposed by the City of Davao. taxes."

My concurrence is based on two grounds. First, the "in lieu of "Section 193. Withdrawal of Tax Exemption
all taxes" clause was not re-enacted in the franchise of Globe Privileges. - Unless otherwise provided in this Code,
Mackay Cable and Radio Corporation (Globe) when Congress tax exemptions or incentives granted to, or presently
adopted Republic Act No. 7229 approving the merger of Globe enjoyed by all persons, whether natural or juridical,
and Clavecilla Radio System (Clavecilla). Second, the "in lieu including government-owned or controlled
of all taxes" clause in the franchise of Smart Communications, corporations, except local water districts, cooperatives
Inc. (Smart) has become functus officio with the abolition of the duly registered under RA No. 6938, non-stock and
franchise tax on telecommunications companies. Moreover, non-profit hospitals and educational institutions, are
this clause applies only to national internal revenue taxes and hereby withdrawn upon the effectivity of this Code."
not to local taxes.
Thus, from January 1, 1992 up to the enactment on March 19,
PLDT claims that the "in lieu of all taxes" clause in the 1992 of RA No. 7229, Clavecilla did not enjoy, with respect to
franchises of Globe and Smart applies to PLDT by virtue of the local taxes, the tax exemption under its "in lieu of all taxes"
equality clause1 in Republic Act No. 7925. However, if the "in clause. The only question is whether RA No. 7229 re-enacted
lieu of all taxes" clauses in the franchises of Globe and Smart Section 9 (b) of Clavecilla’s old franchise to restore its "in lieu
are no longer in effect, then PLDT’s claim to tax exemption will of all taxes" clause, at least with respect to local taxes.
necessarily fail even if the equality clause applies to tax
exemptions. I find that Globe’s existing franchise has no "in lieu The answer is a categorical no for two reasons. First, there is
of all taxes" clause. I also find that the abolition of the franchise no language in RA No. 7229, express or even implied, re-
tax on telecommunications companies and its replacement by enacting Section 9 (b) of Clavecilla’s old franchise with respect
the value-added tax (VAT) effective January 1, 1996 has to local taxes. RA No. 7229 merely approved the merger of
rendered ineffective the "in lieu of all taxes" clause in the Globe and Clavecilla, and transferred the then existing
franchise of Smart. franchise3 of Clavecilla to the surviving corporation, Globe.
When Congress approved RA No. 7229, Clavecilla’s then
On June 19, 1965, Republic Act No. 4540 amended the existing franchise did not contain the "in lieu of all taxes"
franchise of Clavecilla and inserted the following "in lieu of all clause with respect to local taxes. Logically, the transfer of
taxes" clause in Section 9 (b) of its franchise: Clavecilla’s franchise to Globe did not transfer the "in lieu of all
taxes" clause since Clavecilla’s franchise no longer had such
clause with respect to local taxes.
"The grantee shall further pay to the Treasurer of the
Philippines each year after the audit and approval of
the accounts as prescribed in this Act, one and one- Second, RA No. 7229 expressly provides that original
half per centum of all gross receipts from business provisions of the franchise of Clavecilla under Republic Act No.
transacted under this franchise by the said grantee in 402, as amended, which have not been repealed, shall
the Philippines, in lieu of any and all taxes of any kind, continue in full force and effect. The clear intent of the law is
nature or description levied, established or collected that provisions in Clavecilla’s franchise which had already been
by an authority whatsoever, municipal, provincial or repealed as of the enactment of RA No. 7229 shall remain
national, from which the grantee is hereby expressly repealed and shall not be re-enacted with the passage of RA
exempted, effective from the date of the approval of No. 7229. Thus, Section 11 of RA No. 7229 states –
Republic Act Numbered Sixteen Hundred Eighteen."
"All other provisions of Republic Act No. 402, as
On the other hand, the franchise of Globe contained no "in lieu amended by Republic Act Nos. 1618 and 4540, and
of all taxes" clause. other provisions of Batas Pambansa Blg. 95 which
are not inconsistent with the provisions of this Act and
are still unrepealed shall continue to be in full force
The Local Government Code of 1991,2 which took effect on and effect." (Emphasis supplied)
January 1, 1992, repealed Section 9(b) of Clavecilla’s
franchise with respect to local taxes. Sections 137, 151, and
193 of the Local Government Code of 1991 provide that – Clearly, Congress did not intend to re-enact any of the
provisions in the franchise of Clavecilla that had already been
repealed by prior laws.
"Section 137. Franchise Tax. Notwithstanding any
exemption granted by any law or other special law,
the province may impose a tax on businesses Tax exemptions must be clear and unequivocal. A taxpayer
enjoying a franchise, at the rate not exceeding fifty claiming a tax exemption must point to a specific provision of
percent (50%) of one percent (1%) of the gross law conferring on the taxpayer, in clear and plain terms,
annual receipts for the preceding calendar year based exemption from a common burden. Any doubt whether a tax
on the incoming receipt, or realized, within its exemption exists is resolved against the taxpayer. Tax
territorial jurisdiction. exemptions cannot arise by mere implication, much less by an
implied re-enactment of a repealed tax exemption clause. In
the instant case, there is even no implied re-enactment of
In the case of a newly started business, the tax shall Section 9 (b) of Clavecilla’s old franchise since Section 11 of
not exceed one-twentieth (1/20) of one percent (1%) RA No. 7229 expressly states that only unrepealed provisions
of the capital investment. In the succeeding calendar of Clavecilla’s franchise shall continue in force and effect.
year, regardless of when the business started to Measured against these well-recognized principles of taxation,
operate, the tax shall be based on the gross receipts PLDT’s claim to tax exemption based on the franchise of Globe
for the preceding calendar year, or any fraction must necessarily fail.
thereon, as provided herein."
PLDT also relies on Smart’s franchise which PLDT claims National Internal Revenue Code. The "in lieu of all taxes"
contains the "in lieu of all taxes" clause. PLDT points to clause does not apply to local taxes. The proviso in the first
Section 9 of Republic Act No. 7294, Smart’s franchise, which paragraph of Section 9 of Smart’s franchise states that the
states - grantee shall "continue to be liable for income taxes payable
under Title II of the National Internal Revenue Code." Also, the
"Tax provisions. - The grantee, its successors or second paragraph of Section 9 speaks of tax returns filed and
assigns shall be liable to pay the same taxes on their taxes paid to the "Commissioner of Internal Revenue or his
real estate, buildings and personal property, exclusive duly authorized representative in accordance with the National
of this franchise, as other persons or corporations Internal Revenue Code." Moreover, the same paragraph
which are now or hereafter may be required by law to declares that the tax returns "shall be subject to audit by the
pay. In addition thereto, the grantee, its successors or Bureau of Internal Revenue." Nothing is mentioned in Section
assigns shall pay a franchise tax equivalent to three 9 about local taxes. The clear intent is for the "in lieu of all
percent (3%) of all gross receipts of the business taxes" clause to apply only to taxes under the National Internal
transacted under this franchise by the grantee, its Revenue Code and not to local taxes. Even with respect to
successors or assigns and the said percentage shall national internal revenue taxes, the "in lieu of all taxes" clause
be in lieu of all taxes on this franchise or earnings does not apply to income tax.
thereof: Provided, that the grantee, its successors or
assigns shall continue to be liable for income taxes If Congress intended the "in lieu of all taxes" clause in Smart’s
payable under Title II of the National Internal Revenue franchise to also apply to local taxes, Congress would have
Code pursuant to Section 2 of Executive Order No. 72 expressly mentioned the exemption from municipal and
unless the latter enactment is amended or repealed, provincial taxes. Congress could have used the language in
in which case the amendment or repeal shall be Section 9 (b) of Clavecilla’s old franchise, as follows:
applicable thereto.
"x x x in lieu of any and all taxes of any kind, nature or
The grantee shall file the return with and pay the tax description levied, established or collected by any
due thereon to the commissioner of internal Revenue authority whatsoever, municipal, provincial or
or his duly authorized representative in accordance national, from which the grantee is hereby expressly
with the National Internal Revenue Code and the exempted, x x x." (Emphasis supplied)
return shall be subject to audit by the Bureau of
Internal Revenue." (Emphasis supplied) However, Congress did not expressly exempt Smart from local
taxes. Congress used the "in lieu of all taxes" clause only in
RA No. 7294 took effect on May 27, 1992, after the effectivity reference to national internal revenue taxes. The only
of the Local Government Code of 1991. Thus, the withdrawal interpretation, under the rule on strict construction of tax
of tax exemptions in the Local Government Code cannot apply exemptions, is that the "in lieu of all taxes" clause in Smart’s
to Smart, Applying the equality clause in Section 23 of RA No. franchise refers only to national and not to local taxes.
7925. PLDT claims that the "in lieu of all taxes" clause in
Smart’s franchise should also benefit PLDT. PLDT cites Philippine Railway Co. v. Nolting5 to support its
claim6 that the "in lieu of all taxes" clause includes exemption
PLDT’s reliance on the "in lieu of all taxes" clause in Smart’s from local taxes. However, in Philippine Railway the franchise
franchise is misplaced for two reasons. First, Republic Act No. of the railway company expressly exempted it from municipal
7716 abolished the franchise tax on telecommunications and provincial taxes, as follows:
companies effective January 1, 1996. To replace the 3 percent
franchise tax in Section 227 (now Section 119) of the National "Such annual payments, when promptly and fully
Internal Revenue Code, RA No. 7716 imposed a 10 percent made by the grantee, shall be in lieu of all taxes of
VAT on telecommunications companies under Section 102 every name and nature -municipal, provincial or
(now Section 108) of the Tax Code. As explained by PLDT, central - upon its capital stock, franchises, right of
"presently, the telecommunications companies do not anymore way, earnings, and all other property owned or
pay a franchise tax of varying percentages and instead pay a operated by the grantee, under this concession or
uniform VAT of 10%."4 The franchise tax in Section 119 of the franchise." (Emphasis supplied)
Tax Code still exists but is now applicable only to "electric, gas
and water utilities" and no longer to telecommunications
companies. If anything, Philippine Railway shows the need to avoid
ambiguity by specifying the taxing authority - municipal,
provincial or national - from whose jurisdiction the taxing power
The franchise tax is imposed only on franchise holders, while is withheld to create the tax exemption. This is not the case in
the VAT is imposed on all sellers of goods and services, Smart’s franchise, where the "in lieu of all taxes" clause refers
whether or not they hold franchises. The franchise tax is now only to national internal revenue taxes.
imposed in Section 119 of the Tax Code, while the VAT on
telecommunications companies is imposed in Section 108 of
the Tax Code. The Tax Code defines the VAT as an indirect The existing legislative policy is clearly against the revival of
tax which can be passed on to the buyer. The Tax Code the "in lieu of all taxes" clause in franchises of
precludes payment of a "VAT on the VAT" by excluding the telecommunications companies. After the VAT on
VAT in computing the gross receipts. This is not the case of telecommunications companies took effect on January 1, 1996,
the franchise tax. Certainly, the franchise tax is a different Congress never again included the "in lieu of all taxes" clause
tax from the VAT. in any telecommunications franchise it subsequently approved.
Also, from September 2000 to July 2001, all the fourteen
telecommunications franchises7 approved by Congress
Smart’s franchise states that the 3 percent "franchise tax" shall uniformly and expressly state that the franchisee shall be
be "in lieu of all taxes." Clearly, it is the franchise tax that shall subject to all taxes under the National Internal Revenue Code,
be in lieu of all taxes referred to in Section 9, and not the VAT except the specific tax. The following is substantially the
or any other tax. Following the rule on strict interpretation of tax uniform tax provision in these fourteen franchises:
exemptions, the "in lieu of all taxes" clause cannot apply when
what is paid is a tax other than the franchise tax. Since the
franchise tax on telecommunications companies has been "Tax Provisions. - The grantee, its successors or
abolished, the "in lieu of all taxes" clause has now assigns, shall be subject to the payment of all taxes,
become functus officio, rendered inoperative for lack of a duties, fees, or charges and other impositions under
franchise tax. Revenue Memorandum Circular No. 5-96 issued the National Internal Revenue Code of 1997, as
by the Commissioner of Internal Revenue stating that the VAT amended, and other applicable laws: Provided, That
shall be "in lieu of all taxes" since it merely replaced the nothing herein shall be construed as repealing any
franchise tax is void for lack of a legal basis. specific tax exemptions, incentives or privileges
granted under any relevant law: Provided, further,
That all rights, privileges, benefits and exemptions
Second, the "in lieu of all taxes" clause in Smart’s franchise accorded to existing and future telecommunications
refers only to taxes, other than income tax, imposed under the
 entities shall likewise be extended to the tax exemption, then it will be inadequate to embrace any kind
grantee."8 (Emphasis supplied) of exemption. To have any significance, the law will have to
spell out each kind of exemption before or after the word
Thus, after the imposition of the VAT on telecommunications "exemption," like "exemption from reportorial requirements,"
companies, Congress refused to grant any tax exemption to "exemption from monitoring requirements" and the like. This
telecommunications companies that sought new franchises will render the word "exemption" in Section 23 meaningless
from Congress, except the exemption from specific tax. More because at present this word stands alone. Certainly, we must
importantly, the uniform tax provision in these new franchises avoid an interpretation that will effectively erase the word
expressly states that the franchisee shall pay not only all taxes, "exemption" from Section 23.
except specific tax, under the National Internal Revenue Code,
but also all taxes under "other applicable laws." One of the The reiteration in individual franchises of rights or privileges
"other applicable laws" is the Local Government Code of 1991, already guaranteed in RA No. 7925 does not nullify or deny
which empowers local governments to impose a franchise tax such guarantees in RA No. 7925. The right to a fair and
on telecommunications companies. This, to reiterate, is the reasonable interconnection is expressly mandated in RA No.
existing legislative policy. 7925.11 The same right is expressly reiterated in 2112 of the 23
franchises approved by Congress after the effectivity of RA No.
Lastly, although it has no bearing on the instant case, I find 7925 up to July 31, 2001. The reiteration does not mean that
that the equality clause in Section 23 of RA No. 7925 applies to the same right never existed in RA No. 7925, thus requiring the
tax exemptions. This Section provides as follows: right to be expressly stated in the individual franchises. No
such inference can be drawn. Where a general law is enacted
to regulate an industry, it is common for individual franchises
"Equality of Treatment in the Telecommunications subsequently granted to restate the rights and privileges
Industry. -Any advantage, favor, privilege, exemption, already mentioned in the general law. This is the situation in 17
or immunity granted under existing franchises, or may franchises13 granted after the effectivity of RA No. 7925 up to
hereafter be granted, shall ipso facto become part of July 31, 2001, all of which reiterate the equality clause found in
previously granted telecommunications franchises Section 23 of RA No. 7925.
and shall be accorded immediately and
unconditionally to the grantees of such franchises:
Provided, however, That the foregoing shall neither In view of the foregoing, I vote to deny the motion for
apply to nor affect provisions of telecommunications reconsideration for lack of merit.
franchises concerning territory covered by the
franchise, the life span of the franchise, or the type of 5.4
service authorized by the franchise."
G.R. No. 166134               June 29, 2010
The legislative intent behind Section 23 is unquestionably to
level the playing field among all competing companies in the
telecommunications industry. If one telecommunications ANGELES CITY, Petitioner,
company enjoys a tax advantage over its competitors, while vs.
enjoying equal treatment with its competitors in all other ANGELES CITY ELECTRIC CORPORATION and
aspects like interconnection, fee sharing and the like, then REGIONAL TRIAL COURT BRANCH 57, ANGELES
there obviously will be no level playing field. A tax exemption CITY, Respondents.
granted to one telecommunications company, but not to others,
will sooner than later kill all its competitors and result in a DECISION
monopoly. This obviously is not the meaning of "equality of
treatment." DEL CASTILLO, J.:

Besides, a tax exemption granted to one or more, but not to all, The prohibition on the issuance of a writ of injunction to enjoin
telecommunications companies similarly situated will violate the collection of taxes applies only to national internal revenue
the constitutional rule on uniformity of taxation.9 It will deny taxes, and not to local taxes.
equal protection of the law to those similarly situated but to
whom the tax exemption is denied. A tax exemption granted to
one or some telecommunications companies, but not to all, can This Petition1 for Certiorari under Rule 65 of the Rules of Court
only be constitutionally justified if there is a reasonable basis seeks to set aside the Writ of Preliminary Injunction issued by
for classifying some companies exempt and others not exempt. the Regional Trial Court (RTC) of Angeles City, Branch 57, in
RA No. 7925, which prescribes the state policy on public Civil Case No. 11401, enjoining Angeles City and its City
telecommunications, does not allow any classification or Treasurer from levying, seizing, disposing and selling at public
discrimination in the grant of any "advantage, favor, privilege, auction the properties owned by Angeles Electric Corporation
exemption, or immunity." This is precisely to observe, as far as (AEC).
taxation is concerned, the rule of uniformity and thus
significantly level the playing field. The law mandates "equality Factual Antecedents
of treatment" to promote a "healthy competitive
environment."10 If this manifest state policy is to have any On June 18, 1964, AEC was granted a legislative franchise
meaning, Section 23 must include tax exemption. under Republic Act No. (RA) 40792 to construct, maintain and
operate an electric light, heat, and power system for the
Under Section 23, a tax exemption in a franchise granted after purpose of generating and distributing electric light, heat and
the effectivity of RA No. 7925 is deemed automatically written power for sale in Angeles City, Pampanga. Pursuant to Section
in all prior franchises, whether the prior franchises were 3-A thereof,3 AEC’s payment of franchise tax for gross
granted before or after the effectivity of RA No. 7925. Section earnings from electric current sold was in lieu of all taxes, fees
23 states that a tax exemption in a new franchise "shall ipso and assessments.
facto become part of previously granted telecommunications
franchises." There is no limitation whatsoever that only On September 11, 1974, Presidential Decree No. (PD) 551
franchises issued prior to the effectivity of RA No. 7925 can reduced the franchise tax of electric franchise holders. Section
benefit from Section 23. To interpret such limitation in Section 1 of PD 551 provided that:
23 is to negate the legislative intent in Section 23. Such a
limitation will result in unfair advantage to new franchisees,
grossly distort market forces and prevent the level playing field SECTION 1. Any provision of law or local ordinance to the
that Section 23 seeks to create. contrary notwithstanding, the franchise tax payable by all
grantees of franchises to generate, distribute and sell electric
current for light, heat and power shall be two percent (2%) of
That Section 23 uses the word "exemption" and not the term their gross receipts received from the sale of electric current
"tax exemption" does not exclude exemption from tax, which and from transactions incident to the generation, distribution
by far is the most important exemption in a telecommunications and sale of electric current.
franchise. If the word "exemption" is inadequate to embrace
Such franchise tax shall be payable to the Commissioner of On April 5, 2004, the City Treasurer levied on the real
Internal Revenue or his duly authorized representative on or properties of AEC.11 A Notice of Auction Sale12 was published
before the twentieth day of the month following the end of each and posted announcing that a public auction of the levied
calendar quarter or month as may be provided in the properties of AEC would be held on May 7, 2004.
respective franchise or pertinent municipal regulation and shall,
any provision of the Local Tax Code or any other law to the This prompted AEC to file with the RTC, where the petition for
contrary notwithstanding, be in lieu of all taxes and declaratory relief was pending, an Urgent Motion for Issuance
assessments of whatever nature imposed by any national or of Temporary Restraining Order and/or Writ of Preliminary
local authority on earnings, receipts, income and privilege of Injunction13 to enjoin Angeles City and its City Treasurer from
generation, distribution and sale of electric current. levying, annotating the levy, seizing, confiscating, garnishing,
selling and disposing at public auction the properties of AEC.
On January 1, 1992, RA 7160 or the Local Government Code
(LGC) of 1991 was passed into law, conferring upon provinces Meanwhile, in response to the petition for declaratory relief
and cities the power, among others, to impose tax on filed by AEC, Angeles City and its City Treasurer filed an
businesses enjoying franchise.4 In accordance with the LGC, Answer with Counterclaim14 to which AEC filed a Reply.15
the Sangguniang Panlungsod of Angeles City enacted on
December 23, 1993 Tax Ordinance No. 33, S-93, otherwise
known as the Revised Revenue Code of Angeles City After due notice and hearing, the RTC issued a Temporary
(RRCAC). Restraining Order (TRO)16 on May 4, 2004, followed by an
Order17 dated May 24, 2004 granting the issuance of a Writ of
Preliminary Injunction, conditioned upon the filing of a bond in
On February 7, 1994, a petition seeking the reduction of the the amount of ₱10,000,000.00. Upon AEC’s posting of the
tax rates and a review of the provisions of the RRCAC was required bond, the RTC issued a Writ of Preliminary Injunction
filed with the Sangguniang Panlungsod by Metro Angeles on May 28, 2004,18 which was amended on May 31, 2004 due
Chamber of Commerce and Industry Inc. (MACCI) of which to some clerical errors.19
AEC is a member. There being no action taken by
the Sangguniang Panlungsod on the matter, MACCI elevated
the petition5 to the Department of Finance, which referred the On August 5, 2004, Angeles City and its City Treasurer filed a
same to the Bureau of Local Government Finance (BLGF). In "Motion for Dissolution of Preliminary Injunction and Motion for
the petition, MACCI alleged that the RRCAC is oppressive, Reconsideration of the Order dated May 24, 2004,"20 which
excessive, unjust and confiscatory; that it was published only was opposed by AEC.21
once, simultaneously on January 22, 1994; and that no public
hearings were conducted prior to its enactment. Acting on the Finding no compelling reason to disturb and reconsider its
petition, the BLGF issued a First Indorsement6 to the City previous findings, the RTC denied the joint motion on October
Treasurer of Angeles City, instructing the latter to make 14, 2004.22
representations with the Sangguniang Panlungsod for the
appropriate amendment of the RRCAC in order to ensure Issue
compliance with the provisions of the LGC, and to make a
report on the action taken within five days.
Being a special civil action for certiorari, the issue in the instant
case is limited to the determination of whether the RTC gravely
Thereafter, starting July 1995, AEC has been paying the local abused its discretion in issuing the writ of preliminary injunction
franchise tax to the Office of the City Treasurer on a quarterly enjoining Angeles City and its City Treasurer from levying,
basis, in addition to the national franchise tax it pays every selling, and disposing the properties of AEC. All other matters
quarter to the Bureau of Internal Revenue (BIR). pertaining to the validity of the tax assessment and AEC’s tax
exemption must therefore be left for the determination of the
Proceedings before the City Treasurer RTC where the main case is pending decision.

On January 22, 2004, the City Treasurer issued a Notice of Petitioner’s Arguments
Assessment7 to AEC for payment of business tax, license fee
and other charges for the period 1993 to 2004 in the total Petitioner’s main argument is that the collection of taxes
amount of ₱94,861,194.10. Within the period prescribed by cannot be enjoined by the RTC, citing Valley Trading Co., Inc.
law, AEC protested the assessment claiming that: v. Court of First Instance of Isabela, Branch II,23 wherein the
lower court’s denial of a motion for the issuance of a writ of
(a) pursuant to RA 4079, it is exempt from paying preliminary injunction to enjoin the collection of a local tax was
local business tax; upheld. Petitioner further reasons that since the levy and
auction of the properties of a delinquent taxpayer are proper
(b) since it is already paying franchise tax on and lawful acts specifically allowed by the LGC, these cannot
business, the payment of business tax would result in be the subject of an injunctive writ. Petitioner likewise insists
double taxation; that AEC must first pay the tax before it can protest the
assessment. Finally, petitioner contends that the tax exemption
claimed by AEC has no legal basis because RA 4079 has
(c) the period to assess had prescribed because been expressly repealed by the LGC.
under the LGC, taxes and fees can only be assessed
and collected within five (5) years from the date they
become due; and Private respondent’s Arguments

(d) the assessment and collection of taxes under the Private respondent AEC on the other hand asserts that there
RRCAC cannot be made retroactive to 1993 or prior was no grave abuse of discretion on the part of the RTC in
to its effectivity.8 issuing the writ of preliminary injunction because it was issued
after due notice and hearing, and was necessary to prevent the
petition from becoming moot. In addition, AEC claims that the
On February 17, 2004, the City Treasurer denied the protest issuance of the writ of injunction was proper since the tax
for lack of merit and requested AEC to settle its tax liabilities.9 assessment issued by the City Treasurer is not yet final,
having been seasonably appealed pursuant to Section 19524 of
Proceedings before the RTC the LGC. AEC likewise points out that following the case of
Pantoja v. David,25 proceedings to invalidate a warrant of
Aggrieved, AEC appealed the denial of its protest to the RTC distraint and levy to restrain the collection of taxes do not
of Angeles City via a Petition for Declaratory Relief,10 docketed violate the prohibition against injunction to restrain the
as Civil Case No. 11401. collection of taxes because the proceedings are directed at the
right of the City Treasurer to collect the tax by distraint or levy.
As to its tax liability, AEC maintains that it is exempt from
paying local business tax. In any case, AEC counters that the
issue of whether it is liable to pay the assessed local business Two requisites must exist to warrant the issuance of a writ of
tax is a factual issue that should be determined by the RTC preliminary injunction, namely: (1) the existence of a clear and
and not by the Supreme Court via a petition for certiorari under unmistakable right that must be protected; and (2) an urgent
Rule 65 of the Rules of Court. and paramount necessity for the writ to prevent serious
damage.33
Our Ruling
In issuing the injunction, the RTC ratiocinated that:
We find the petition bereft of merit.
It is very evident on record that petitioner34 resorted and filed
The LGC does not specifically prohibit an injunction enjoining an urgent motion for issuance of a temporary restraining order
the collection of taxes and preliminary injunction to stop the scheduled auction sale
only when a warrant of levy was issued and published in the
newspaper setting the auction sale of petitioner’s property by
A principle deeply embedded in our jurisprudence is that taxes the City Treasurer, merely few weeks after the petition for
being the lifeblood of the government should be collected declaratory relief has been filed, because if the respondent will
promptly,26 without unnecessary hindrance27 or delay.28 In line not be restrained, it will render this petition moot and
with this principle, the National Internal Revenue Code of 1997 academic. To the mind of the Court, since there is no other
(NIRC) expressly provides that no court shall have the plain, speedy and adequate remedy available to the petitioner
authority to grant an injunction to restrain the collection of any in the ordinary course of law except this application for a
national internal revenue tax, fee or charge imposed by the temporary restraining order and/or writ of preliminary injunction
code.29 An exception to this rule obtains only when in the to stop the auction sale and/or to enjoin and/or restrain
opinion of the Court of Tax Appeals (CTA) the collection respondents from levying, annotating the levy, seizing,
thereof may jeopardize the interest of the government and/or confiscating, garnishing, selling and disposing at public auction
the taxpayer.30 the properties of petitioner, or otherwise exercising other
administrative remedies against the petitioner and its
The situation, however, is different in the case of the collection properties, this alone justifies the move of the petitioner in
of local taxes as there is no express provision in the LGC seeking the injunctive reliefs sought for.
prohibiting courts from issuing an injunction to restrain local
governments from collecting taxes. Thus, in the case of Valley Petitioner in its petition is questioning the assessment or the
Trading Co., Inc. v. Court of First Instance of Isabela, Branch ruling of the City Treasurer on the business tax and fees, and
II, cited by the petitioner, we ruled that: not the local ordinance concerned. This being the case, the
Court opines that notice is not required to the Solicitor General
Unlike the National Internal Revenue Code, the Local Tax since what is involved is just a violation of a private right
Code31 does not contain any specific provision prohibiting involving the right of ownership and possession of petitioner’s
courts from enjoining the collection of local taxes. Such properties. Petitioner, therefore, need not comply with Section
statutory lapse or intent, however it may be viewed, may have 4, Rule 63 requiring such notice to the Office of the Solicitor
allowed preliminary injunction where local taxes are involved General.
but cannot negate the procedural rules and requirements
under Rule 58.32 The Court is fully aware of the Supreme Court pronouncement
that injunction is not proper to restrain the collection of taxes.
In light of the foregoing, petitioner’s reliance on the above-cited The issue here as of the moment is the restraining of the
case to support its view that the collection of taxes cannot be respondent from pursuing its auction sale of the petitioner’s
enjoined is misplaced. The lower court’s denial of the motion properties. The right of ownership and possession of the
for the issuance of a writ of preliminary injunction to enjoin the petitioner over the properties subject of the auction sale is at
collection of the local tax was upheld in that case, not because stake.
courts are prohibited from granting such injunction, but
because the circumstances required for the issuance of writ of Respondents assert that not one of the witnesses presented by
injunction were not present. the petitioner have proven what kind of right has been violated
by the respondent, but merely mentioned of an injury which is
Nevertheless, it must be emphasized that although there is no only a scenario based on speculation because of petitioner’s
express prohibition in the LGC, injunctions enjoining the claim that electric power may be disrupted.
collection of local taxes are frowned upon. Courts therefore
should exercise extreme caution in issuing such injunctions. Engr. Abordo’s testimony reveals and even his Affidavit Exhibit
"S" showed that if the auction sale will push thru, petitioner will
No grave abuse of discretion was committed by the RTC not only lose control and operation of its facility, but its
employees will also be denied access to equipments vital to
Section 3, Rule 58, of the Rules of Court lays down the petitioner’s operations, and since only the petitioner has the
requirements for the issuance of a writ of preliminary capability to operate Petersville sub station, there will be a
injunction, viz: massive power failure or blackout which will adversely affect
business and economy, if not lives and properties in Angeles
City and surrounding communities.
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such relief
consists in restraining the commission or continuance Petitioner, thru its witnesses, in the hearing of the temporary
of the acts complained of, or in the performance of an restraining order, presented sufficient and convincing evidence
act or acts, either for a limited period or perpetually; proving irreparable damages and injury which were already
elaborated in the temporary restraining order although the
same may be realized only if the auction sale will proceed. And
(b) That the commission, continuance or non- unless prevented, restrained, and enjoined, grave and
performance of the act or acts complained of during irreparable damage will be suffered not only by the petitioner
the litigation would probably work injustice to the but all its electric consumers in Angeles, Clark, Dau and
applicant; or Bacolor, Pampanga.

(c) That a party, court, or agency or a person is doing, The purpose of injunction is to prevent injury and damage from
threatening, or attempting to do, or is procuring or being incurred, otherwise, it will render any judgment in this
suffering to be done, some act or acts probably in case ineffectual.
violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to
render the judgment ineffectual. "As an extraordinary remedy, injunction is calculated to
preserve or maintain the status quo of things and is generally
availed of to prevent actual or threatened acts, until the merits
of the case can be heard" (Cagayan de Oro City Landless Res. GARCIA,J.:
Assn. Inc. vs. CA, 254 SCRA 220)
Before the Court, on pure questions of law, is this petition for
It appearing that the two essential requisites of an injunction review on certiorari under Rule 45 of the Rules of Court to
have been satisfied, as there exists a right on the part of the nullify and set aside the following issuances of the Regional
petitioner to be protected, its right[s] of ownership and Trial Court (RTC) of Quezon City, Branch 227, in its Civil Case
possession of the properties subject of the auction sale, and No. Q-02-47292, to wit:
that the acts (conducting an auction sale) against which the
injunction is to be directed, are violative of the said rights of the 1) Decision1 dated June 6, 2003, declaring respondent Bayan
petitioner, the Court has no other recourse but to grant the Telecommunications, Inc. exempt from real estate taxation on
prayer for the issuance of a writ of preliminary injunction its real properties located in Quezon City; and
considering that if the respondent will not be restrained from
doing the acts complained of, it will preempt the Court from
properly adjudicating on the merits the various issues between 2) Order2 dated December 30, 2003, denying petitioners’
the parties, and will render moot and academic the motion for reconsideration.
proceedings before this court.35
The facts:
As a rule, the issuance of a preliminary injunction rests entirely
within the discretion of the court taking cognizance of the case Respondent Bayan Telecommunications, Inc.3 (Bayantel) is a
and will not be interfered with, except where there is grave legislative franchise holder under Republic Act (Rep. Act) No.
abuse of discretion committed by the court.36 For grave abuse 32594 to establish and operate radio stations for domestic
of discretion to prosper as a ground for certiorari, it must be telecommunications, radiophone, broadcasting and telecasting.
demonstrated that the lower court or tribunal has exercised its
power in an arbitrary and despotic manner, by reason of Of relevance to this controversy is the tax provision of Rep. Act
passion or personal hostility, and it must be patent and gross No. 3259, embodied in Section 14 thereof, which reads:
as would amount to an evasion or to a unilateral refusal to
perform the duty enjoined or to act in contemplation of law.37 In
other words, mere abuse of discretion is not enough.381avvph! SECTION 14. (a) The grantee shall be liable to pay the same
1 taxes on its real estate, buildings and personal property,
exclusive of the franchise, as other persons or corporations are
now or hereafter may be required by law to pay. (b) The
Guided by the foregoing, we find no grave abuse of discretion grantee shall further pay to the Treasurer of the Philippines
on the part of the RTC in issuing the writ of injunction. each year, within ten days after the audit and approval of the
Petitioner, who has the burden to prove grave abuse of accounts as prescribed in this Act, one and one-half per
discretion,39 failed to show that the RTC acted arbitrarily and centum of all gross receipts from the business transacted
capriciously in granting the injunction. Neither was petitioner under this franchise by the said grantee (Emphasis supplied).
able to prove that the injunction was issued without any factual
or legal justification. In assailing the injunction, petitioner
primarily relied on the prohibition on the issuance of a writ of On January 1, 1992, Rep. Act No. 7160, otherwise known as
injunction to restrain the collection of taxes. But as we have the "Local Government Code of 1991" (LGC), took effect.
already said, there is no such prohibition in the case of local Section 232 of the Code grants local government units within
taxes. Records also show that before issuing the injunction, the the Metro Manila Area the power to levy tax on real properties,
RTC conducted a hearing where both parties were given the thus:
opportunity to present their arguments. During the hearing,
AEC was able to show that it had a clear and unmistakable SEC. 232. – Power to Levy Real Property Tax. – A province or
legal right over the properties to be levied and that it would city or a municipality within the Metropolitan Manila Area may
sustain serious damage if these properties, which are vital to levy an annual ad valorem tax on real property such as land,
its operations, would be sold at public auction. As we see it building, machinery and other improvements not hereinafter
then, the writ of injunction was properly issued. specifically exempted.

A final note. While we are mindful that the damage to a Complementing the aforequoted provision is the second
taxpayer’s property rights generally takes a back seat to the paragraph of Section 234 of the same Code which withdrew
paramount need of the State for funds to sustain governmental any exemption from realty tax heretofore granted to or enjoyed
functions,40 this rule finds no application in the instant case by all persons, natural or juridical, to wit:
where the disputed tax assessment is not yet due and
demandable. Considering that AEC was able to appeal the
SEC. 234 - Exemptions from Real Property Tax. The following
denial of its protest within the period prescribed under Section
are exempted from payment of the real property tax:
195 of the LGC, the collection of business taxes41 through levy
at this time is, to our mind, hasty, if not premature.42 The issues
of tax exemption, double taxation, prescription and the alleged xxx xxx xxx
retroactive application of the RRCAC, raised in the protest of
AEC now pending with the RTC, must first be resolved before Except as provided herein, any exemption from payment of
the properties of AEC can be levied. In the meantime, AEC’s real property tax previously granted to, or enjoyed by, all
rights of ownership and possession must be respected. persons, whether natural or juridical, including government-
owned-or-controlled corporations is hereby withdrawn upon
WHEREFORE, the petition is hereby DISMISSED. effectivity of this Code (Emphasis supplied).

SO ORDERED. On July 20, 1992, barely few months after the LGC took effect,
Congress enacted Rep. Act No. 7633, amending Bayantel’s
original franchise. The amendatory law (Rep. Act No. 7633)
5.5 contained the following tax provision:

G.R. No. 162015             March 6, 2006 SEC. 11. The grantee, its successors or assigns shall be liable
to pay the same taxes on their real estate, buildings and
THE CITY GOVERNMENT OF QUEZON CITY, AND THE personal property, exclusive of this franchise, as other persons
CITY TREASURER OF QUEZON CITY, DR. VICTOR B. or corporations are now or hereafter may be required by law to
ENRIGA, Petitioners, pay. In addition thereto, the grantee, its successors or assigns
vs. shall pay a franchise tax equivalent to three percent (3%) of all
BAYAN TELECOMMUNICATIONS, INC., Respondent. gross receipts of the telephone or other telecommunications
businesses transacted under this franchise by the grantee, its
successors or assigns and the said percentage shall be in lieu
DECISION
of all taxes on this franchise or earnings thereof. Provided,
That the grantee, its successors or assigns shall continue to be On January 7, 1999, Bayantel wrote the office of the City
liable for income taxes payable under Title II of the National Assessor seeking the exclusion of its real properties in the city
Internal Revenue Code …. xxx. [Emphasis supplied] from the roll of taxable real properties. With its request having
been denied, Bayantel interposed an appeal with the Local
It is undisputed that within the territorial boundary of Quezon Board of Assessment Appeals (LBAA). And, evidently on its
City, Bayantel owned several real properties on which it firm belief of its exempt status, Bayantel did not pay the real
maintained various telecommunications facilities. These real property taxes assessed against it by the Quezon City
properties, as hereunder described, are covered by the government.
following tax declarations:
On account thereof, the Quezon City Treasurer sent out
(a) Tax Declaration Nos. D-096-04071, D-096-04074, notices of delinquency for the total amount of P43,878,208.18,
D-096-04072 and D-096-04073 pertaining to followed by the issuance of several warrants of levy against
Bayantel’s Head Office and Operations Center in Bayantel’s properties preparatory to their sale at a public
Roosevelt St., San Francisco del Monte, Quezon City auction set on July 30, 2002.
allegedly the nerve center of petitioner’s
telecommunications franchise operations, said Threatened with the imminent loss of its properties, Bayantel
Operation Center housing mainly petitioner’s Network immediately withdrew its appeal with the LBAA and instead
Operations Group and switching, transmission and filed with the RTC of Quezon City a petition for prohibition with
related equipment; an urgent application for a temporary restraining order (TRO)
and/or writ of preliminary injunction, thereat docketed as Civil
(b) Tax Declaration Nos. D-124-01013, D-124-00939, Case No. Q-02-47292, which was raffled to Branch 227 of the
D-124-00920 and D-124-00941 covering Bayantel’s court.
land, building and equipment in Maginhawa St.,
Barangay East Teacher’s Village, Quezon City which On July 29, 2002, or in the eve of the public auction scheduled
houses telecommunications facilities; and the following day, the lower court issued a TRO, followed, after
due hearing, by a writ of preliminary injunction via its order of
(c) Tax Declaration Nos. D-011-10809, D-011-10810, August 20, 2002.
D-011-10811, and D-011-11540 referring to
Bayantel’s Exchange Center located in Proj. 8, Brgy. And, having heard the parties on the merits, the same court
Bahay Toro, Tandang Sora, Quezon City which came out with its challenged Decision of June 6, 2003, the
houses the Network Operations Group and cover dispositive portion of which reads:
switching, transmission and other related equipment.
WHEREFORE, premises considered, pursuant to the enabling
In 1993, the government of Quezon City, pursuant to the taxing franchise under Section 11 of Republic Act No. 7633, the real
power vested on local government units by Section 5, Article X estate properties and buildings of petitioner [now, respondent
of the 1987 Constitution, infra, in relation to Section 232 of the Bayantel] which have been admitted to be used in the
LGC, supra, enacted City Ordinance No. SP-91, S-93, operation of petitioner’s franchise described in the following tax
otherwise known as the Quezon City Revenue Code declarations are hereby DECLARED exempt from real estate
(QCRC),5 imposing, under Section 5 thereof, a real property taxation:
tax on all real properties in Quezon City, and, reiterating in its
Section 6, the withdrawal of exemption from real property tax (1) Tax Declaration No. D-096-04071 –
under Section 234 of the LGC, supra. Furthermore, much like
the LGC, the QCRC, under its Section 230, withdrew tax
exemption privileges in general, as follows: (2) Tax Declaration No. D-096-04074 –

SEC. 230. Withdrawal of Tax Exemption Privileges. – Unless (3) Tax Declaration No. D-124-01013 –
otherwise provided in this Code, tax exemptions or incentives
granted to, or presently enjoyed by all persons, whether natural (4) Tax Declaration No. D-011-10810 –
or juridical, including government owned or controlled
corporations, except local water districts, cooperatives duly (5) Tax Declaration No. D-011-10811 –
registered under RA 6938, non-stock and non-profit hospitals
and educational institutions, business enterprises certified by
the Board of Investments (BOI) as pioneer or non-pioneer for a (6) Tax Declaration No. D-011-10809 –
period of six (6) and four (4) years, respectively, … are hereby
withdrawn effective upon approval of this Code (Emphasis (7) Tax Declaration No. D-124-00941 –
supplied).
(8) Tax Declaration No. D-124-00940 –
Conformably with the City’s Revenue Code, new tax
declarations for Bayantel’s real properties in Quezon City were
(9) Tax Declaration No. D-124-00939 –
issued by the City Assessor and were received by Bayantel on
August 13, 1998, except one (Tax Declaration No. 124-01013)
which was received on July 14, 1999. (10) Tax Declaration No. D-096-04072 –

Meanwhile, on March 16, 1995, Rep. Act No. 7925, 6 otherwise (11) Tax Declaration No. D-096-04073 –
known as the "Public Telecommunications Policy Act of the
Philippines," envisaged to level the playing field among (12) Tax Declaration No. D-011-11540 –
telecommunications companies, took effect. Section 23 of the
Act provides:
The preliminary prohibitory injunction issued in the August 20,
2002 Order of this Court is hereby made permanent. Since this
SEC. 23. Equality of Treatment in the Telecommunications is a resolution of a purely legal issue, there is no
Industry. – Any advantage, favor, privilege, exemption, or pronouncement as to costs.
immunity granted under existing franchises, or may hereafter
be granted, shall ipso facto become part of previously granted
SO ORDERED.
telecommunications franchises and shall be accorded
immediately and unconditionally to the grantees of such
franchises: Provided, however, That the foregoing shall neither Their motion for reconsideration having been denied by the
apply to nor affect provisions of telecommunications franchises court in its Order dated December 30, 2003, petitioners
concerning territory covered by the franchise, the life span of elevated the case directly to this Court on pure questions of
the franchise, or the type of service authorized by the law, ascribing to the lower court the following errors:
franchise.
I. [I]n declaring the real properties of respondent exempt from Lest it be overlooked, an appeal to the LBAA, to be properly
real property taxes notwithstanding the fact that the tax considered, required prior payment under protest of the
exemption granted to Bayantel in its original franchise had amount of P43,878,208.18, a figure which, in the light of the
been withdrawn by the [LGC] and that the said exemption was then prevailing Asian financial crisis, may have been difficult to
not restored by the enactment of RA 7633. raise up. Given this reality, an appeal to the LBAA may not be
considered as a plain, speedy and adequate remedy. It is thus
II. [In] declaring the real properties of respondent exempt from understandable why Bayantel opted to withdraw its earlier
real property taxes notwithstanding the enactment of the appeal with the LBAA and, instead, filed its petition for
[QCRC] which withdrew the tax exemption which may have prohibition with urgent application for injunctive relief in Civil
been granted by RA 7633. Case No. Q-02-47292. The remedy availed of by Bayantel
under Section 2, Rule 65 of the Rules of Court must be upheld.
III. [In] declaring the real properties of respondent exempt from
real property taxes notwithstanding the vague and ambiguous This brings the Court to the more weighty question of whether
grant of tax exemption provided under Section 11 of RA 7633. or not Bayantel’s real properties in Quezon City are, under its
franchise, exempt from real property tax.
IV. [In] declaring the real properties of respondent exempt from
real property taxes notwithstanding the fact that [it] had failed The lower court resolved the issue in the affirmative, basically
to exhaust administrative remedies in its claim for real property owing to the phrase "exclusive of this franchise" found in
tax exemption. (Words in bracket added.) Section 11 of Bayantel’s amended franchise, Rep. Act No.
7633. To petitioners, however, the language of Section 11 of
Rep. Act No. 7633 is neither clear nor unequivocal. The
As we see it, the errors assigned may ultimately be reduced to elaborate and extensive discussion devoted by the trial court
two (2) basic issues, namely: on the meaning and import of said phrase, they add, suggests
as much. It is petitioners’ thesis that Bayantel was in no time
1. Whether or not Bayantel’s real properties in given any express exemption from the payment of real
Quezon City are exempt from real property taxes property tax under its amendatory franchise.
under its legislative franchise; and
There seems to be no issue as to Bayantel’s exemption from
2. Whether or not Bayantel is required to exhaust real estate taxes by virtue of the term "exclusive of the
administrative remedies before seeking judicial relief franchise" qualifying the phrase "same taxes on its real estate,
with the trial court. buildings and personal property," found in Section 14, supra, of
its franchise, Rep. Act No. 3259, as originally granted.
We shall first address the second issue, the same being
procedural in nature. The legislative intent expressed in the phrase "exclusive of this
franchise" cannot be construed other than distinguishing
Petitioners argue that Bayantel had failed to avail itself of the between two (2) sets of properties, be they real or personal,
administrative remedies provided for under the LGC, adding owned by the franchisee, namely, (a) those actually, directly
that the trial court erred in giving due course to Bayantel’s and exclusively used in its radio or telecommunications
petition for prohibition. To petitioners, the appeal mechanics business, and (b) those properties which are not so used. It is
under the LGC constitute Bayantel’s plain and speedy remedy worthy to note that the properties subject of the present
in this case. controversy are only those which are admittedly falling under
the first category.

The Court does not agree.

To the mind of the Court, Section 14 of Rep. Act No. 3259
effectively works to grant or delegate to local governments of
Petitions for prohibition are governed by the following provision Congress’ inherent power to tax the franchisee’s properties
of Rule 65 of the Rules of Court: belonging to the second group of properties indicated above,
that is, all properties which, "exclusive of this franchise," are
SEC. 2. Petition for prohibition. – When the proceedings of any not actually and directly used in the pursuit of its franchise. As
tribunal, … are without or in excess of its or his jurisdiction, or may be recalled, the taxing power of local governments under
with grave abuse of discretion amounting to lack or excess of both the 1935 and the 1973 Constitutions solely depended
jurisdiction, and there is no appeal or any other plain, speedy, upon an enabling law. Absent such enabling law, local
and adequate remedy in the ordinary course of law, a person government units were without authority to impose and collect
aggrieved thereby may file a verified petition in the proper taxes on real properties within their respective territorial
court, alleging the facts with certainty and praying that jurisdictions. While Section 14 of Rep. Act No. 3259 may be
judgment be rendered commanding the respondent to desist validly viewed as an implied delegation of power to tax, the
from further proceedings in the action or matter specified delegation under that provision, as couched, is limited to
therein, or otherwise, granting such incidental reliefs as law impositions over properties of the franchisee which are not
and justice may require. actually, directly and exclusively used in the pursuit of its
franchise. Necessarily, other properties of Bayantel directly
used in the pursuit of its business are beyond the pale of the
With the reality that Bayantel’s real properties were already
delegated taxing power of local governments. In a very real
levied upon on account of its nonpayment of real estate taxes
sense, therefore, real properties of Bayantel, save those
thereon, the Court agrees with Bayantel that an appeal to the
exclusive of its franchise, are subject to realty taxes.
LBAA is not a speedy and adequate remedy within the context
Ultimately, therefore, the inevitable result was that all realties
of the aforequoted Section 2 of Rule 65. This is not to mention
which are actually, directly and exclusively used in the
of the auction sale of said properties already scheduled on July
operation of its franchise are "exempted" from any property
30, 2002.
tax.

Moreover, one of the recognized exceptions to the exhaustion-

Bayantel’s franchise being national in character, the
of-administrative remedies rule is when, as here, only legal
"exemption" thus granted under Section 14 of Rep. Act No.
issues are to be resolved. In fact, the Court, cognizant of the
3259 applies to all its real or personal properties found
nature of the questions presently involved, gave due course to
anywhere within the Philippine archipelago.
the instant petition. As the Court has said in Ty vs. Trampe:7

However, with the LGC’s taking effect on January 1, 1992,

xxx. Although as a rule, administrative remedies must first be
Bayantel’s "exemption" from real estate taxes for properties of
exhausted before resort to judicial action can prosper, there is
whatever kind located within the Metro Manila area was, by
a well-settled exception in cases where the controversy does
force of Section 234 of the Code, supra, expressly withdrawn.
not involve questions of fact but only of law. xxx.
But, not long thereafter, however, or on July 20, 1992,
Congress passed Rep. Act No. 7633 amending Bayantel’s
original franchise. Worthy of note is that Section 11 of Rep. Act
No. 7633 is a virtual reenacment of the tax provision, i.e., within the jurisdiction of the local unit to pass.11 (Emphasis
Section 14, supra, of Bayantel’s original franchise under Rep. supplied).
Act No. 3259. Stated otherwise, Section 14 of Rep. Act No.
3259 which was deemed impliedly repealed by Section 234 of In net effect, the controversy presently before the Court
the LGC was expressly revived under Section 14 of Rep. Act involves, at bottom, a clash between the inherent taxing power
No. 7633. In concrete terms, the realty tax exemption of the legislature, which necessarily includes the power to
heretofore enjoyed by Bayantel under its original franchise, but exempt, and the local government’s delegated power to tax
subsequently withdrawn by force of Section 234 of the LGC, under the aegis of the 1987 Constitution.
has been restored by Section 14 of Rep. Act No. 7633.
Now to go back to the Quezon City Revenue Code which
The Court has taken stock of the fact that by virtue of Section imposed real estate taxes on all real properties within the city’s
5, Article X of the 1987 Constitution,8 local governments are territory and removed exemptions theretofore "previously
empowered to levy taxes. And pursuant to this constitutional granted to, or presently enjoyed by all persons, whether natural
empowerment, juxtaposed with Section 2329 of the LGC, the or juridical ….,"12 there can really be no dispute that the power
Quezon City government enacted in 1993 its local Revenue of the Quezon City Government to tax is limited by Section 232
Code, imposing real property tax on all real properties found of the LGC which expressly provides that "a province or city or
within its territorial jurisdiction. And as earlier stated, the City’s municipality within the Metropolitan Manila Area may levy an
Revenue Code, just like the LGC, expressly withdrew, under annual ad valorem tax on real property such as land, building,
Section 230 thereof, supra, all tax exemption privileges in machinery, and other improvement not hereinafter specifically
general. exempted." Under this law, the Legislature highlighted its
power to thereafter exempt certain realties from the taxing
This thus raises the question of whether or not the City’s power of local government units. An interpretation denying
Revenue Code pursuant to which the city treasurer of Quezon Congress such power to exempt would reduce the phrase "not
City levied real property taxes against Bayantel’s real hereinafter specifically exempted" as a pure jargon, without
properties located within the City effectively withdrew the tax meaning whatsoever. Needless to state, such absurd situation
exemption enjoyed by Bayantel under its franchise, as is unacceptable.
amended.
For sure, in Philippine Long Distance Telephone Company,
Bayantel answers the poser in the negative arguing that once Inc. (PLDT) vs. City of Davao,13 this Court has upheld the
again it is only "liable to pay the same taxes, as any other power of Congress to grant exemptions over the power of local
persons or corporations on all its real or personal properties, government units to impose taxes. There, the Court wrote:
exclusive of its franchise."
Indeed, the grant of taxing powers to local government units
Bayantel’s posture is well-taken. While the system of local under the Constitution and the LGC does not affect the power
government taxation has changed with the onset of the 1987 of Congress to grant exemptions to certain persons, pursuant
Constitution, the power of local government units to tax is still to a declared national policy. The legal effect of the
limited. As we explained in Mactan Cebu International Airport constitutional grant to local governments simply means that in
Authority:10 interpreting statutory provisions on municipal taxing powers,
doubts must be resolved in favor of municipal corporations.
The power to tax is primarily vested in the Congress; however, (Emphasis supplied.)
in our jurisdiction, it may be exercised by local legislative
bodies, no longer merely be virtue of a valid delegation as As we see it, then, the issue in this case no longer dwells on
before, but pursuant to direct authority conferred by Section 5, whether Congress has the power to exempt Bayantel’s
Article X of the Constitution. Under the latter, the exercise of properties from realty taxes by its enactment of Rep. Act No.
the power may be subject to such guidelines and limitations as 7633 which amended Bayantel’s original franchise. The more
the Congress may provide which, however, must be consistent decisive question turns on whether Congress actually did
with the basic policy of local autonomy. (at p. 680; Emphasis exempt Bayantel’s properties at all by virtue of Section 11 of
supplied.) Rep. Act No. 7633.

Clearly then, while a new slant on the subject of local taxation Admittedly, Rep. Act No. 7633 was enacted subsequent to the
now prevails in the sense that the former doctrine of local LGC. Perfectly aware that the LGC has already withdrawn
government units’ delegated power to tax had been effectively Bayantel’s former exemption from realty taxes, Congress opted
modified with Article X, Section 5 of the 1987 Constitution now to pass Rep. Act No. 7633 using, under Section 11 thereof,
in place, .the basic doctrine on local taxation remains exactly the same defining phrase "exclusive of this franchise"
essentially the same. For as the Court stressed in Mactan, "the which was the basis for Bayantel’s exemption from realty taxes
power to tax is [still] primarily vested in the Congress." prior to the LGC. In plain language, Section 11 of Rep. Act No.
7633 states that "the grantee, its successors or assigns shall
This new perspective is best articulated by Fr. Joaquin G. be liable to pay the same taxes on their real estate, buildings
Bernas, S.J., himself a Commissioner of the 1986 and personal property, exclusive of this franchise, as other
Constitutional Commission which crafted the 1987 persons or corporations are now or hereafter may be required
Constitution, thus: by law to pay." The Court views this subsequent piece of
legislation as an express and real intention on the part of
Congress to once again remove from the LGC’s delegated
What is the effect of Section 5 on the fiscal position of taxing power, all of the franchisee’s (Bayantel’s) properties that
municipal corporations? Section 5 does not change the are actually, directly and exclusively used in the pursuit of its
doctrine that municipal corporations do not possess inherent franchise.
powers of taxation. What it does is to confer municipal
corporations a general power to levy taxes and otherwise
create sources of revenue. They no longer have to wait for a WHEREFORE, the petition is DENIED.
statutory grant of these powers. The power of the legislative
authority relative to the fiscal powers of local governments has No pronouncement as to costs.
been reduced to the authority to impose limitations on
municipal powers. Moreover, these limitations must be SO ORDERED.
"consistent with the basic policy of local autonomy." The
important legal effect of Section 5 is thus to reverse the
principle that doubts are resolved against municipal 5.6
corporations. Henceforth, in interpreting statutory provisions on
municipal fiscal powers, doubts will be resolved in favor of G.R. No. 166838               June 15, 2011
municipal corporations. It is understood, however, that taxes
imposed by local government must be for a public purpose,
uniform within a locality, must not be confiscatory, and must be
STA. LUCIA REALTY & DEVELOPMENT, Inc., Petitioner, Cainta and Pasig, presented a "prejudicial question" to the
vs. resolution of the case.12
CITY OF PASIG, Respondent,
MUNICIPALITY OF CAINTA, PROVINCE OF The RTC denied this in an Order dated December 4, 1996 for
RIZAL, Intervenor. lack of merit. Holding that the TCTs were conclusive evidence
as to its ownership and location,13 the RTC, on August 10,
DECISION 1998, rendered a Decision in favor of Pasig:

LEONARDO-DE CASTRO, J.: WHEREFORE, in view of the foregoing, judgment is hereby

rendered in favor of [Pasig], ordering Sta. Lucia Realty and
For review is the June 30, 2004 Decision 1 and the January 27, Development, Inc. to pay [Pasig]:
2005 Resolution2 of the Court of Appeals in CA-G.R. CV No.
69603, which affirmed with modification the August 10, 1998 1) ₱273,349.14 representing unpaid real estate taxes
Decision3 and October 9, 1998 Order4 of the Regional Trial and penalties as of 1996, plus interest of 2% per
Court (RTC) of Pasig City, Branch 157, in Civil Case No. month until fully paid;
65420.
2) ₱50,000.00 as and by way of attorney’s fees; and
Petitioner Sta. Lucia Realty & Development, Inc. (Sta. Lucia) is
the registered owner of several parcels of land with Transfer 3) The costs of suit.
Certificates of Title (TCT) Nos. 39112, 39110 and 38457, all of
which indicated that the lots were located in Barrio Tatlong
Kawayan, Municipality of Pasig5 (Pasig). Judgment is likewise rendered against the intervenor
Municipality of Cainta, Rizal, ordering it to refund to Sta. Lucia
Realty and Development, Inc. the realty tax payments
The parcel of land covered by TCT No. 39112 was improperly collected and received by the former from the latter
consolidated with that covered by TCT No. 518403, which was in the aggregate amount of ₱358, 403.68.14
situated in Barrio Tatlong Kawayan, Municipality of Cainta,
Province of Rizal (Cainta). The two combined lots were
subsequently partitioned into three, for which TCT Nos. After Sta. Lucia and Cainta filed their Notices of Appeal, Pasig,
532250, 598424, and 599131, now all bearing the Cainta on September 11, 1998, filed a Motion for Reconsideration of
address, were issued. the RTC’s August 10, 1998 Decision.

TCT No. 39110 was also divided into two lots, becoming TCT The RTC, on October 9, 1998, granted Pasig’s motion in an
Nos. 92869 and 92870. Order15 and modified its earlier decision to include the realty
taxes due on the improvements on the subject lots:
The lot covered by TCT No. 38457 was not segregated, but a
commercial building owned by Sta. Lucia East Commercial WHEREFORE, premises considered, the plaintiff’s motion for
Center, Inc., a separate corporation, was built on it.6 reconsideration is hereby granted. Accordingly, the Decision,
dated August 10, 1998 is hereby modified in that the defendant
is hereby ordered to pay plaintiff the amount of ₱5,627,757.07
Upon Pasig’s petition to correct the location stated in TCT Nos. representing the unpaid taxes and penalties on the
532250, 598424, and 599131, the Land Registration Court, on improvements on the subject parcels of land whereon real
June 9, 1995, ordered the amendment of the TCTs to read that estate taxes are adjudged as due for the year 1996.16
the lots with respect to TCT No. 39112 were located in Barrio
Tatlong Kawayan, Pasig City.7
Accordingly, Sta. Lucia filed an Amended Notice of Appeal to
include the RTC’s October 9, 1998 Order in its protest.
On January 31, 1994, Cainta filed a petition8 for the settlement
of its land boundary dispute with Pasig before the RTC, Branch
74 of Antipolo City (Antipolo RTC). This case, docketed as Civil On October 16, 1998, Pasig filed a Motion for Execution
Case No. 94-3006, is still pending up to this date. Pending Appeal, to which both Sta. Lucia and Cainta filed
several oppositions, on the assertion that there were no good
reasons to warrant the execution pending appeal.17
On November 28, 1995, Pasig filed a Complaint,9 docketed as
Civil Case No. 65420, against Sta. Lucia for the collection of
real estate taxes, including penalties and interests, on the lots On April 15, 1999, the RTC ordered the issuance of a Writ of
covered by TCT Nos. 532250, 598424, 599131, 92869, 92870 Execution against Sta. Lucia.
and 38457, including the improvements thereon (the subject
properties). On May 21, 1999, Sta. Lucia filed a Petition for Certiorari under
Rule 65 of the Rules of Court with the Court of Appeals to
Sta. Lucia, in its Answer, alleged that it had been religiously assail the RTC’s order granting the execution. Docketed as
paying its real estate taxes to Cainta, just like what its CA-G.R. SP No. 52874, the petition was raffled to the First
predecessors-in-interest did, by virtue of the demands and Division of the Court of Appeals, which on September 22,
assessments made and the Tax Declarations issued by Cainta 2000, ruled in favor of Sta. Lucia, to wit:
on the claim that the subject properties were within its territorial
jurisdiction. Sta. Lucia further argued that since 1913, the real WHEREFORE, in view of the foregoing, the instant petition is
estate taxes for the lots covered by the above TCTs had been hereby GIVEN DUE COURSE and GRANTED by this Court.
paid to Cainta.10 The assailed Order dated April 15, 1999 in Civil Case No.
65420 granting the motion for execution pending appeal and
Cainta was allowed to file its own Answer-in-Intervention when ordering the issuance of a writ of execution pending appeal is
it moved to intervene on the ground that its interest would be hereby SET ASIDE and declared NULL and VOID.18
greatly affected by the outcome of the case. It averred that it
had been collecting the real property taxes on the subject The Court of Appeals added that the boundary dispute case
properties even before Sta. Lucia acquired them. Cainta further presented a "prejudicial question which must be decided
asseverated that the establishment of the boundary before x x x Pasig can collect the realty taxes due over the
monuments would show that the subject properties are within subject properties."19
its metes and bounds.11
Pasig sought to have this decision reversed in a Petition for
Sta. Lucia and Cainta thereafter moved for the suspension of Certiorari filed before this Court on November 29, 2000, but
the proceedings, and claimed that the pending petition in the this was denied on June 25, 2001 for being filed out of time.20
Antipolo RTC, for the settlement of boundary dispute between
Meanwhile, the appeal filed by Sta. Lucia and Cainta was cases, the suspension of the proceedings in the Pasig RTC is
raffled to the (former) Seventh Division of the Court of Appeals baseless.
and docketed as CA-G.R. CV No. 69603. On June 30, 2004,
the Court of Appeals rendered its Decision, wherein it agreed Cainta also filed its own comment reiterating its legal authority
with the RTC’s judgment: over the subject properties, which fall within its territorial
jurisdiction. Cainta claims that while it has been collecting the
WHEREFORE, the appealed Decision is hereby AFFIRMED realty taxes over the subject properties since way back 1913,
with the MODIFICATION that the award of P50,000.00 Pasig only covered the same for real property tax purposes in
attorney’s fees is DELETED.21 1990, 1992, and 1993. Cainta also insists that there is a
discrepancy between the locational entries and the technical
In affirming the RTC, the Court of Appeals declared that there descriptions in the TCTs, which further supports the need to
was no proper legal basis to suspend the await the settlement of the boundary dispute case it initiated.
proceedings.22 Elucidating on the legal meaning of a
"prejudicial question," it held that "there can be no prejudicial The errors presented before this Court can be narrowed down
question when the cases involved are both civil."23 The Court of into two basic issues:
Appeals further held that the elements of litis pendentia and
forum shopping, as alleged by Cainta to be present, were not 1) Whether the RTC and the CA were correct in
met. deciding Pasig’s Complaint without waiting for the
resolution of the boundary dispute case between
Sta. Lucia and Cainta filed separate Motions for Pasig and Cainta; and
Reconsideration, which the Court of Appeals denied in a
Resolution dated January 27, 2005. 2) Whether Sta. Lucia should continue paying its real
property taxes to Cainta, as it alleged to have always
Undaunted, Sta. Lucia and Cainta filed separate Petitions for done, or to Pasig, as the location stated in Sta.
Certiorari with this Court. Cainta’s petition, docketed as G.R. Lucia’s TCTs.
No. 166856 was denied on April 13, 2005 for Cainta’s failure to
show any reversible error. Sta. Lucia’s own petition is the one We agree with the First Division of the Court of Appeals in CA-
subject of this decision.24 G.R. SP No. 52874 that the resolution of the boundary dispute
between Pasig and Cainta would determine which local
In praying for the reversal of the June 30, 2004 judgment of the government unit is entitled to collect realty taxes from Sta.
Court of Appeals, Sta. Lucia assigned the following errors: Lucia.26

ASSIGNMENT OF ERRORS The Local Government Unit entitled

To Collect Real Property Taxes
I
The Former Seventh Division of the Court of Appeals held that
THE HONORABLE COURT OF APPEALS ERRED IN the resolution of the complaint lodged before the Pasig RTC
AFFIRMING [WITH MODIFICATION] THE DECISION OF THE did not necessitate the assessment of the parties’ evidence on
REGIONAL TRIAL COURT IN PASIG CITY the metes and bounds of their respective territories. It cited our
ruling in Odsigue v. Court of Appeals27 wherein we said that a
certificate of title is conclusive evidence of both its ownership
II. and location.28 The Court of Appeals even referred to specific
provisions of the 1991 Local Government Code and Act. No.
THE HONORABLE COURT OF APPEALS ERRED IN NOT 496 to support its ruling that Pasig had the right to collect the
SUSPENDING THE CASE IN VIEW OF THE PENDENCY OF realty taxes on the subject properties as the titles of the subject
THE BOUNDARY DISPUTE WHICH WILL FINALLY properties show on their faces that they are situated in Pasig.29
DETERMINE THE SITUS OF THE SUBJECT PROPERTIES
Under Presidential Decree No. 464 or the "Real Property Tax
III. Code," the authority to collect real property taxes is vested in
the locality where the property is situated:
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT THE PAYMENT OF REALTY TAXES Sec. 5. Appraisal of Real Property. — All real property,
THROUGH THE MUNICIPALITY OF CAINTA WAS VALID whether taxable or exempt, shall be appraised at the current
PAYMENT OF REALTY TAXES and fair market value prevailing in the locality where the
property is situated.
IV.
xxxx
THE HONORABLE COURT OF APPEALS ERRED IN NOT
HOLDING THAT IN THE MEANTIME THAT THE BOUNDARY Sec. 57. Collection of tax to be the responsibility of treasurers.
DISPUTE CASE IN ANTIPOLO CITY REGIONAL TRIAL — The collection of the real property tax and all penalties
COURT IS BEING FINALLY RESOLVED, THE PETITIONER accruing thereto, and the enforcement of the remedies
STA. LUCIA SHOULD BE PAYING THE REALTY TAXES ON provided for in this Code or any applicable laws, shall be the
THE SUBJECT PROPERTIES THROUGH THE INTERVENOR responsibility of the treasurer of the province, city or
CAINTA TO PRESERVE THE STATUS QUO.25 municipality where the property is situated. (Emphases ours.)

Pasig, countering each error, claims that the lower courts This requisite was reiterated in Republic Act No. 7160, also
correctly decided the case considering that the TCTs are clear known as the 1991 the Local Government Code, to wit:
on their faces that the subject properties are situated in its
territorial jurisdiction. Pasig contends that the principles of litis Section 201. Appraisal of Real Property. – All real property,
pendentia, forum shopping, and res judicata are all whether taxable or exempt, shall be appraised at the current
inapplicable, due to the absence of their requisite elements. and fair market value prevailing in the locality where the
Pasig maintains that the boundary dispute case before the property is situated. The Department of Finance shall
Antipolo RTC is independent of the complaint for collection of promulgate the necessary rules and regulations for the
realty taxes which was filed before the Pasig RTC. It avers that classification, appraisal, and assessment of real property
the doctrine of "prejudicial question," which has a definite pursuant to the provisions of this Code.
meaning in law, cannot be invoked where the two cases
involved are both civil. Thus, Pasig argues, since there is no
legal ground to preclude the simultaneous hearing of both Section 233. Rates of Levy. – A province or city or a
municipality within the Metropolitan Manila Area shall fix a
uniform rate of basic real property tax applicable to their and vested. They cannot be used to protect a usurper from the
respective localities as follows: x x x. (Emphases ours.) true owner, nor can they be used as a shield for the
commission of fraud; neither do they permit one to enrich
The only import of these provisions is that, while a local himself at the expense of other.35
government unit is authorized under several laws to collect real
estate tax on properties falling under its territorial jurisdiction, it In Pioneer Insurance and Surety Corporation v. Heirs of
is imperative to first show that these properties are Vicente Coronado,36 we set aside the lower courts’ ruling that
unquestionably within its geographical boundaries. the property subject of the case was not situated in the location
stated and described in the TCT, for lack of adequate basis.
Accentuating on the importance of delineating territorial Our decision was in line with the doctrine that the TCT is
boundaries, this Court, in Mariano, Jr. v. Commission on conclusive evidence of ownership and location. However, we
Elections30 said: refused to simply uphold the veracity of the disputed TCT, and
instead, we remanded the case back to the trial court for the
determination of the exact location of the property seeing that it
The importance of drawing with precise strokes the territorial was the issue in the complaint filed before it.37
boundaries of a local unit of government cannot be
overemphasized. The boundaries must be clear for they define
the limits of the territorial jurisdiction of a local government unit. In City Government of Tagaytay v. Guerrero, 38 this Court
It can legitimately exercise powers of government only within reprimanded the City of Tagaytay for levying taxes on a
the limits of its territorial jurisdiction. Beyond these limits, its property that was outside its territorial jurisdiction, viz:
acts are ultra vires. Needless to state, any uncertainty in the
boundaries of local government units will sow costly conflicts in In this case, it is basic that before the City of Tagaytay may
the exercise of governmental powers which ultimately will levy a certain property for sale due to tax delinquency, the
prejudice the people's welfare. This is the evil sought to be subject property should be under its territorial jurisdiction. The
avoided by the Local Government Code in requiring that the city officials are expected to know such basic principle of law.
land area of a local government unit must be spelled out in The failure of the city officials of Tagaytay to verify if the
metes and bounds, with technical descriptions.31 (Emphasis property is within its jurisdiction before levying taxes on the
ours.) same constitutes gross negligence.39 (Emphasis ours.)

The significance of accurately defining a local government Although it is true that "Pasig" is the locality stated in the TCTs
unit’s boundaries was stressed in City of Pasig v. Commission of the subject properties, both Sta. Lucia and Cainta aver that
on Elections,32 which involved the consolidated petitions filed the metes and bounds of the subject properties, as they are
by the parties herein, Pasig and Cainta, against two decisions described in the TCTs, reveal that they are within Cainta’s
of the Commission on Elections (COMELEC) with respect to boundaries.40 This only means that there may be a conflict
the plebiscites scheduled by Pasig for the ratification of its between the location as stated and the location as technically
creation of two new Barangays. Ruling on the contradictory described in the TCTs. Mere reliance therefore on the face of
reliefs sought by Pasig and Cainta, this Court affirmed the the TCTs will not suffice as they can only be conclusive
COMELEC decision to hold in abeyance the plebiscite to ratify evidence of the subject properties’ locations if both the stated
the creation of Barangay Karangalan; but set aside the and described locations point to the same area.
COMELEC’s other decision, and nullified the plebiscite that
ratified the creation of Barangay Napico in Pasig, until the The Antipolo RTC, wherein the boundary dispute case
boundary dispute before the Antipolo RTC had been resolved. between Pasig and Cainta is pending, would be able to best
The aforementioned case held as follows: determine once and for all the precise metes and bounds of
both Pasig’s and Cainta’s respective territorial jurisdictions.
1. The Petition of the City of Pasig in G.R. No. 125646 The resolution of this dispute would necessarily ascertain the
is DISMISSED for lack of merit; while extent and reach of each local government’s authority, a
prerequisite in the proper exercise of their powers, one of
2. The Petition of the Municipality of Cainta in G.R. which is the power of taxation. This was the conclusion
No. 128663 is GRANTED. The COMELEC Order in reached by this Court in City of Pasig v. Commission on
UND No. 97-002, dated March 21, 1997, is SET Elections,41 and by the First Division of the Court of Appeals in
ASIDE and the plebiscite held on March 15, 1997 to CA-G.R. SP No. 52874. We do not see any reason why we
ratify the creation of Barangay Napico in the City of cannot adhere to the same logic and reasoning in this case.
Pasig is declared null and void. Plebiscite on the
same is ordered held in abeyance until after the The "Prejudicial Question" Debate
courts settle with finality the boundary dispute
between the City of Pasig and the Municipality of It would be unfair to hold Sta. Lucia liable again for real
Cainta, in Civil Case No. 94-3006.33 property taxes it already paid simply because Pasig cannot
wait for its boundary dispute with Cainta to be decided. Pasig
Clearly therefore, the local government unit entitled to collect has consistently argued that the boundary dispute case is not a
real property taxes from Sta. Lucia must undoubtedly show prejudicial question that would entail the suspension of its
that the subject properties are situated within its territorial collection case against Sta. Lucia. This was also its argument
jurisdiction; otherwise, it would be acting beyond the powers in City of Pasig v. Commission on Elections,42 when it sought to
vested to it by law. nullify the COMELEC’s ruling to hold in abeyance (until the
settlement of the boundary dispute case), the plebiscite that
Certificates of Title as will ratify its creation of Barangay Karangalan. We agreed with
Conclusive Evidence of Location the COMELEC therein that the boundary dispute case
presented a prejudicial question and explained our statement
in this wise:
While we fully agree that a certificate of title is conclusive as to
its ownership and location, this does not preclude the filing of
an action for the very purpose of attacking the statements To begin with, we agree with the position of the COMELEC
therein. In De Pedro v. Romasan Development that Civil Case No. 94-3006 involving the boundary dispute
Corporation,34 we proclaimed that: between the Municipality of Cainta and the City of Pasig
presents a prejudicial question which must first be decided
before plebiscites for the creation of the proposed barangays
We agree with the petitioners that, generally, a certificate of may be held.
title shall be conclusive as to all matters contained therein and
conclusive evidence of the ownership of the land referred to
therein. However, it bears stressing that while certificates of The City of Pasig argues that there is no prejudicial question
title are indefeasible, unassailable and binding against the since the same contemplates a civil and criminal action and
whole world, including the government itself, they do not create does not come into play where both cases are civil, as in the
or vest title. They merely confirm or record title already existing instant case. While this may be the general rule, this Court has
held in Vidad v. RTC of Negros Oriental, Br. 42, that, in the
interest of good order, we can very well suspend action on one herein been delineated with accuracy, then there would be no
case pending the final outcome of another case closely controversy at all.
interrelated or linked to the first.
In the meantime, to avoid further animosity, Sta. Lucia is
In the case at bar, while the City of Pasig vigorously claims that directed to deposit the succeeding real property taxes due on
the areas covered by the proposed Barangays Karangalan and the subject properties, in an escrow account with the Land
Napico are within its territory, it can not deny that portions of Bank of the Philippines.
the same area are included in the boundary dispute case
pending before the Regional Trial Court of Antipolo. Surely, WHEREFORE, the instant petition is GRANTED. The June 30,
whether the areas in controversy shall be decided as within the 2004 Decision and the January 27, 2005 Resolution of the
territorial jurisdiction of the Municipality of Cainta or the City of Court of Appeals in CA-G.R. CV No. 69603 are SET ASIDE.
Pasig has material bearing to the creation of the proposed The City of Pasig and the Municipality of Cainta are both
Barangays Karangalan and Napico. Indeed, a requisite for the directed to await the judgment in their boundary dispute case
creation of a barangay is for its territorial jurisdiction to be (Civil Case No. 94-3006), pending before Branch 74 of the
properly identified by metes and bounds or by more or less Regional Trial Court in Antipolo City, to determine which local
permanent natural boundaries. Precisely because territorial government unit is entitled to exercise its powers, including the
jurisdiction is an issue raised in the pending civil case, until and collection of real property taxes, on the properties subject of
unless such issue is resolved with finality, to define the the dispute. In the meantime, Sta. Lucia Realty and
territorial jurisdiction of the proposed barangays would only be Development, Inc. is directed to deposit the succeeding real
an exercise in futility. Not only that, we would be paving the property taxes due on the lots and improvements covered by
way for potentially ultra vires acts of such barangays. x x TCT Nos. 532250, 598424, 599131, 92869, 92870 and 38457
x.43 (Emphases ours.) in an escrow account with the Land Bank of the Philippines.

It is obvious from the foregoing, that the term "prejudicial SO ORDERED.

question," as appearing in the cases involving the parties
herein, had been used loosely. Its usage had been more in
reference to its ordinary meaning, than to its strict legal 5.7
meaning under the Rules of Court. 44 Nevertheless, even
without the impact of the connotation derived from the term, G.R. No. 104151 March 10, 1995
our own Rules of Court state that a trial court may control its
own proceedings according to its sound discretion:
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
POWERS AND DUTIES OF COURTS AND JUDICIAL COURT OF APPEALS, ATLAS CONSOLIDATED MINING
OFFICERS AND DEVELOPMENT CORPORATION and COURT OF TAX
APPEALS, respondents.
Rule 135
G.R No. 105563 March 10, 1995
SEC. 5. Inherent powers of courts. – Every court shall have
power: ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION, petitioner,
xxxx vs.
COURT OF APPEALS COMMISSIONER OF INTERNAL
(g) To amend and control its process and orders so as to make REVENUE and COURT OF TAX APPEALS, respondents.
them comformable to law and justice.

Furthermore, we have acknowledged and affirmed this

inherent power in our own decisions, to wit: REGALADO, J.:

The court in which an action is pending may, in the exercise of Before us for joint adjudication are two petitions for review
a sound discretion, upon proper application for a stay of that on certiorari separately filed by the Commissioner of Internal
action, hold the action in abeyance to abide the outcome of Revenue in G.R. No. 104151, and by Atlas Consolidated
another pending in another court, especially where the parties Mining and Development Corporation in G.R. No. 105563,
and the issues are the same, for there is power inherent in which respectively seek the aside of the judgments of
every court to control the disposition of causes (sic) on its respondent Court of Appeals in CA-G.R. SP No. 25945
dockets with economy of time and effort for itself, for counsel, promulgated on February 12, 1992 1 and in CA-G.R. SP No.
and for litigants. Where the rights of parties to the second 26087 promulgated on May 22, 1992. 2
action cannot be properly determined until the questions raised
in the first action are settled the second action should be Atlas Consolidated Mining and Development Corporation
stayed. (herein also referred to as ACMDC) is a domestic corporation
which owns and operates a mining concession at Toledo City,
The power to stay proceedings is incidental to the power Cebu, the products of which are exported to Japan and other
inherent in every court to control the disposition of the cases foreign countries. On April 9, 1980, the Commissioner of
on its dockets, considering its time and effort, that of counsel Internal Revenue (also Commissioner, for brevity), acting on
and the litigants. But if proceedings must be stayed, it must be the basis of the report of the examiners of the Bureau of
done in order to avoid multiplicity of suits and prevent Internal Revenue (BIR), caused the service of an assessment
vexatious litigations, conflicting judgments, confusion between notice and demand for payment of the amount of
litigants and courts. It bears stressing that whether or not the P12,391,070.51 representing deficiency ad
RTC would suspend the proceedings in the SECOND CASE is valorem percentage and fixed taxes, including increments, for
submitted to its sound discretion.451avvphil the taxable year 1975 against ACMDC. 3

In light of the foregoing, we hold that the Pasig RTC should Likewise, on the basis. of the BIR examiner's report in another
have held in abeyance the proceedings in Civil Case No. investigation separately conducted, the Commissioner had
65420, in view of the fact that the outcome of the boundary another assessment notice, with a demand for payment of the
dispute case before the Antipolo RTC will undeniably affect amount of P13,531,466.80 representing the 1976 deficiency ad
both Pasig’s and Cainta’s rights. In fact, the only reason Pasig valorem and business taxes with P5,000.00 compromise
had to file a tax collection case against Sta. Lucia was not that penalty, served on ACMDC on September 23, 1980. 4
Sta. Lucia refused to pay, but that Sta. Lucia had already paid,
albeit to another local government unit. Evidently, had the ACMDC protested both assessments but the. same were
territorial boundaries of the contending local government units denied, hence it filed two separate petitions for review in the
Court of Tax Appeals (also, tax court) where they were from January 21, 1976
docketed as C.T.A. Cases Nos. 3467 and 3825. These two until fully paid as provided
cases, being substantially identical in most respects except for under Section 183 of P.D.
the taxable periods and the amounts involved, were eventually 69.
consolidated.
i) P91,883.75 as
On May 31, 1991, the Court of Tax Appeals rendered a deficiency contractor's tax
consolidated decision holding, inter alia, that ACMDC was not and surcharge on the
liable for deficiency ad valorem taxes on copper and silver for lease of personal property
1975 and 1976 in the respective amounts of P11,276,540.79 during the taxable year
and P12,882,760.80 thereby effectively sustaining the theory of 1976, plus 14% interest
ACMDC that in computing the ad valorem tax on copper from April 21, 1976 until
mineral, the refining and smelting charges should be deducted, fully paid as provided
in addition to freight and insurance charges, from the London under. Section 183 of P.D.
Metal Exchange (LME) price of manufactured copper. No. 69.

However, the tax court held ACMDC liable for the amount of With costs against
P1,572,637.48, exclusive of interest, consisting of 25% petitioner. 5
surcharge for late payment of the ad valorem tax and late filing
of notice of removal of silver, gold and pyrite extracted during As a consequence, both parties elevated their respective
certain periods, and for alleged deficiency manufacturer's sales contentions to respondent Court of Appeals in two separate
tax and contractor's tax. petitions for review. The petition filed by the Commissioner,
which was docketed as CA-G.R. SP No. 25945, questioned the
The particulars of the reduced amount of said tax obligation is portion of the judgment of the tax court deleting the ad
enumerated in detail in the dispositive portion of the valorem tax on copper and silver, while the appeal filed by
questioned judgment of the tax court, thus: ACMDC and docketed as CA-G.R. SP No. 26087 assailed that
part of the decision ordering it to pay P1,572,637.48
WHEREFORE, petitioner should and is representing alleged deficiency assessment.
hereby ORDERED to pay the total amount of
the following: On February 12, 1992, judgment was rendered by respondent
Court of Appeals in CA-G.R. SP No. 25945, dismissing the
a) P297,900.39 as 25% petition and affirming the tax court's decision on the manner of
surcharge on silver computing the ad valorem tax. 6 Hence, the Commissioner of
extracted during the period Internal Revenue filed a petition before- us in G.R. No. 104151,
November 1, 1974 to raising the sole issue of whether or not, in computing the ad
December 31, 1975. valorem tax on copper, charges for smelting and refining
should also be deducted, in addition to freight and insurance
costs, from the price of copper concentrates.
b) P161,027.53 as 25%
surcharge on silver
extracted for the taxable On May 22, 1992, judgment was likewise rendered by the
year 1976. same respondent court in CA-G.R. SP No. 26087, modifying
the judgment of the tax court and further reducing the tax
liability of ACMDC by deleting therefrom the following items:
c) P315,027.30 as 25%
surcharge on gold
extracted during the period (1) the award under paragraph (a) of
November 1, 1974 to P297,900.39 as 25% surcharge on silver
December 31, 1975. extracted during the period November 1,
1974 to December 31, 1975;
d) P260,180.55 as 25%
surcharge on gold during (2) the award under paragraph (c) thereof of
the taxable year 1976. P315,027.30 as 25% surcharge on gold
extracted during the period November 1,
1974 to December 31, 1975; and
e) P53,585.30 as 25%
surcharge on pyrite
extracted during the period (3) the award under paragraph (e) thereof of
November 1, 1974 to P53,585.30 as 24% (sic, 25%) surcharge on
December 31, 1975. pyrite extracted during the period November
1, 1974 to December 31, 1975. 7
f) P53,283.69 as 25%
surcharge on pyrite Still not satisfied with the said judgment which had reduced its
extracted during the tax liability to P906,124.49, as a final recourse ACMDC came
taxable year 1976. to this Court on a petition for review on certiorari in G.R. No.
105563, claiming that it is not liable at all for any deficiency. tax
assessments for 1975 and 1976. In our resolution of
g) P316,117.53 as September 1, 1993, G.R. No. 104151 was ordered
deficiency manufacturer's consolidated with G.R. No. 105563. 8
sales tax and surcharge
during the taxable year
1975; plus 14% interest I. G.R No. 104151
from January 21, 1976
until fully paid as provided The Commissioner of Internal Revenue claims that the Court of
under Section 183 of P.D. Appeals and the tax court erred in allowing the deduction of
No. 69. refining and smelting charges from the price of copper
concentrates. It is the contention of the Commissioner that the
h) P23,631.44 as actual market value of the mineral products should be the
deficiency contractor's tax gross sales realized from copper concentrates, deducting
and surcharge on the therefrom mining, milling, refining, transporting, handling,
lease of personal property marketing or any other expenses. He submits that the phrase
during the taxable year "or any other expenses" includes smelting and refining charges
1975; plus 14% interest and that the law allows deductions for actual cost of ocean
freight and insurance only in instances where the minerals or products, but on the price which the same — before or without
mineral products are sold or consigned abroad by the lessees undergoing a process of manufacture — would command in
or owner of the mine under C.I.F. terms, hence it is error to the ordinary course of business. 9
allow smelting and refining charges as deductions.
In the instant case, the allowance by the tax court of smelting
We are not persuaded by his postulation and find the and refining charges as deductions is not contrary to the
arguments adduced in support thereof untenable. above-mentioned provisions of the tax code which ostensibly
prohibit any form of deduction except freight and insurance
The pertinent provisions of the National Internal Revenue Code charges. A review of the records will show that it was the
(tax code, for facility) at the time material to this controversy, London Metal Exchange price on wire bar which was used as
read as follows: tax base by ACMDC for purposes of the 2% ad valorem tax on
copper concentrates since there was no available market price
quotation in the commodity exchange or markets of the world
Sec. 243. Ad valorem taxes on output of for copper concentrates nor was there any market quotation
mineral lands not covered by lease. — There locally obtainable. 10 Hence, the charges for smelting and
is hereby imposed on the actual market refining were assessed not on the basis of the price of the
value of the annual gross output of the copper extracted at the mine site which is prohibited by law,
minerals mineral products extracted or but on the basis of the actual market value of the manufactured
produced from all mineral lands not covered copper which in this case is the price quoted for copper wire
by lease, an ad valorem tax in the amount of bar by the London Metal Exchange.
two per centum of the value of the output
except gold which shall pay one and one-
half per centum. The issue of whether the ad valorem tax should be based upon
the value of the finished product, or the value upon extraction
of the raw materials or minerals used in the manufacture of
Before the minerals or mineral products are said finished products, has been passed upon by us in several
removed from the mines, the Commissioner cases wherein we held that the ad valorem tax is to be
of Internal Revenue or his representatives computed on the basis of the market value of the mineral in its
shall first be notified of such removal on a condition at the time of such removal and before it undergoes a
form prescribed for the purpose. (As chemical change through manufacturing process, as
amended by Rep. Act No. 6110.) distinguished from a purely physical process which does not
necessarily involve the change or transformation of the raw
Sec. 246. Definitions of the terms "gross material into a composite distinct product. 11
output," "minerals" and "mineral products."
— Disposition of royalties and ad Thus, in the case of Cebu Portland Cement Co. vs.
valorem taxes. The term "gross output" shall Commissioner of Internal Revenue, 12 this Court ruled:
be interpreted as the actual market value of
minerals or mineral products, or of bullion
from each mine or mineral lands operated as . . . ad valorem tax is a tax not on the
a separate entity without any deduction from minerals, but upon the privilege of severing
mining, milling, refining, transporting, or extracting the same from the earth, the
handling, marketing, or any other government's right to exact the said impost
expenses: Provided, however, That if the springing from the Regalian theory of State
minerals or mineral products are sold or ownership of its natural resources.
consigned. abroad by the lessee or owner of
the mine under C.I.F. terms, the actual cost . . . While cement is composed of 80%
of ocean freight and insurance shall be minerals, it is not merely an admixture or
deducted. The output of any group of blending of raw materials, as lime, silica,
contiguous mining claim shall not be shale and others. It is the result of a definite
subdivided. The word "minerals" shall mean the crushing of minerals, grinding, mixing,
all inorganic substances found in nature calcining, cooling, adding of retarder or raw
whether in solid, liquid, gaseous, or any gypsum. In short, before cement reaches its
intermediate state. The term "mineral saleable form, the minerals had already
products" shall mean things produced by the undergone a chemical change through
lessee, concessionaire or owner of mineral manufacturing process, This could not have
lands, at least eighty per cent of which things been the state of mineral products' that the
must be minerals extracted by such lessee, law contemplates for purposes of imposing
concessionaire, or owner of mineral lands. the ad valorem tax. . . . this tax is imposed
Ten per centum of the royalties and ad on the privilege of extracting or severing the
valorem taxes herein provided shall accrue minerals from the mines. To our minds,
to the municipality and ten per centum to the therefore the inclusion of the term mineral
province where the-mines are situated, and products is intended to comprehend cases
eighty per centum to the National Treasury. where the mined or quarried elements may
(As amended by Rep. Acts Nos. 834, 1299, not be usable in its original state without
and by Rep. Act No. 1510, approved June application of simple treatments . . . which
16, 1956)." process does not necessarily involve the
change or transformation of the raw
To rephrase, under the aforequoted provisions, the ad materials into a composite, distinct product. .
valorem tax of 2% is imposed on the actual market value of the . . While the selling price of cement may
annual gross output of the minerals or mineral products reflect the actual market value of cement,
extracted or produced from all mineral lands not covered by said selling price cannot be taken as the
lease. In computing the tax, the term "gross output" shall be market value also of the minerals composing
the actual market value of minerals or mineral products, or of the cement. And it was not the cement that
bullion from each mine or mineral lands operated as a was mined, only the minerals composing the
separate entity, without any deduction for mining, milling, finished product.
refining, transporting, handling, marketing or any other
expenses. If the minerals or mineral products are sold or This view was subsequently affirmed in the resolution of the
consigned abroad by the lessee or owner of the mine under Court denying the motion for reconsideration of its aforesaid
C.I.F. terms, the actual cost of ocean freight and insurance decision, 13 reiterated that the pertinent part of which
shall be deducted. reiterated that —

In other words, the assessment shall be based, not upon the . . . the ad valorem tax in question should be
cost of production or extraction of said minerals or mineral based on the actual market value of the
 quarried minerals used in producing cement, electric
. . . the law intended to impose the ad shovels.
valorem tax upon the market value of the
component mineral products in their original (3)
state before processing into cement. . . . the Hauling
law does not impose a tax on cement qua — The
cement, but on mineral products at least trucks of
80% of which must be minerals extracted by ore are
the lessee, concessionaire or owner of hauled
mineral lands. to the
mill.
The Court did not, and could not, rule that
cement is a manufactured product subject to B Milling Process —
sales tax, for the reason that such liability
had never been litigated by the parties. What
it did declare is that, while cement is a (1)
mineral product, it is no longer in the state or Crushin
condition contemplated by the law; hence g — The
the market value of the cement could not be ore is
the basis for computing the ad valorem tax, crushed
since the ad valorem tax is a severance tax to
i.e., a charge upon the privilege of severing pieces
or extracting minerals from the earth, (Dec. the size
p. 4) and is due and payable upon removal of
of the mineral product from its bed or mine peanuts.
(Tax Code s. 245).
(2)
Therefore, the imposable ad valorem tax should be based on Grinding
the selling price of the quarried minerals, which is its actual — The
market value, and not on the price of the manufactured crushed
product. If the market value chosen for the reckoning is the ore is
value of the manufactured. or finished product, as in the case ground
at bar, then all expenses of processing or manufacturing to
should be deducted in order to approximate as closely as is powder
humanly possible the actual market value of the raw mineral at form.
the mine site.
(3)
It was copper ore that was extracted by ACMDC from its mine Concent
site which, through a simple physical process of removing rating —
impurities therefrom, was converted into copper concentrate In The
turn, this copper concentrate underwent the process of mineral
smelting and refining, and the finished product is called copper bearing
cathode or copper wire bar. particles
in the
powdere
The copper wire bar is the manufactured copper. It is not the d ore
mineral extracted from the mine site nor can it be considered a are
mineral product since it has undergone a manufacturing concentr
process, to wit: ated.

I. The physical process involved in the The ores or rocks, transported by conveyors,
production of copper concentrate are the are crushed repeatedly by steel balls into
following (p. 19, BIR records; Exh. ‘H’, p. 43, size of peanuts, when they are ground and
Folder I of Exhibits.) pulverized. The powder is fed into
concentrators where it is mixed with water
A Mining Process — and other reagents. This is known in the
industry as a flotation phase. The copper-
(1) bearing materials float while the non-copper
Blasting materials in the rock sink. The material that
— The floats is scooped and dried and piled. This is
ore body known as copper concentrate. The material
is at the bottom is waste, and is known in the
broken industry as tailings. In Toledo City, tailings
up by are disposed of through metal pipes from the
blasting. flotation mills to the open sea. Copper
concentrate of petitioner contains 28-31%
copper. The concentrate is loaded in ocean
(2) vessels and shipped to Mitsubishi Metal
Loading Corporation mills in Japan, where the
— The smelting, refining and fabricating processes
ore are done. (Memorandum of petitioner, p. 71,
averagin CTA records.)
g about
1/2
percent II. The chemical or manufacturing process in
copper the production of wire bar is as follows: (Exh.
is 'H', p. 43, Folder I of exhibits.)
loaded
into ore A. Smelting —
trucks
by (1) Drying — The copper
concentrates (averaging
 about 30 percent copper) manufactured product so as to reduce it to
are dried. marketable shape or prepare it for any of the
uses of industry, or who by any such process
1. Flash Furnace — The dried combines any such raw material or
concentrate is smelted manufactured or partially manufactured
autogenously and a matte products with other materials: or products of
containing 65 percent is produced. the same or different kinds and in such
2. Converter — The matte is manner that the finished product of such
converted to blister copper with a process or manufacture can be put to a
purity of about 99 per cent. special use or uses to which such raw
material or manufactured or partially
manufactured products, or combines the
B. Refining — same to produce such finished products for
the purpose of their sale or distribution to
(1) Casting Wheel — others and not for his own use or
Blister copper is treated in consumption.
an anode furnace where.
copper requiring further Moreover, it is also worth noting at this point that the decision
treatment is sent to the of the tax court was based on its previous ruling in the case
casting wheel to produce of Atlas Consolidated Mining and Development Corporation vs.
cathode copper. Commissioner of Internal Revenue, 15 dated January 23,
1981, which we quote with approval:
(2) Electrolytic Refining —
Anode copper is further . . . The controlling law is clear and specific;
refined by electrolytic it should therefore be applied as Since the
refining to produce mineral or mineral product removed from its
cathode copper. bed or mine at Toledo City by petitioner is
copper concentrate as admitted by
C. Fabricating — respondent himself, not copper wire bar, the
actual market value of such copper
(1) Rolling — Fire refined concentrate in its condition at the time of
or electroly-tic copper- such removal without any deduction from
and/or brass (a mixture Of mining, milling, refining, transporting,
copper and zinc) is made handling, marketing, or any other expenses
into tubes, sheets, rods should be the basis of the 2% ad
and wire. valorem tax.

(2) Extruding — Sheet The conclusion reached is rendered clearer

tubes, rods and wire are when it is taken into consideration that
further fabricated into the the ad valorem tax is a severance tax, a
copper articles in everyday charge upon the privilege of severing or
use. extracting minerals from the earth, and is
due and payable upon removal of the
mineral product from its bed or mine, the tax
The records show that cathodes, with purity being computed on the basis of the market
of 99.985% are cast or fabricated into value of the mineral in its condition at the
various shapes, depending on their industrial time of such removal and before its being
destination. Cathodes are metal sheets of substantially changed by chemical or
copper 1 meter x 1 meter x 16-16 millimeter manufacturing (as distinguished from purely
thick and 160 kilograms in weight, although physical) processing. (Cebu Portland
this thickness is not uniform for all the Cement Co. vs. Commissioner of Internal
sheets. Cathodes sheets are not suitable for Revenue, supra.) Copper wire bars, as
direct fabrication, hence, are further discussed above,, have already undergone
fabricated into the desired shape, like wire chemical or manufacturing processing in
bar, billets and cakes. (p. 1, deposition, Japan, they are not extracted or produced
London,) Wire bars are rectangular pieces, from the earth by petitioner in its mine site at
100 millimeter x 100 millimeter x 1.37 meters Toledo City. Since the ad valorem tax is
long and weigh some 125 kilos. They are computed on the basis of the actual market
suited for copper wires and copper rods. value of the mineral in its condition at the
Billets are fabricated into tubes and heavy time of its removal from the earth, which in
electric sections. Cakes are in the form of this case is copper concentrate, there is no
thick sheets and strips. (pp. 13, 18-21, basis therefore for an assertion that such tax
deposition, Japan, Exhs. "C" & "G", Japan, should be measured on the basis of the
pp. 1-2, deposition, London, see pp. 70-72, London Metal Exchange price quotation of
CTA records.) 14 the manufactured wire bars without any
deduction of smelting and refining charges.
Significantly, the finding that copper wire bar is a product of a
manufacturing process finds support in the definition of a In resume:
"manufacturer" in Section 194 (x) of the aforesaid tax code
which provides:
1. The mineral or mineral
product of petitioner the
"Manufacturer" includes every person who extraction or severance
by physical or chemical process alters the from the soil. of which
exterior texture or form or inner substance of the ad valorem tax is
any raw material or manufactured or partially directed is copper
manufactured product in such a manner as concentrate.
to prepare it for a special use or uses to
which it could not have been put in its
original condition, or who by any such 2. The ad valorem tax is
process alters the quality of any such raw computed on the basis of
material or manufactured or partially the actual market value of
the copper concentrate in
 its condition at the time of decisions of subordinate courts have a persuasive effect and
removal from the earth may serve as judicial guides. It is even possible that such a
and before substantially conclusion or pronouncement can be raised to the status of a
changed by chemical or doctrine if, after it has been subjected to test in the crucible of
manufacturing process analysis and revision the Supreme Court should find that it has
without any deduction merits and qualities sufficient for its consecration as a rule of
milling, refining, from jurisprudence. 19
mining, transporting,
handling, marketing, or Furthermore, as a matter of practice and principle, the
any other expenses. Supreme Court will not set aside the conclusion reached by an
However, since the copper agency such as the Court of Tax Appeals, which is, by the very
concentrate is sold abroad nature of its function, dedicated exclusively to the study and
by petitioner under C.I.F. consideration of tax problems and has necessarily developed
terms, the actual cost of an expertise on the subject, unless there has been an abuse or
ocean freight and improvident exercise of authority on its part. 20
insurance is deductible.
II. G.R. No. 105563
3. There being no market
price quotation of copper
concentrate locally or in The petition herein raises the following
the commodity exchanges issues for resolution:
or markets of the world,
the London Metal A. Whether or not
Exchange price quotation petitioner is liable for
of copper wire bar, which payment, of the 25%
is used by petitioner and surcharge for alleged late
Mitsubishi Metal filing of notice of
Corporation as reference removal/late payment of
to determine the selling the ad valorem tax on
price of copper silver, gold and pyrite
concentrate, may likewise extracted during the
be employed in this case taxable year 1976.
as reference point in
ascertaining the actual B. Whether or not
market value of copper petitioner is liable for
concentrate for ad payment of the
valorem tax purposes. By manufacturer' s sales tax
deducting from the London and surcharge during the
Metal Exchange price taxable year 1975, plus
quotation of copper wire interest, on grinding steel
bar all charges and costs balls borrowed by its
incurred after the copper competitor; and
concentrate has been
shipped from Toledo City
to the time the same has C. 'Whether or not
been manufactured into petitioner is liable for
wire bar, namely, smelting, payment of the
electrolytic refining and contractor's tax and
fabricating, the remainder surcharge on the alleged
represents to a reasonable lease of personal property
degree the actual market during the taxable years
value of the copper 1975 and 1976 plus
concentrate in its condition interest. 21
at the time of extraction or
removal from its bed in A. Surcharge on Silver, Gold and Pyrite
Toledo City for the
purposes of the ad
ACMDC argues that the Court of Appeals erred in holding it
valorem tax.
liable to pay 25% surcharge on silver, gold and pyrite extracted
by it during tax year 1976.
The Commissioner of Internal Revenue argues that the ruling
in the case above stated is not binding, considering that the
Sec. 245 of the then tax code states:
incumbent Commissioner of Internal Revenue is not bound by
decisions or rulings of his predecessor when he finds that a
different construction of the law should be adopted, invoking Sec. 245. Time and manner of payment of
therefor the doctrine enunciated in Hilado vs. Collector of royalties or ad valorem taxes. — The
internal Revenue, et a1, 16 This trenches on specious royalties or ad valorem taxes as the case
reasoning. What was involved in the Hilado case was a may be, shall be due and payable upon the
previous ruling of a former Commissioner of Internal Revenue. removal of the mineral products from the
In the case at bar, the Commissioner based his findings on a locality where mined. However, the output of
previous decision rendered by the Court of Tax Appeals itself. the mine may be removed from such locality
without the pre-payment of such royalties
or ad valorem taxes if the lessee, owner, or
The Court of Tax Appeals is not a mere superior administrative
operator shall file a bond in the form and
agency or tribunal but is a part of the judicial system of the
amount and with such sureties as the
Philippines. 17 It was created by Congress pursuant to
Commissioner of Internal Revenue may
Republic Act No. 1125, effective June 16, 1954, as a
require,. conditioned upon the payment of
centralized court specializing in tax cases. It is a regular court
such royalties or ad valorem taxes, in which
vested with exclusive appellate jurisdiction over cases arising
case it shall be the duty of every lessee,
under the National Internal Revenue Code, the Tariff and
owner, or operator of a mine to make a true
Customs Code, and the Assessment Law. 18
and complete return in duplicate under oath
setting forth the quantity and the actual
Although only the decisions of the Supreme Court establish market value of the output of his mine
jurisprudence or doctrines in this jurisdiction, nonetheless the
 removed during each calendar quarter and Q. Now how do you reflect
pay the royalties or ad valorem taxes due the results of the testing?
thereon within twenty days after the close of
said quarter. A. You mean in analysis?

In case the royalties or ad valorem taxes are Q. In the analysis, yes.

not paid within the period prescribed above,
there shall be added thereto a surcharge of
twenty-five per centum. Where a false or A. Copper is reported in
fraudulent return is made, there shall be percent.
added to the royalties or ad valorem taxes a
surcharge of fifty per centum of their amount. Q. Percentage?
The surcharge So, added: shall be collected
in the same manner and as part of the A. Yes.
royalties or ad valorem taxes, as the case
may be.
Q. How about gold?
Under the aforesaid provision, the payment of the ad
valorem tax shall be made upon removal of the mineral A. Gold and silver part is
products from the mine site or if payment cannot be made, by represented as grams per
filing a bond in the form and amount to be approved by the dmt or parts per million.
Commissioner conditioned upon the payment of the said tax.
Q. Based on the results of
In the instant case, the records show that the payment of your data gathered in the
the ad valorem tax on gold, silver and pyrite was belatedly laboratory?
made. ACMDC, however, maintains that it should not be
required to pay the 25% surcharge because the correct A. Yes.
quantity of gold and silver could be determined only after the
copper concentrates had gone through the process of smelting
Q. Now where do you
and refining in Japan while the amount of pyrite cannot be
submit the results of the
determined until after the flotation process separating the
laboratory testing?
copper mineral from the waste material was finished.

A When a shipment is
Prefatorily, it must not be lost sight of that bad faith is ; not
made we prepare a
essential for the imposition of the 25% surcharge for late
certificate of analysis
payment of the ad valorem tax. Hence,
signed by me and then
which (sic) is sent to
MISSING PAGE 19 Manila.

Q. Now, what do you do Q. Now, as far as you

with the result of your know in connection with
analysis? your duty do you know
what Manila what do you
A. These are tabulated say, Manila, ACMDC?
and then averaged out to
represent one shipment. A. Makati.

Q. Will you tell this Q. Makati. What does

Honorable Court whether Makati ACMDC do with
in that laboratory testing your assay report?
you physically separate
the gold, you physically
A. As far as I know it is
separate the silver and
used as the basis for the
you physically separate
payment of ad valorem
the copper content of that
tax. 24
40 to 50 kilos?

The above-quoted testimony accordingly supports these

A. No, no, we analyze this
findings of the tax court in its decision in this case:
in one sample. This
sample is analyzed for
gold, silver, and copper, We see it (sic) that even if the silver and gold
but there is no recovery cannot as yet be physically separated from
made. the copper concentrate until the process of
smelting and refining was completed, the
estimated commercial quantity of the silver
Q. You mean there is no
and gold could have been determined in
physical separation?
much the same way that petitioner is able to
estimate the commercial quantity of copper
A. No, no physical during the assay. If, as stated by petitioner, it
separation. is able to estimate the grade of the copper
ore, and it has determined the grade not only
Q. So these three minerals of the copper but also those of the gold and
— copper, gold and silver silver during the assay (Petitioner's
— are in that same Memorandum, p. 207, Record), ergo, the
powder that you have estimated commercial quantity of the silver
tested? and gold subject to ad valorem tax could
have also been determined and provisionally
paid as for copper. 25
A Yes, it is in the same
powder.
The other allegation of ACMDC is that there was no removal of The foregoing notwithstanding, it has likewise been ruled that
pyrite from the mine site because the pyrite was delivered to its one act may be sufficient to constitute carrying on a business
sister company, Atlas Fertilizer Corporation, whose plant is according to the intent with which the act is done. A single sale
located inside the mineral concession of ACMDC in Sangi, of liquor by one who intends to continue selling is sufficient to
Toledo City. ACMDC, however, is already barred by estoppel render him liable for "engaging in or carrying on" the business
in pais from putting that matter in issue. of a liquor dealer. 29

An ad valorem tax on pyrite for the same tax year was already There may be a business without any sequence of acts, for if
declared and paid by ACMDC. In fact, that payment was used an isolated transaction, which if repeated would be a
as the basis for computing the 25% surcharge. It was only transaction in a business, is proved to have been undertaken
when ACMDC was assessed for the 25% surcharge that said with the intent that it should be the first of several transactions,
issue was raised by it. Also, the evidence shows that deliveries that is, with the intent of carrying on a business, then it is a first
of pyrite were not exclusively made to its sister company, Atlas transaction in an existing business. 30
Fertilizer Corporation. There were shipments of pyrite to other
companies located outside of its mine site, in addition to those Thus, where the end sought is to make a profit, the act
delivered to its aforesaid sister company. 26 constitutes "doing- business." This is not without basis. The
term "business," as used in the law imposing a license tax on
B. Manufacturer's Tax and Contractor's Tax business, trades, and so forth, ordinarily means business in the
trade or commercial sense only, carried on with a view to profit
The manufacturer's tax is imposed under Section 186 of the or livelihood; 31 It is thus restricted to activities or affairs where
tax code then in force which provides: profit is the purpose, or livelihood is the motive. Since the term
"business" is being used without any qualification in our
aforesaid tax code, it should therefore be therefore be
Sec. 186. Percentage tax on sales of other construed in its plain and ordinary meaning, restricted to
articles. — There shall be levied, assessed activities for profit or livelihood. 32
and collected once only on every original
sale, barter, exchange, or similar transaction
either for nominal or valuable consideration, In the case at bar, ACMDC claims exemptions from the
intended to transfer ownership of, or title to, payment of manufacturer's tax. It asserts that it is not engaged
the articles not enumerated in sections one in the business of selling grinding steel balls, but it only
hundred and eighty-four-A, one hundred and produces grinding steel balls solely for its own use or
eighty five, one hundred and eighty-five-A, consumption, However, it admits having lent its grinding steel
one hundred eighty-five-B, and one hundred balls to other entities but only in very isolated cases.
eighty-six-B, a tax equivalent to seven per
centum of the gross selling price or gross After a careful review of the records and on the basis of the
value in money of the articles so sold, legal concept of "engaging in business" hereinbefore
bartered, exchanged, or transferred, such discussed, we are inclined to agree with ACMDC that it should
tax to be paid by the manufacturer or not and cannot be held liable for the payment of the
producer: Provided, That where the articles manufacturer's tax.
subject to tax under this Section are
manufactured out of materials likewise First, under the tax code then in force, the 7% manufacturer's
subject to tax under this section and section sales tax is imposed on the manufacturer for every original
one hundred eighty-nine, the total cost of sale, barter, exchange and other similar transaction intended to
such materials, as duly established, shall be transfer ownership of articles. As hereinbefore quoted, and we
deductible from the gross selling price or repeat the same for facility of reference, the term
gross value in money of such manufactured "manufacturer" is defined in the tax code as including "every
articles. (As amended by Rep. Act No. 6110 person who by physical or chemical process alters the exterior
and by Pres. Decree No. 69.) texture or form or inner substance of any raw material or
manufactured or partially manufactured product in such
On the other hand, the contractor's tax is provided for under manner as to prepare it for a special use or uses to which it
Section 191 of the same code, paragraph 17 of which declares could not have been put in its original condition, or who by any
that lessors of personal property shall be subject to a such process alters the quality of any such raw material or
contractor's tax of 3% of the gross receipts. manufactured or partially manufactured product so as to
reduce it to marketable shape or prepare it for any of the uses
Sections 186 and 191 fall under Title V of the tax code, entitled of industry, or who by any such process combines any such
"Privilege Taxes on Business and Occupation." These raw material or manufactured or partially manufactured
"privilege taxes on business" are taxes imposed upon the products with other materials or products of the same or of
privilege of engaging in business. They are essentially excise different kinds and in such manner that the finished product of
taxes. 27 To be held liable for the payment of a privilege tax, such process or manufacture can be put to a special use or
the person or entity must be engaged in business, as shown by uses to which such raw materials or manufactured or partially
the fact that the drafters of the tax code had purposely grouped manufactured products in their original condition could not
said provisions under the general heading adverted to above. have been put, and who in addition alters such raw material or
manufactured or partially manufactured products, or combines
the same to produce such finished products for the purpose of
"To engage" is to embark on a business or to employ oneself their sale or distribution to others and not for his own use or
therein. The word "engaged" connotes more than a single act consumption. 33
or a single transaction; it involves some continuity of action.
"To engage in business" is uniformly construed as signifying an
employment or occupation which occupies one's time, Thus, a manufacturer, in order to be subjected to the necessity
attention, and labor for the purpose of a livelihood or profit. The of paying the percentage tax imposed by Section 186 of the tax
expressions "engage in business," "carrying on business" or code, must be 'engaged' in the sale, barter or exchange of;
"doing business" do not have different meanings, but personal property. Under a statute which imposes a tax on
separately or connectedly convey the idea of progression, persons engaged in the sale, barter or exchange of
continuity, or sustained activity. "Engaged in business" means merchandise, a person must be occupied or employed in the
occupied or employed in business; carrying on business" does sale, barter or exchange of personal property. A person can
not mean the performance of a single disconnected act, but hardly be considered as occupied or employed in the sale,
means conducting, prosecuting, and continuing business by barter or exchange of personal property when he has made
performing progressively all the acts normally incident thereto; one purchase and sale only. 34
while "doing business" conveys the idea of business being
done, not from time to time, but all the time. 28 Second, it cannot be legally asserted, for purposes of this
particular assessment only, that ACMDC was engaged in the
business of selling grinding steel balls on the basis of the
isolated transaction entered into by it in 1975. There is no
showing that said transaction was undertaken by ACMDC with Finally, we deem it opportune to emphasize the oft-repeated
a view to gaining profit. therefrom and with the intent of rule that tax statutes are to receive a reasonable construction
carrying on a business therein. On the contrary, what is clear with a view to carrying out their purposes and intent. 43 They
for us is that the sale was more of an accommodation to the should not be construed as to permit the taxpayer to easily
other mining companies, and that ACMDC was subsequently evade the payment of the tax. 44 On this note, and under the
replaced by other suppliers shortly thereafter. confluence of the weighty. considerations and authorities
earlier discussed, the challenged assessment against ACMDC
This finding is strengthened by the investigation report, dated for contractor's tax must be upheld.
March 11, 1980, of the B.I.R. Investigation Team itself which
found that — WHEREFORE, the impugned judgment of respondent Court of
Appeals in CA-G.R. SP No. 25945, subject of the present
ACMDC has a foundry shop located at petition in G.R. No. 104151 is hereby AFFIRMED; and its
Sangi, Toledo City, and manufactures assailed judgment in CA-G.R SP No. 26087 is hereby
grinding steel balls for use in its ball mills in MODIFIED by exempting Atlas Consolidated Mining and
pulverizing the minerals before they go to the Development Corporation, petitioner in G.R. No. 105563 of this
concentrators, For the grinding steel balls Court, from the payment of manufacturer's sales tax, surcharge
manufactured by ACMDC and used in its and interest during the taxable year 1975.
operation, we found it not subject to any
business tax. But there were times in 1975 SO ORDERED.
when other mining companies were short of
grinding steel balls and ACMDC supplied
5.8
them with these materials manufactured in
its foundry shop. According to the informant,
these were merely accommodations and G.R. No. 198756               January 13, 2015
they were replaced by the other suppliers. 35
BANCO DE ORO, BANK OF COMMERCE, CHINA BANKING
At most, whatever profit ACMDC may have realized from that CORPORATION, METROPOLITAN BANK & TRUST
single transaction was just incidental to its primordial purpose COMPANY, PHILIPPINE BANK OF COMMUNICATIONS,
of accommodating other mining companies. Well-settled is the PHILIPPINE NATIONAL BANK, PHILIPPINE VETERANS
rule that anything done as a mere incident to, or as a BANK AND PLANTERS DEVELOPMENT BANK, Petitioners,
necessary consequence of, the principal business is not
ordinarily taxed as an independent business in itself. 36 Where RIZAL COMMERCIAL BANKING CORPORATION AND
a person or corporation is engaged in a distinct business and, RCBC CAPITAL CORPORATION, Petitioners-Intervenors,
as a feature thereof, in an activity merely incidental which
serves no other person or business, the incidental and
restricted activity is not considered as intended to be CAUCUS OF DEVELOPMENT NGO NETWORKS, Petitioner-
separately taxed. 37 Intervenor,
vs.
REPUBLIC OF THE PHILIPPINES, THE COMMISSIONER OF
In fine, on this particular aspect, we are consequently of the INTERNAL REVENUE, BUREAU OF INTERNAL REVENUE,
considered opinion and so hold that ACMDC was not a SECRETARY OF FINANCE, DEPARTMENT OF FINANCE,
manufacturer subject to the percentage tax imposed by THE NATIONAL TREASURER AND BUREAU OF
Section 186 of the tax code. TREASURY, Respondent.

The same conclusion; however, cannot be made with respect DECISION

to the contractor's tax being imposed on ACMDC. It cannot
validly claim that the leasing out of its personal properties was
merely an isolated transaction. Its book of accounts shows that LEONEN, J.:
several distinct payments were made for the use of its personal
properties such as its plane, motor boat and dump The case involves the proper tax treatment of the discount or
truck. 38 The series of transactions engaged in by ACMDC for interest income arising from the ₱35 billion worth of 10-year
the lease of its aforesaid properties could also be deduced zero-coupon treasury bonds issued by the Bureau of Treasury
from the fact that for the tax years 1975 and 1976 there were on October 18, 2001 (denominated as the Poverty Eradication
profits earned and reported therefor. It received a rental and Alleviation Certificates or the PEA Ce Bonds by the
income of P630,171.56 for tax year 39 and P2,450,218.62 for Caucus of Development NGO Networks).
tax year 1976. 40
On October 7, 2011, the Commissioner of Internal Revenue
Considering that there was a series of transactions involved, issued BIR Ruling No. 370-20111 (2011 BIR Ruling), declaring
plus the fact that there was an apparent and protracted that the PEACe Bonds being deposit substitutes are subject to
intention to profit from such activities, it can be safely the 20% final withholding tax. Pursuant to this ruling, the
concluded that ACMDC was habitually engaged in the leasing Secretary of Finance directed the Bureau of Treasury to
out of its plane, motor boat and dump truck, and is perforce withhold a 20% final tax from the face value of the PEACe
subject to the contractor's tax. Bonds upon their payment at maturity on October 18, 2011.

The allegation of ACMDC that it did not realize any profit from This is a petition for certiorari, prohibition and/or
the leasing out of its said personal properties, since its income mandamus2 filed by petitioners under Rule 65 of the Rules of
therefrom covered only the costs of operation such as salaries Court seeking to:
and fuel, is not supported by any documentary or substantial
evidence. We are not, therefore, convinced by such disavowal. a. ANNUL Respondent BIR's Ruling No. 370-2011
dated 7 October 2011 [and] other related rulings
Assessments are prima facie presumed correct and made in issued by BIR of similar tenor and import, for being
good faith. Contrary to the theory of ACMDC, it is the taxpayer unconstitutional and for having been issued without
and not the Bureau of Internal Revenue who has the duty of jurisdiction or with grave abuse of discretion
proving otherwise. It is an elementary rule that in the absence amounting to lack or· excess of jurisdiction ... ;
of proof of any irregularities in the performance of official
duties, an assessment will not be disturbed. All presumptions b. PROHIBIT Respondents, particularly the BTr; from
are in favor of tax assessments. 41 Verily, failure to present withholding or collecting the 20% FWT from the
proof of error in assessments will justify judicial affirmance of payment of the face value of the Government Bonds
said assessment. 42 upon their maturity;
 c. COMMAND Respondents, particularly the BTr, to time of the original issuance. Such being the case, the PEACe
pay the full amount of the face value of the Bonds were not to be treated as deposit substitutes.
Government Bonds upon maturity ... ; and
Meanwhile, in the memorandum21 dated July 4, 2001, Former
d. SECURE a temporary restraining order (TRO), and Treasurer Eduardo Sergio G. Edeza (Former Treasurer Edeza)
subsequently a writ of preliminary injunction, enjoining questioned the propriety of issuing the bonds directly to a
Respondents, particularly the BIR and the BTr, from special purpose vehicle considering that the latter was not a
withholding or collecting 20% FWT on the Government Securities Eligible Dealer (GSED).22 Former
Government Bonds and the respondent BIR from Treasurer Edeza recommended that the issuance of the Bonds
enforcing the assailed 2011 BIR Ruling, as well "be done through the ADAPS"23 and that CODE-NGO "should
asother related rulings issued by the BIR of similar get a GSED to bid in [sic] its behalf."24
tenor and import, pending the resolution by [the court]
of the merits of [the] Petition.3 Subsequently, in the notice to all GSEDs entitled Public
Offering of Treasury Bonds25 (Public Offering) dated October 9,
Factual background 2001, the Bureau of Treasury announced that "₱30.0B worth of
10-year Zero[-] Coupon Bonds [would] be auctioned on
By letter4 dated March 23, 2001, the Caucus of Development October 16, 2001[.]"26 The notice stated that the Bonds "shall
NGO Networks (CODE-NGO) "with the assistance of its be issued to not morethan 19 buyers/lenders hence, the
financial advisors, Rizal Commercial Banking Corp. ("RCBC"), necessity of a manual auction for this maiden issue."27 It also
RCBC Capital Corp. ("RCBC Capital"), CAPEX Finance and required the GSEDs to submit their bids not later than 12 noon
Investment Corp. ("CAPEX") and SEED Capital Ventures, Inc. on auction date and to disclose in their bid submissions the
(SEED),"5 requested an approval from the Department of names of the institutions bidding through them to ensure strict
Finance for the issuance by the Bureau of Treasury of 10-year compliance with the 19 lender limit.28 Lastly, it stated that "the
zerocoupon Treasury Certificates (T-notes).6 The T-notes issue being limitedto 19 lenders and while taxable shall not be
would initially be purchased by a special purpose vehicle on subject to the 20% final withholding [tax]."29
behalf of CODE-NGO, repackaged and sold at a premium to
investors as the PEACe Bonds.7 The net proceeds from the On October 12, 2001, the Bureau of Treasury released a
sale of the Bonds"will be used to endow a permanent fund memo30 on the "Formula for the Zero-Coupon Bond." The
(Hanapbuhay® Fund) to finance meritorious activities and memo stated inpart that the formula (in determining the
projects of accredited non-government organizations (NGOs) purchase price and settlement amount) "is only applicable to
throughout the country."8 the zeroes that are not subject to the 20% final withholding due
to the 19 buyer/lender limit."31
Prior to and around the time of the proposal of CODE-NGO,
other proposals for the issuance of zero-coupon bonds were A day before the auction date or on October 15, 2001, the
also presented by banks and financial institutions, such as First Bureau of Treasury issued the "Auction Guidelines for the 10-
Metro Investment Corporation (proposal dated March 1, year Zero-Coupon Treasury Bond to be Issued on October 16,
2001),9 International Exchange Bank (proposal dated July 27, 2001" (Auction Guidelines).32 The Auction Guidelines reiterated
2000),10 Security Bank Corporation and SB Capital Investment that the Bonds to be auctioned are "[n]ot subject to 20%
Corporation (proposal dated July 25, 2001),11 and ATR-Kim withholding tax as the issue will be limited to a maximum of 19
Eng Fixed Income, Inc. (proposal dated August 25, lenders in the primary market (pursuant to BIR Revenue
1999).12 "[B]oth the proposals of First Metro Investment Corp. Regulation No. 020 2001)."33 The Auction Guidelines, for the
and ATR-Kim Eng Fixed Income indicate that the interest first time, also stated that the Bonds are "[e]ligible as liquidity
income or discount earned on the proposed zerocoupon bonds reserves (pursuant to MB Resolution No. 1545 dated 27
would be subject to the prevailing withholding tax."13 September 2001)[.]"34

A zero-coupon bondis a bond bought at a price substantially On October 16, 2001, the Bureau of Treasury held an auction
lower than its face value (or at a deep discount), with the face for the 10-year zero-coupon bonds.35 Also on the same date,
value repaid at the time of maturity.14 It does not make periodic the Bureau of Treasury issued another memorandum36 quoting
interest payments, or have socalled "coupons," hence the term excerpts of the ruling issued by the Bureau of Internal Revenue
zero-coupon bond.15 However, the discount to face value concerning the Bonds’ exemption from 20% final withholding
constitutes the return to the bondholder.16 tax and the opinion of the Monetary Board on reserve
eligibility.37
On May 31, 2001, the Bureau of Internal Revenue, in reply to
CODENGO’s letters dated May 10, 15, and 25, 2001, issued During the auction, there were 45 bids from 15 GSEDs. 38 The
BIR Ruling No. 020-200117 on the tax treatment of the bidding range was very wide, from as low as 12.248% to as
proposed PEACe Bonds. BIR Ruling No. 020-2001, signed by high as 18.000%.39 Nonetheless, the Bureau of Treasury
then Commissioner ofInternal Revenue René G. Bañez accepted the auction results.40 The cut-off was at 12.75%.41
confirmed that the PEACe Bonds would not be classified as
deposit substitutes and would not be subject to the After the auction, RCBC which participated on behalf of CODE-
corresponding withholding tax: NGO was declared as the winning bidder having tendered the
lowest bids.42 Accordingly, on October 18, 2001, the Bureau of
Thus, to be classified as "deposit substitutes", the borrowing of Treasury issued ₱35 billion worth of Bonds at yield-to-maturity
funds must be obtained from twenty (20) or more individuals or of 12.75% to RCBC for approximately ₱10.17 billion,43 resulting
corporate lenders at any one time. In the light of your in a discount of approximately ₱24.83 billion.
representation that the PEACe Bonds will be issued only to
one entity, i.e., Code NGO, the same shall not be considered Also on October 16, 2001, RCBC Capital entered into an
as "deposit substitutes" falling within the purview of the above underwriting Agreement44 with CODE-NGO, whereby RCBC
definition. Hence, the withholding tax on deposit substitutes will Capital was appointed as the Issue Manager and Lead
not apply.18 (Emphasis supplied) Underwriter for the offering of the PEACe Bonds.45 RCBC
Capital agreed to underwrite46 on a firm basis the offering,
The tax treatment of the proposed PEACe Bonds in BIR Ruling distribution and sale of the 35 billion Bonds at the price of
No. 020-2001 was subsequently reiterated in BIR Ruling No. ₱11,995,513,716.51.47 In Section 7(r) of the underwriting
035-200119 dated August 16, 2001 and BIR Ruling No. DA- agreement, CODE-NGO represented that "[a]ll income derived
175-0120 dated September 29, 2001 (collectively, the 2001 from the Bonds, inclusive of premium on redemption and gains
Rulings). In sum, these rulings pronounced that to be able to on the trading of the same, are exempt from all forms of
determine whether the financial assets, i.e., debt instruments taxation as confirmed by Bureau of Internal Revenue (BIR)
and securities are deposit substitutes, the "20 or more letter rulings dated 31 May 2001 and 16 August 2001,
individual or corporate lenders" rule must apply. Moreover, the respectively."48
determination of the phrase "at any one time" for purposes of
determining the "20 or more lenders" is to be determined at the
RCBC Capital sold the Government Bonds in the secondary On October 18, 2011, this court issued a temporary restraining
market for an issue price of ₱11,995,513,716.51. Petitioners order (TRO)60 "enjoining the implementation of BIR Ruling No.
purchased the PEACe Bonds on different dates.49 370-2011 against the [PEACe Bonds,] . . . subject to the
condition that the 20% final withholding tax on interest income
BIR rulings there from shall be withheld by the petitioner banks and placed
in escrow pending resolution of [the] petition."61
On October 7, 2011, "the BIR issued the assailed 2011 BIR
Ruling imposing a 20% FWT on the Government Bonds and On October 28, 2011, RCBC and RCBC Capital filed a motion
directing the BTr to withhold said final tax at the maturity for leave of court to intervene and to admit petition-in-
thereof, [allegedly without] consultation with Petitioners as intervention62 dated October 27, 2011, which was granted by
bond holders, and without conducting any hearing."50 this court on November 15, 2011.63

"It appears that the assailed 2011 BIR Ruling was issued in Meanwhile, on November 9, 2011, petitioners filed their
response to a query of the Secretary of Finance on the proper "Manifestation with Urgent Ex Parte Motion to Direct
tax treatment of the discount or interest income derived from Respondents to Comply with the TRO."64 They alleged that on
the Government Bonds."51 The Bureau of Internal Revenue, the same day that the temporary restraining order was issued,
citing three (3) of its rulings rendered in 2004 and 2005, the Bureau of Treasury paid to petitioners and other
namely: BIR Ruling No. 007-0452 dated July 16, 2004; BIR bondholders the amounts representing the face value of the
Ruling No. DA-491-0453 dated September 13, 2004; and BIR Bonds, net however of the amounts corresponding to the 20%
Ruling No. 008-0554 dated July 28, 2005, declared the final withholding tax on interest income, and that the Bureau of
following: Treasury refused to release the amounts corresponding to the
20% final withholding tax.65 On November 15, 2011, this court
directed respondents to: "(1) SHOW CAUSE why they failed to
The Php 24.3 billion discount on the issuance of the PEACe comply with the October 18, 2011 resolution; and (2) COMPLY
Bonds should be subject to 20% Final Tax on interest income with the Court’s resolution in order that petitioners may place
from deposit substitutes. It is now settled that all treasury the corresponding funds in escrow pending resolution of the
bonds (including PEACe Bonds), regardless of the number of petition."66
purchasers/lenders at the time of origination/issuance are
considered deposit substitutes. In the case of zero-coupon
bonds, the discount (i.e. difference between face value and On the same day, CODE-NGO filed a motion for leave to
purchase price/discounted value of the bond) is treated as intervene (and to admit attached petition-in-intervention with
interest income of the purchaser/holder. Thus, the Php 24.3 comment on the petitionin-intervention of RCBC and RCBC
interest income should have been properly subject to the 20% Capital).67 The motion was granted by this court on November
Final Tax as provided in Section 27(D)(1) of the Tax Code of 22, 2011.68
1997. . . .
On December 1, 2011, public respondents filed their
.... compliance.69 They explained that: 1) "the implementation of
[BIR Ruling No. 370-2011], which has already been performed
on October 18, 2011 with the withholding of the 20% final
However, at the time of the issuance of the PEACe Bonds in withholding tax on the face value of the PEACe bonds, is
2001, the BTr was not able tocollect the final tax on the already fait accompli . . . when the Resolution and TRO were
discount/interest income realized by RCBC as a result of the served to and received by respondents BTr and National
2001 Rulings. Subsequently, the issuance of BIR Ruling No. Treasurer [on October 19, 2011]";70 and 2) the withheld amount
007-04 dated July 16, 2004 effectively modifies and has ipso facto become public funds and cannot be disbursed
supersedes the 2001 Rulings by stating that the [1997] Tax or released to petitioners without congressional
Code is clear that the "term public means borrowing from appropriation.71 Respondents further aver that"[i]nasmuch as
twenty (20) or more individual or corporate lenders at any one the . . . TRO has already become moot . . . the condition
time." The word "any" plainly indicates that the period attached to it, i.e., ‘that the 20% final withholding tax on interest
contemplated is the entire term of the bond, and not merely the income therefrom shall be withheld by the banks and placed in
point of origination or issuance. . . . Thus, by taking the PEACe escrow . . .’has also been rendered moot[.]"72
bonds out of the ambit of deposits [sic] substitutes and
exempting it from the 20% Final Tax, an exemption in favour of
the PEACe Bonds was created when no such exemption is On December 6, 2011, this court noted respondents'
found in the law.55 compliance.73

On October 11, 2011, a "Memo for Trading Participants No. On February 22, 2012, respondents filed their consolidated
58-2011 was issued by the Philippine Dealing System Holdings comment74 on the petitions-in-intervention filed by RCBC and
Corporation and Subsidiaries ("PDS Group"). The Memo RCBC Capital and On November 27, 2012, petitioners filed
provides that in view of the pronouncement of the DOF and the their "Manifestation with Urgent Reiterative Motion (To Direct
BIR on the applicability of the 20% FWT on the Government Respondents to Comply with the Temporary Restraining
Bonds, no transferof the same shall be allowed to be recorded Order)."75
in the Registry of Scripless Securities ("ROSS") from 12
October 2011 until the redemption payment date on 18 On December 4, 2012, this court: (a) noted petitioners’
October 2011. Thus, the bondholders of record appearing on manifestation with urgent reiterative motion (to direct
the ROSS as of 18 October 2011, which include the respondents to comply with the temporary restraining order);
Petitioners, shall be treated by the BTr asthe beneficial owners and (b) required respondents to comment thereon.76
of such securities for the relevant [tax] payments to be
imposed thereon."56 Respondents’ comment77 was filed on April 15,2013, and
petitioners filed their reply78 on June 5, 2013.
On October 17, 2011, replying to anurgent query from the
Bureau of Treasury, the Bureau of Internal Revenue issued Issues
BIR Ruling No. DA 378-201157 clarifying that the final
withholding tax due on the discount or interest earned on the
PEACe Bonds should "be imposed and withheld not only on The main issues to be resolved are:
RCBC/CODE NGO but also [on] ‘all subsequent holders of the
Bonds.’"58 I. Whether the PEACe Bonds are "deposit substitutes"
and thus subject to 20% final withholding tax under
On October 17, 2011, petitioners filed a petition for certiorari, the 1997 National Internal Revenue Code. Related to
prohibition, and/or mandamus (with urgent application for a this question is the interpretation of the phrase
temporary restraining order and/or writ of preliminary "borrowing from twenty (20) or more individual or
injunction)59 before this court. corporate lenders at any one time" under Section
22(Y) of the 1997 National Internal Revenue Code,
 particularly on whether the reckoning of the 20 violation of their property rights,95 their constitutional right to
lenders includes trading of the bonds in the secondary due process96 as well as Section 246 of the 1997 National
market; and Internal Revenue Code on non-retroactivity of
rulings.97 Allegedly, it would also have "an adverse effect of
II. If the PEACe Bonds are considered "deposit colossal magnitude on the investors, both localand foreign, the
substitutes," whether the government or the Bureau of Philippine capital market, and most importantly, the country’s
Internal Revenue is estopped from imposing and/or standing in the international commercial
collecting the 20% final withholding tax from the face community."98 Petitioners explained that "unless enjoined, the
value of these Bonds government’s threatened refusal to pay the full value of the
Government Bonds will negatively impact on the image of the
country in terms of protection for property rights (including
a. Will the imposition of the 20% final financial assets), degree of legal protection for lender’s rights,
withholding tax violate the non-impairment and strength of investor protection."99 They cited the country’s
clause of the Constitution? ranking in the World Economic Forum: 75th in the world in its
2011–2012 Global Competitiveness Index, 111th out of 142
b. Will it constitute a deprivation of property countries worldwide and 2nd to the last among ASEAN
without due process of law? countries in terms of Strength of Investor Protection, and 105th
worldwide and last among ASEAN countries in terms of
c. Will it violate Section 245 of the 1997 Property Rights Index and Legal Rights Index.100 It would also
National Internal Revenue Code on non- allegedly "send a reverberating message to the whole world
retroactivity of rulings? that there is no certainty, predictability, and stability of financial
transactions in the capital markets[.]"101 "[T]he integrity of
Government-issued bonds and notes will be greatly shattered
Arguments of petitioners, RCBC and RCBC and the credit of the Philippine Government will suffer"102 if the
Capital, and CODE-NGO sudden turnaround of the government will be allowed, 103 and it
will reinforce "investors’ perception that the level of regulatory
Petitioners argue that "[a]s the issuer of the Government risk for contracts entered into by the Philippine Government is
Bonds acting through the BTr, the Government is obligated . . . high,"104 thus resulting in higher interestrate for government-
to pay the face value amount of Ph₱35 Billion upon maturity issued debt instruments and lowered credit rating.105
without any deduction whatsoever."79 They add that "the
Government cannot impair the efficacy of the [Bonds] by Petitioners-intervenors RCBC and RCBC Capital contend that
arbitrarily, oppressively and unreasonably imposing the respondent Commissioner of Internal Revenue "gravely and
withholding of 20% FWT upon the [Bonds] a mere eleven (11) seriously abused her discretion in the exercise of her rule-
days before maturity and after several, consistent categorical making power"106 when she issued the assailed 2011 BIR
declarations that such bonds are exempt from the 20% FWT, Ruling which ruled that "all treasury bonds are ‘deposit
without violating due process"80 and the constitutional principle substitutes’ regardless of the number of lenders, in clear
on non-impairment of contracts.81 Petitioners aver that at the disregard of the requirement of twenty (20)or more lenders
time they purchased the Bonds, they had the right to expect mandated under the NIRC."107 They argue that "[b]y her
that they would receive the full face value of the Bonds upon blanket and arbitrary classification of treasury bonds as deposit
maturity, in view of the 2001 BIR Rulings.82 "[R]egardless of substitutes, respondent CIR not only amended and expanded
whether or not the 2001 BIR Rulings are correct, the fact the NIRC, but effectively imposed a new tax on privately-
remains that [they] relied [on] good faith thereon."83 placed treasury bonds."108 Petitioners-intervenors RCBC and
RCBC Capital further argue that the 2011 BIR Ruling will
At any rate, petitioners insist that the PEACe Bonds are not cause substantial impairment of their vested rights109 under the
deposit substitutes as defined under Section 22(Y) of the 1997 Bonds since the ruling imposes new conditions by "subjecting
National Internal Revenue Code because there was only one the PEACe Bonds to the twenty percent (20%) final withholding
lender (RCBC) to whom the Bureau of Treasury issued the tax notwithstanding the fact that the terms and conditions
Bonds.84 They allege that the 2004, 2005, and 2011 BIR thereof as previously represented by the Government, through
Rulings "erroneously interpreted that the number of investors respondents BTr and BIR, expressly state that it is not subject
that participate in the ‘secondary market’ is the determining to final withholding tax upon their maturity."110 They added that
factor in reckoning the existence or non-existence of twenty "[t]he exemption from the twenty percent (20%) final
(20) or more individual or corporate lenders."85 Furthermore, withholding tax [was] the primary inducement and principal
they contend that the Bureau of Internal Revenue unduly consideration for [their] participat[ion] in the auction and
expanded the definition of deposit substitutes under Section 22 underwriting of the PEACe Bonds."111
of the 1997 National Internal Revenue Code in concluding that
"the mere issuance of government debt instruments and Like petitioners, petitioners-intervenors RCBC and RCBC
securities is deemed as falling within the coverage of ‘deposit Capital also contend that respondent Commissioner of Internal
substitutes[.]’"86 Thus, "[t]he 2011 BIR Ruling clearly Revenue violated their rights to due process when she
amount[ed] to an unauthorized act of administrative arbitrarily issued the 2011 BIR Ruling without prior notice and
legislation[.]"87 hearing, and the oppressive timing of such ruling deprived
them of the opportunity to challenge the same.112
Petitioners further argue that their income from the Bonds is a
"trading gain," which is exempt from income tax. 88 They insist Assuming the 20% final withholding tax was due on the PEACe
that "[t]hey are not lenders whose income is considered as Bonds, petitioners-intervenors RCBC and RCBC Capital claim
‘interest income or yield’ subject to the 20% FWT under that respondents Bureau of Treasury and CODE-NGO should
Section 27 (D)(1) of the [1997 National Internal Revenue be held liable "as [these] parties explicitly represented . . . that
Code]"89 because they "acquired the Government Bonds in the the said bonds are exempt from the final withholding tax."113
secondary or tertiary market."90
Finally, petitioners-intervenors RCBC and RCBC Capital argue
Even assuming without admitting that the Government Bonds that "the implementation of the [2011 assailed BIR Ruling and
are deposit substitutes, petitioners argue that the collection of BIR Ruling No. DA 378-2011] will have pernicious effects on
the final tax was barred by prescription. 91 They point out that the integrity of existing securities, which is contrary to the State
under Section 7 of DOF Department Order No. 141-95,92 the policies of stabilizing the financial system and of developing
final withholding tax "should have been withheld at the time of capital markets."114
their issuance[.]"93 Also, under Section 203 of the 1997
National Internal Revenue Code, "internal revenuetaxes, such
as the final tax, [should] be assessed within three (3) years For its part, CODE-NGO argues that: (a) the 2011 BIR Ruling
after the last day prescribed by law for the filing of the return."94 and BIR Ruling No. DA 378-2011 are "invalid because they
contravene Section 22(Y) of the 1997 [NIRC] when the said
rulings disregarded the applicability of the ‘20 or more lender’
Moreover, petitioners contend that the retroactive application of rule to government debt instruments"[;]115 (b) "when [it] sold the
the 2011 BIR Ruling without prior notice to them was in PEACe Bonds in the secondary market instead of holding them
until maturity, [it] derived . . . long-term trading gain[s], not "there was no need to observe the requirements of notice,
interest income, which [are] exempt . . . under Section 32(B)(7) hearing, and publication[.]"136
(g) of the 1997 NIRC"[;]116 (c) "the tax exemption privilege
relating to the issuance of the PEACe Bonds . . . partakes of a Nonetheless, respondents add that "there is every reason to
contractual commitment granted by the Government in believe that Petitioners — all major financial institutions
exchange for a valid and material consideration [i.e., the issue equipped with both internal and external accounting and
price paid and savings in borrowing cost derived by the compliance departments as wellas access to both internal and
Government,] thus protected by the non-impairment clause of external legal counsel; actively involved in industry
the 1987 Constitution"[;]117 and (d) the 2004, 2005, and 2011 organizations such as the Bankers Association of the
BIR Rulings "did not validly revoke the 2001 BIR Rulings since Philippines and the Capital Market Development Council; all
no notice of revocation was issued to [it], RCBC and [RCBC actively taking part in the regular and special debt issuances of
Capital] and petitioners[-bondholders], nor was there any BIR the BTr and indeed regularly proposing products for issue by
administrative guidance issued and published[.]"118 CODE- BTr — had actual notice of the 2004 and 2005 BIR
NGO additionally argues that impleading it in a Rule 65 petition Rulings."137 Allegedly, "the sudden and drastic drop —
was improper because: (a) it involves determination of a including virtually zero trading for extended periods of six
factual question;119 and (b) it is premature and states no cause months to almost a year — in the trading volume of the PEACe
of action as it amounts to an anticipatory third-party claim.120 Bonds after the release of BIR Ruling No. 007-04 on July 16,
2004 tend to indicate that market participants, including the
Arguments of respondents Petitioners herein, were aware of the ruling and its
consequences for the PEACe Bonds."138
Respondents argue that petitioners’ direct resort to this court to
challenge the 2011 BIR Ruling violates the doctrines of Moreover, they contend that the assailed 2011 BIR Ruling is a
exhaustion of administrative remedies and hierarchy ofcourts, valid exercise of the Commissioner of Internal Revenue’s rule-
resulting in a lack of cause of action that justifies the dismissal making power;139 that it and the 2004 and 2005 BIR Rulings did
of the petition.121 According to them, "the jurisdiction to review not unduly expand the definition of deposit substitutes by
the rulings of the [Commissioner of Internal Revenue], after the creating an unwarranted exception to the requirement of
aggrieved party exhausted the administrative remedies, having 20 or more lenders/purchasers;140 and the word "any" in
pertains to the Court of Tax Appeals."122 They point out that "a Section 22(Y) of the National Internal Revenue Code plainly
case similar to the present Petition was [in fact] filed with the indicates that the period contemplated is the entire term of the
CTA on October 13, 2011[,] [docketed as] CTA Case No. 8351 bond and not merely the point of origination or issuance.141
[and] entitled, ‘Rizal Commercial Banking Corporation and
RCBC Capital Corporation vs. Commissioner of Internal Respondents further argue that a retroactive application of the
Revenue, et al.’"123 2011 BIR Ruling will not unjustifiably prejudice
petitioners.142 "[W]ith or without the 2011 BIR Ruling,
Respondents further take issue on the timeliness of the filing of Petitioners would be liable topay a 20% final withholding tax
the petition and petitions-in-intervention.124 They argue that just the same because the PEACe Bonds in their possession
under the guise of mainly assailing the 2011 BIR Ruling, are legally in the nature of deposit substitutes subject to a 20%
petitioners are indirectly attacking the 2004 and 2005 BIR final withholding tax under the NIRC."143 Section 7 of DOF
Rulings, of which the attack is legally prohibited, and the Department Order No. 141-95 also provides that
petition insofar as it seeks to nullify the 2004 and 2005 BIR incomederived from Treasury bonds is subject to the 20% final
Rulings was filed way out of time pursuant to Rule 65, Section withholding tax.144 "[W]hile revenue regulations as a general
4.125 rule have no retroactive effect, if the revocation is due to the
fact that the regulation is erroneous or contrary to law, such
Respondents contend that the discount/interest income derived revocation shall have retroactive operation as to affect past
from the PEACe Bonds is not a trading gain but interest transactions, because a wrong construction of the law cannot
income subject to income tax.126 They explain that "[w]ith the give rise to a vested right that can be invoked by a taxpayer."145
payment of the Ph₱35 Billion proceeds on maturity of the
PEACe Bonds, Petitioners receive an amount of money Finally, respondents submit that "there are a number of
equivalent to about Ph₱24.8 Billion as payment for interest. variables and factors affecting a capital market."146 "[C]apital
Such interest is clearly an income of the Petitioners market itself is inherently unstable."147 Thus, "[p]etitioners’
considering that the same is a flow of wealth and not merely a argument that the 20% final withholding tax . . . will wreak
return of capital – the capital initially invested in the Bonds havoc on the financial stability of the country is a mere
being approximately Ph₱10.2 Billion[.]"127 supposition that is not a justiciable issue."148

Maintaining that the imposition of the 20% final withholding tax On the prayer for the temporary restraining order, respondents
on the PEACe Bonds does not constitute an impairment of the argue that this order "could no longer be implemented
obligations of contract, respondents aver that: "The BTr has no [because] the acts sought to be enjoined are already fait
power to contractually grant a tax exemption in favour of accompli."149 They add that "to disburse the funds withheld to
Petitioners thus the 2001 BIR Rulings cannot be considered a the Petitioners at this time would violate Section 29[,] Article VI
material term of the Bonds"[;]128 "[t]here has been no change in of the Constitution prohibiting ‘money being paid out of the
the laws governing the taxability of interest income from Treasury except in pursuance of an appropriation made by
deposit substitutes and said laws are read into every law[.]’"150 "The remedy of petitioners is to claim a tax refund
contract"[;]129 "[t]he assailed BIR Rulings merely interpret the under Section 204(c) of the Tax Code should their position be
term "deposit substitute" in accordance with the letter and spirit upheld by the Honorable Court."151
of the Tax Code"[;]130 "[t]he withholding of the 20% FWT does
not result in a default by the Government as the latter Respondents also argue that "the implementation of the TRO
performed its obligations to the bondholders in full"[;]131 and "[i]f would violate Section 218 of the Tax Code in relation to
there was a breach of contract or a misrepresentation it was Section 11 of Republic Act No. 1125 (as amended by Section 9
between RCBC/CODE-NGO/RCBC Cap and the succeeding of Republic Act No. 9282) which prohibits courts, except the
purchasers of the PEACe Bonds."132 Court of Tax Appeals, from issuing injunctions to restrain the
collection of any national internal revenue tax imposed by the
Similarly, respondents counter that the withholding of "[t]he Tax Code."152
20% final withholding tax on the PEACe Bonds does not
amount to a deprivation of property without due process of Summary of arguments
law."133 Their imposition of the 20% final withholding tax is not
arbitrary because they were only performing a duty imposed by
law;134 "[t]he 2011 BIR Ruling is aninterpretative rule which In sum, petitioners and petitioners-intervenors, namely, RCBC,
merely interprets the meaning of deposit substitutes [and RCBC Capital, and CODE-NGO argue that:
upheld] the earlier construction given to the termby the 2004
and 2005 BIR Rulings."135 Hence, respondents argue that 1. The 2011 BIR Ruling is ultra vires because it is
contrary to the 1997 National Internal Revenue Code
 when it declared that all government debt instruments Under Section 4 of the 1997 National Internal Revenue Code,
are deposit substitutes regardless of the 20-lender interpretative rulings are reviewable by the Secretary of
rule; and Finance.

2. The 2011 BIR Ruling cannot be applied SEC. 4. Power of the Commissioner to Interpret Tax Laws and
retroactively because: to Decide Tax Cases. -The power to interpret the provisions of
this Code and other tax laws shall be under the exclusive and
a) It will violate the contract clause; original jurisdiction of the Commissioner, subject to review by
the Secretary of Finance. (Emphasis supplied)
● It constitutes a unilateral amendment of a
material term (tax exempt status) in the Thus, it was held that "[i]f superior administrative officers [can]
Bonds, represented by the government as grant the relief prayed for, [then] special civil actions are
an inducement and important consideration generally not entertained."153 The remedy within the
for the purchase of the Bonds; administrative machinery must be resorted to first and pursued
to its appropriate conclusion before the court’s judicial power
can be sought.154
b) It constitutes deprivation ofproperty
without due process because there was no
prior notice to bondholders and hearing and Nonetheless, jurisprudence allows certain exceptions to the
publication; rule on exhaustion of administrative remedies:

c) It violates the rule on non-retroactivity [The doctrine of exhaustion of administrative remedies] is a

under the 1997 National Internal Revenue relative one and its flexibility is called upon by the peculiarity
Code; and uniqueness of the factual and circumstantial settings of a
case. Hence, it is disregarded (1) when there is a violation of
due process, (2) when the issue involved is purely a legal
d) It violates the constitutional provision on question,155 (3) when the administrative action is patently illegal
supporting activities of non-government amounting to lack or excess of jurisdiction,(4) when there is
organizations and development of the capital estoppel on the part of the administrative agency concerned,
market; and (5) when there is irreparable injury, (6) when the respondent is
a department secretary whose acts as an alter ego of the
e) The assessment had already prescribed. President bears the implied and assumed approval of the
latter, (7) when to require exhaustion of administrative
Respondents counter that: remedies would be unreasonable, (8) when it would amount to
a nullification of a claim, (9) when the subject matter is a
private land in land case proceedings, (10) when the rule does
1) Respondent Commissioner of Internal Revenue did not act not provide a plain, speedy and adequate remedy, (11) when
with grave abuse of discretion in issuing the challenged 2011 there are circumstances indicating the urgency of judicial
BIR Ruling: intervention.156 (Emphasis supplied, citations omitted)

a. The 2011 BIR Ruling, being an interpretative rule, The exceptions under (2) and (11)are present in this case. The
was issued by virtue of the Commissioner of Internal question involved is purely legal, namely: (a) the interpretation
Revenue’s power to interpret the provisions of the of the 20-lender rule in the definition of the terms public and
1997 National Internal Revenue Code and other tax deposit substitutes under the 1997 National Internal Revenue
laws; Code; and (b) whether the imposition of the 20% final
withholding tax on the PEACe Bonds upon maturity violates
b. Commissioner of Internal Revenue merely restates the constitutional provisions on non-impairment of contracts
and confirms the interpretations contained in and due process. Judicial intervention is likewise urgent with
previously issued BIR Ruling Nos. 007-2004, DA-491- the impending maturity of the PEACe Bonds on October 18,
04,and 008-05, which have already effectively 2011.
abandoned or revoked the 2001 BIR Rulings;
The rule on exhaustion of administrative remedies also finds
c. Commissioner of Internal Revenue is not bound by no application when the exhaustion will result in an exercise in
his or her predecessor’s rulings especially when the futility.157
latter’s rulings are not in harmony with the law; and
In this case, an appeal to the Secretary of Finance from the
d. The wrong construction of the law that the 2001 questioned 2011 BIR Ruling would be a futile exercise
BIR Rulings have perpetrated cannot give rise to a because it was upon the request of the Secretary of Finance
vested right. Therefore, the 2011 BIR Ruling can be that the 2011 BIR Ruling was issued by the Bureau of Internal
given retroactive effect. Revenue. It appears that the Secretary of Finance adopted the
Commissioner of Internal Revenue’s opinions as his
own.158 This position was in fact confirmed in the letter159 dated
2) Rule 65 can be resorted to only if there is no appeal or any
October 10, 2011 where he ordered the Bureau of Treasury to
plain, speedy, and adequate remedy in the ordinary course of
withhold the amount corresponding to the 20% final
law:
withholding tax on the interest or discounts allegedly due from
the bondholders on the strength of the 2011 BIR Ruling.
a. Petitioners had the basic remedy offiling a claim for refund of Doctrine on hierarchy of courts
the 20% final withholding tax they allege to have been
wrongfully collected; and
We agree with respondents that the jurisdiction to review the
rulings of the Commissioner of Internal Revenue pertains to
b. Non-observance of the doctrine of exhaustion of the Court of Tax Appeals. The questioned BIR Ruling Nos.
administrative remedies and of hierarchy of courts. 370-2011 and DA 378-2011 were issued in connection with the
implementation of the 1997 National Internal Revenue Code on
Court’s ruling the taxability of the interest income from zero-coupon bonds
issued by the government.
Procedural Issues
Non-exhaustion of Under Republic Act No. 1125 (An Act Creating the Court of
administrative remedies proper Tax Appeals), as amended by Republic Act No. 9282,160 such
rulings of the Commissioner of Internal Revenue are
appealable to that court, thus:
SEC. 7.Jurisdiction.- The CTA shall exercise: any controversy, and that, accordingly, this case is not within
the jurisdiction of the Court of Tax Appeals.
a. Exclusive appellate jurisdiction to review by appeal, as
herein provided: We find no merit in this pretense. General Circular No. V-148
directs the officers charged with the collection of taxes and
1. Decisions of the Commissioner of Internal Revenue in cases license fees to adhere strictly to the interpretation given by the
involving disputed assessments, refunds of internal revenue defendant tothe statutory provisions abovementioned, as set
taxes, fees or other charges, penalties in relation thereto, or forth in the Circular. The same incorporates, therefore, a
other matters arising under the National Internal Revenue or decision of the Collector of Internal Revenue (now
other laws administered by the Bureau of Internal Revenue; Commissioner of Internal Revenue) on the manner of
enforcement of the said statute, the administration of which is
entrusted by law to the Bureau of Internal Revenue. As such, it
.... comes within the purview of Republic Act No. 1125, Section 7
of which provides that the Court of Tax Appeals ‘shall exercise
SEC. 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - exclusive appellate jurisdiction to review by appeal . . .
Any party adversely affected by a decision, ruling or inaction of decisions of the Collector of Internal Revenue in . . . matters
the Commissioner of Internal Revenue, the Commissioner of arising under the National Internal Revenue Code or other law
Customs, the Secretary of Finance, the Secretary of Trade and or part of the law administered by the Bureau of Internal
Industry or the Secretary of Agriculture or the Central Board of Revenue.’"163
Assessment Appeals or the Regional Trial Courts may file an
appeal with the CTA within thirty (30) days after the receipt of In exceptional cases, however, this court entertained direct
such decision or rulingor after the expiration of the period fixed recourse to it when "dictated by public welfare and the
by law for action as referred toin Section 7(a)(2) herein. advancement of public policy, or demanded by the broader
interest of justice, or the orders complained of were found to be
.... patent nullities, or the appeal was considered as clearly an
inappropriate remedy."164
SEC. 18. Appeal to the Court of Tax Appeals En Banc. - No
civil proceeding involving matters arising under the National In Philippine Rural Electric Cooperatives Association, Inc.
Internal Revenue Code, the Tariff and Customs Code or the (PHILRECA) v. The Secretary, Department of Interior and
Local Government Code shall be maintained, except as herein Local Government,165 this court noted that the petition for
provided, until and unless an appeal has been previously filed prohibition was filed directly before it "in disregard of the rule
with the CTA and disposed of in accordance with the on hierarchy of courts. However, [this court] opt[ed] to take
provisions of this Act. primary jurisdiction over the . . . petition and decide the same
on its merits in viewof the significant constitutional issues
In Commissioner of Internal Revenue v. Leal,161 citing raised by the parties dealing with the tax treatment of
Rodriguez v. Blaquera,162 this court emphasized the jurisdiction cooperatives under existing laws and in the interest of speedy
of the Court of Tax Appeals over rulings of the Bureau of justice and prompt disposition of the matter."166
Internal Revenue, thus:
Here, the nature and importance of the issues raised167 to the
While the Court of Appeals correctly took cognizance of the investment and banking industry with regard to a definitive
petition for certiorari, however, let it be stressed that the declaration of whether government debt instruments are
jurisdiction to review the rulings of the Commissioner of deposit substitutes under existing laws, and the novelty
Internal Revenue pertains to the Court of Tax Appeals, not to thereof, constitute exceptional and compelling circumstances
the RTC. to justify resort to this court in the first instance.

The questioned RMO No. 15-91 and RMC No. 43-91 are The tax provision on deposit substitutes affects not only the
actually rulings or opinions of the Commissioner implementing PEACe Bonds but also any other financial instrument or
the Tax Code on the taxability of pawnshops.. . . product that may be issued and traded in the market. Due to
the changing positions of the Bureau of Internal Revenue on
this issue, there isa need for a final ruling from this court to
.... stabilize the expectations in the financial market.

Such revenue orders were issued pursuant to petitioner's Finally, non-compliance with the rules on exhaustion of
powers under Section 245 of the Tax Code, which states: administrative remedies and hierarchy of courts had been
rendered moot by this court’s issuance of the temporary
"SEC. 245. Authority of the Secretary of Finance to promulgate restraining order enjoining the implementation of the 2011 BIR
rules and regulations. — The Secretary of Finance, upon Ruling. The temporary restraining order effectively recognized
recommendation of the Commissioner, shall promulgate all the urgency and necessity of direct resort to this court.
needful rules and regulations for the effective enforcement of
the provisions of this Code. Substantive issues

The authority of the Secretary of Finance to determine articles Tax treatment of deposit
similar or analogous to those subject to a rate of sales tax substitutes
under certain category enumerated in Section 163 and 165 of
this Code shall be without prejudice to the power of the
Commissioner of Internal Revenue to make rulings or opinions Under Sections 24(B)(1), 27(D)(1),and 28(A)(7) of the 1997
in connection with the implementation of the provisionsof National Internal Revenue Code, a final withholdingtax at the
internal revenue laws, including ruling on the classification of rate of 20% is imposed on interest on any currency bank
articles of sales and similar purposes." (Emphasis in the deposit and yield or any other monetary benefit from deposit
original) substitutes and from trust funds and similar arrangements.
These provisions read:

....
SEC. 24. Income Tax Rates.

The Court, in Rodriguez, etc. vs. Blaquera, etc., ruled:

....

"Plaintiff maintains that this is not an appeal from a ruling of the

Collector of Internal Revenue, but merely an attempt to nullify (B) Rate of Tax on Certain Passive Income.
General Circular No. V-148, which does not adjudicate or settle
(1) Interests, Royalties, Prizes, and Other Winnings. - A final purchasing of receivables and other obligations, or financing
tax at the rate of twenty percent (20%) is hereby imposed upon their own needs or the needs of their agent or dealer.These
the amount of interest fromany currency bank deposit and yield promissory notes, repurchase agreements, certificates of
or any other monetary benefit from deposit substitutes and assignment or participation and similar instrument with
from trust funds and similar arrangements; . . . Provided, recourse as may be authorized by the Central Bank of the
further, That interest income from long-term deposit or Philippines, for banks and non-bank financial intermediaries or
investment in the form of savings, common or individual trust by the Securities and Exchange Commission of the Philippines
funds, deposit substitutes, investment management accounts for commercial, industrial, finance companies and either non-
and other investments evidenced by certificates in such form financial companies: Provided, however, that only debt
prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be instruments issued for inter-bank call loans to cover deficiency
exempt from the tax imposed under this Subsection: Provided, in reserves against deposit liabilities including those between
finally, That should the holder of the certificate pre-terminate or among banks and quasi-banks shall not be considered as
the deposit or investment before the fifth (5th) year, a final tax deposit substitute debt instruments. (Emphasis supplied)
shall be imposed on the entire income and shall be deducted
and withheld by the depository bank from the proceeds of the Revenue Regulations No. 17-84, issued to implement
long-term deposit or investment certificate based on the Presidential Decree No. 1959, adopted verbatim the same
remaining maturity thereof: definition and specifically identified the following borrowings as
"deposit substitutes":
Four (4) years to less than five (5) years - 5%;
SECTION 2. Definitions of Terms. . . .
Three (3) years to less than four (4) years - 12%; and
(h) "Deposit substitutes" shall mean –
Less than three (3) years - 20%. (Emphasis supplied)
....
SEC. 27. Rates of Income Tax on Domestic Corporations. -
(a) All interbank borrowings by or among banks and
.... non-bank financial institutions authorized to engage in
quasi-banking functions evidenced by deposit
(D) Rates of Tax on Certain Passive Incomes. - substitutes instruments, except interbank call loans to
cover deficiency in reserves against deposit liabilities
as evidenced by interbank loan advice or repayment
(1) Interest from Deposits and Yield or any other Monetary transfer tickets.
Benefit from Deposit Substitutes and from Trust Funds and
Similar Arrangements, and Royalties. - A final tax at the rate of
twenty percent (20%) is hereby imposed upon the amount of (b) All borrowings of the national and local
interest on currency bank deposit and yield or any other government and its instrumentalities including the
monetary benefit from deposit substitutes and from trust funds Central Bank of the Philippines, evidenced by debt
and similar arrangements received by domestic corporations, instruments denoted as treasury bonds, bills, notes,
and royalties, derived from sources within the Philippines: certificates of indebtedness and similar instruments.
Provided, however, That interest income derived by a domestic
corporation from a depository bank under the expanded foreign (c) All borrowings of banks, non-bank financial
currency deposit system shall be subject to a final income tax intermediaries, finance companies, investment
at the rate of seven and one-half percent (7 1/2%) of such companies, trust companies, including the trust
interest income. (Emphasis supplied) department of banks and investment houses,
evidenced by deposit substitutes instruments.
SEC. 28. Rates of Income Tax on Foreign Corporations. - (Emphasis supplied)

(A) Tax on Resident Foreign Corporations. - The definition of deposit substitutes was amended under the
1997 National Internal Revenue Code with the addition of the
qualifying phrase for public – borrowing from 20 or more
.... individual or corporate lenders at any one time. Under Section
22(Y), deposit substitute is defined thus: SEC. 22. Definitions-
(7) Tax on Certain Incomes Received by a Resident Foreign When used in this Title:
Corporation. -
....
(a) Interest from Deposits and Yield or any other Monetary
Benefit from Deposit Substitutes, Trust Funds and Similar (Y) The term ‘deposit substitutes’ shall mean an alternative
Arrangements and Royalties. - Interest from any currency bank form of obtaining funds from the public(the term 'public' means
deposit and yield or any other monetary benefit from deposit borrowing from twenty (20) or more individual or corporate
substitutes and from trust funds and similar arrangements and lenders at any one time) other than deposits, through the
royalties derived from sources within the Philippines shall be issuance, endorsement, or acceptance of debt instruments for
subject to a final income tax at the rate of twenty percent (20%) the borrower’s own account, for the purpose of relending or
of such interest: Provided, however, That interest income purchasing of receivables and other obligations, or financing
derived by a resident foreign corporation from a depository their own needs or the needs of their agent or dealer. These
bank under the expanded foreign currency deposit system instruments may include, but need not be limited to, bankers’
shall be subject to a final income tax at the rate of seven and acceptances, promissory notes, repurchase agreements,
one-half percent (7 1/2%) of such interest income. (Emphasis including reverse repurchase agreements entered into by and
supplied) between the Bangko Sentral ng Pilipinas (BSP) and any
authorized agent bank, certificates of assignment or
This tax treatment of interest from bank deposits and yield from participation and similar instruments with recourse: Provided,
deposit substitutes was first introduced in the 1977 National however, That debt instruments issued for interbank call loans
Internal Revenue Code through Presidential Decree No. with maturity of not more than five (5) days to cover deficiency
1739168 issued in 1980. Later, Presidential Decree No. 1959, in reserves against deposit liabilities, including those between
effective on October 15, 1984, formally added the definition of or among banks and quasi-banks, shall not be considered as
deposit substitutes, viz: deposit substitute debt instruments. (Emphasis supplied)

(y) ‘Deposit substitutes’ shall mean an alternative form of Under the 1997 National Internal Revenue Code, Congress
obtaining funds from the public, other than deposits, through specifically defined "public" to mean "twenty (20) or more
the issuance, endorsement, or acceptance of debt instruments individual or corporate lenders at any one time." Hence, the
for the borrower's own account, for the purpose of relending or number of lenders is determinative of whether a debt
instrument should be considered a deposit substitute and investment."189 In semi direct financing, "[t]he ultimate lender
consequently subject to the 20% final withholding tax. still winds up holding the borrower’s securities, and therefore
the lender must be willing to accept the risk, liquidity, and
20-lender rule maturity characteristics of the borrower’s [debt security]. There
still must be a fundamental coincidence of wants and needs
between [lenders and borrowers] for semidirect financial
Petitioners contend that "there [is]only one (1) lender (i.e. transactions to take place."190
RCBC) to whom the BTr issued the Government Bonds."169 On
the other hand, respondents theorize that the word "any"
"indicates that the period contemplated is the entire term of the "The limitations of both direct and semidirect finance stimulated
bond and not merely the point of origination or the development of indirect financial transactions, carried out
issuance[,]"170 such that if the debt instruments "were with the help of financial intermediaries"191 or financial
subsequently sold in secondary markets and so on, insuch a institutions, like banks, investment banks, finance companies,
way that twenty (20) or more buyers eventually own the insurance companies, and mutual funds.192 Financial
instruments, then it becomes indubitable that funds would be intermediaries accept funds from surplus units and channel the
obtained from the "public" as defined in Section 22(Y) of the funds to deficit units.193 "Depository institutions [such as banks]
NIRC."171 Indeed, in the context of the financial market, the accept deposits from surplus units and provide credit to deficit
words "at any one time" create an ambiguity. units through loans and purchase of [debt]
securities."194 Nondepository institutions, like mutual funds,
issue securities of their own (usually in smaller and affordable
Financial markets denominations) to surplus units and at the same time purchase
debt securities of deficit units.195 "By pooling the resources
Financial markets provide the channel through which funds of[small savers, a financial intermediary] can service the credit
from the surplus units (households and business firms that needs of large firms simultaneously."196
have savings or excess funds) flow to the deficit units (mainly
business firms and government that need funds to finance their The financial market, therefore, is an agglomeration of financial
operations or growth). They bring suppliers and users of funds transactions in securities performed by market participants that
together and provide the means by which the lenders works to transfer the funds from the surplus units (or
transform their funds into financial assets, and the borrowers investors/lenders) to those who need them (deficit units or
receive these funds now considered as their financial liabilities. borrowers).
The transfer of funds is represented by a security, such as
stocks and bonds. Fund suppliers earn a return on their
investment; the return is necessary to ensure that funds are Meaning of "at any one time"
supplied to the financial markets.172
Thus, from the point of view of the financial market, the phrase
"The financial markets that facilitate the transfer of debt "at any one time" for purposes of determining the "20 or more
securities are commonly classified by the maturity of the lenders" would mean every transaction executed in the primary
securities[,]"173 namely: (1) the money market, which facilitates or secondary market in connection with the purchase or sale of
the flow of short-term funds (with maturities of one year or securities.
less); and (2) the capital market, which facilitates the flow of
long-term funds (with maturities of more than one year).174 For example, where the financial assets involved are
government securities like bonds, the reckoning of "20 or more
Whether referring to money marketsecurities or capital market lenders/investors" is made at any transaction in connection
securities, transactions occur either in the primary market or in with the purchase or sale of the Government Bonds, such as:
the secondary market.175 "Primary markets facilitate the
issuance of new securities. Secondary markets facilitate the 1. Issuance by the Bureau of Treasury of the bonds to
trading of existing securities, which allows for a change in the GSEDs in the primary market;
ownership of the securities."176 The transactions in primary
markets exist between issuers and investors, while secondary 2. Sale and distribution by GSEDs to various
market transactions exist among investors.177 lenders/investors in the secondary market;

"Over time, the system of financial markets has evolved from 3. Subsequent sale or trading by a bondholder to
simple to more complex ways of carrying out financial another lender/investor in the secondary market
transactions."178 Still, all systems perform one basic function: usually through a broker or dealer; or
the quick mobilization of money from the lenders/investors to
the borrowers.179
4. Sale by a financial intermediary-bondholder of its
participation interests in the bonds to individual or
Fund transfers are accomplished in three ways: (1) direct corporate lenders in the secondary market.
finance; (2) semidirect finance; and (3) indirect finance.180
When, through any of the foregoing transactions, funds are
With direct financing, the "borrower and lender meet each simultaneously obtained from 20 or morelenders/investors,
other and exchange funds in returnfor financial assets"181 (e.g., there is deemed to be a public borrowing and the bonds at that
purchasing bonds directly from the company issuing them). point intime are deemed deposit substitutes. Consequently, the
This method provides certain limitations such as: (a) "both seller is required to withhold the 20% final withholding tax on
borrower and lender must desire to exchange the same the imputed interest income from the bonds.
amount of funds at the same time"[;]182 and (b) "both lender
and borrower must frequently incur substantial information
costs simply to find each other."183 For debt instruments that are
not deposit substitutes, regular
income tax applies
In semidirect financing, a securities broker or dealer brings
surplus and deficit units together, thereby reducing information
costs.184 A Broker185 is "an individual or financial institution who It must be emphasized, however, that debt instruments that do
provides information concerning possible purchases and sales not qualify as deposit substitutes under the 1997 National
of securities. Either a buyer or a seller of securities may Internal Revenue Code are subject to the regular income tax.
contact a broker, whose job is simply to bring buyers and
sellers together."186 A dealer187 "also serves as a middleman The phrase "all income derived from whatever source" in
between buyers and sellers, but the dealer actually acquires Chapter VI, Computation of Gross Income, Section 32(A) of
the seller’s securities in the hope of selling them at a later time the 1997 National Internal Revenue Code discloses a
at a more favorable price."188 Frequently, "a dealer will split up legislative policy to include all income not expressly exempted
a large issue of primary securities into smaller units affordable as within the class of taxable income under our laws.
by . . . buyers . . . and thereby expand the flow of savings into
"The definition of gross income isbroad enough to include all BIR Ruling No. 370-2011 is likewise erroneous insofar as it
passive incomes subject to specific tax rates or final stated (relying on the 2004 and 2005 BIR Rulings) that "all
taxes."197 Hence, interest income from deposit substitutes are treasury bonds . . . regardlessof the number of
necessarily part of taxable income. "However, since these purchasers/lenders at the time of origination/issuance are
passive incomes are already subject to different rates and considered deposit substitutes."208 Being the subject of this
taxed finally at source, they are no longer included in the petition, it is, thus, declared void because it completely
computation of gross income, which determines taxable disregarded the 20 or more lender rule added by Congress in
income."198 "Stated otherwise . . . if there were no withholding the 1997 National Internal Revenue Code. It also created a
tax system in place in this country, this 20 percent portion of distinction for government debt instruments as against those
the ‘passive’ income of [creditors/lenders] would actually be issued by private corporations when there was none in the law.
paid to the [creditors/lenders] and then remitted by them to the
government in payment of their income tax."199 Tax statutes must be reasonably construed as to give effect to
the whole act. Their constituent provisions must be read
This court, in Chamber of Real Estate and Builders’ together, endeavoring to make every part effective,
Associations, Inc. v. Romulo,200 explained the rationale behind harmonious, and sensible.209 That construction which will leave
the withholding tax system: every word operative will be favored over one that leaves some
word, clause, or sentence meaningless and insignificant.210
The withholding [of tax at source] was devised for three
primary reasons: first, to provide the taxpayer a convenient It may be granted that the interpretation of the Commissioner
manner to meet his probable income tax liability; second, to of Internal Revenue in charge of executing the 1997 National
ensure the collection of income tax which can otherwise be lost Internal Revenue Code is an authoritative construction ofgreat
or substantially reduced through failure to file the weight, but the principle is not absolute and may be overcome
corresponding returns[;] and third, to improve the government’s by strong reasons to the contrary. If through a
cash flow. This results in administrative savings, prompt and misapprehension of law an officer has issued an erroneous
efficient collection of taxes, prevention of delinquencies and interpretation, the error must be corrected when the true
reduction of governmental effort to collect taxes through more construction is ascertained.
complicated means and remedies.201 (Citations omitted)
In Philippine Bank of Communications v. Commissioner of
"The application of the withholdings system to interest on bank Internal Revenue,211 this court upheld the nullification of
deposits or yield from deposit substitutes is essentially to Revenue Memorandum Circular (RMC) No. 7-85 issued by the
maximize and expedite the collection of income taxes by Acting Commissioner of Internal Revenue because it was
requiring its payment at the source."202 contrary to the express provision of Section 230 of the 1977
National Internal Revenue Codeand, hence, "[cannot] be given
Hence, when there are 20 or more lenders/investors in a weight for to do so would, in effect, amend the
transaction for a specific bond issue, the seller isrequired to statute."212 Thus:
withhold the 20% final income tax on the imputed interest
income from the bonds. When the Acting Commissioner of Internal Revenue issued
RMC 7-85, changing the prescriptive period of two years to ten
Interest income v. gains from sale or redemption years on claims of excess quarterly income tax payments,
such circular created a clear inconsistency with the provision of
Sec. 230 of 1977 NIRC. In so doing, the BIR did not simply
The interest income earned from bonds is not synonymous interpret the law; rather it legislated guidelines contrary to the
with the "gains" contemplated under Section 32(B)(7)(g)203 of statute passed by Congress.
the 1997 National Internal Revenue Code, which exempts
gains derived from trading, redemption, or retirement of long-
term securities from ordinary income tax. It bears repeating that Revenue memorandum-circulars are
considered administrative rulings (in the sense of more specific
and less general interpretations of tax laws) which are issued
The term "gain" as used in Section 32(B)(7)(g) does not from time to time by the Commissioner of Internal Revenue. It
include interest, which represents forbearance for the use of is widely accepted that the interpretation placed upon a statute
money. Gains from sale or exchange or retirement of bonds by the executive officers, whose duty is to enforce it, is entitled
orother certificate of indebtedness fall within the general to great respect by the courts. Nevertheless, such
category of "gainsderived from dealings in property" under interpretation is not conclusive and will be ignored if judicially
Section 32(A)(3), while interest from bonds or other certificate found to be erroneous. Thus, courts will not countenance
of indebtedness falls within the category of "interests" under administrative issuances that override, instead of remaining
Section 32(A)(4).204 The use of the term "gains from sale" in consistent and in harmony with, the law they seek to apply and
Section 32(B)(7)(g) shows the intent of Congress not toinclude implement.213 (Citations omitted)
interest as referred under Sections 24, 25, 27, and 28 in the
exemption.205
This court further held that "[a] memorandum-circular of a
bureau head could not operate to vest a taxpayer with a shield
Hence, the "gains" contemplated in Section 32(B)(7)(g) refers against judicial action [because] there are no vested rights to
to: (1) gain realized from the trading of the bonds before their speak of respecting a wrong construction of the law by the
maturity date, which is the difference between the selling price administrative officials and such wrong interpretation could not
of the bonds in the secondary market and the price at which place the Government in estoppel to correct or overrule the
the bonds were purchased by the seller; and (2) gain realized same."214 In Commissioner of Internal Revenue v. Michel J.
by the last holder of the bonds when the bonds are redeemed Lhuillier Pawnshop, Inc.,215 this court nullified Revenue
at maturity, which is the difference between the proceeds from Memorandum Order (RMO) No. 15-91 and RMC No. 43-91,
the retirement of the bonds and the price atwhich such last which imposed a 5% lending investor's tax on pawnshops. 216 It
holder acquired the bonds. For discounted instruments,like the was held that "the [Commissioner] cannot, in the exercise of
zero-coupon bonds, the trading gain shall be the excess of the [its interpretative] power, issue administrative rulings or
selling price over the book value or accreted value (original circulars not consistent with the law sought to be applied.
issue price plus accumulated discount from the time of Indeed, administrative issuances must not override, supplant
purchase up to the time of sale) of the instruments.206 or modify the law, but must remain consistent with the law they
intend to carry out. Only Congress can repeal or amend the
The Bureau of Internal law."217
Revenue rulings
In Misamis Oriental Association of Coco Traders, Inc. v.
The Bureau of Internal Revenue’s interpretation as expressed Department of Finance Secretary,218 this court stated that the
in the three 2001 BIR Rulings is not consistent with law.207 Its Commissioner of Internal Revenue is not bound by the ruling of
interpretation of "at any one time" to mean at the point of his predecessors,219 but, to the contrary, the overruling of
origination alone is unduly restrictive. decisions is inherent in the interpretation of laws:
[I]n considering a legislative rule a court is free to make three the Bureau of Treasury to pay the face value of the PEACe
inquiries: (i) whether the rule is within the delegated authority Bonds to the bondholders and for the Bureau of Internal
of the administrative agency; (ii) whether itis reasonable; and Revenue to collect the unpaid final withholding tax directly from
(iii) whether it was issued pursuant to proper procedure. But RCBC Capital/CODE-NGO, orany lender or investor if such be
the court is not free to substitute its judgment as to the the case, as the withholding agents.
desirability or wisdom of the rule for the legislative body, by its
delegation of administrative judgment, has committed those The collection of tax is not
questions to administrative judgments and not to judicial barred by prescription
judgments. In the case of an interpretative rule, the inquiry is
not into the validity but into the correctness or propriety of the
rule. As a matter of power a court, when confronted with an The three (3)-year prescriptive period under Section 203 of the
interpretative rule, is free to (i) give the force of law to the rule; 1997 National Internal Revenue Code to assess and collect
(ii) go to the opposite extreme and substitute its judgment; or internal revenue taxes is extended to 10 years in cases of (1)
(iii) give some intermediate degree of authoritative weight to fraudulent returns; (2) false returns with intent to evade tax;
the interpretative rule. and (3) failureto file a return, to be computed from the time of
discovery of the falsity, fraud, or omission. Section 203 states:
In the case at bar, we find no reason for holding that
respondent Commissioner erred in not considering copra as an SEC. 203. Period of Limitation Upon Assessment and
"agricultural food product" within the meaning of § 103(b) of the Collection. - Except as provided in Section 222, internal
NIRC. As the Solicitor General contends, "copra per se is not revenue taxes shall be assessed within three (3) years after
food, that is, it is not intended for human consumption. Simply the last day prescribed by law for the filing of the return, and no
stated, nobody eats copra for food." That previous proceeding in court without assessment for the collection of
Commissioners considered it so, is not reason for holding that such taxes shall be begun after the expiration of such period:
the present interpretation is wrong. The Commissioner of Provided, That in a case where a return is filed beyond the
Internal Revenue is not bound by the ruling of his period prescribed by law, the three (3)-year period shall be
predecessors. To the contrary, the overruling of decisions is counted from the day the return was filed. For purposes of this
inherent in the interpretation of laws.220 (Emphasis supplied, Section, a return filed before the last day prescribed by law for
citations omitted) the filing thereof shall be considered as filed on such last day.
(Emphasis supplied)
Tax treatment of income
derived from the PEACe Bonds ....

The transactions executed for the sale of the PEACe Bonds SEC. 222. Exceptions as to Period of Limitation of Assessment
are: and Collection of Taxes.

1. The issuance of the 35 billion Bonds by the Bureau (a) In the case of a false or fraudulent return with intent to
of Treasury to RCBC/CODE-NGO at 10.2 billion; and evade tax or of failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be
filed without assessment, at any time within ten (10) years after
2. The sale and distribution by RCBC Capital the discovery of the falsity, fraud or omission: Provided, That in
(underwriter) on behalf of CODE-NGO of the PEACe a fraud assessment which has become final and executory, the
Bonds to undisclosed investors at ₱11.996 billion. fact of fraud shall be judicially taken cognizance of in the civil
or criminal action for the collection thereof.
It may seem that there was only one lender — RCBC on behalf
of CODE-NGO — to whom the PEACe Bonds were issued at Thus, should it be found that RCBC Capital/CODE-NGO sold
the time of origination. However, a reading of the underwriting the PEACe Bonds to 20 or more lenders/investors, the Bureau
agreement221 and RCBC term sheet222 reveals that the of Internal Revenue may still collect the unpaid tax from RCBC
settlement dates for the sale and distribution by RCBC Capital Capital/CODE-NGO within 10 years after the discovery of the
(as underwriter for CODE-NGO) of the PEACe Bonds to omission.
various undisclosed investors at a purchase price of
approximately ₱11.996 would fall on the same day, October
18, 2001, when the PEACe Bonds were supposedly issued to In view of the foregoing, there is no need to pass upon the
CODE-NGO/RCBC. In reality, therefore, the entire ₱10.2 billion other issues raised by petitioners and petitioners-intervenors.
borrowing received by the Bureau of Treasury in exchange for
the ₱35 billion worth of PEACe Bonds was sourced directly Reiterative motion on the temporary restraining order
from the undisclosed number of investors to whom RCBC
Capital/CODE-NGO distributed the PEACe Bonds — all at the Respondents’ withholding of the
time of origination or issuance. At this point, however, we do 20% final withholding tax on
not know as to how many investors the PEACe Bonds were October 18, 2011 was justified
sold to by RCBC Capital.

Under the Rules of Court, court orders are required to be

Should there have been a simultaneous sale to 20 or more "served upon the parties affected."224 Moreover, service may
lenders/investors, the PEACe Bonds are deemed deposit be made personally or by mail.225 And, "[p]ersonal service is
substitutes within the meaning of Section 22(Y) of the 1997 complete upon actual delivery [of the order.]"226 This court’s
National Internal Revenue Code and RCBC Capital/CODE- temporary restraining order was received only on October 19,
NGO would have been obliged to pay the 20% final withholding 2011, or a day after the PEACe Bonds had matured and the
tax on the interest or discount from the PEACe Bonds. Further, 20% final withholding tax on the interest income from the same
the obligation to withhold the 20% final tax on the was withheld.
corresponding interest from the PEACe Bonds would likewise
be required of any lender/investor had the latter turnedaround
and sold said PEACe Bonds, whether in whole or part, Publication of news reports in the print and broadcast media,
simultaneously to 20 or more lenders or investors. as well as on the internet, is not a recognized mode of service
of pleadings, court orders, or processes. Moreover, the news
reports227 cited by petitioners were posted minutes before the
We note, however, that under Section 24223 of the 1997 close of office hours or late in the evening of October 18, 2011,
National Internal Revenue Code, interest income received by and they did not givethe exact contents of the temporary
individuals from longterm deposits or investments with a restraining order.
holding period of not less than five (5) years is exempt from the
final tax.
"[O]ne cannot be punished for violating an injunction or an
order for an injunction unless it is shown that suchinjunction or
Thus, should the PEACe Bonds be found to be within the
coverage of deposit substitutes, the proper procedure was for
order was served on him personally or that he had notice of the (Peace Bonds) –
issuance or making of such injunction or order."228
10 yr

At any rate, "[i]n case of doubt, a withholding agent may

always protect himself or herself by withholding the tax Sinking Fund-Cash 198-001 30,033,792,203.59
due"229 and return the amount of the tax withheld should it be (BSF)
finally determined that the income paid is not subject to
withholding.230 Hence, respondent Bureau of Treasury was
justified in withholding the amount corresponding to the 20% Due to BIR 412-002 4,966,207,796.41
final withholding tax from the proceeds of the PEACe Bonds,
as it received this court’s temporary restraining order only on
October 19, 2011, or the day after this tax had been withheld. To record
redemption of 10yr
Respondents’ retention of the Zero
amounts withheld is a defiance coupon (Peace
of the temporary restraining Bond) net of the
order 20% final
withholding tax
Nonetheless, respondents’ continued failure to release to pursuant to BIR
petitioners the amount corresponding to the 20% final Ruling No.
withholding tax in order that it may be placed in escrow as
378-2011, value
directed by this court constitutes a defiance of this court’s
temporary restraining order.231 date, October 18,
2011 per
BTr letter authority
The temporary restraining order is not moot. The acts sought
to be enjoined are not fait accompli. For an act to be and BSP Bank
considered fait accompli, the act must have already been fully Statements.
accomplished and consummated.232 It must be irreversible,
e.g., demolition of properties,233 service of the penalty of
imprisonment,234 and hearings on cases.235 When the act
sought to be enjoined has not yet been fully satisfied, and/or is The foregoing journal entry, however, does not prove that the
still continuing in nature,236 the defense of fait accomplicannot amount of ₱4,966,207,796.41, representing the 20% final
prosper. withholding tax on the PEACe Bonds, was disbursed by it and
remitted to the Bureau of Internal Revenue on October 18,
2011. The entries merely show that the monies corresponding
The temporary restraining order enjoins the entire to 20% final withholding tax was set aside for remittance to the
implementation of the 2011 BIR Ruling that constitutes both Bureau of Internal Revenue.
the withholding and remittance of the 20% final withholding tax
to the Bureau of Internal Revenue. Even though the Bureau of
Treasury had already withheld the 20% final withholding We recall the November 15, 2011 resolution issued by this
tax237 when it received the temporary restraining order, it had court directing respondents to "show cause why they failed to
yet to remit the monies it withheld to the Bureau of Internal comply with the [TRO]; and [to] comply with the [TRO] in order
Revenue, a remittance which was due only on November 10, that petitioners may place the corresponding funds in escrow
2011.238 The act enjoined by the temporary restraining order pending resolution of the petition."245 The 20% final withholding
had not yet been fully satisfied and was still continuing. tax was effectively placed in custodia legiswhen this court
ordered the deposit of the amount in escrow. The Bureau of
Treasury could still release the money withheld to petitioners
Under DOF-DBM Joint Circular No. 1-2000A239 dated July 31, for the latter to place in escrow pursuant to this court’s
2001 which prescribes to national government agencies such directive. There was no legal obstacle to the release of the
as the Bureau of Treasury the procedure for the remittance of 20% final withholding tax to petitioners. Congressional
all taxes it withheld to the Bureau of Internal Revenue, a appropriation is not required for the servicing of public debts in
national agency shall file before the Bureau of Internal view of the automatic appropriations clause embodied in
Revenue a Tax Remittance Advice (TRA) supported by Presidential Decree Nos. 1177 and 1967.
withholding tax returns on or before the 10th day of the
following month after the said taxes had been withheld.240 The
Bureau of Internal Revenue shall transmit an original copy of Section 31 of Presidential Decree No. 1177 provides:
the TRA to the Bureau of Treasury,241 which shall be the basis
for recording the remittance of the tax collection.242 The Bureau Section 31. Automatic Appropriations. All expenditures for (a)
of Internal Revenue will then record the amount of taxes personnel retirement premiums, government service
reflected in the TRA as tax collection in the Journal ofTax insurance, and other similar fixed expenditures, (b) principal
Remittance by government agencies based on its copies of the and interest on public debt, (c) national government
TRA.243 Respondents did not submit any withholding tax return guarantees of obligations which are drawn upon, are
or TRA to provethat the 20% final withholding tax was indeed automatically appropriated: provided, that no obligations shall
remitted by the Bureau of Treasury to the Bureau of Internal be incurred or payments made from funds thus automatically
Revenue on October 18, 2011. appropriated except as issued in the form of regular budgetary
allotments.
Respondent Bureau of Treasury’s Journal Entry Voucher No.
11-10-10395244 dated October 18, 2011 submitted to this court Section 1 of Presidential Decree No. 1967 states:
shows:
Section 1. There is hereby appropriated, out of any funds in the
Account Debit Amount Credit National Treasury not otherwise appropriated, such amounts
as may be necessary to effect payments on foreign or
Code Amount
domestic loans, or foreign or domestic loans whereon creditors
make a call on the direct and indirect guarantee of the
Bonds 442-360 35,000,000,000.00 Republic of the Philippines, obtained by:
Payable-L/T, Dom-
Zero a. the Republic of the Philippines the proceeds of
Coupon T/Bonds which were relent to government-owned or controlled
corporations and/or government financial institutions;
 b. government-owned or controlled corporations Respondent Bureau of Treasury had the duty to obey the
and/or government financial institutions the proceeds temporary restraining order issued by this court, which
of which were relent to public or private institutions; remained in full force and effect, until set aside, vacated, or
modified. Its conduct finds no justification and is
c. government-owned or controlled corporations reprehensible.247
and/or financial institutions and guaranteed by the
Republic of the Philippines; WHEREFORE, the petition for review and petitions-in-
intervention are GRANTED. BIR Ruling Nos. 370-2011 and DA
d. other public or private institutions and guaranteed 378-2011 are NULLIFIED.
by government owned or controlled corporations
and/or government financial institutions. Furthermore, respondent Bureau of Treasury is
REPRIMANDED for its continued retention of the amount
The amount of ₱35 billion that includes the monies corresponding to the 20% final withholding tax despite this
corresponding to 20% final withholding tax is a lawfuland valid court's directive in the temporary restraining order and in the
obligation of the Republic under the Government Bonds. Since resolution dated November 15, 2011 to deliver the amounts to
said obligation represents a public debt, the release of the the banks to be placed in escrow pending resolution of this
monies requires no legislative appropriation. case.

Section 2 of Republic Act No. 245 likewise provides that the Respondent Bureau of Treasury is hereby ORDERED to
money to be used for the payment of Government Bonds may immediately ·release and pay to the bondholders the amount
be lawfully taken from the continuing appropriation out of any corresponding-to the 20% final withholding tax that it withheld
monies in the National Treasury and is not required to be the on October 18, 2011.
subject of another appropriation legislation: SEC. 2. The
Secretary of Finance shall cause to be paid out of any moneys MARVIC M.V.F. LEONEN
in the National Treasury not otherwise appropriated, or from Associate Justice
any sinking funds provided for the purpose by law, any interest
falling due, or accruing, on any portion of the public debt
6.1
authorized by law. He shall also cause to be paid out of any
such money, or from any such sinking funds the principal
amount of any obligations which have matured, or which have G.R. No. 175723, February 04, 2014
been called for redemption or for which redemption has been
demanded in accordance with terms prescribed by him prior to THE CITY OF MANILA, REPRESENTED BY MAYOR JOSE
date of issue. . . In the case of interest-bearing obligations, he L. ATIENZA, JR., AND MS. LIBERTY M. TOLEDO, IN HER
shall pay not less than their face value; in the case of CAPACITY AS THE CITY TREASURER OF
obligations issued at a discount he shall pay the face value at MANILA, Petitioners, v. HON. CARIDAD H. GRECIA–
maturity; or if redeemed prior to maturity, such portion of the CUERDO, IN HER CAPACITY AS PRESIDING JUDGE OF
face value as is prescribed by the terms and conditions under THE REGIONAL TRIAL COURT, BRANCH 112, PASAY
which such obligations were originally issued. There are CITY; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR
hereby appropriated as a continuing appropriation out of any APPLIANCES CENTER; SUPERVALUE, INC.; ACE
moneys in the National Treasury not otherwise appropriated, HARDWARE PHILIPPINES, INC.; WATSON PERSONAL
such sums as may be necessary from time to time to carry out CARE STORES, PHILS., INC.; JOLLIMART PHILS., CORP.;
the provisions of this section. The Secretary of Finance shall SURPLUS MARKETING CORPORATION AND SIGNATURE
transmit to Congress during the first month of each regular LINES, Respondents.
session a detailed statement of all expenditures made under
this section during the calendar year immediately preceding.
DECISION
Thus, DOF Department Order No. 141-95, as amended, states
that payment for Treasury bills and bonds shall be made PERALTA, J.:
through the National Treasury’s account with the Bangko
Sentral ng Pilipinas, to wit: Before the Court is a special civil action for certiorari under
Rule 65 of the Rules of Court seeking to reverse and set aside
Section 38. Demand Deposit Account.– The Treasurer of the the Resolutions1 dated April 6, 2006 and November 29, 2006
Philippines maintains a Demand Deposit Account with the of the Court of Appeals (CA) in CA–G.R. SP No. 87948.
Bangko Sentral ng Pilipinas to which all proceeds from the sale
of Treasury Bills and Bonds under R.A. No. 245, as amended, The antecedents of the case, as summarized by the CA, are as
shall be credited and all payments for redemption of Treasury follows:chanRoblesvirtualLawlibrary
Bills and Bonds shall be charged.1âwphi1 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
Regarding these legislative enactments ordaining an automatic respondents SM Mart, Inc., SM Prime Holdings, Inc., Star
appropriations provision for debt servicing, this court has held: Appliances Center, Supervalue, Inc., Ace Hardware
Philippines, Inc., Watsons Personal Care Stores Phils., Inc.,
Congress . . . deliberates or acts on the budget proposals of Jollimart Philippines Corp., Surplus Marketing Corp. and
the President, and Congress in the exercise of its own Signature Lines. In addition to the taxes purportedly due from
judgment and wisdom formulates an appropriation act private respondents pursuant to Section 14, 15, 16, 17 of
precisely following the process established by the Constitution, the Revised Revenue Code of Manila (RRCM), said
which specifies that no money may be paid from the Treasury assessment covered the local business taxes petitioners were
except in accordance with an appropriation made by law. authorized to collect under Section 21 of the same Code.
Because payment of the taxes assessed was a precondition
Debt service is not included inthe General Appropriation Act, for the issuance of their business permits, private respondents
since authorization therefor already exists under RA Nos. 4860 were constrained to pay the P 19,316,458.77 assessment
and 245, as amended, and PD 1967. Precisely in the light of under protest.
this subsisting authorization as embodied in said Republic Acts
and PD for debt service, Congress does not concern itself with On January 24, 2004, private respondents filed [with the
details for implementation by the Executive, butlargely with Regional Trial Court of Pasay City] the complaint denominated
annual levels and approval thereof upon due deliberations as as one for “Refund or Recovery of Illegally and/or Erroneously–
part of the whole obligation program for the year. Upon such Collected Local Business Tax, Prohibition with Prayer to Issue
approval, Congress has spoken and cannot be said to TRO and Writ of Preliminary Injunction” which was docketed as
havedelegated its wisdom to the Executive, on whose part lies Civil Case No. 04–0019–CFM before public
the implementation or execution of the legislative respondent’s sala [at Branch 112]. In the amended complaint
wisdom.246 (Citation omitted) they filed on February 16, 2004, private respondents alleged
that, in relation to Section 21 thereof, Sections 14, 15, 16, 17, Appliances Center
18, 19 and 20 of the RRCM were violative of the limitations and To plaintiff Supervalue,
–1,362,750.34
guidelines under Section 143 (h) of Republic Act. No. 7160 Inc.
[Local Government Code] on double taxation. They further To plaintiff Ace
–419,689.04
averred that petitioner city’s Ordinance No. 8011 which Hardware Phils., Inc.
amended pertinent portions of the RRCM had already been To plaintiff Watsons
declared to be illegal and unconstitutional by the Department of Personal Care Health–231,453.62
Justice.2ChanRoblesVirtualawlibrary Stores Phils., Inc.
In its Order3 dated July 9, 2004, the RTC granted private To plaintiff Jollimart
–140,908.54
respondents’ application for a writ of preliminary injunction. Phils., Corp.
To plaintiff Surplus
–220,204.70
Petitioners filed a Motion for Reconsideration4 but the RTC Marketing Corp.
denied it in its Order5 dated October 15, 2004. To plaintiff Signature
–94,906.34
Mktg. Corp.
Petitioners then filed a special civil action for certiorari with the P
TOTAL:
CA assailing the July 9, 2004 and October 15, 2004 Orders of 19,316,458.77
the RTC.6 Defendants are further enjoined from collecting taxes under
Section 21, Revenue Code of Manila from herein plaintiff.
In its Resolution promulgated on April 6, 2006, the CA
dismissed petitioners’ petition for certiorari holding that it has SO ORDERED.10ChanRoblesVirtualawlibrary
no jurisdiction over the said petition. The CA ruled that since The parties did not inform the Court but based on the records,
appellate jurisdiction over private respondents’ complaint for the above Decision had already become final and executory
tax refund, which was filed with the RTC, is vested in the Court per the Certificate of Finality11 issued by the same trial court on
of Tax Appeals (CTA), pursuant to its expanded jurisdiction October 20, 2008. In fact, a Writ of Execution12 was issued by
under Republic Act No. 9282 (RA 9282), it follows that a the RTC on November 25, 2009.
petition for certiorari seeking nullification of an interlocutory
order issued in the said case should, likewise, be filed with the In view of the foregoing, it clearly appears that the issues
CTA. raised in the present petition, which merely involve the incident
on the preliminary injunction issued by the RTC, have already
Petitioners filed a Motion for Reconsideration,7 but the CA become moot and academic considering that the trial court, in
denied it in its Resolution dated November 29, 2006. its decision on the merits in the main case, has already ruled in
favor of respondents and that the same decision is now final
Hence, the present petition raising the following and executory. Well entrenched is the rule that where the
issues:chanRoblesvirtualLawlibrary issues have become moot and academic, there is no
I– Whether or not the Honorable Court of Appeals gravely justiciable controversy, thereby rendering the resolution of the
erred in dismissing the case for lack of jurisdiction. same of no practical use or value.13

II– Whether or not the Honorable Regional Trial Court In any case , the Court finds it necessary to resolve the issue
gravely abuse[d] its discretion amounting to lack or on jurisdiction raised by petitioners owing to its significance
excess of jurisdiction in enjoining by issuing a Writ of and for future guidance of both bench and bar. It is a settled
Injunction the petitioners[,] their agents and/or authorized principle that courts will decide a question otherwise moot and
representatives from implementing Section 21 of the academic if it is capable of repetition, yet evading review.14
Revised Revenue Code of Manila, as amended, against
private respondents. However, before proceeding, to resolve the question on
jurisdiction, the Court deems it proper to likewise address a
III– Whether or not the Honorable Regional Trial Court procedural error which petitioners committed.
gravely abuse[d] its discretion amounting to lack or
excess of jurisdiction in issuing the Writ of Injunction Petitioners availed of the wrong remedy when they filed the
despite failure of private respondents to make a written instant special civil action for certiorari under Rule 65 of the
claim for tax credit or refund with the City Treasurer of Rules of Court in assailing the Resolutions of the CA which
Manila. dismissed their petition filed with the said court and their
motion for reconsideration of such dismissal. There is no
IV– Whether or not the Honorable Regional Trial Court dispute that the assailed Resolutions of the CA are in the
gravely abuse[d] its discretion amounting to lack or nature of a final order as they disposed of the petition
excess of jurisdiction considering that under Section 21 of completely. It is settled that in cases where an assailed
the Manila Revenue Code, as amended, they are mere judgment or order is considered final, the remedy of the
collecting agents of the City Government. aggrieved party is appeal. Hence, in the instant case, petitioner
should have filed a petition for review on certiorari under Rule
V– Whether or not the Honorable Regional Trial Court 45, which is a continuation of the appellate process over the
gravely abuse[d] its discretion amounting to lack or original case.15
excess of jurisdiction in issuing the Writ of Injunction
because petitioner City of Manila and its constituents Petitioners should be reminded of the equally–settled rule that
would result to greater damage and prejudice thereof. a special civil action for certiorari under Rule 65 is an original
(sic)8ChanRoblesVirtualawlibrary or independent action based on grave abuse of discretion
Without first resolving the above issues, this Court finds that amounting to lack or excess of jurisdiction and it will lie only if
the instant petition should be denied for being moot and there is no appeal or any other plain, speedy, and adequate
academic. remedy in the ordinary course of law.16 As such, it cannot be a
substitute for a lost appeal.17
U pon perusal of the original records of the instant case, this
Court discovered that a Decision9 in the main case had already Nonetheless, in accordance with the liberal spirit pervading the
been rendered by the RTC on August 13, 2007, the dispositive Rules of Court and in the interest of substantial justice, this
portion of which reads as follows:chanRoblesvirtualLawlibrary Court has, before, treated a petition for certiorari as a petition
WHEREFORE, in view of the foregoing, this Court hereby for review on certiorari, particularly (1) if the petition
renders JUDGMENT in favor of the plaintiff and against the for certiorari was filed within the reglementary period within
defendant to grant a tax refund or credit for taxes paid which to file a petition for review on certiorari; (2) when errors
pursuant to Section 21 of the Revenue Code of the City of of judgment are averred; and (3) when there is sufficient
Manila as amended for the year 2002 in the following reason to justify the relaxation of the rules.18 Considering that
amounts:chanRoblesvirtualLawlibrary the present petition was filed within the 15–day reglementary
To plaintiff SM Mart, P period for filing a petition for review on certiorari under Rule 45,
–
Inc. 11,462,525.02 that an error of judgment is averred, and because of the
To plaintiff SM Prime significance of the issue on jurisdiction, the Court deems it
–3,118,104.63
Holdings, Inc. proper and justified to relax the rules and, thus, treat the
To plaintiff Star–2,152,316.54 instant petition for certiorari as a petition for review
on certiorari. duties under Section 301 and 302, respectively, of the Tariff
and Customs Code, and safeguard measures under Republic
Having disposed of the procedural aspect, we now turn to the Act No. 8800, where either party may appeal the decision to
central issue in this case. The basic question posed before this impose or not to impose said duties.
Court is whether or not the CTA has jurisdiction over a special b. Jurisdiction over cases involving criminal offenses as herein
civil action for certiorari assailing an interlocutory order issued provided:chanRoblesvirtualLawlibrary
by the RTC in a local tax case. 1. Exclusive original jurisdiction over all criminal offenses
arising from violations of the National Internal Revenue Code
This Court rules in the affirmative. or Tariff and Customs Code and other laws administered by
the Bureau of Internal Revenue or the Bureau of Customs:
On June 16, 1954, Congress enacted Republic Act No. 1125 Provided, however, That offenses or felonies mentioned in this
(RA 1125) creating the CTA and giving to the said court paragraph where the principal amount of taxes and fees,
jurisdiction over the following:chanRoblesvirtualLawlibrary exclusive of charges and penalties, claimed is less than One
(1) Decisions of the Collector of Internal Revenue in cases million pesos ( P 1,000,000.00) or where there is no specified
involving disputed assessments, refunds of internal revenue amount claimed shall be tried by the regular Courts and the
taxes, fees or other charges, penalties imposed in relation jurisdiction of the CTA shall be appellate. Any provision of law
thereto, or other matters arising under the National Internal or the Rules of Court to the contrary notwithstanding, the
Revenue Code or other law or part of law administered by the criminal action and the corresponding civil action for the
Bureau of Internal Revenue; recovery of civil liability for taxes and penalties shall at all times
be simultaneously instituted with, and jointly determined in the
(2) Decisions of the Commissioner of Customs in cases same proceeding by the CTA, the filing of the criminal action
involving liability for customs duties, fees or other money being deemed to necessarily carry with it the filing of the civil
charges; seizure, detention or release of property affected action, and no right to reserve the filing of such civil action
fines, forfeitures or other penalties imposed in relation thereto; separately from the criminal action will be recognized.
or other matters arising under the Customs Law or other law or
part of law administered by the Bureau of Customs; and 2. Exclusive appellate jurisdiction in criminal offenses:

(3) Decisions of provincial or City Boards of Assessment a. Over appeals from the judgments, resolutions or orders of
Appeals in cases involving the assessment and taxation of real the Regional Trial Courts in tax cases originally decided by
property or other matters arising under the Assessment Law, them, in their respected territorial jurisdiction.
including rules and regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic b. Over petitions for review of the judgments, resolutions or
Act No. 9282 (RA 9282) amending RA 1125 by expanding the orders of the Regional Trial Courts in the exercise of their
jurisdiction of the CTA, enlarging its membership and elevating appellate jurisdiction over tax cases originally decided by the
its rank to the level of a collegiate court with special Metropolitan Trial Courts, Municipal Trial Courts and Municipal
jurisdiction. Pertinent portions of the amendatory act provides Circuit Trial Courts in their respective jurisdiction.
thus:chanRoblesvirtualLawlibrary
Sec. 7. Jurisdiction. – The CTA shall c. Jurisdiction over tax collection cases as herein provided:
exercise:chanRoblesvirtualLawlibrary
a. Exclusive appellate jurisdiction to review by appeal, as 1. Exclusive original jurisdiction in tax collection cases
herein provided:chanRoblesvirtualLawlibrary involving final and executory assessments for taxes, fees,
1. Decisions of the Commissioner of Internal Revenue in cases charges and penalties: Provides, however, that collection
involving disputed assessments, refunds of internal revenue cases where the principal amount of taxes and fees, exclusive
taxes, fees or other charges, penalties in relation thereto, or of charges and penalties, claimed is less than One million
other matters arising under the National Internal Revenue or pesos ( P 1,000,000.00) shall be tried by the proper Municipal
other laws administered by the Bureau of Internal Revenue; Trial Court, Metropolitan Trial Court and Regional Trial Court.

2. Inaction by the Commissioner of Internal Revenue in cases 2. Exclusive appellate jurisdiction in tax collection
involving disputed assessments, refunds of internal revenue cases:chanRoblesvirtualLawlibrary
taxes, fees or other charges, penalties in relations thereto, or a. Over appeals from the judgments, resolutions or orders of
other matters arising under the National Internal Revenue the Regional Trial Courts in tax collection cases originally
Code or other laws administered by the Bureau of Internal decided by them, in their respective territorial jurisdiction.
Revenue, where the National Internal Revenue Code provides
a specific period of action, in which case the inaction shall be b. Over petitions for review of the judgments, resolutions or
deemed a denial; orders of the Regional Trial Courts in the Exercise of their
appellate jurisdiction over tax collection cases originally
3. Decisions, orders or resolutions of the Regional Trial decided by the Metropolitan Trial Courts, Municipal Trial Courts
Courts in local tax cases originally decided or resolved by and Municipal Circuit Trial Courts, in their respective
them in the exercise of their original or appellate jurisdiction.19ChanRoblesVirtualawlibrary
jurisdiction; A perusal of the above provisions would show that, while it is
clearly stated that the CTA has exclusive appellate jurisdiction
4. Decisions of the Commissioner of Customs in cases over decisions, orders or resolutions of the RTCs in local tax
involving liability for customs duties, fees or other money cases originally decided or resolved by them in the exercise of
charges, seizure, detention or release of property affected, their original or appellate jurisdiction,there is no categorical
fines, forfeitures or other penalties in relation thereto, or other statement under RA 1125 as well as the amendatory RA 9282,
matters arising under the Customs Law or other laws which provides that the CTA has jurisdiction over petitions
administered by the Bureau of Customs; for certiorari assailing interlocutory orders issued by the RTC in
local tax cases filed before it.
5. Decisions of the Central Board of Assessment Appeals in
the exercise of its appellate jurisdiction over cases involving The prevailing doctrine is that the authority to issue writs
the assessment and taxation of real property originally decided of certiorari involves the exercise of original jurisdiction which
by the provincial or city board of assessment appeals; must be expressly conferred by the Constitution or by law and
cannot be implied from the mere
6. Decisions of the Secretary of Finance on customs cases
elevated to him automatically for review from decisions of the existence of appellate jurisdiction.20 Thus, in the cases
Commissioner of Customs which are adverse to the of Pimentel v. COMELEC,21Garcia v. De Jesus,22Veloria v.
Government under Section 2315 of the Tariff and Customs COMELEC,23Department of Agrarian Reform Adjudication
Code; Board v. Lubrica,24 and Garcia v. Sandiganbayan,25 this Court
has ruled against the jurisdiction of courts or tribunals over
7. Decisions of the Secretary of Trade and Industry, in the case petitions for certiorari on the ground that there is no law which
of nonagricultural product, commodity or article, and the expressly gives these tribunals such power.26 It must be
Secretary of Agriculture in the case of agricultural product, observed, however, that with the exception of Garcia v.
commodity or article, involving dumping and countervailing Sandiganbayan,27 these rulings pertain not to regular courts
but to tribunals exercising quasi–judicial powers. With respect tax refund is vested in the CTA, it follows that a petition
to the Sandiganbayan, Republic Act No. 824928 now provides for certiorari seeking nullification of an interlocutory order
that the special criminal court has exclusive original jurisdiction issued in the said case should, likewise, be filed with the same
over petitions for the issuance of the writs of mandamus, court. To rule otherwise would lead to an absurd situation
prohibition, certiorari,habeas corpus, injunctions, and other where one court decides an appeal in the main case while
ancillary writs and processes in aid of its appellate jurisdiction. another court rules on an incident in the very same case.

In the same manner, Section 5 (1), Article VIII of the 1987 Stated differently, it would be somewhat incongruent with the
Constitution grants power to the Supreme Court, in the pronounced judicial abhorrence to split jurisdiction to conclude
exercise of its original jurisdiction, to issue writs of certiorari, that the intention of the law is to divide the authority over a
prohibition and mandamus. With respect to the Court of local tax case filed with the RTC by giving to the CA or this
Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) Court jurisdiction to issue a writ of certiorari against
gives the appellate court, also in the exercise of its original interlocutory orders of the RTC but giving to the CTA the
jurisdiction, the power to issue, among others, a writ jurisdiction over the appeal from the decision of the trial court
of certiorari,whether or not in aid of its appellate jurisdiction. As in the same case. It is more in consonance with logic and legal
to Regional Trial Courts, the power to issue a writ of certiorari, soundness to conclude that the grant of appellate jurisdiction to
in the exercise of their original jurisdiction, is provided under the CTA over tax cases filed in and decided by the RTC carries
Section 21 of BP 129. with it the power to issue a writ of certiorari when necessary in
aid of such appellate jurisdiction. The supervisory power or
The foregoing notwithstanding, while there is no express grant jurisdiction of the CTA to issue a writ of certiorari in aid of its
of such power, with respect to the CTA, Section 1, Article VIII appellate jurisdiction should co–exist with, and be a
of the 1987 Constitution provides, nonetheless, that judicial complement to, its appellate jurisdiction to review, by appeal,
power shall be vested in one Supreme Court and in such lower the final orders and decisions of the RTC, in order to have
courts as may be established by law and that judicial power complete supervision over the acts of the latter.36
includes the duty of the courts of justice to settle actual
controversies involving rights which are legally demandable A grant of appellate jurisdiction implies that there is included in
and enforceable, and to determine whether or not there has it the power necessary to exercise it effectively, to make all
been a grave abuse of discretion amounting to lack or orders that will preserve the subject of the action, and to give
excess of jurisdiction on the part of any branch or effect to the final determination of the appeal. It carries with it
instrumentality of the Government. the power to protect that jurisdiction and to make the decisions
of the court thereunder effective. The court, in aid of its
On the strength of the above constitutional provisions, it can be appellate jurisdiction, has authority to control all auxiliary and
fairly interpreted that the power of the CTA includes that of incidental matters necessary to the efficient and proper
determining whether or not there has been grave abuse of exercise of that jurisdiction. For this purpose, it may, when
discretion amounting to lack or excess of jurisdiction on the necessary, prohibit or restrain the performance of any act
part of the RTC in issuing an interlocutory order in cases falling which might interfere with the proper exercise of its rightful
within the exclusive appellate jurisdiction of the tax court. It, jurisdiction in cases pending before it.37
thus, follows that the CTA, by constitutional mandate, is vested
with jurisdiction to issue writs of certiorari in these cases. Lastly, it would not be amiss to point out that a court which is
endowed with a particular jurisdiction should have powers
Indeed, in order for any appellate court to effectively exercise which are necessary to enable it to act effectively within such
its appellate jurisdiction, it must have the authority to issue, jurisdiction. These should be regarded as powers which are
among others, a writ of certiorari. In transferring exclusive inherent in its jurisdiction and the court must possess them in
jurisdiction over appealed tax cases to the CTA, it can order to enforce its rules of practice and to suppress any
reasonably be assumed that the law intended to transfer also abuses of its process and to defeat any attempted thwarting of
such power as is deemed necessary, if not indispensable, in such process.
aid of such appellate jurisdiction. There is no perceivable
reason why the transfer should only be considered as partial, In this regard, Section 1 of RA 9282 states that the CTA shall
not total. be of the same level as the CA and shall possess all the
inherent powers of a court of justice.
Consistent with the above pronouncement, this Court has held
as early as the case of J.M. Tuason & Co., Inc. v. Jaramillo, et Indeed, courts possess certain inherent powers which may be
al.29 that “if a case may be appealed to a particular court or said to be implied from a general grant of jurisdiction, in
judicial tribunal or body, then said court or judicial tribunal or addition to those expressly conferred on them. These inherent
body has jurisdiction to issue the extraordinary writ of certiorari, powers are such powers as are necessary for the ordinary and
in aid of its appellate jurisdiction.”30 This principle was affirmed efficient exercise of jurisdiction; or are essential to the
in De Jesus v. Court of Appeals,31 where the Court stated that existence, dignity and functions of the courts, as well as to the
“a court may issue a writ of certiorari in aid of its appellate due administration of justice; or are directly appropriate,
jurisdiction if said court has jurisdiction to review, by appeal or convenient and suitable to the execution of their granted
writ of error, the final orders or decisions of the lower powers; and include the power to maintain the court’s
court.”32 The rulings in J.M. Tuason and De Jesus were jurisdiction and render it effective in behalf of the litigants.38
reiterated in the more recent cases of Galang, Jr. v.
Geronimo33 and Bulilis v. Nuez.34 Thus, this Court has held that “while a court may be expressly
granted the incidental powers necessary to effectuate its
Furthermore, Section 6, Rule 135 of the present Rules of Court jurisdiction, a grant of jurisdiction, in the absence of prohibitive
provides that when by law, jurisdiction is conferred on a court legislation, implies the necessary and usual incidental powers
or judicial officer, all auxiliary writs, processes and other means essential to effectuate it, and, subject to existing laws and
necessary to carry it into effect may be employed by such court constitutional provisions, every regularly constituted court has
or officer. power to do all things that are reasonably necessary for the
administration of justice within the scope of its jurisdiction and
If this Court were to sustain petitioners’ contention that for the enforcement of its judgments and mandates.”39 Hence,
jurisdiction over their certiorari petition lies with the CA, this demands, matters or questions ancillary or incidental to, or
Court would be confirming the exercise by two judicial bodies, growing out of, the main action, and coming within the above
the CA and the CTA, of jurisdiction over basically the same principles, may be taken cognizance of by the court and
subject matter – precisely the split–jurisdiction situation which determined, since such jurisdiction is in aid of its authority over
is anathema to the orderly administration of justice.35 The Court the principal matter, even though the court may thus be called
cannot accept that such was the legislative motive, especially on to consider and decide matters which, as original causes of
considering that the law expressly confers on the CTA, the action, would not be within its cognizance.40
tribunal with the specialized competence over tax and tariff
matters, the role of judicial review over local tax cases without Based on the foregoing disquisitions, it can be reasonably
mention of any other court that may exercise such power. concluded that the authority of the CTA to take cognizance of
Thus, the Court agrees with the ruling of the CA that since petitions for certiorari questioning interlocutory orders issued
appellate jurisdiction over private respondents’ complaint for by the RTC in a local tax case is included in the powers
granted by the Constitution as well as inherent in the exercise In the analogous case of BF Northwest Homeowners
of its appellate jurisdiction. Association, Inc. vs. Intermediate Appellate Court[,] the
Supreme Court . . . categorically pronounced the RTC's
Finally, it would bear to point out that this Court is not jurisdiction over appeals from the decisions of the NWRB
abandoning the rule that, insofar as quasi–judicial tribunals are consistent with Article 89 of P.D. No. 1067 and ratiocinated in
concerned, the authority to issue writs of certiorari must still be this wise:
expressly conferred by the Constitution or by law and cannot
be implied from the mere existence of their appellate x x x x.
jurisdiction. This doctrine remains as it applies only to quasi–
judicial bodies.
The logical conclusion, therefore, is that jurisdiction over
WHEREFORE, the petition actions for annulment of NWRC decisions lies with the
is DENIED.ChanRoblesVirtualawlibrary Regional Trial Courts, particularly, when we take note of the
fact that the appellate jurisdiction of the Regional Trial Court
6.2
over NWRC decisions covers such broad and all embracing
grounds as grave abuse of discretion, questions of law, and
G.R. No. 186450 : April 14, 2010 questions of fact and law (Art. 89, P.D. No. 1067). This
conclusion is also in keeping with the Judiciary Reorganization
NATIONAL WATER RESOURCES BOARD Act of 1980, which vests Regional Trial Courts with original
(NWRB), Petitioner, v. A. L. ANG NETWORK, jurisdiction to issue writs of certiorari, prohibition, mandamus,
INC., Respondent. etc. (Sec. 21 [1], B.P. Blg. 129) relating to acts or omissions of
an inferior court (Sec. 4, Rule 65, Rules of Court).
DECISION
x x x x.
CARPIO MORALES, J.:
Similarly, in Tanjay Water District vs. Pedro Gabaton, the
Supreme Court conformably ruled, viz:
In issue is whether Regional Trial Courts have jurisdiction over
appeals from decisions, resolutions or orders of the National
Water Resources Board (petitioner). "Inasmuch as Civil Case No. 8144 involves the appropriation,
utilization and control of water, We hold that the jurisdiction to
hear and decide the dispute in the first instance, pertains to the
A.L. Ang Network (respondent) filed on January 23, 2003 an Water Resources Council as provided in PD No. 1067 which is
application for a Certificate of Public Convenience (CPC) with the special law on the subject. The Court of First Instance (now
petitioner to operate and maintain a water service system in Regional Trial Court) has only appellate jurisdiction over the
Alijis, Bacolod City. case."

Bacolod City Water District (BACIWA) opposed respondent's Based on the foregoing jurisprudence, there is no doubt that
application on the ground that it is the only government agency [petitioner] NWRB is mistaken in its assertion. As no repeal is
authorized to operate a water service system within the expressly made, Article 89 of P.D. No. 1067 is certainly meant
city.1cräläwvirtualibräry to be an exception to the jurisdiction of the Court of Appeals
over appeals or petitions for certiorari of the decisions of quasi-
By Decision of August 20, 2003, petitioner granted judicial bodies. This finds harmony with Paragraph 2, Section
respondent's CPC application. BACIWA moved to have the 4, Rule 65 of the Rules of Court wherein it is stated that, "If it
decision reconsidered, contending that its right to due process involves the acts of a quasi-judicial agency, unless otherwise
was violated when it was not allowed to present evidence in provided by law or these rules, the petition shall be filed in and
support of its opposition.2cЃa cognizable only by the Court of Appeals." Evidently, not all
petitions for certiorari under Rule 65 involving the decisions of
Petitioner reconsidered its Decision and allowed BACIWA to quasi-judicial agencies must be filed with the Court of Appeals.
present evidence,3cЃa drawing respondent to file a petition The rule admits of some exceptions as plainly provided by the
for certiorari with the Regional Trial Court (RTC) of Bacolod phrase "unless otherwise provided by law or these rules"
City against petitioner and BACIWA. Petitioner moved to and Article 89 of P.D. No. 1067 is verily an example of these
dismiss the petition, arguing that the proper recourse of exceptions. (italics and emphasis partly in the original;
respondent was to the Court of Appeals, citing Rule 43 of the underscoring supplied)
Rules of Court.
Petitioner's motion for reconsideration having been denied by
The RTC, by Order of April 15, 2005, cЃa dismissed 4 the appellate court by Resolution of February 9,
respondent's petition for lack of jurisdiction, holding that it is the 2009,6cЃa petitioner filed the present petition for review,
Court of Appeals which has "exclusive appellate jurisdiction contending that:
over all final judgments, decisions, resolutions, order[s] or
awards of . . . quasi-judicial agencies, instrumentalities, boards THE REGIONAL TRIAL COURT HAS NO CERTIORARI
or commission[s] . . . except those within the appellate JURISDICTION OVER THE [PETITIONER] SINCE SECTION
jurisdiction of the Supreme Court . . . ." Thus the RTC 89, PD NO. 1067, REGARDING APPEALS, HAS BEEN
explained: SUPERSEDED AND REPEALED BY [BATAS PAMBANSA
BILANG] 129 AND THE RULES OF COURT.
Art. 89 of P.D. 1067 having been long repealed by BP 129, as FURTHERMORE, PD 1067 ITSELF DOES NOT
amended, which has effectively and explicitly removed the CONTEMPLATE THAT THE REGIONAL TRIAL COURT
Regional Trial Courts' appellate jurisdiction over the decisions, SHOULD HAVE CERTIORARI JURISDICTION OVER THE
resolutions, order[s] or awards of quasi-judicial agencies such [PETITIONER].7cЃa (underscoring supplied)
as [petitioner] NWRB, and vested with the Court of Appeals,
very clearly now, this Court has no jurisdiction over this instant Petitioner maintains that the RTC does not have jurisdiction
petition. over a petition for certiorari and prohibition to annul or modify
its acts or omissions as a quasi-judicial agency. Citing Section
Its motion for reconsideration having been denied, respondent 4 of Rule 65 of the Rules of Court, petitioner contends that
filed a petition for certiorari at the Court of Appeals, which, by there is no law or rule which requires the filing of a petition
Decision of January 25, 2008,5 annulled and set aside the RTC for certiorari over its acts or omissions in any other court or
April 15, 2005, holding that it is the RTC which has jurisdiction tribunal other than the Court of Appeals.8cЃa
over appeals from petitioner's decisions. Thus the appellate
court discoursed. Petitioner goes on to fault the appellate court in holding that
Batas Pambansa Bilang 129 (BP 129) or the Judiciary
Reorganization Act did not expressly repeal Article 89 of
Presidential Decree No. 1067 (PD 1067) otherwise known as as ground-basis thereof. In other words, it invoked such ground
the Water Code of the Philippines.9cЃa not for an error of judgment.

Respondent, on the other hand, maintains the correctness of While Section 9 (3) of BP 12915cЃa and Section 1 of Rule 43 of
the assailed decision of the appellate court. the Rules of Court16cЃa does not list petitioner as "among" the
quasi-judicial agencies whose final judgments, orders,
The petition is impressed with merit. resolutions or awards are appealable to the appellate court, it
is non sequitur to hold that the Court of Appeals has no
appellate jurisdiction over petitioner's judgments, orders,
Section 9 (1) of BP 129 granted the Court of Appeals (then resolutions or awards. It is settled that the list of quasi-judicial
known as the Intermediate Appellate Court) original jurisdiction agencies specifically mentioned in Rule 43 is not meant to be
to issue writs of mandamus, prohibition, certiorari, habeas exclusive.17cЃa The employment of the word "among" clearly
corpus and quo warranto, and auxiliary writs or processes, instructs so.
whether or not in aid of its appellate jurisdiction.10cЃa
BF Northwest Homeowners Association v. Intermediate
Since the appellate court has exclusive appellate jurisdiction Appellate Court,18cЃa a 1987 case cited by the appellate court
over quasi-judicial agencies under Rule 4311cЃa of the Rules of to support its ruling that RTCs have jurisdiction over
Court, petitions for writs of certiorari, prohibition or mandamus judgments, orders, resolutions or awards of petitioner, is no
against the acts and omissions of quasi-judicial agencies, like longer controlling in light of the definitive instruction of Rule 43
petitioner, should be filed with it. This is what Rule 65 of the of the Revised Rules of Court.
Rules imposes for procedural uniformity. The only exception to
this instruction is when the law or the Rules itself directs
otherwise, as cited in Section 4, Rule 65.12cЃa The appellate Tanjay Water District v. Gabaton19cЃa is not in point either as
court's construction that Article 89 of PD 1067, which reads: the issue raised therein was which between the RTC and the
then National Water Resources Council had jurisdiction over
disputes in the appropriation, utilization and control of water.
ART. 89. The decisions of the [NWRB] on water rights
controversies may be appealed to the [RTC] of the province
where the subject matter of the controversy is situated within In fine, certiorari and appellate jurisdiction over adjudications of
fifteen (15) days from the date the party appealing receives a petitioner properly belongs to the Court of Appeals.
copy of the decision, on any of the following grounds: (1) grave
abuse of discretion; (2) question of law; and (3) questions of WHEREFORE, the challenged Decision and Resolution of the
fact and law (emphasis and underscoring supplied), is such an Court of Appeals are REVERSED and SET ASIDE. The April
exception, is erroneous. 15, 2005 Order of the Regional Trial Court of Bacolod City
dismissing petitioner's petition for lack of jurisdiction
Article 89 of PD 1067 had long been rendered inoperative by is UPHELD.
the passage of BP 129. Aside from delineating the jurisdictions
of the Court of Appeals and the RTCs, Section 47 of BP 129 No costs.
repealed or modified:
SO ORDERED.
x x x. [t]he provisions of Republic Act No. 296, otherwise
known as the Judiciary Act of 1948, as amended, of Republic
6.3
Act No. 5179, as amended, of the Rules of Court, and of all
other statutes, letters of instructions and general orders or
parts thereof, inconsistent with the provisions of this Act x x x. G.R. No. 199422
(emphasis and underscoring supplied)
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
The general repealing clause under Section 47 "predicates the vs.
intended repeal under the condition that a substantial conflict KEPCO ILIJAN CORPORATION, Respondent.
must be found in existing and prior acts."13cЃa
DECISION
In enacting BP 129, the Batasang Pambansa was presumed to
have knowledge of the provision of Article 89 of P.D. No. 1067 PERALTA, J.:
and to have intended to change it.14cЃa The legislative intent to
repeal Article 89 is clear and manifest given the scope and
purpose of BP 129, one of which is to provide a homogeneous This is a petition for Review on Certiorari under Rule 45 of the
procedure for the review of adjudications of quasi-judicial Rules of Court seeking the reversal of the Resolutions1 dated
entities to the Court of Appeals. July 27, 20112 and November 15, 20113 of the Court of Tax
Appeals (CTA) En Banc.
More importantly, what Article 89 of PD 1067 conferred to the
RTC was the power of review on appeal the decisions of The facts follow.
petitioner. It appears that the appellate court gave significant
consideration to the ground of "grave abuse of discretion" to For the first4 and second5 quarters of the calendar year 2000,
thus hold that the RTC has certiorari jurisdiction over respondent filed its Quarterly value-added tax (VAT) returns
petitioner's decisions. A reading of said Article 89 shows, with the Bureau of Internal Revenue (BIR). It also filed the
however, that it only made "grave abuse of discretion" as Application for Zero Rated Sales for calendar year 2000 which
another ground to invoke in an ordinary appeal to the RTC. was duly approved by the BIR.6
Indeed, the provision was unique to the Water Code at the time
of its application in 1976. Thereafter, respondent filed with the BIR its claim for refund in
the amount of ₱49,569,448.73 representing input tax incurred
The issuance of BP 129, specifically Section 9 (Jurisdiction of for the first and second quarters of the calendar year 2000
the Court of Appeals, then known as Intermediate Appellate from its importation and domestic purchases of capital goods
Court), and the subsequent formulation of the Rules, clarified and services preparatory to its production and sales of
and delineated the appellate and certiorari jurisdictions of the electricity to the National Power Corporation.7
Court of Appeals over adjudications of quasi-judicial bodies.
Grave abuse of discretion may be invoked before the appellate Petitioner did not act upon respondent's claim for refund or
court as a ground for an error of jurisdiction. issuance of tax credit certificate for the first and second
quarters of the calendar year 2000. Consequently, respondent
It bears noting that, in the present case, respondent assailed filed a Petition for Review8 on March 21, 2002, and an
petitioner's order via certiorari before the RTC, invoking grave Amended Petition for Review9 on September 12, 2003.
abuse of discretion amounting to lack or excess of jurisdiction
 In her Answer, 10 petitioner alleged the following Special and Accordingly, on April 11, 2011 petitioner filed a petition for
Affirmative Defenses: (1) respondent is not entitled to the annulment of judgment with the CTA En Banc, praying for the
refund of the amounts prayed for; (2) the petition was following reliefs: (1) that the Decision dated September 11,
prematurely filed for respondent's failure to exhaust 2009 of the CTA First Division in CTA Case No. 6412 be
administrative remedies; (3) respondent failed to show that the annulled and set aside; (2) that the Entry of Judgment on
taxes paid were erroneously or illegally collected; and (4) October 10, 2009 and Writ of Execution on February 16, 2010
respondent has no cause of action. be nullified; and (3) that the CTA First Division be directed to
re-open CTA Case No. 6412 to allow petitioner to submit her
After the issues were joined, trial on the merits ensued. memoranda setting forth her substantial legal defenses.

Respondent, thereafter, filed its Memorand.um on September In opposition, respondent filed its Motion to Deny Due Course
1, 2008. For failure of petitioner to file the required (To The Petition for Annulment of Judgment), arguing, among
Memorandum despite notice, the CTA First Division issued a others, that petitioner is not lawfully entitled to the annulment of
Resolution11 dated September 12, 2008 submitting the case for judgment on the ground that the CTA En Banc is bereft of
decision. jurisdiction to entertain annulment of judgments on the premise
that the Rules of Court, Republic Act No. (RA No.) 9282, 15 and
the Revised Rules of the Court of Tax Appeals do not
On September 11, 2009, the CTA First Division rendered a expressly provide a remedy on annulment of judgments.
Decision, 12 the dispositive portion 13 of which reads as follows:
On July 27, 2011, the CTA En Banc issued a
IN VIEW OF THE FOREGOING, THIS Court finds petitioner Resolution16 dismissing the petition. Petitioner filed a motion for
entitled to a refund in the amount of ₱443,447,184.50, reconsideration, but the same was denied in a
representing unutilized input VAT paid on its domestic Resolution17 dated November 15, 2011.
purchases and importation of capital goods for the first and
second quarters of 2000, as computed below:
Hence, this petition.

unt of Input VAT Claim ₱449,569,448.73 Petitioner raises the following arguments to support her
petition:

Input VAT Pertaining to Non-Capital Goods 706,328.22

I

VAT Claim Pertaining to Capital Goods Purchases ₱448,863,120.51 THE COURT OF TAX APPEALS (EN BANC) HAS
JURISDICTION TO TAKE COGNIZANCE OF THE PETITION
FOR ANNULMENT OF JUDGMENT.
Not Properly Substantiated Input VAT
II

Per ICPA’s Findings 45,878.55

THE NEGLIGENCE COMMITTED BY PETITIONER'S
COUNSEL IS GROSS, PALPABLE AND CONSTITUTES
Per this Court’s Further Verfication 5,370,057.46 TOTAL ABANDONMENT QF PETITIONER'S CAUSE WHICH
IS TANTAMOUNT TO EXTRINSIC FRAUD.

ndable Input VAT on Capital Goods Purchases ₱443,447,184.50 III

THE COURT OF TAX APPEALS (FIRST DIVISION) HAS NO

JURISDICTION OVER THE ORIGINAL PETITION FILED BY
There being no motion for reconsideration filed by the RESPONDENT.
petitioner, the abovementioned decision became final and
executory and a corresponding Entry of Judgment was issued
on October 10, 2009. Thus, on February 16, 2010, the Court IV
issued a Writ of Execution, 14 the pertinent portion of which
reads as follows: PETITIONER IS NOT BARRED BY LA CHES FROM
ASSAILING THE JURISDICTION OF THE COURT OF TAX
You are hereby ORDERED to REFUND in favor of the APPEALS (FIRST DIVISION) OVER THE PETITION FILED
petitioner KEPCO ILIJAN CORPORATION, the amount of BY RESPONDENT.18
₱443,447,184.50 representing unutilized input VAT paid on its
domestic purchases and importation of capital goods for the Prefatorily, we first pass upon the issue of whether the CTA En
first and second quarters of 2000, pursuant to the Decision of Banc has jurisdiction to take cognizance of the petition for
this Court, promulgated on September 11, 2009, which has annulment of judgment filed by petitioner.
become final and executory on October 10, 2009, by virtue of
the Entry of Judgment issued on said date. Annulment of judgment, as provided for in Rule 47 of the Rules
of Court, is based only on the grounds of extrinsic fraud and
The Sheriff of this Court is hereby directed to see to it that this lack of jurisdiction. It is a recourse that presupposes the filing
Writ is carried out by the Respondent and/or his agents, and of a separate and original action for the purpose of annulling or
shall make the corresponding return/report thereon within thirty avoiding a decision in another case. Annulment is a remedy in
(30) days after receipt of the Writ. law independent of the case where the judgment sought to be
annulled is rendered. 19 It is unlike a motion for reconsideration,
SO ORDERED. appeal or even a petition for relief from judgment, because
annulment is not a continuation or progression of the same
case, as in fact the case it seeks to annul is already final and
Petitioner alleges that she learned only of the Decision and the executory. Rather, it is an extraordinary remedy that is
subsequent issuance of the writ of March 7, 2011 when the equitable in character and is permitted only in exceptional
Office of the Deputy Commissioner for Legal and Inspection cases.20
Group received a Memorandum from the Appellate Division of
the National Office recommending the issuance of a Tax Credit
Certificate in favor of the respondent in the amount of Annulment of judgment involves the exercise of original
₱443,447,184.50. jurisdiction, as expressly conferred on the Court of Appeals by
Batas Pambansa Bilang (BP Blg.) 129, Section 9(2). It also
implies power by a superior court over a subordinate one, as
provided for in Rule 47 of the Rules of Court, wherein the
appellate court may annul a decision of the regional trial court, adjudication of facts, a task that the Court loathes to perform,
or the latter court may annul a decision of the municipal or as it is not a trier of facts. 25
metropolitan trial court.
Nevertheless, there will be extraordinary cases, when the
But the law and the rules are silent when it comes to a situation interest of justice highly demands it, where final judgments of
similar to the case at bar, in which a court, in this case the the Court of Appeals, the CTA or any other inferior court may
Court of Tax Appeals, is called upon to annul its own judgment. still be vacated or subjected to the Supreme Court's
More specifically, in the case at bar, the CTA sitting en bane is modification, reversal, annulment or declaration as void. But it
being asked to annul a decision of one of its divisions. will be accomplished not through the same species of original
However, the laws creating the CTA and expanding its action or petition for annulment as that found in Rule 47 of the
jurisdiction (RA Nos. 1125 and 9282) and the court's own rules Rules of Court, but through any of the actions over which the
of procedure (the Revised Rules of the CTA) do not provide for Supreme Court has original jurisdiction as specified in the
such a scenario. Constitution, like 65 of the Rules of Court.

It is the same situation among other collegial courts. To Hence, the next query is: Did the CTA En Banc correctly deny
illustrate, the Supreme Court or the Court of Appeals may sit the petition for annulment of judgment filed by petitioner?
and adjudicate cases in divisions consisting of only a number
of members, and such adjudication is already regarded .as the As earlier discussed, the petition designated as one for
decision of the Court itself. 21 It is provided for in the annulment of judgment (following Rule 47) was legally and
Constitution, Article VIII, Section 4(1) and BP Blg. 129, Section procedurally infirm and, thus, was soundly dismissed by the
4, respectively. The divisions are not considered separate and CTA En Banc on such ground. Also, the CTA could not have
distinct courts but are divisions of one and the same court; treated the petition as an appeal or a continuation of the case
there is no hierarchy of courts within the Supreme Court and before the CTA First Division because the latter's decision had
the Court of Appeals, for they each remain as one court become final and executory and, thus, no longer subject to an
notwithstanding that they also work in divisions.22 The Supreme appeal.
Court sitting en banc is not an appellate court vis-a-vis its
divisions, and it exercises no appellate jurisdiction over the
latter.23 As for the Court of Instead, what remained as a remedy for the petitioner was to
file a petition for certiorari under Rule 65, which could have
been filed as an original action before this Court and not before
Appeals en banc, it sits as such only for the purpose of the CTA En Banc. Certiorari is available when there is no
exercising administrative, ceremonial, or other non- appeal or any other plain, speedy and adequate remedy in the
adjudicatory functions. 24 ordinary course of law, such as in the case at bar. Since the
petition below invoked the gross and palpable negligence of
Thus, it appears contrary to these features that a collegial petitioner's counsel which is allegedly tantamount to its being
court, sitting en banc, may be called upon to annul a decision deprived of due process and its day in court as party-
of one of its divisions which had become final and executory, litigant26 and, as it also invokes lack of jurisdiction of the CTA
for it is tantamount to allowing a court to annul its own First Division to entertain the petition filed by private
judgment and acknowledging that a hierarchy exists within respondent since the same allegedly fails to comply with the
such court. In the process, it also betrays the principle that
judgments must, at some point, attain finality. A court that can reglementary periods for judicial remedies involving
revisit its own final judgments leaves the door open to possible administrative claims for refund of excess unutilized input VAT
endless reversals or modifications which is anathema to a under the National Internal Revenue Code (NJRC),27which
stable legal system. periods it claims to be jurisdictional, then the proper remedy
that petitioner should have availed of was indeed a petition
Thus, the Revised Rules of the CTA and even the Rules of for certiorari under Rule 65, an original or independent action
Court which apply suppletorily thereto provide for no instance premised on the public respondent having acted without or in
in which the en banc may reverse, annul or void excess of jurisdiction or with grave abuse of discretion
a final decision of a division. Verily, the Revised Rules of the amounting to lack or excess of jurisdiction. However, since
CTA provide for no instance of an annulment of judgment at a certiorari petition is not a continuation of the appellate
all. On the other hand, the Rules of Court, through Rule 47, process borne out of the original case but is a separate action
provides, with certain conditions, for annulment of judgment focused on actions that are in excess or wanting of
done by a superior court, like the Court of Appeals, against the jurisdiction,28 then it cannot be filed in the same tribunal whose
final judgment, decision or ruling of an inferior court, which is actions are being assailed but is instead cognizable by a
the Regional Trial Court, based on the grounds of extrinsic' higher tribunal which, in the case of the CTA, is this Court.29 In
fraud and lack of .jurisdiction. The Regional Trial Court, in turn, the case involving petitioner, the petition could have been filed
also is empowered to, upon a similar action, annul a judgment directly with this Court, even without any need to file a motion
or ruling of the Metropolitan or Municipal Trial Courts within its for reconsideration with the CTA division or En Banc, as the
territorial jurisdiction. But, again, the said Rules are silent as to case appears to fall under one of the recognized exceptions to
whether a collegial court sitting en banc may annul a final the rule requiring such a motion as a prerequisite to filing such
judgment of its own division. petition.30

As earlier explained, the silence of the Rules may be attributed The office of a certiorari petition is detailed in the Rules of
to the need to preserve the principles that there can be no Court, thus:
hierarchy within a collegial court between its divisions and
the en banc, and that a court's judgment, once final, is Section 1. Petition for certiorari. - When any tribunal, board or
immutable. officer exercising judicial or quasi-judicial functions has acted
without or in excess of its or his jurisdiction, or with grave
A direct petition for annulment of a judgment of the CTA to the abuse of discretion amounting to lack or excess of jurisdiction,
Supreme Court, meanwhile, is likewise unavailing, for the and there is no appeal, or any plain, speedy, and adequate
same reason that there is no identical remedy with the High remedy in the ordinary course of law, a person aggrieved
Court to annul a final and executory judgment of the Court of thereby may file a verified petition in the proper court, alleging
Appeals. RA No. 9282, Section l puts the CTA on the same the facts with certainty and praying that judgment be rendered
level as the Court of Appeals, so that if the latter's final annulling or modifying the proceedings of such tribunal, board
judgments may not be annulled before the Supreme Court, or officer, and granting such incidental reliefs as law and
then the CTA's own decisions similarly may not be so annulled. justice may require.
And more importantly, it has been previously discussed that
am1ulment of judgment is an original action, yet, it is not The petition shall be accompanied by a certified true copy of
among the cases enumerated in the Constitution's Article VIII, the judgment, order or resolution subject thereof, copies of all
Section 5 over which the Supreme Court exercises original pleadings and documents relevant and pertinent thereto, and a
jurisdiction. Annulment of judgment also often requires an
sworn certification of non-forum shopping as provided in the that resulted in the loss of almost half-a-billion pesos, which
third paragraph of section 3, Rule 46. (la) the government could have used to finance its much needed
infrastructure, livelihood projects, and other equally important
The writ of certiorari is an "extraordinary remedy" that is projects.
justified in the "absence of an appeal or any plain speedy and
adequate remedy in the ordinary course oflaw."31 It may be WHEREFORE, premises considered, the petition for review is
given due course as long as petitioners allege that they had no hereby DENIED. The assailed Resolutions dated July 27, 2011
appeal or any other efficacious remedy against the appellate and November 15, 2011 of the Court of Tax Appeals En
court's decision.32 Banc are AFFIRMED.

Direct resort to this Court via a certiorari petition on the same SO ORDERED.

grounds as in this case has jurisprudential
precedents.1âwphi1 In one, We held that when the appellate
6.4
court's decision is void for lack of due process, the filing of a
petition for certiorari with this court without a motion for
reconsideration is justified. 33 This Court also has held that a September 8, 2015
petition for certiorari under Rule 65 of the Rules of Court is
available when the proceedings in question amount to G.R. No. 193253
depriving the petitioner his day in court.34 It is true
that certiorari is not a substitute for appeal, but exempt from
this rule is a case when the trial court's decision or resolution BUREAU OF CUSTOMS, Petitioner,
was issued without jurisdiction or with gr.ave abuse of vs.
discretion. 35 When a fraudulent scheme prevents a party THE HONORABLE AGNES VST DEVANADERA, ACTING
from having his day in court or from presenting his case, SECRETARY, DEPARTMENT OF JUSTICE; HONORABLE
the fraud is one that affects and goes into the jurisdiction JOVENCITO R. ZUNO, PEDRITO L. RANCES, ARMAN A.
of the court. 36 A question as to lack of jurisdiction of the DE ANDRES, PAUL CHI TING CO, KENNETH PUNDANERA,
respondent tribunal or agency is properly the office of a petition MANUEL T. CO, SALLY L. CO,, STANLEY L. TAN,
for certiorari. ROCHELLE E. VICENCIO, LIZA R. MAGAWAY, JANICE L.
CO, VIVENCIO ABANO, GREG YU, EDWIN AGUSTIN,
VICTOR D. PIAMONTE, UNIOIL PETROLEUM PHILIPPINES,
In any event, petitioner's failure to avail of this remedy and INC., and OILINK, INTERNATIONAL, INC., Respondents.
mistaken filing of the wrong action are fatal to its case and
renders and leaves the CTA First Division's decision as indeed
final and executory. By the time the instant petition for review DECISION
was filed by petitioner with this Court on December 9, 2011,
more than sixty (60) days have passed since petitioner's PERALTA, J.:
alleged discovery (on March 7, 2011) of its loss in the case as
brought about by the alleged negligence or fraud of its counsel. Before the Court is a petition for review on certiorari under
Rule 45 of the Rules of Court, seeking to reverse and set aside
Thus, the current discussion serves no further purpose other the Court of Appeals (CA) Resolutions dated March 26,
than as merely a future guide to the bench and the bar when 20101 and August 4, 2010,2 and to reinstate the petition for
confronted with a similar situation. certiorari in CA-G.R. SP No. 113069, or in the alternative, to
issue a decision finding probable cause to prosecute the
Although in select cases, this Court has asseverated that "it is private respondents for violation of Sections 3601 and 3602, in
always within its power to suspend its own rules or to except a relation to Sections 2503 and 2530, paragraphs f and l (3), (4)
particular case from its operation, whenever the purposes of and (5) of the Tariff and Customs Code of the Philippines
justice require it" and that the Rules of Court were conceived (TCCP), as amended.
and promulgated to set forth 'guidelines in the dispensation of
justice but not to bind and chain the hand that dispenses it, for The antecedents are as follows:
otherwise, courts will be mere slaves to or robots of technical
rules, shorn of judicial discretion. 37 We have also equally Private respondent UNIOIL Petroleum Philippines, Inc. is
stressed that strict compliance with the rules of procedure is engaged in marketing, distribution, and sale of petroleum, oil
essential to the administration of justice. 38 and other products, while its co-respondent OILINK
International, Inc. is engaged in manufacturing, importing,
In this case, even if there was allegedly a deliberate effort from exporting, buying, selling, or otherwise dealing in at wholesale
petitioner's counsel to refuse to participate, despite notice, in and retails of petroleum, oil, gas and of any and all refinements
the conduct of the case after the filing of the Answer right up to and byproducts thereof. Except for respondent Victor D.
the issuance of the Writ of Execution against petitioner, 38 Piamonte who is a Licensed Customs Broker, the following
equally apparent is the failure of petitioner and/or petitioner's private respondents are either officers or directors of UNIOIL or
responsible subordinates to supervise the said counsel as well OILINK:
as the conduct and progress of the case. Not only was there
an apparent negligence of counsel, 39 which binds the client, 1. Paul Chi Ting Co – Chairman of UNIOIL and
there likewise appears to have been lapses on the part of the OILINK
client - the petitioner and the petitioner's responsible
subordinates - themselves. Equally oft-repeated is the rule that
service made upon the present counsel of record at his given 2. Kenneth Pundanera – President/Director of UNIOIL
address is service to the client.40 Thus, it is harder to justify a
relaxation of the rules when the litigant itself suffers from 3. Manuel T. Co – Officer/Director of UNIOIL
inexcusable neglect. It is an oft-repeated pronouncement that
clients should take the initiative of periodically checking the
4. Sally L. Co – Officer/Director of UNIOIL
progress of their cases, so that they could take timely steps to
protect their interest.41 Failing such, clients are left with more
recourse against the consequence of their and their counsel's 5. Stanley L. Tan – Officer/Director of UNIOIL
omissions.
6. Rochelle E. Vicencio – Corporate Administrative
To prevent similar disadvantageous incidents against the Supervisor of UNIOIL
government in the future, the BIR is DIRECTED to
ADOPT mechanisms, procedures, or measures that can 7. Liza R. Magaway – President of OILINK
effectively monitor the progress of cases being handled by its
counsels. Likewise, the Ombudsman is DIRECTED to
8. Janice L. Co – Director of OILINK
CONDUCT an in-depth investigation to determine who were
responsible for the apparent mishandling of the present case
 9. Vivencio Abaño – Director of OILINK Customs Administrative Order No. 4-2004, and a DECISION is
hereby rendered:
10. Greg Yu – Director of OILINK
1. Ordering OILINK INTERNATIONAL
11. Edwin Agustin – Corporate Secretary of OILINK CORPORATION to pay the equivalent of twenty
percent (20%) ad valorem on the article/s subject of
the Importation for which no records were kept and
On January 30, 2007, Commissioner Napoleon L. Morales of maintained as prescribed in Section 2504 of the
petitioner Bureau of Customs (BOC) issued Audit Notification Customs Code in the amount of Pesos: Two Billion
Letter (ANL) No. 0701246,3 informing the President of OILINK Seven Hundred Sixty-Four Million Eight Hundred
that the Post Entry Audit Group (PEAG) of the BOC will be Fifty-Nine Thousand Three Hundred Four and
conducting a compliance audit, including the examination, 80/100 (Php 2,764,859,304.80);
inspection, verification and/or investigation of all pertinent
records of OILINK's import transactions for the past three (3)-
year period counted from the said date. 2. Ordering the Bureau of Customs to hold the
delivery or release of subsequent imported articles to
answer for the fine, any revised assessment, and/or
On March 2, 2007, a pre-audit conference was held between as a penalty for failure to keep records.
the BOC Audit Team4 and the representatives of
OILINK.5 During the conference, the Audit Team explained to
OILINK representatives the purpose of the postentry audit and This is without prejudice to the filing of a criminal case or any
the manner by which it would be conducted, and advised it as appropriate legal action against the importer in order to protect
to the import documents required for such audit. the interest of the government and deter other importers from
committing the same offense.
On March 14, 2007, OILINK submitted to the Audit Team the
following documents: Post-Entry Audit Group General Customs SO ORDERED.8
Questionnaire, General Information Sheet for the year 2006,
SEC Registration, Articles of Incorporation, Company By-laws, Pursuant to the Decision dated December 14, 2007,
and Audited Financial Report for the year 2005. Commissioner Morales, in a letter9 of even date, directed the
President of OILINK to pay the BOC the administrative fine of
On April 20, 2007, the Audit Team requested OILINK to submit _2,764,859,304.80 for violation of CAO No. 4-2004, in relation
the other documents stated in the List of Initial Requirements to Section 2504 of the TCCP. Copy of the said Decision and
for Submission, namely: 2004 Audited Financial Report, 2004- letter were served to OILINK through personal service on
2006 Quarterly VAT Returns with the accompanying schedule December 28, 2007.10
of importations, Organizational chart/structure, and List of
foreign suppliers with details on the products imported and the On March 13, 2008, Atty. Noemi B. Alcala, Officer-in-Charge,
total amount, on a yearly basis. Collection Service, Revenue and Monitoring Group, sent a final
demand letter for OILINK to settle the administrative fine,
On May 7, 2007, OILINK expressed its willingness to comply otherwise, the BOC will be compelled to file the necessary
with the request for the production of the said documents, but legal action and put in force Section 150811 of the TCCP
claimed that it was hampered by the resignation of its against its succeeding shipments to protect the government's
employees from the Accounting and Supply Department. interest.12
OILINK also averred that it would refer the matter to the
Commissioner of Customs in view of the independent On April 23, 2008, a Hold Order13 was issued by Horacio P.
investigation being conducted by the latter. Suansing, Jr., District Collector, Port of Manila, against all
shipments of OILINK for failure to settle its outstanding account
On June 4, 2007, OILINK sent a letter stating that the with the BOC and to protect the interest of the government
documents which the Audit Team previously requested were pursuant to Section 1508 of the TCCP.
available with the Special Committee of the BOC, and that it
could not open in the meantime its Bureau of Internal Revenue On May 2, 2008, Rochelle E. Vicencio, Corporate
(BIR) – registered books of accounts for validation and review Administrative Supervisor of UNIOIL, citing the existing
purposes. Terminalling Agreement dated January 2, 2008 with OILINK for
the Storage of UNIOIL's aromatic process oil and industrial
In a letter dated July 11, 2007, the Audit Team informed lubricating oils (collectively, "base oils"), requested District
OILINK of the adverse effects of its request for the Collector Suansing Jr. to allow it to withdraw base oils from
postponement of the exit conference and its continuous refusal OILINK's temporarily closed Terminal.
to furnish it the required documents. It advised OILINK that
such acts constitute as waiver on its part to be informed of the On May 6, 2008, Commissioner Morales granted the request of
audit findings and an administrative case would be filed against UNIOIL to withdraw its base oils stored at OILINK's
it, without prejudice to the filing of a criminal action. terminal/depot based on the Terminalling Agreement between
the two companies, subject to the following conditions:
On July 24, 2007, Commissioner Morales approved the filing of
an administrative case against OILINK for failure to comply 1. Only Unioil products shall be withdrawn subject to
with the requirements of Customs Administrative Order (CAO) proper inventory by the BIR and BOC.
No. 4-2004.6 Such case was filed on July 30, 2007.
2. Appropriate duties and taxes due on the products
On September 20, 2007, an Order was issued by the Legal to be withdrawn are fully paid or settled.
Service of the BOC, submitting the case for resolution in view
of OILINK's failure to file its Answer within the prescribed 3. The company should allow the
period. operation/withdrawal to be closely monitored and
continuously underguarded by assigned Customs
On December 14, 2007, the Legal Service of the BOC personnel.14
rendered a Decision finding that OILINK violated Section
IV.A.2(c) and (e) of CAO 4- 2004 7 when it refused to furnish On May 9, 2008, a Warrant of Seizure and Detention (WSD),
the Audit Team copies of the required documents, despite docketed as Seizure Identification (S.I.) No. 2008-082, was
repeated demands. The dispositive portion of the Decision issued by District Collector Suansing Jr., directing the BOC
states: officials to seal and padlock the oil tanks/depots of OILINK
located in Bataan.
WHEREFORE, in view of the foregoing, this Office finds herein
respondent liable for violating Sections IV.A.2 (c) and (e) of
 On May 12, 2008, Kenneth C. Pundanera, Operations In the same request letter, District Collector Almoradie
Manager of UNIOIL, requested Zaldy E. Almoradie, District approved the release of the above petroleum products through
Collector of Mariveles, Bataan, for permission to release a handwritten note dated May 12, 2008: "All concerned: Pls.
UNIOIL-owned products from OILINK's storage terminal. allow the release of the Unioil-owned products from the Oilink
Pertinent portion of the request letter reads: Storage Terminal per this request. Thanks."16

Unioil is a licensed importer of various Petroleum Products by On May 15, 2008, Pundanera wrote a clarificatory letter
virtue of its import license LTAD-0-021-2002 issued on March pursuant to the verbal instruction of District Collector Almoradie
26, 2002 which was revised to include all other petroleum to explain the withdrawal of products from the Terminal of
products in 2007 through LTAMII (P) 001-10-07-13639. To OILINK, to wit:
pursue its line of business, Unioil has an existing Terminalling
Agreement with Oilink for the storage of various Unioil products As far as Unioil is concerned, we affirm to your good office that
at the Oilink terminal located at Lucanin Pt., Mariveles, Bataan. the products withdrawn/loaded at the Terminal are entirely
Unioil products. Unioil owns these products pursuant to its
In view of the said temporary closure of Oilink's terminal, Unioil supply and terminalling agreements with Oilink. (We shall be
is currently unable to fully utilize its leased tanks as well as submitting to you copies of these documents as soon as they
make use of the products contained therein. We understand arrive from our office in Manila.) In addition, due to the issue
that there is still an unresolved issue between Oilink and the involving Oilink and the Bureau of Customs, Unioil was forced
Bureau of Customs. However, with all due respect, said issue to secure its petroleum products from local sources in order to
should not affect Unioil because it is not a party to the same, comply with its valid contractual commitments.
furthermore there is a legal and binding terminalling agreement
between Oilink and Unioil which should be honored. Unioil intended to withdraw these products because it believed
in good faith and based on documents in its possession that it
Last May 8, 2008, an asphalt importation for Unioil Petroleum is allowed to do so. Unioil based its intention pursuant to the
Philippines, Inc. arrived in Mariveles, Bataan. This was issued Indorsements of the Collector of the Port of Manila as well as
the corresponding discharging permit by the Bureau of the Office of the Commissioner that allowed the withdrawal of
Customs. All duties, excise taxes and value added taxes for Unioil products subject to compliance with the three (3)
this product have already been settled. However, we are still conditions specified in the abovementioned Indorsements.
unable to withdraw these products in order to serve our
customers who are using the product to supply major This being the precedent, we believe in good faith that, since
government infrastructure projects in the country. Unioil owns the products, and it is considered a stranger to the
issue between Oilink and the Bureau, then Unioil is allowed to
In line with the endorsement coming from the Bureau of withdraw the products it owns subject to the compliance with
Customs Commissioner Napoleon D. Morales issued last May the three (3) stated conditions. Besides, any withdrawal is
6, 2008, Unioil has complied with the conditions stipulated covered by an appropriate delivery receipt, which would clearly
therein which are: indicate that Unioil owns the products being withdrawn.17

1. Only Unioil products shall be withdrawn subject to In a complaint-affidavit dated December 15, 2008, Atty.
proper inventory by the BIR and BOC. Balmyrson M. Valdez, a member of the petitioner BOC's Anti-
Oil Smuggling Coordinating Committee that investigated the
2. Appropriate duties and taxes due on the products illegal withdrawal by UNIOIL of oil products consigned to
to be withdrawn are fully paid or settled. OILINK, valued at _181,988,627.00 with corresponding duties
and taxes in the amount of _35,507,597.00, accused the
private respondents of violation of Sections 360118 and
3. The company (Unioil) should allow the 3602,19 in relation to Sections 250320 and 2530,21 paragraphs f
operation/withdrawal to be closely monitored and and l (3), (4) and (5), of the TCCP.
continuously underguarded by assigned Customs
personnel.
In a letter22 dated December 15, 2008, Commissioner Morales
referred to the Office of Chief State Prosecutor Jovencito R.
In this regard, may we respectfully request your good office to Zuño the said complaintaffidavit, together with its annexes, for
please allow Unioil to withdraw from Oilink's terminal its preliminary investigation. During the said investigation, BOC's
products which are stored in the following tanks[:]15 counsel appeared and all of the private respondents submitted
their respective counter-affidavits.
TANK PROD CONTENTS (Liters)
In a Resolution23 dated May 29, 2009, public respondent
Arman A. De Andres, State Prosecutor of the Department of
2 diesel 2,171,670.00 Justice (DOJ), recommended the dismissal of the complaint-
affidavit for lack of probable cause. The Resolution was
approved by public respondents Assistant Chief State
6 rexo 1,862,846.00 Prosecutor Pedrito L. Rances and Chief State Prosecutor
Zuño. On automatic review, the Resolution was affirmed by
then Secretary of Justice Raul M. Gonzales.24
10 asphalt 4,573.14

Dissatisfied, the BOC filed a motion for reconsideration which

13 gasoline 809,345.00 was denied by the public respondent, the Acting Secretary of
Justice Agnes VST Devanadera, in a Resolution 25 dated
December 28, 2009.
14 gasoline 746,629.00
On March 11, 2010, the BOC filed a petition for certiorari with
17 diesel 360,097.00 the CA.

In the Resolution dated March 26, 2010, the CA dismissed

19 sn 500 203,659.00 outright the petition due to procedural defects:

20 sn 500 643,236.00 The instant petition (i) contains no explanation why service
thereof was not done personally (Sec. 11, Rule 13, 1997 Rules
of Civil Procedure); (ii) shows that it has no proper verification
and certification against forum shopping and (iii) the docket
and other lawful fees payment is short by P1,530.00.26
In the Resolution dated August 4, 2010, the CA denied the provisions of the TCCP due to lackof probable cause, the
private respondents' motion for reconsideration of the March Court rules in negative.
26, 2010 Resolution, as follows:
The elementary rule is that the CA has jurisdiction to review
We made a cursory examination of the petition filed in this the resolution of the DOJ through a petition for certiorari under
case as well as the whole rollo of the case. It is our finding that, Rule 65 of the Rules of Court on the ground that the Secretary
up to the date hereof, the petitioner has not duly submitted to of Justice committed grave abuse of his discretion amounting
this Court another set of petition with a certification against to excess or lack of jurisdiction.32 However, with the
forum shopping embodied therein or appended thereto. Thus, enactment33 of Republic Act (R.A.) No. 9282, amending R.A.
the petition really suffers from a fatal defect until now, and so, No. 112534 by expanding the jurisdiction of the CTA, enlarging
the petitioner has to bear the consequence thereof.27 its membership and elevating its rank to the level of a
collegiate court with special jurisdiction, it is no longer clear
The CA stressed that procedural rules are not to be belittled or which between the CA and the CTA has jurisdiction to review
dismissed simply because their non-observance may have through a petition for certiorari the DOJ resolution in
resulted in prejudice to a party's substantive rights. Like all preliminary investigations involving tax and tariff offenses.
rules, they are required to be followed except only when, for
the most persuasive of reasons, they may be relaxed to relieve Apropos is City of Manila v. Hon. Grecia-Cuerdo35 where the
a litigant of an injustice not commensurate with the degree of Court en banc declared that the CTA has appellate jurisdiction
thoughtlessness in not complying with the procedure over a special civil action for certiorari assailing an interlocutory
prescribed. While it is true that litigation is not a game of order issued by the RTC in a local tax case, despite the fact
technicalities, this does not mean that Rules of Court may be that there is no categorical statement to that effect under R.A.
ignored at will and at random to the prejudice of the orderly No. 1125, as well as the amendatory R.A. No. 9282. Thus:
presentation and assessment of the issues and their just
resolution. x x x Section 5 (1), Article VIII of the 1987 Constitution grants
power to the Supreme Court, in the exercise of its original
Aggrieved, the BOC filed the instant petition for review on jurisdiction, to issue writs of certiorari, prohibition
certiorari, raising the following issues: and mandamus. With respect to the Court of Appeals, Section
9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the appellate
WHETHER THE HONORABLE COURT OF court, also in the exercise of its original jurisdiction, the power
APPEALS SERIOUSLY ERRED WHEN IT DENIED to issue, among others, a writ of certiorari, whether or not in aid
PETITIONER'S MOTION FOR RECONSIDERATION of its appellate jurisdiction. As to Regional Trial Courts, the
SOLELY ON THE GROUND THAT, ALLEGEDLY, IT power to issue a writ of certiorari, in the exercise of their
DID NOT RECEIVE THE SECOND AND COMPLETE original jurisdiction, is provided under Section 21 of BP 129.
COPY OF THE PETITION, CONTAINING THE
VERIFICATION AND CERTIFICATION AGAINST The foregoing notwithstanding, while there is no express grant
FORUM SHOPPING. of such power, with respect to the CTA, Section 1, Article VIII
of the 1987 Constitution provides, nonetheless, that judicial
WHETHER THE HONORABLE COURT OF power shall be vested in one Supreme Court and in such lower
APPEALS GRIEVOUSLY ERRED IN LAW AND courts as may be established by law and that judicial power
JURISPRUDENCE WHEN IT AFFIRMED ITS 26 includes the duty of the courts of justice to settle actual
MARCH 2010 RESOLUTION, DISMISSING THE controversies involving rights which are legally demandable
PETITION ON ACCOUNT OF MERE and enforceable, and to determine whether or not there has
TECHNICALITIES. been a grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of any branch or
instrumentality of the Government.
WHETHER THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS ERROR WHEN
IT DID NOT LOOK INTO THE MERITS OF THE On the strength of the above constitutional provisions, it can be
CASE, WHERE IT WAS CLEARLY ESTABLISHED fairly interpreted that the power of the CTA includes that of
THAT THERE IS PROBABLE CAUSE TO INDICT determining whether or not there has been grave abuse of
RESPONDENTS FOR TRIAL FOR VIOLATION OF discretion amounting to lack or excess of jurisdiction on the
SECTION 3601 AND 3602 IN RELATION TO part of the RTC in issuing an interlocutory order in cases falling
SECTION 2530, PARAGRAPHS (E), AND SECTION within the exclusive appellate jurisdiction of the tax court. It,
3604 (D), (E), (F), AND (H) OF THE TCCP, AS thus, follows that the CTA, by constitutional mandate, is vested
AMENDED.28 with jurisdiction to issue writs of certiorari in these cases.

The petition is partly meritorious. 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
Although the question of jurisdiction over the subject matter jurisdiction over appealed tax cases to the CTA, it can
was not raised at bench by either of the parties, the Court will reasonably be assumed that the law intended to transfer also
first address such question before delving into the procedural such power as is deemed necessary, if not indispensable, in
and substantive issues of the instant petition. After all, it is the aid of such appellate jurisdiction. There is no perceivable
duty of the courts to consider the question of jurisdiction before reason why the transfer should only be considered as partial,
they look into other matters involved in the case, even though not total.
such question is not raised by any of the parties.29 Courts are
bound to take notice of the limits of their authority and, even if
such question is neither raised by the pleadings nor suggested xxxx
by counsel, they may recognize the want of jurisdiction and act
accordingly by staying pleadings, dismissing the action, or Furthermore, Section 6, Rule 135 of the present Rules of Court
otherwise noticing the defect, at any stage of the provides that when by law, jurisdiction is conferred on a court
proceedings.30 Besides, issues or errors not raised by the or judicial officer, all auxiliary writs, processes and other means
parties may be resolved by the Court where, as in this case, necessary to carry it into effect may be employed by such court
the issue is one of jurisdiction; it is necessary in arriving at a or officer.
just decision; and the resolution of the issues raised by the
parties depend upon the determination of the unassigned issue If this Court were to sustain petitioners' contention that
or error, or is necessary to give justice to the parties.31 jurisdiction over their certiorari petition lies with the CA, this
Court would be confirming the exercise by two judicial bodies,
On the issue of whether or not the CA has certiorari jurisdiction the CA and the CTA, of jurisdiction over basically the same
over the resolution of the Acting Secretary of Justice, affirming subject matter – precisely the split-jurisdiction situation which is
the dismissal of the complaint-affidavit for violation of anathema to the orderly administration of justice. The Court
cannot accept that such was the legislative motive, especially
considering that the law expressly confers on the CTA, the determined, since such jurisdiction is in aid of its authority over
tribunal with the specialized competence over tax and tariff the principal matter, even though the court may thus be called
matters, the role of judicial review over local tax cases without on to consider and decide matters which, as original causes of
mention of any other court that may exercise such power. action, would not be within its cognizance.
Thus, the Court agrees with the ruling of the CA that since
appellate jurisdiction over private respondents' complaint for Based on the foregoing disquisitions, it can be reasonably
tax refund is vested in the CTA, it follows that a petition concluded that the authority of the CTA to take cognizance of
for certiorari seeking nullification of an interlocutory order petitions for certiorari questioning interlocutory orders issued
issued in the said case should, likewise, be filed with the same by the RTC in a local tax case is included in the powers
court. To rule otherwise would lead to an absurd situation granted by the Constitution as well as inherent in the exercise
where one court decides an appeal in the main case while of its appellate jurisdiction.36
another court rules on an incident in the very same case.
Since the Court ruled in City of Manila v. Hon. Grecia-
Stated differently, it would be somewhat incongruent with the Cuerdo37 that the CTA has jurisdiction over a special civil
pronounced judicial abhorrence to split jurisdiction to conclude action for certiorari questioning an interlocutory order of the
that the intention of the law is to divide the authority over a RTC in a local tax case via express constitutional mandate and
local tax case filed with the RTC by giving to the CA or this for being inherent in the exercise of its appellate jurisdiction, it
Court jurisdiction to issue a writ of certiorari against can also be reasonably concluded based on the same premise
interlocutory orders of the RTC but giving to the CTA the that the CTA has original jurisdiction over a petition
jurisdiction over the appeal from the decision of the trial court for certiorari assailing the DOJ resolution in a preliminary
in the same case. It is more in consonance with logic and legal investigation involving tax and tariff offenses.
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 If the Court were to rule that jurisdiction over a petition
aid of such appellate jurisdiction. The supervisory power or for certiorari assailing such DOJ resolution lies with the CA, it
jurisdiction of the CTA to issue a writ of certiorari in aid of its would be confirming theexercise by two judicial bodies, the CA
appellate jurisdiction should co-exist with, and be a and the CTA, of jurisdiction over basically the same subject
complement to, its appellate jurisdiction to review, by appeal, matter – precisely the split-jurisdiction situation which is
the final orders and decisions of the RTC, in order to have anathema to the orderly administration of justice. The Court
complete supervision over the acts of the latter. cannot accept that such was the legislative intent, especially
considering that R.A. No. 9282 expressly confers on the CTA,
the tribunal with the specialized competence over tax and tariff
A grant of appellate jurisdiction implies that there is included in matters, the role of judicial review over local tax cases without
it the power necessary to exercise it effectively, to make all mention of any other court that may exercise such power.38
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 Concededly, there is no clear statement under R.A. No. 1125,
of the court thereunder effective. the amendatory R.A. No. 9282, let alone in the Constitution,
that the CTA has original jurisdiction over a petition
for certiorari. By virtue of Section 1,
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. For this Article VIII of the 1987 Constitution, vesting judicial power in
purpose, it may, when necessary, prohibit or restrain the the Supreme Court and such lower courts as may be
performance of any act which might interfere with the proper established by law, to determine whether or not there has been
exercise of its rightful jurisdiction in cases pending before it. a grave abuse of discretion on the part of any branch or
instrumentality of the Government, in relation to Section 5(5),
Article VIII thereof, vesting upon it the power to promulgate
Lastly, it would not be amiss to point out that a court which is rules concerning practice and procedure in all courts, the Court
endowed with a particular jurisdiction should have powers thus declares that the CA's original jurisdiction39 over a petition
which are necessary to enable it to act effectively within such for certiorari assailing the DOJ resolution in a preliminary
jurisdiction. These should be regarded as powers which are investigation involving tax and tariff offenses was necessarily
inherent in its jurisdiction and the court must possess them in transferred to the CTA pursuant to Section 7 of R.A. No.
order to enforce its rules of practice and to suppress any 9282,40 and that such petition shall be governed by Rule 65 of
abuses of its process and to defeat any attempted thwarting of the Rules of Court, as amended. Accordingly, it is the CTA, not
such process. the CA, which has jurisdiction over the petition
for certiorari assailing the DOJ resolution of dismissal of the
In this regard, Section 1 of RA 9282 states that the CTA shall BOC's complaint-affidavit against private respondents for
be of the same level as the CA and shall possess all the violation of the TCCP.
inherent powers of a court of justice.
On the procedural issue of whether the CA erred in dismissing
Indeed, courts possess certain inherent powers which may be the petition for certiorari on the sole ground of lack of
said to be implied from a general grant of jurisdiction, in verification and certification against forum shopping, the Court
addition to those expressly conferred on them. These inherent rules in the affirmative, despite the above discussion that such
powers are such powers as are necessary for the ordinary and petition should have been filed with the CTA.
efficient exercise of jurisdiction; or are essential to the
existence, dignity and functions of the courts, as well as to the In Traveño, et al. v. Bobongon Banana Growers Multi-Purpose
due administration of justice; or are directly appropriate, Cooperative, et al.,41 the Court restated the jurisprudence on
convenient and suitable to the execution of their granted non-compliancewith the requirements on, or submission of
powers; and include the power to maintain the court's defective, verification and certification against forum shopping:
jurisdiction and render it effective in behalf of the litigants.
1) A distinction must be made between non-
Thus, this Court has held that "while a court may be expressly compliance with the requirement on or submission of
granted the incidental powers necessary to effectuate its defective verification, and noncompliance with the
jurisdiction, a grant of jurisdiction, in the absence of prohibitive requirement on or submission of defective certification
legislation, implies the necessary and usual incidental powers against forum shopping.
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 2) As to verification, non-compliance therewith or a
administration of justice within the scope of its jurisdiction and defect therein does not necessarily render the
for the enforcement of its judgments and mandates." Hence, pleading fatally defective. The court may order its
demands, matters or questions ancillary or incidental to, or submission or correction or act on the pleading if the
growing out of, the main action, and coming within the above attending circumstances are such that strict
principles, may be taken cognizance of by the court and
 compliance with the Rule may be dispensed with in Given that the petition for certiorari should have been filed with
order that the ends of justice may be served thereby. the CTA, the mistake committed by the BOC in filing such
petition before the CA may be excused. In this regard, Court
3) Verification is deemed substantially complied with takes note that nothing in R.A. No. 1125, as amended by R.A.
when one who has ample knowledge to swear to the No. 9282, indicates that a petition for certiorari under Rule 65
truth of the allegations in the complaint or petition may be filed with the CTA. Despite the enactment of R.A. No.
signs the verification, and when matters alleged in the 9282 on March 30, 2004, it was only about ten (10) years later
petition have been made in good faith or are true and in the case of City of Manila v. Hon. Grecia-Cuerdo44 that the
correct. Court ruled that the authority of the CTA to take cognizance of
such petitions is included in the powers granted by the
Constitution, as well as inherent in the exercise of its appellate
4) As to certification against forum shopping, non- jurisdiction. While the rule on perfection of appeals cannot be
compliance therewith or a defect therein, unlike in classified as a difficult question of law,45 mistake in the
verification, is generally not curable by its subsequent construction or application of a doubtful question of law, as in
submission or correction thereof, unless there is a this case, may be considered as a mistake of fact, excusing
need to relax the Rule on the ground of "substantial the BOC from the consequences of the erroneous filing of its
compliance" or presence of "special circumstances or petition with the CA.
compelling reasons."
As the CA dismissed the petition for certiorari solely due to a
5) The certification against forum shopping must be procedural defect without resolving the issue of whether or not
signed by all the plaintiffs or petitioners in a case; the Acting Secretary of Justice gravely abused her discretion in
otherwise, those who did not sign will be dropped as affirming the dismissal of the BOC's complaint-affidavit for lack
parties to the case. Under reasonable or justifiable of probable cause, the Court ought to reinstate the petition and
circumstances, however, as when all the plaintiffs or refer it to the CTA for proper disposition. For one, as a highly
petitioners share a common interest and invoke a specialized court specifically created for the purpose of
common cause of action or defense, the signature of reviewing tax and customs cases,46 the CTA is dedicated
only one of them in the certification against forum exclusively to the study and consideration of revenue-related
shopping substantially complies with the Rule. problems, and has necessarily developed an expertise on the
subject.47 For another, the referral of the petition to the CTA is
6) Finally, the certification against forum shopping in line with the policy of hierarchy of courts in order to prevent
must be executed by the party-pleader, not by his inordinate demands upon the Court's time and attention which
counsel. If, however, for reasonable or justifiable are better devoted to those matters within its exclusive
reasons, the party-pleader is unable to sign, he must jurisdiction, and to prevent further overcrowding of its docket.48
execute a Special Power of Attorney designating his
counsel of record to sign on his behalf.42 Be that as it may, the Court stressed in The Diocese of
Bacolod v. Commission on Elections49 that the doctrine of
While it admittedly filed a petition for certiorari without a hierarchy of courts is not an iron-clad rule, and that it has full
certification against forum shopping on March 11, 2010, the discretionary power to take cognizance and assume
BOC claimed to have subsequently complied with such jurisdiction over special civil actions for certiorari filed directly
requirement by filing through registered mail a complete set of with it for exceptionally compelling reasons or if warranted by
such petition, the following day which was also the last day of the nature of the issues clearly and specifically raised in the
the reglementary period. The problem arose when the CA petition. Recognized exceptions to the said doctrine are as
failed to receive such complete set of the petition follows: (a) when there are genuine issues of constitutionality
for certiorari with the verification and certification against forum that must be addressed at the most immediate time; (b) when
shopping. In support of the motion for reconsideration of the the issues involved are of transcendental importance; (c) cases
CA's March 26, 2010 resolution which dismissed outright the of first impression where no jurisprudence yet exists that will
petition, the BOC asserted that it filed a complete set of petition guide the lower courts on the matter; (d) the constitutional
by registered mail. It also submitted an affidavit of the person issues raised are better decided by the Court; (e) where
who did the mailing as required by Section 12,43 Rule 13 of the exigency in certain situations necessitate urgency in the
Rules of Court, including the registry receipt numbers, but not resolution of the cases; (f) the filed petition reviews the act of a
the receipts themselves which were allegedly attached to the constitutional organ; (g) when petitioners rightly claim that they
original copy mailed to the CA. Instead of ordering the BOC to had no other plain, speedy, and adequate remedy in the
secure a certification from the postmaster to verify if a ordinary course of law that could free them from the injurious
complete set of the petition was indeed filed by registered mail, effects of respondents’ acts in violation of their right to freedom
the CA – after examining the whole case rollo and finding that of expression; and (h) the petition includes questions that are
no other set of petition with a certification against forum dictated by public welfare and the advancement of public
shopping was duly submitted – denied the motion for policy, or demanded by the broader interest of justice, or the
reconsideration. orders complained of were found to be patent nullities, or the
appeal was considered as clearly an inappropriate
Faced with the issue of whether or not there is a need to relax remedy.50 Since the present case includes questions that are
the strict compliance with procedural rules in order that the dictated by public welfare and the advancement of public
ends of justice may be served thereby and whether "special policy, or demanded by the broader interest of justice, as well
circumstances or compelling reasons" are present to warrant a as to avoid multiplicity of suits and further delay in its
liberal interpretation of such rules, the Court rules – after a disposition, the Court shall directly resolve the petition for
careful review of the merits of the case – in the affirmative. certiorari, instead of referring it to the CTA.

Despite the BOC's failed attempt to comply with the On the substantive issue of whether the Acting Secretary of
requirement of verification and certification against forum Justice gravely abused her discretion in affirming the dismissal
shopping, the Court cannot simply ignore the CA's perfunctory of the BOC's complaint-affidavit for lack of probable cause, the
dismissal of the petition on such sole procedural ground vis-à- settled policy of noninterference in the prosecutor’s exercise of
vis the paramount public interest in the subject matter and the discretion requires the courts to leave to the prosecutor and to
substantial amount involved, i.e., the alleged illegal withdrawal the DOJ the determination of what constitutes sufficient
of oil products worth _181,988,627.00 with corresponding evidence to establish probable cause. As the Court explained
duties and taxes worth _35,507,597.00. Due to the presence of in Unilever Philippines, Inc. v. Tan:51
such special circumstances and in the interest of justice, the
CA should have at least passed upon the substantive issue The determination of probable cause for purposes of filing of
raised in the petition, instead of dismissing it on such information in court is essentially an executive function that is
procedural ground. Although it does not condone the failure of lodged, at the first instance, with the public prosecutor and,
BOC to comply with the said basic requirement, the Court is ultimately, to the Secretary of Justice. The prosecutor and the
constrained to exercise the inherent power to suspend its own Secretary of Justice have wide latitude of discretion in the
rules in order to do justice in this particular case. conduct of preliminary investigation; and their findings with
respect to the existence or non-existence of probable cause The word "law" includes regulations having the force and effect
are generally not subject to review by the Court. of law, meaning substantive or legislative type rules as
opposed to general statements of policy or rules of agency,
Consistent with this rule, the settled policy of non-interference organization, procedures or positions. An inherent
in the prosecutor’s exercise of discretion requires the courts to characteristic of a substantive rule is one affecting individual
leave to the prosecutor and to the DOJ the determination of rights and obligations; the regulation must have been
what constitutes sufficient evidence to establish probable promulgated pursuant to a congressional grant of quasi-
cause. Courts can neither override their determination nor legislative authority; the regulation must have been
substitute their own judgment for that of the latter. They cannot promulgated in conformity to with congressionally-imposed
likewise order the prosecution of the accused when the procedural requisites.
prosecutor has not found a prima facie case.
xxxx
Nevertheless, this policy of non-interference is not without
exception. The Constitution itself allows (and even directs) Section 3602 of the TCC, on the other hand, provides:
court action where executive discretion has been gravely
abused. In other words, the court may intervene in the Sec. 3602. Various Fraudulent Practices Against Customs
executive determination of probable cause, review the findings Revenue. – Any person who makes or attempts to make any
and conclusions, and ultimately resolve the existence or non- entry of imported or exported article by means of any false or
existence of probable cause by examining the records of the fraudulent invoice, declaration, affidavit, letter, paper or by any
preliminary investigation when necessary for the orderly means of any false statement, written or verbal, or by any
administration of justice.52 means of any false or fraudulent practice whatsoever, or
knowingly effects any entry of goods, wares or merchandise, at
Probable cause for purposes of filing a criminal information is less than the true weight or measures thereof or upon a false
defined as such facts as are sufficient to engender a well- classification as to quality or value, or by the payment of less
founded belief that a crime has been committed and the than the amount legally due, or knowingly and wilfully files any
respondent is probably guilty thereof, and should be held for false or fraudulent entry or claim for the payment of drawback
trial.53 As explained in Sy v. Secretary of or refund of duties upon the exportation of merchandise, or
Justice,54 citing Villanueva v. Secretary of Justice:55 makes or files any affidavit, abstract, record, certificate or other
document, with a view to securing the payment to himself or
x x x [Probable cause] is such a state of facts in the mind of the others of any drawback, allowance or refund of duties on the
prosecutor as would lead a person of ordinary caution and exportation of merchandise, greater than that legally due
prudence to believe or entertain an honest or strong suspicion thereon, or who shall be guilty of any wilful act or omission
that a thing is so. The term does not mean "actual or positive shall, for each offense, be punished in accordance with the
cause"; nor does it import absolute certainty. It is merely based penalties prescribed in the preceding section.
on opinion and reasonable belief. Thus, a finding of probable
cause does not require an inquiry into whether there is The provision enumerates the various fraudulent practices
sufficient evidence to procure a conviction. It is enough that it against customs revenue, such as the entry of imported or
is believed that the act or omission complained of exported articles by means of any false or fraudulent invoice,
constitutes the offense charged. Precisely, there is a trial for statement or practice; the entry of goods at less than the true
the reception of evidence of the prosecution in support of the weight or measure; or the filing of any false or fraudulent entry
charge.56 for the payment of drawback or refund of duties.

To find out if there is a reasonable ground to believe that acts The fraud contemplated by law must be intentional fraud,
or ommissions complained of constitute the offenses charged, consisting of deception, willfully and deliberately dared or
the Court must first examine whether or not the allegations resorted to in order to give up some right. The offender must
against private respondents in the BOC's complaint-affidavit have acted knowingly and with the specific intent to deceive for
constitute the offenses of unlawful importation under Section the purpose of causing financial loss to another; even false
3601 and various fraudulent practices against customs representations or statements or omissions of material facts
revenue under Section 3602 of the TCCP. come within fraudulent intent. The fraud envisaged in the law
includes the suppression of a material fact which a party is
In Jardeleza v. People,57 the Court discussed the concepts of bound in good faith to disclose. Fraudulent nondisclosure and
unlawful importation under Section 3601 of the TCCP, and fraudulent concealment are of the same genre.
various fraudulent practices against customs revenue under
Section 3602 thereof, thus: Fraudulent concealment presupposes a duty to disclose the
truth and that disclosure was not made when opportunity to
Section 3601 of the TCC was designed to supplement the speak and inform was present, and that the party to whom the
existing provisions of the TCC against the means leading up to duty of disclosure as to a material fact was due was thereby
smuggling, which might render it beneficial by a substantive induced to act to his injury.1âwphi1 Fraud is not confined to
and criminal statement separately providing for the punishment words or positive assertions; it may consist as well of deeds,
of smuggling. The law was intended not to merge into one and acts or artifice of a nature calculated to mislead another and
the same offense all the many acts which are classified and thus allow one to obtain an undue advantage.58
punished by different penalties, penal or administrative, but to
legislate against the overt act of smuggling itself. This is In unlawful importation, also known as outright smuggling,
manifested by the use of the words "fraudulently" and "contrary goods and articles of commerce are brought into the country
to law" in the law. without the required importation documents, or are disposed of
in the local market without having been cleared by the BOC or
Smuggling is committed by any person who: (1) fraudulently other authorized government agencies, to evade the payment
imports or brings into the Philippines any article contrary to of correct taxes, duties and other charges. Such goods and
law; (2) assists in so doing any article contrary to law; or (3) articles do not undergo the processing and clearing procedures
receives, conceals, buys, sells or in any manner facilitate the at the BOC, and are not declared through submission of import
transportation, concealment or sale of such goods after documents, such as the import entry and internal revenue
importation, knowing the same to have been imported contrary declaration.
to law.
In various fraudulent practices against customs revenue, also
The phrase "contrary to law" in Section 3601 qualifies the known as technical smuggling, on the other hand, the goods
phrases "imports or brings into the Philippines" and "assists in and articles are brought into the country through fraudulent,
so doing," and not the word "article." The law penalizes the falsified or erroneous declarations, to substantially reduce, if
importation of any merchandise in any manner contrary to law. not totally avoid, the payment of correct taxes, duties and other
charges. Such goods and articles pass through the BOC, but
the processing and clearing procedures are attended by
fraudulent acts in order to evade the payment of correct taxes, Since the foregoing allegations do not constitute the crime of
duties, and other charges. Often committed by means of unlawful importation under Section 3601 of the TCCP, the
misclassification of the nature, quality or value of goods and Acting Secretary of Justice did not commit grave abuse of
articles, undervaluation in terms of their price, quality or weight, discretion when she affirmed the State Prosecutor's dismissal
and misdeclaration of their kind, such form of smuggling is the BOC's complaint-affidavit for lack of probable cause.
made possible through the involvement of the importers, the
brokers and even some customs officials and personnel. Neither could private respondents be charged with various
fraudulent practices against customs revenue under Section
In light of the foregoing discussion, the Court holds that private 3602 of the TCCP as the above allegations do not fall under
respondents cannot be charged with unlawful importation any of the following acts or omissions constituting such
under Section 3601 of the TCCP because there is no crime/s: (1) making or attempting to make any entry of
allegation in the BOC's complaint-affidavit to the effect that imported or exported article: (a) by means of any false or
they committed any of the following acts: (1) fraudulently fraudulent invoice, declaration, affidavit, letter, paper or by any
imported or brought into the Philippines the subject petroleum means of any false statement, written or verbal; or (b) by any
products, contrary to law; (2) assisted in so doing; or (3) means of any false or fraudulent practice whatsoever; or (2)
received, concealed, bought, sold or in any manner facilitated knowingly effecting any entry of goods, wares or merchandise,
the transportation, concealment or sale of such goods after at less than the true weight or measures thereof or upon a
importation, knowing the same to have been imported contrary false classification as to quality or value, or by the payment of
to law. less than the amount legally due; or (3) knowingly and wilfully
filing any false or fraudulent entry or claim for the payment of
The said acts constituting unlawful importation under Section drawback or refund of duties upon the exportation of
3601 of the TCCP can hardly be gathered from the following merchandise; or (4) making or filing any affidavit, abstract,
allegations in the BOC's complaint-affidavit: record, certificate or other document, with a view to securing
the payment to himself or others of any drawback, allowance
or refund of duties on the exportation of merchandise, greater
19.1 From May 23, 2007 to February 10, 2008, UNIOIL is not than that legally due thereon.
an accredited importer of the BOC;
Related to various fraudulent practices against customs
19.2 From the time UNIOIL was accredited on February 11, revenue by means of undervaluation, misclassification and
2008 until the time of its request to withdraw its oil products on misdeclaration in the import entry is the following provision of
02 May 2008, they did not import Gasoil (diesel) and Mogas R.A. No. 7651 - An Act to Revitalize and Strengthen the
Gasoline; Bureau of Customs, Amending for the Purpose Certain
Sections of the Tariff and Customs Code of the Philippines, as
19.3 The Terminalling Agreement allegedly executed between amended:61
OILINK and UNIOIL was obviously for the purpose of
circumventing the Warrant of Seizure and Detention issued Sec. 2503. Undervaluation, Misclassification and
against the shipments of OILINK aside from the fact that it was Misdeclaration in Entry. – When the dutiable value of the
only executed on 02 January 2008 after the decision of the imported articles shall be so declared and entered that the
Commissioner finding OILINK liable to pay an administrative duties, based on the declaration of the importer on the face of
fine of Two Billion Seven Hundred Sixty-Four Million Eight the entry, would be less by ten percent (10%) than should be
Hundred Fifty-Nine Thousand Three Hundred Four Pesos and legally collected, or when the imported articles shall be
80/100 (Php2,764,859,304.80); so described and entered that the duties based on the
importer's description on the face of the entry would be less by
19.4 Only base oil should have been withdrawn by UNIOIL ten percent (10%) than should be legally collected based on
since it is the only product subject of its request and approved the tariff classification, or when the dutiable weight,
by the Commissioner; measurement or quantity of imported articles is found upon
examination to exceed by ten percent (10%) or more than the
19.5 UNIOIL withdrew Gasoil (Diesel) and Mogas which were entered weight, measurement or quantity, a surcharge shall be
not covered by importations; collected from the importer in an amount of not less than the
difference between the full duty and the estimated duty based
upon the declaration of the importer, nor more than twice of
19.6 Finally, the illegal release/withdrawal of the oil products such difference: Provided, that an undervaluation,
deprived the government of the supposed partial payment on misdeclaration in weight, measurement or quantity of
the Php2.7 billion liability of OILINK in the approximate amount more than thirty percent (30%) between the value, weight,
of Php181,988,627 representing the customs value of the measurement, or quantity declared in the entry, and the
released/withdrawn oil products and estimated duties and actual value, weight, quantity, or measurement shall
taxes of Php35,507,597 due thereon or the total amount constitute a prima facie evidence of fraud penalized under
of Php217,496,224.00.59 Sec. 2530 of this Code: Provided, further, that any
misdeclared or undeclared imported articles/items found upon
xxxx examination shall ipso facto be forfeited in favor of the
Government to be disposed of pursuant to the provisions of
this Code.
21.1 When UNIOIL withdrew Gasoil (Diesel) and Mogas
without filing the corresponding Import Entry, the shipment
becomes unlawful per se and thus falls under unlawful When the undervaluation, misdescription,
importation under Section 3601 of the Tariff and Customs misclassification or misdeclaration in the import entry is
Code of the Philippines, as amended; intentional, the importer shall be subject to the penal
provision under Sec. 3602 of this Code.62
21.2 The fact that UNIOIL and OILINK executed a belated
Terminalling Agreement after the issuance of the Warrant of A careful reading of the BOC's complaint-affidavit would show
Seizure and Detention showed the fraudulent intent of the that there is no allegation to the effect that private respondents
respondents whereby UNIOIL can still withdraw the oil committed undervaluation, misdeclaration in weight,
products stored at OILINK's depot likewise in clear violation of measurement or quantity of more than thirty percent (30%)
section 3601 and 3602 of the Tariff and Customs Code of the between the value, weight, measurement, or quantity declared
Philippines, as amended; in the entry, and the actual value, weight, quantity, or
measurement which constitute prima facie evidence of fraud.
Nor is there an allegation that they intentionally committed
21.3 The fact that the UNIOIL make [sic] it appear that they are
undervaluation, misdescription, misclassification or
the owner of Gasoil (Diesel) and Mogas when in truth and in
misdeclaration in the import entry. Since the allegations in the
fact they did not import said products make them liable for
BOC's complaint-affidavit fall short of the acts or omissions
[violation of] Section 3602 of the Tariff and Customs Code of
constituting the various fraudulent acts against customs
the Philippines, as amended and falsification;60
revenue under Section 3602 of the TCCP, the Acting Secretary
of Justice correctly ruled that there was no probable cause to seizure and detention. Again, what complainant's evidence
believe that they committed such crime/s. clearly shows is that Oilink's failure to pay the administrative
fine precipitated the issuance of the warrant of seizure and
While it is true that the sole office of the writ of certiorari is the detention and hold order.64
correction of errors of jurisdiction, including the commission of
grave abuse of discretion amounting to lack of jurisdiction, and After a careful review of records, the Court affirms the
does not include a correction of the public respondents' dismissal of the BOC's complaint-affidavit for lack of probable
evaluation of the evidence and factual findings thereon, it is cause, but partly digresses from the reasoning of the Acting
sometimes necessary to delve into factual issues in order to Secretary of Justice in arriving at such conclusion. While the
resolve the allegations of grave abuse of discretion as a Acting Secretary of Justice correctly stated that the act of
ground for the special civil action of certiorari.63 In light of this fraudulent importation of articles must be first proven in order
principle, the Court reviews the following findings of the Acting to be charged for violation of Section 3601 of the TCCP, the
Secretary of Justice in affirming the State Prosecutor's Court disagrees that proof of such importation is also required
dismissal of the BOC's complaint-affidavit for lack of probable for various fraudulent practices against customs revenue under
cause: Section 3602 thereof.

Respondents are being charged for unlawful importation under As held in Jardeleza v. People,65 the crime of unlawful
Section 3601, and fraudulent practices against customs importation under Section 3601 of the TCCP is complete, in
revenues under Section 3602, of the TCCP, as amended. For the absence of a bona fide intent to make entry and pay duties
these charges to prosper, complainant must prove, first and when the prohibited article enters Philippine territory.
foremost, that the subject articles were imported. On this score Importation, which consists of bringing an article into the
alone, complainant has miserably failed. country from the outside, is complete when the taxable,
dutiable commodity is brought within the limits of the port of
Indeed, except for complainant's sweeping allegation, no clear entry.66 Entry through a customs house is not the essence of
and convincing proof was presented to show that the subject the act.67 On the other hand, as regards Section 3602 of the
petroleum products (gasoil and mogas) withdrawn by Unioil TCCP which particularly deals with the making or attempting to
from the oil depot/terminal of Oilink were imported. For, only make a fraudulent entry of imported or exported articles, the
when the articles are imported that the importer/consignee is term "entry" in customs law has a triple meaning, namely: (1)
required to file an import entry declaration and pay the the documents filed at the customs house; (2) the submission
corresponding customs duties and taxes. The fact that and acceptance of the documents; and (3) the procedure of
complainant's record fails to show that an import entry was passing goods through the customs house.68 In view thereof, it
filed for the subject articles does not altogether make out a is only for charges for unlawful importation under Section 3601
case of unlawful importation under Section 3601, or fraudulent that the BOC must first prove that the subject articles were
practices against customs revenue under Section 3602, of the imported. For violation of Section 3602, in contrast, what must
TCCP, without having first determined whether the subject be proved is the act of making or attempting to make such
articles are indeed imported. Thus, in this case, complainant entry of articles.
still bears the burden of proof to show that the subject
petroleum products are imported, by means of documents The Court likewise disagrees with the finding of the Acting
other than the import entry declaration, such as but not limited Secretary of Justice that the BOC failed to prove that the
to, the transport documents consisting of the inward foreign products subject of the WSD were imported. No such proof
manifest, bill of lading, commercial invoice and packing list, all was necessary because private respondents themselves
indicating that the goods were bought from a supplier/seller in presented in support of their counter-affidavits copies of import
a foreign country and imported or transported to the entries69 which can be considered as prima facie evidence that
Philippines. Instead[,] complainant merely surmised that since OILINK imported the subject petroleum products. At any rate,
the subject products were placed under warrant of seizure and the Acting Secretary of Justice aptly gave credence to their
detention[,] they must necessarily be imported. Regrettably, twenty (20) sales invoices70 covering the dates October 1,
speculation and surmises do not constitute evidence and 2007 until April 30, 2008 which tend to prove that UNIOIL
should not, therefore, be taken against the respondents. x x x locally purchased such products from OILINK even before the
Taken in this light, we find more weight and credence in BOC rendered the Decision dated December 14, 2007
respondent Unioil's claim that the subject petroleum products imposing a _2,764,859,304.80 administrative fine, and holding
were not imported by them, but were locally purchased, more the delivery or release of its subsequently imported articles to
so since it was able to present local sales invoices covering the answer for the fine, any revised assessment and/or penalty for
same. failure to keep records.

Even assuming gratia argumenti that the subject petroleum The Court also finds as misplaced the BOC's reliance on the
products were imported, it still behooves the complainant to Terminalling Agreement dated January 2, 2008 and the
present clear and convincing proof that the importation was Certification71 that UNIOIL made no importation of Gasoil
unlawful or that it was carried out through any fraudulent (diesel) and Mogas gasoline from January 2007 up to June
means, practice or device to prejudice the government. But 2008 in order to prove that it illegally imported the said
again, complainant failed to discharge this burden. products. Such documentary evidence tend to prove only that
UNIOIL was engaged in the importation of petroleum products
As can be culled from the records, the warrant of seizure and and that it did not import the said products during the said
detention docketed as Seizure Identification No. 2008-082, period. Such documents, however, do not negate the evidence
which covers various gas tanks already stored at Oilink's on record which tend to show that OILINK was the one that
depot/terminal located at Lucanin Pt., Mariveles, Bataan, was filed the import entries,72 and that UNIOIL locally purchased
issued pursuant to Section 2536, in relation to Section 1508, of from OILINK such products as indicated in the sales
the TCCP because of Oilink's failure to pay the administrative invoices.73 Not being the importer of such products, UNIOIL, its
fine of P2,764,859,304.80 that was previously meted against directors and officers, are not required to file their
the company for its failure/refusal to submit to a post entry corresponding import entries. Hence, contrary to the BOC's
audit. In fact, the delivery of all shipments consigned to or allegation, UNIOIL's withdrawal of the Gasoil (Diesel) and
handled directly or indirectly by Oilink was put on hold as per Mogas gasoline without filing the corresponding import entries
order of the Customs Commissioner dated April 23, 2008 can neither be considered as unlawful importation under
pursuant to Section 1508 of the TCCP, also for the same Section 3601 of the TCCP nor as a fraudulent practice against
reason. There was nothing on record which shows, or from customs revenue under Section 3602 thereof.
which it could be inferred, that the warrant of seizure and
detention or hold order were imposed pursuant to Section 2530 Moreover, the fact that private respondent Paul Chi Ting Co is
of the same Code which relates, among others, to unlawfully both the Chairman of UNIOIL and OILINK is not enough to
imported articles or those imported through any fraudulent justify the application of the doctrine of piercing the corporate
practice or device to prejudice the government, much less due veil. In fact, mere ownership by a single stockholder or by
to non-payment of the corresponding customs duties and taxes another corporation of a substantial block of shares of a
due on the shipments/articles covered by the warrant of corporation does not, standing alone, provide sufficient
justification for disregarding the separate corporate SEC. 3611. Failure to Pay Correct Duties and Taxes on
personality.74 In Kukan International Corporation v. Hon. Judge Imported Goods. - Any person who, after being subjected to
Reyes, et al.75 the Court explained the application of the said post-entry audit and examination as provided in Section
doctrine in this wise: 3515 of Part 2, Title VII hereof, is found to have incurred
deficiencies in duties and taxes paid for imported goods,
In fine, to justify the piercing of the veil of corporate fiction, it shall be penalized according to three (3) degrees of
must be shown by clear and convincing proof that the separate culpability subject to any mitigating, aggravating or
and distinct personality of the corporation was purposefully extraordinary factors that are clearly established by the
employed to evade a legitimate and binding commitment and available evidence:
perpetuate a fraud or like wrongdoings. To be sure, the Court
has, on numerous occasions, applied the principle where a (a) Negligence - When the deficiency results from an
corporation is dissolved and its assets are transferred to offender’s failure, through an act or acts of omission
another to avoid a financial liability of the first corporation with or commission, to exercise reasonable care and
the result that the second corporation should be considered a competence to ensure that a statement made is
continuation and successor of the first entity. correct, it shall be determined to be negligent and
punishable by a fine equivalent to not less than one-
In those instances when the Court pierced the veil of corporate half (1/2) but not more than two (2) times the revenue
fiction of two corporations, there was a confluence of the loss.
following factors:
(b) Gross Negligence - When a deficiency results
1. A first corporation is dissolved; from an act or acts of omission or commission done
with actual knowledge or wanton disregard for the
relevant facts and with indifference to or disregard for
2. The assets of the first corporation is transferred to the offender’s obligation under the statute, it shall be
a second corporation to avoid a financial liability of the determined to be grossly negligent and punishable by
first corporation; and a fine equivalent to not less than two and a half (2 ½)
but not more than four (4) times the revenue loss.
3. Both corporations are owned and controlled by the
same persons such that the second corporation (c) Fraud - When the material false statement or act in
should be considered as a continuation and connection with the transaction was committed or
successor of the first corporation.76 omitted knowingly, voluntarily and intentionally, as
established by clear and convincing evidence, it shall
Granted that the principle of piercing the veil of corporate entity be determined to be fraudulent and be punishable by
comes into play only during the trial of the case for the purpose a fine equivalent to not less than five (5) times but not
of determining liability,77 it is noteworthy that even the BOC more than eight (8) times the revenue loss and
itself virtually recognized that OILINK and UNIOIL are separate imprisonment of not less than two (2) years but not
and distinct entities when it alleged that only the base oil more than eight (8) years.
products should have been withdrawn by UNIOIL, since they
were the only products subject of its request and approved by The decision of the Commissioner of Customs, upon proper
the Customs Commissioner. As discussed above, however, hearing, to impose penalties as prescribed in this Section may
private respondents were able to present sales invoices which be appealed in accordance with Section 2402 hereof.80
tend to show that UNIOIL locally purchased Gasoil (diesel) and
Mogas gasoline products from OILINK. Hence, the BOC
cannot invoke the doctrine of piercing the veil of corporate With respect to the directors or officers of OILINK, they may
entity in this case. further be held liable jointly and severally for all damages
suffered by the government on account of such violation of
Sections 3602 and 3611 of the TCCP, upon clear and
On a final note, the Court stresses that OILINK, its directors or convincing proof that they willfully and knowingly voted for or
officers, and Victor D. Piamonte, the Licensed Customs assented to patently unlawful acts of the corporation or was
Broker, may still be held liable for various fraudulent practices guilty of gross negligence or bad faith in directing its corporate
against customs revenue under affairs.81

Section 3602 of the TCCP, if the final results of the post-entry WHEREFORE, the petition is PARTLY GRANTED. The Court
audit and examination would show that they committed any of of Appeals Resolutions dated March 26, 2010 and August 4,
the following acts or omissions: (1) making or attempting to 2010, in CA-G.R. SP No. 113069, are REVERSED and SET
make any entry of imported or exported article: (a) by means of ASIDE. The Resolution dated December 28, 2009 of the
any false or fraudulent invoice, declaration, affidavit, letter, ·Acting Secretary of Justice Agnes VST Devanedera, which
paper or by any means of any false statement, written or upheld the State Prosecutor's dismissal of the
verbal; or (b) by any means of any false or fraudulent practice; complaintaffidavit filed by the Bureau of Customs for lack of
or (2) intentional undervaluation, misdescription, probable cause, is AFFIRMED. This is without prejudice to the
misclassification or misdeclaration in the import entries; or (3) filing of the appropriate criminal and administrative charges
undervaluation, misdeclaration in weight, measurement or under Sections 3602 and 3611 of the Tariff and Customs Code
quantity of more than thirty percent (30%) between the value, of the Philippines, as amended, against private respondents
weight, measurement, or quantity declared in the entries, and OILINK, its officers and directors, and Victor D. Piamonte, if the
the actual value, weight, quantity, or measurement. This is final results of the post-entry audit and examination would
consistent with Section 230178 (Warrant for Detention of show that they violated the said provisions.
Property-Cash Bond) of the TCCP which states that nothing
therein shall be construed as relieving the owner or importer
from any criminal liability which may arise from any violation of SO ORDERED.
law committed in connection with the importation of articles,
which in this case were placed under a WSD for failure of the
importer, OILINK, to submit the required post-entry audit
documents under CAO No. 4-2004.

In addition, OILINK and its directors or officers may be held

liable under Section 16 of R.A. No. 9135:79

SEC. 16. A new section to be known as Section 3611 is hereby

inserted in Part 3, Title VII of the Tariff and Customs Code of
the Philippines, as amended, which shall read as follows: