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16: EMILIO S. LIM, SR. V. CA CA affirmed RTC. 23 days later Antonio Lim, Sr. died.
October 18, 1990; C.J. Fernan; G.R. L-48134-37

DOCTRINE: Prescriptive Period to File Criminal Case 1.) WON the offenses prescribe after 5 years (Lim) or
Under NIRC SECTION 281: 5 years from failure 10 years (government’s position)?
to pay tax after notice and demand.
2.) WON the prescriptive period commenced to run
from 1965 date of 1st assessment or discovery
NATURE: Petition for Review on Certiorari (accdg to Lim spouses) or from final notice on 1968

FACTS: Spouses Lim were engaged in the dealership of 3.) WON the RTC had jurisdiction over the tax
various household appliances. collection case?

The NBI conducted a raid on Oct. 5, 1959 on their: 4.) WON the death of Emilio S. Lim, Sr. extinguished
1.) Business Address: No. 336 Nueva Street, Manila; his civil liabilities?
2.) 111 12th Street, Quezon City.
Seized from the Lim couple were business and 1.) 5 years – but the government instituted the case
accounting records which served as bases for an within the prescriptive period.
investigation undertaken by the BIR.
On Sept. 30, 1964, Senior Revenue Examiner Raphael
S. Daet submitted a memorandum that the income tax SECTION 73. PENALTY FOR FAILURE TO FILE
returns filed by the spouses Lim for 1958 and 1959 RETURN OR TO PAY TAX. – Anyone liable to pay
were false or fraudulent. the tax, to make a return or to supply information
required under this code, who refuses or neglects to
Assessment should be: P835, 127. pay such tax, to make such return or to supply such
information at the time or times herein specified in
Acting Commissioner Benjamin M. Tabios informed the each year, shall be punished by a fine of not more
couple that there deficiency income taxes are P922, than P2,000 or by imprisonment for not more than
913.04. 6 months, or both.
On April 10, 1965, spouses requested an re-
investigation. Any individual or any officer of any corporation, or
general co-partnership…, required by law to make,
BIR expressed willingness on the following conditions: render, sign or verify any return or to supply any
1.) written waiver of the defense of prescription under information, who makes any false or fraudulent
the statute of limitations; return or statement with intent to defeat or evade
2.) depositing ½ of the assessment and securing the the assessment required by this Code to be made,
other ½ with a surety bond. shall be punished by a fine not exceeding P4,000 or
by imprisonment for not exceeding 1 year, or both.
Spouses Lim refused to comply with the conditions and
reiterated his request.
BIR rendered a final decision holding that there was no VIOLATIONS OF ANY PROVISIONS OF THIS
cause for reversal of the assessment against the Lim CODE. – All violations of any provision of this Code
couple. shall prescribe after 5 years.

The final notice and demand for payment was served Prescription shall run from the day of the
through their daughter in law on July 3, 1968 for the commission of the violation of the law, and if the
amount of P1,237,190.55 including interest, surcharges same not be known at the time, from the discovery
and penalty for late payment. thereof AND the institution of judicial proceeding
for its investigation and punishment.
BIR referred the matter to the Manila’s Fiscal’s Office
for investigation and prosecution.
The presumption shall be interrupted when
4 criminal informations were filed against petitioners. proceedings are instituted against the guilty
• violation of NIRC SECTION 45 persons and shall begin to run again if the
• violation of NIRC SECTION 51 proceedings are dismissed for reasons not
constituting jeopardy.
RTC Manila found petitioners guilty.


The term of prescription shall not run when the products through dummy marketing corporations to
offender is absent from the Philippines. avoid payment of correct internal revenue tax;

2.) to collect from them any tax liabilities discovered

from such investigation, and
2.) Commenced from the date of the final notice. 3.) to file the necessary criminal actions against those
who may have violated the NIRC.
In criminal cases, statutes of limitations are acts of
grace, a surrendering by the sovereign of its right
to prosecute.
Task Force Composition:
They receive strict construction in favor of the
1. Commissioner of Internal Revenue (CIR) –
Government and limitations in such cases will not
2. Representative of the DOJ;
be presumed in the absence of clear legislation.
3. Representative of the Executive Secretary.

3.) No, because the criminal case was instituted on

CIR assessed against Fortune deficiency in the amount
June 23, 1970 and PD 69 which mandates RTC to
of P7, 685, 942, 221. 66 for the year 1992:
order payment of the taxes took effect only on Jan.
1, 1973. It has no retroactive application.
1. Income Tax – evasion in the amount of
The law applicable was SECTION 316 which does P723,773,759.79
not sanction such imposition.
BIR Taxable Income: P1,282,959,399.25
Fortune declared only: P 183,613,408.00
4.) Regarding the liability of Emilio S. Lim, Sr. –
extinguished by his death in accordance ith - In violation of SECTION 45 of the Tax Code
SECTION 89 of the RPC; but the fine imposed in the
4 criminal cases is affirmed in the case of petitioner 2. Ad Valorem Tax1 - evasion in the amount of
Antonia Sun Lim in accordance with NIRC SECTION P5,792,479,816.24
- In violation of SECTION 127, in relation to
SECTION 142, as amended by RA 6956.
DISPOSITION: CA AFFIRMED with Modifications.

3. VAT – evasion in the amount of P1,169,688,645.63

BIR Findings of VAT sales: P 16,158,575,035.00
J. GUTTIERREZ, JR. CONCURRING OPINION Fortune VAT Returns only: P 11,929,322,334.52

– suggested an amendment of the law because the - In violation of SECTION 110, in relation to
wording makes: Date of discovery – SECTION 100 of the Tax Code.
meaningless; because the discovery and
institution of judicial proceedings are
conjunctive. On Sept. 7, 1993, CIR filed a criminal complaint for tax
evasion with the DOJ against Fortune Tobacco Corp., its
corporate officers, 9 other corporations, and their
respective corporate officers.

The Task Force found that Fortune made fictitious and

17: COMMISSIONER OF INTERNAL REVENUE, et. simulated sales to non-existing “ghost wholesale
J. Kapunan; June 4, 1996; GR No. 119322
On July 1, 1993 CIR issued a Revenue Memorandum Circular reclassifying:
1.) “Hope”
NATURE: Petition for Review on Certiorari 2.) “More”
3.) “Champion”
As cigarettes of foreign brands subject to a higher rate of tax.

FACTS: On June 1, 1993, the President created a Task On August 3, 1993, Fortune Tobacco Corporation (Fortune) questioned the validity
Force: of the reclassification of the brands as violative of
1.) Due process
1.) to investigate the tax liabilities of manufacturers 2.) Equal Protection of Law
engaged in tax evasion schemes such as: selling
CTA enjoined the enforcement of the reclassification - “of doubtful legality.”
SECTION 142 (c.) contended by private
Fortune Tobacco filed M.T.D. and Motion to Suspend, respondents
(1.)The CIR follows a pattern of prosecution against  Same process with the BIR’s assessment for
Fortune Tobacco in violation of their right to due fraudulent tax evasion for the years 1990 & 1991
process and equal protection of the laws;
(2.)CIR and CTA still has to determine Fortune’s tax
liability for 1992 – without any tax liability, there C.I.R. and D.O.J. Prosecutors filed in the SC a petition
can be no tax evasion; for certiorari and prohibition with prayer for preliminary
(3.)D.O.J. has no jurisdiction – should be C.T.A.; injunction against the RTC orders.
(4.)The Complaint is not supported by any
evidence. SC referred the matter to the CA.

The Task Force - CA:

(a.) treated the M.T.D. and the Motion to Suspend as - dismissed the petition
(b.) denied reconsideration; - Certiorari will not be issued to cure errors in
(c.) denied suspension of investigation; proceedings or correct erroneous conclusions of law
(d.) denied motion to inhibit the investigating state or fact.
(e.) denied motion to require submission by BIR of - Errors of courts acting within its jurisdictions are
certain documents such as the “Daily mere errors of judgment which are reviewable by
Manufacturer’s Sworn Statements” allegedly the timely appeal and not by a special civil action of
basis of CIR’s conclusion that Fortune’s tax certiorari.
declarations were false and fraudulent.
- The RTC orders are merely interlocutory and review
by the CA is inappropriate until final judgment is
Fortune filed a petition for certiorari and prohibition rendered, absent a showing of grave abuse of
with prayer for preliminary injunction in the RTC, QC. discretion on the part of the issuing court.

Fortune claims that Assistant City Prosecutor Baraquia - Petitioners should have
cannot conduct the preliminary investigation in an
impartial manner because he was a former classmate of (1.) filed an Answer as ordained in the
Presidential Legal Counsel Antonio T. Carpio. RULES OF COURT

Task Force filed M.T.D. grounds: RULE 16: MOTION TO DISMISS

(a.) Lack of jurisdiction of RTC to enjoin criminal
prosecution under preliminary investigation;
SECTION 4. TIME TO PLEAD. – If the motion is
(b.) Criminal Prosecution for Tax Fraud can proceed
denied, the movant shall file his answer within the
independently of Criminal or Administrative Action;
balance of the period prescribed by RULE 11 to
(c.) There is no Prejudicial Question to justify the
which he was entitled at the time of serving his
suspension of the prelim investigation;
motion, but not less than 5 days in any event,
(d.) Private respondents’ right to due process was not
computed from his receipt of the notice of denial.
(e.) Selective prosecution is not a valid defense in this
jurisdiction. If the pleading is ordered to be amended, he shall
file his answer within the period prescribed by RULE
11, counted from service of the amended pleading,
RTC: unless the court provides a longer period.
- granted the prayer for writ of preliminary injuction
to stop the preliminary investigation in the D.O.J. In connection with:
Revenue Cases Task Force.
- Held that there is nothing on record in the PLEADINGS
preliminary investigation which supports the
allegations of fraudulent declarations

- held that there is a prejudicial legal question that (2.)Then proceed to trial in order that thereafter
should first be settled before any criminal complaint the case may be decided on the merits by the
for tax evasion can be initiated – the issue of the respondent court.
basis of respondents’ tax liability:
Whether its SECTION 127 (b.) of the NIRC as (3.)If the decision is adverse to them – appeal the
contended by the B.I.R.; OR decision.


- Certiorari and prohibition are remedies narrow in
scope and inflexible in character.
 Lays down the rule in determining the Gross Selling
 They are not general utility tools in the legal Price of Goods subject to Ad Valorem Tax.
 The Ad Valorem Tax should be based on the
 Their function is limited to correction of defects
“correct” price excluding the VAT, at which goods
of jurisdiction solely,
are sold at wholesale in the place of production.
 not to be used to any other purpose such as to
 For purposes of determining the “Manufacturer’s
cure errors in proceedings or to correct
Registered Wholesale Price” a cigarette
erroneous conclusions of law or fact.
manufacturer is required to file a Manufacturer’s
Declaration (BIR Form No. 31.03) for each brand of
- RTC is still to try the case and decide it on the
cigarette manufactured, stating:
(a.) Materials;
(b.) Labor;
ISSUE/S: WON CA correctly ruled that RTC QC did not
(c.) Overhead;
commit grave abuse of discretion amounting to
(d.) Tax Burden;
lack of jurisdiction in issuing 4 orders directing
the issuance of writs of preliminary injunction (e.) Wholesale Price by the Case.2
restraining petitioner prosecutors (C.I.R., D.O.J.
Task Force, etc.) from continuing with the
preliminary investigation of the criminal SECTION 142.
complaints against private respondents
(Fortune Tobacco Corp., etc.) (c.) CIGARETTES PACKED IN TWENTIES. -- There
shall be levied, assessed and collected on cigarette
packed in twenties an ad valorem tax at the rates
HELD: Yes. The Petition is Bereft of Merit. prescribed below based on the manufacturer’s
registered wholesale price:

RATIO: Grave abuse of discretion – means such

(1.) On locally manufactured cigarettes bearing a
capricious and whimsical exercise of judgment as is
foreign brand, 55%: Provided, that the rate shall
equivalent to lack of jurisdiction.
apply regardless of whether or not the right to use
or title to the foreign brand was sold or transferred
The abuse of discretion must be patent and gross as to
by its owner to the local manufacturer.
amount to an evasion of positive duty or a virtual
refusal to perform a duty enjoined by law, or to act at
all in contemplation of law as where the power is - Whenever it has to be determined WON a cigarette
exercised in an arbitrary and despotic manner by bears a foreign brand, the listing of brands
reason of passion and hostility. manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern.
(2.) On other locally manufactured cigarettes, 45%.
Duly registered or existing brands of cigarettes packed
(b.) DETERMINATION OF GROSS SELLING PRICE in twenties shall not be allowed to be packed in 30s.
Unless otherwise provided, the price, excluding the When the existing registered wholesale price, including
VAT, at which the goods are sold at wholesale in the tax, of cigarettes packed in 20s does not exceed P4 per
place of production or through their sales agents to the pack, the rate shall be 20%.
public shall constitute the Gross Selling Price.
xxx xxx xxx
If the manufacturer also sells or allows such goods to
be sold at wholesale price in another establishment of
which he is the owner or in the profits at which he has
an interest, the wholesale price in such establishment  The purpose of registration of the Wholesale Price is
shall constitute the Gross Selling Price. to ensure the payment of correct taxes by the
manufacturers of cigarettes through close

Should such price be less than the costs of manufacture 2

Actually I still do not agree because even if they state a wholesale price – the
plus expenses incurred until the goods are finally sold, statement did not require a specific profit margin or amount or percentage for the
then a proportionate margin of profit, not less than company – example: Registered Wholesale Price is P5/ pack, Costs of Production
10% of such manufacturing costs and expenses, shall is P4.50/ pack = P0.50 profit / pack declared;
be added to constitute the Gross Selling Price. But if the real Whole Sale Price si P7/ pack = then the actual profit is P2.50 / pack.
supervision, monitoring and checking of the  “Willful” – means “premeditated; malicious;
business operations of the cigarette companies. done with intent or with bad motive or purpose,
or with indifference to the natural
 BIR and National Tobacco Administration (NTA) consequence . . . ”
intensely supervise this industry.
 “Fraud” – in its general sense, “is deemed to
 Revenue Enforcement Officers are detailed on a 24-
comprise anything calculated to deceive,
hour basis in the premises of the manufacturer to
including all acts, omissions, and concealment
secure the production and removal of finished
involving a breach of legal or equitable duty,
trust or confidence justly reposed, resulting in
the damage to another, or by which an undue
 Composite Mobile Teams conduct counter-security and unconscionable advantage taken of
on the business operations as well as the another.
performance of the Revenue Enforcement Officers
detailed thereat.  Fraud cannot be presumed.

 The amount of ad valorem tax payments together  If there was fraud or willful attempt to evade
with the Payment Order and Confirmation Receipt
payment of ad valorem taxes by private
Nos. must be indicated in the sales and delivery
respondents through the manipulation of the
invoices and together with the Manufacturer’s
registered wholesale price of the cigarettes, it
Sworn Declarations on
must have been with the connivance or
cooperation of certain BIR officials and
(a.) the quantity of raw materials used during the
employees who supervised and monitored
day’s operations;
Fortune’s production activities to see to it that
the correct taxes were paid.3
(b.) the total quantity produced according to brand;
 There is no allegation, much less evidence, of
(c.) the corresponding quantity removed during the
BIR personnel’s malfeasance.
 Presumption that the BIR personnel performed
(d.) the corresponding wholesale price their duties in the regular course in ensuing the
thereof, and correct taxes were paid by Fortune.

(e.) the VAT paid thereon

 SC upheld the view of the RTC and CA that before
private respondents could be prosecuted for tax
must be presented to the corresponding BIR
evasion – the tax due should first be established.
representative for authentication before removal.
 Until and unless the BIR has made a final
 If every step in the production of cigarettes was
determination of what is supposed to be the
closely monitored and supervised by the BIR
correct taxes, the taxpayer should not be
personnel specifically assigned to Fortune’s
placed in the crucible of criminal prosecution.
premises, and
 Under SECTION 229 of the Tax Code, the taxpayer
considering that the Manufacturer’s Sworn
has the right to move for reconsideration of the
Declarations on the data required to be submitted
assessment issued by the CIR within 30 days from
by the manufacturer were scrutinized and verified
receipt of the assessment;
by the BIR and,
And if the MFR is denied, it may appeal to the CA
further, since the manufacturer’s wholesale price
within 30 days from receipt of the CIR’s decision.
was duly approved by the BIR,
Here, the CIR has not resolved the MFR up to the
then it is presumed that such Registered
Wholesale Price is the same as, or approximates
“the price excluding the VAT, at which the goods
are sold at wholesale in the place of production,”  CIR cites Ungad V. Cusi - that the lack of a final
determination of Fortune’s exact or correct tax
otherwise the BIR would not have approved the liability is not a bar to criminal prosecution.
registered wholesale price of the goods for purposes
of imposing the ad valorem tax due.  Qualified by the Court with the ff. statement
quoted from Guzik V. US:
 It was precipitate and premature to conclude that
private respondents made fraudulent returns or
willfully attempted to evade payment of taxes due. (please see dissent – I agree with dissent that even if BIR officials connived with
Fortune, the Government is not estopped to file criminal complaints for fraudulent
tax evasion against Fortune!)


“the crime is complete when the violator has
knowingly and willfully filed a fraudulent return (g.) Where the court had no jurisdiction over the offense
with intent to evade and defeat a part or all of (Lopez V. City Judge);
the tax.”
(h.)Where it is a case of persecution rather than
 SC – there must be a prima facie showing of prosecution (Rustia V. Ocampo);
willful attempt to evade taxes.4
(i.) Where the charges are manifestly false and
 SC DISAGREES with CIR contention that private motivated by the lust for vengeance (Recto V.
respondents’ recourse to the trial court by way of Castelo, cited in Rano V. Alvenia; Cf. Guingona et.
special civil action of certiorari and prohibition was al. V. City Fiscal); and
improper because:
(j.) When there is clearly no prima facie case against
(a.) the proceedings before the state prosecutors the accused and a motion to quash on that ground
(preliminary injunction) was far from has been denied (Salonga V. Pane);
(k.) to prevent a threatened unlawful arrest (Ocampo
(b.) it is only after the submission of private IV V. Ombudsman).
respondents’ counter-affidavits that the
prosecutors will determine WON there is  SC held in this case that the writs of preliminary
enough evidence to file in court criminal injunction were properly issued by the RTC, to
charges for fraudulent tax evasion against afford private respondents adequate protection of
private respondents; and their constitutional rights;

(c.) the proper procedure is to allow the  to avoid oppression;

prosecutors to conduct and finish the
preliminary investigation and to render a  there was a prejudicial question;
resolution, after which the aggrieved party can
appeal the resolution to the Secretary of  that the complaint of the CIR is not
Justice. supported by any evidence to serve as an
adequate basis for the issuance of the subpoena
to them and put them to their defense.
GENERAL RULE: Criminal Prosecutions cannot be
enjoined.  There are factual and legal bases for the assailed
EXCEPTIONS, citing Brocka V. Enrile:
(a.) To afford adequate protection to the constitutional RULE 112: PRELIMINARY INVESTIGATION
rights of the accused (Hernandez V. Albano);

(b.) When necessary for the orderly administration of SECTION 3. PROCEDURE. – Except as provided for in
justice or to avoid oppression or multiplicity of SECTION 7 hereof, no complaint or information for an
actions (Dimayuga, et. al. V. Fernandez; Hernandez offense cognizable by the RTC shall be filed without a
V. Albano; Fortun V. Labang, et. al.); preliminary investigation having been first conducted in
the ff. manner:
(c.) When there is a prejudicial question which is sub
judice (De Leon V. Mabanag); (a.) The complaint shall state the known address of
the respondents and be accompanied by affidavits
(d.) When the acts of the officer are without or in excess of the complainant and his witnesses as well as
of authority (Planas V. Gil); other supporting documents, in such number of
copies as there are respondents, plus 2 copies for
(e.) Where the prosecution is under an invalid law, the official file.
ordinance or regulation (Young V. Rafferty; Yu Cong
Eng V. Trinidad);
- The said affidavits shall be sworn to before any
(f.) When double jeopardy is clearly apparent fiscal, state prosecutor, or government official
(Sangalang V. People and Alvendia); authorized to administer oath, or, in their absence
or unavailability, a notary public, who must certify
I disagree because intention is a mental state (mens rea) which has to be that he personally examined the affiants and that
proven by other evidence. he is satisfied that they voluntarily executed and
understood their affidavits.
So if the BIR is not allowed in a proper hearing to adduce evidence to prove this
“intention” “to defraud” all criminal complaints of similar nature against other
similarly tax evading companies will also be killed at preliminary investigation
stage pa lang - - will not proceed or prosper anymore. (b.) Within 10 days after the filing of the complaint,
the investigating officer shall either dismiss the
Corruption is not only in the Government but is worse in the Private Sector – by same if he finds no ground to continue with the
persons who do not pay taxes or do not pay “correct” taxes.


inquiry, or issue a subpoena to the respondent, Citing Borja V. Moreno – it was held that the act of the
attaching thereto a copy of the complaint, affidavits investigator in proceeding with the hearing without 1st
and other supporting documents. acting on the respondents’ M.T.D. is a manifest
disregard of the requirement of due process.
- Within 10 days from receipt thereof, the respondent SC held that the denial of the motion to produce the
shall submit counter-affidavits and other supporting “Daily Manufacturers Sworn Statements” by other
documents. cigarette companies, as sought by private respondents,
to show that these companies which had paid the ad
- He shall have the right to examine all other valorem taxes on the same basis and in the same
evidence submitted by the complainant. manner as Fortune were not similarly criminally
charged indicates that only Fortune was singled out for
prosecution. (I don’t agree)
(c.) Such counter-affidavits and other supporting
documents submitted by the respondent shall also
be sworn to and certified as prescribed in paragraph
(a.) hereof and copies thereof shall be furnished by
him to the complainant.

(d.) If the respondent cannot be subpoenaed, or if NOTES:

subpoenaed, does not submit counter-affidavits
within the 10 day period, the investigating panel J. BELLOSILLO CONCURRING AND DISSENTING:
shall base his resolution on the evidence presented
by the complainant.
Concur in: finding that RTC did not commit grave
(e.) If the investigating officer believes that there abuse of discretion in issuing injunctive writs
are matters to be clarified, he may set a hearing to
 The only issue before the SC is the propriety of
propound clarificatory questions to the parties or
the ancillary or provisional remedy.
their witnesses, during which the parties shall be
afforded an opportunity to be present but without
 RTC granted the writs of preliminary injunction
the right to examine or cross-examine.
upon finding, after hearing for the purpose, that
private respondents sufficiently established that
- If the parties so desire, they may submit questions “they are entitled to certain constitutional rights
to the investigating officer which the latter may and that these rights have been violated,”
propound to the parties or witnesses concerned.
 RTC enumerated their reasons:
(f.) Thereafter, the investigation shall be deemed
concluded, and the investigating officer shall 1: inspite of the motion of Fortune, CIR
resolve the case within 10 days therefrom. failed to present the “Daily
Manufacturer’s Sworn Statements”
- Upon the evidence thus adduced, the investigating submitted to the BIR by the Taxpayer;
officer shall determine WON there is sufficient
ground to hold the respondent for trial. 2: the proper application of SECTION 142
(c.) of the NIRC is a prejudicial question
which must first be resolved by the CTA
to determine whether a tax liability
As found by CA there was obvious haste by which the
which is an essential element of tax
subpoenas were issued to private respondents, hence
evasion exists before criminal
without the investigating prosecutors being afforded
proceedings may be pursued;
material time to examine and study the voluminous
documents appended to the complaint for them to
3: BIR has not yet made a final
determine if preliminary investigation should be
determination of the tax liability of
private respondents; and
- These also justify private respondents’ misgivings
4: the precipitate issuance by the
regarding the objectivity and neutrality of the
prosecutors of subpoenas to private
respondents 1 day after the filing of the
complaint consisting of about 600
SC upheld the RTC and CA finding that the non-
production by CIR of the “Daily Manufacturers Sworn
and their hasty denial of private
Statements” amounts to a showing of lack of evidence
respondents’ 135 page MTD, after a
which warrants that the prosecutors should have
recess of only 20 minutes, show that
dismissed the complaint outright.
the private respondents’ constitutional
rights may have been violated.
 The conflicting claims in an application for a
 Other traces of discrimination, malice and provisional writ more often than not involves a
partiality found by the RTC– factual determination which is the function of
the SC, or even the respondent CA.
1.) Announcement by the PCGG that it would
take over the various corporations  Both parties were given sufficient time and
associated with respondent Lucio C. Tan; opportunity by the RTC to present their
respective pieces of evidence as well as
2.) The creation of the Task Force on Revenue arguments in support of their positions.
Cases among the functions of which is to
“investigate the tax liabilities of  To permanently enjoin the RTC from proceeding
manufacturers that engage in well-known in any manner in the Civil Cases and allow the
tax evasion schemes, such as selling preliminary investigation of the complaints
products through dummy marketing docketed with the D.O.J. to resume until their
companies to evade the payment of the final conclusion and completion would go
correct internal revenue taxes,” the very against the prevailing rule that courts should
charge against respondent Tan; avoid issuing a writ of preliminary injunction
which would in effect dispose of the main case
3.) the reclassification of Fortune’s best selling without trial.
cigarettes as foreign brands without notice
and hearing;
 The main case should be allowed to proceed
4.) the singling out of private respondents as according to due process.
subjects of a complaint for tax evasion
when other cigarette manufacturers have
been using the same basis in paying taxes;  Balancing on the scales the power of the State
to tax and its inherent right to prosecute
5.) the failure of the CIR to wait for the perceived transgressors of the law on one side,
expiration of the 30 day period she herself and the constitutional rights of a citizen to due
gave to private respondents to pay the process of law and equal protection fo the laws
supposed tax deficiencies before the filing f on the other.
the complaint.
 The scales must tilt in favor of the individual,
 Issuance of the writ of preliminary injunction as for a citizen’s right is amply protected by the
an ancillary or preventive remedy to secure the Bill of Rights of the Constitution.
rights of a party in a pending case rests upon
the sound discretion of the court hearing it.  While “taxes are the lifeblood of the
government,” the power to tax has its limits,
 The exercise of sound discretion by the RTC in inspite of all its plenitude.
injunctive matters should not be interfered with
except in case of manifest abuse.  Commissioner of Internal Revenue V. Algue,
 The RTC injunctive writs are merely orders to
preserve the status quo until the merits of the Taxes are the lifeblood of the government
case can be heard. and so should be collected without
unnecessary hindrance.
 The hearing on the application for issuance of a
On the other hand, such collection should be
writ of preliminary injunction is separate and
made in accordance with law as any
distinct from the trial on the merits of the main
arbitrariness will negate the very reason for
government itself.

 The quantum of evidence required for one is It is therefore necessary to reconcile the
different from that of the other so it does not apparently conflicting interests of the
necessarily follow that if the court grants and authorities and the taxpayers so that the
issued the temporary writ applied for the same real purpose of taxation, which is the
court will not have to rule in favor of the promotion of the common good, may be
petition for prohibition and ipso facto make the achieved.
provisional injunction permanent.
xxx xxx xxx
 RULE 58, SECTION 7. A wide latitude is given to
the RTC. It is said that taxes are what we pay for
civilized society.


Without taxes, the government would be  There is no showing that CIR is not going after
paralyzed for the lack of the motive power to others who may be suspected of being big trax
activate and operate it. evaders and that only private respondents are
being prosecuted, or even merely investigated,
Hence, despite the natural reluctance to for tax evasion.
surrender part of one’s hard-earned income
to taxing authorities, every person who is  Assuming ex hypothesi that other corporate
able must contribute his share in the running manufacturers are guilty of using similar
of the government. schemes for tax evasion, the proper remedy is
not the dismissal of the complaints against
The government for its part is expected to private respondents, but the prosecution of
respond in the form of tangible and other similar evaders.
intangible benefits intended to improve the
lives of the people and enhance their moral  In the absence of willful or malicious
and material values. prosecution, or so-called “Selective
Prosecution,” the choice on whom to prosecute
This symbiotic relationship is the rationale of ahead of the others belongs legitimately, and
taxation and should dispel the erroneous rightly so, to the public prosecutors.
notion that it is an arbitrary method of
exaction by those in the seat of power.

But even as we concede the invevitably and

indispensability of taxation, it is a J. PADILLA DISSENTING:
requirement in all democratic regimes that it
be exercised reasonably and in accordance DISCUSSION: CA discussed that special civil action for
with the prescribed procedure. certiorari and prohibition are improper to cure errors in
proceedings or correct erroneous conclusions of law or
If it is not, then the taxpayer fact.

 Due to the overzealousness in collecting taxes Errors of courts acting within its jurisdictions are mere
from private respondents and to some accident errors of judgment which are reviewable by timely
of immediate overwhelming interest which appeal and not by a special civil action of certiorari.
distressingly impassions and distorts judgment,
the State has unwittingly ignored the citizens’
constitutional rights. This is applicable to the private respondents when they
resorted to the remedy of certiorari and prohibition with
application for preliminary injunction with the RTC to
 Thus even the rule that injunction will not lie to stop the preliminary investigation conducted by the
prevent a criminal prosecution has admitted D.O.J. Task Force.
exceptions, which were enumerated in Brocka
V. Enrile and in Ocampo IV V. Ombudsman.
Note: The Proceedings before the investigators are far
from terminated.
 Courts should not hesitate to invoke the
constitutional guarantees to give adequate
protection to the citizens when faced with the In fact the private respondents were merely
enormous powers of the State, even when what subpoenaed and asked to submit counter-affidavits.
is in issue are only provisional remedies.

When there M.T.D. was denied, they resorted to the

 In days of great pressure, it is alluring to take courts for redress.
short cuts by borrowing dictatorial techniques.

 But when we do, we set in motion an arbitrary The proper procedure should have been an appeal from
or subversive influence by our own design such an adverse resolution to the Secretary of Justice.
which destroys us from within.

 Let not the present case dangerously sway As a corollary, the RTC should have desisted from
toward that trend. entertaining private respondents’ original petition for
certiorari and prohibition with prayer for preliminary
injunction because a court order to stop a preliminary
Dissent in: finding of “selective prosecution” of private investigation is an act of interference with the
respondents investigating officers’ discretion, absent any showing of


grave abuse of discretion on the part of the latter in Even the CA admitted that the BIR 1st complaint
conducting such preliminary investigation. signed by the CIR consisted of 14 pages supported
by an annex consisting of 17 pages in the form of a
joint affidavit of 8 Revenue Officers, to which were
The Rule is settled that the fiscal (prosecutor) cannot attached voluminous documents as annexes which,
be prohibited from conducting and finishing his when put together, constituted a formidable
preliminary investigation. network of evidence tending to show fraudulent tax
evasion on the part of the private respondents.

The private respondents’ petition in the RTC was clearly

premature. 2. There is no selective prosecution nor violation
of Equal protection of the laws as the Sol Gen
- does not fall within any of the exceptions when pointed out, more than 1,000 criminal cases for tax
prohibition lies to stop a preliminary investigation. evasion have been filed in Metro Manila alone.

Private respondents are not being singled out.

Majority Decision clearly constitutes an untenable
usurpation of: They failed to substantiate this allegation of
(1.)the primary duty and function of the prosecutors to “selective prosecution.
conduct the preliminary investigation of a criminal
offense; and Assuming arguendo that other corporate
(2.)the power of the Secretary of Justice to review the manufacturers are guilty of using similar schemes
resolution of said prosecutors. for tax evasion, allegedly used by respondents, the
Sol. Gen. correctly points out that the remedy IS
NOT dismissal of the complaints, BUT investigation
Citing Guingona, and prosecution of the other similar violators.

“As a GENERAL RULE, an injunction will not be

granted to restrain a criminal prosecution.” 3. Private Respondents’ allegations that the
Assistant QC Prosecutor lacks impartiality, are so
With more reason will injunction not lie when the unsubstantiated, imaginary, speculative and indeed
case is still at the preliminary investigation stage. puerile.

This Court should not usurp the primary function

of the City Fiscal to conduct the preliminary 4. Rule: City and state prosecutors are authorized
investigation of the estafa charge and of the to conduct preliminary investigation of criminal
petitioner’s counter-charge for perjury, which offenses under the NIRC.
was consolidated with the estafa charge.
Jurisdiction over said Criminal Offenses are with the
The City Fiscal’s office should be allowed to finish RTC.
its investigation and make its factual findings.

This Court should not conduct the Preliminary 5. Issue of WON the evidence submitted by
Investigation. petitioners is sufficient to warrant the filing of
criminal informations for fraudulent tax evasion is
It is not a trier of facts. prematurely raised.

To argue, as private respondents do, that 1 piece of

PRELIMINARY ISSUES: evidence, i.e. the “Daily Manufacturer’s Sworn
Statements” should be produced at a particular
1. Fortune alleges violations of their rights to due stage of investigation, in order to determine the
process and equal protection of the laws. probably guilt of the accused, is to dictate to the
investigating officers the procedure by which
Private respondents were given the opportunity be evidence should be presented and examined.
heard - to file their counter-affidavits to refute the
allegations in the BIR complaints, together with Further, “a preliminary investigation is not the
their supporting documents. occasion for the full and exhaustive display of the
parties’ evidence; it is for the presentation of such
It is only after submission of counter-affidavits that evidence only as may engender a well grounded
the investigators will determine WON there is belief that an offense has been committed and that
enough evidence to file in court criminal charges for the accused is probably guilty thereof…”
fraudulent tax evasion against private respondents
or to dismiss the BIR complaints. The Preliminary Investigation has not yet been


The proper procedure then should be to allow the  Both cases involved fraudulent schemes to
investigators, who undeniably have jurisdiction, to evade payment to the Government of correct
conduct and finish the preliminary investigation and taxes.
to render a resolution.
“The petitioner also claims that the filing of the
The party aggrieved by said resolution can then informations was precipitate and premature
appeal it to the Secretary of Justice, as required by since the CIR has not yet resolved his protests
the settled doctrine of exhaustion of administrative against the assessment of the Revenue District
remedies. Offier; and that he was denied recourse to the
What special qualification or privilege do private
respondents have to exempt them from the The contention is without merit.
operation of this principle and entitle them to
immediate judicial relief from the respondent RTC? What is involved here is not the collection of
taxes where the assessment of the CIR may be
reviewed by the CTA, but a criminal prosecution
6. CA and RTC maintain that a previous for violations of the NIRC which is within the
assessment of the correct amount of taxes cognizance of CFI.
due is necessary before private respondents may
be charged criminally for fraudulent tax evasion. While there can be no civil action to enforce
collection before the assessment procedures
This view is not supported by law and provided in the Code have been followed, there
jurisprudence. is no requirement for the precise computation
and assessment of the tax before there can be
The lack of a final determination of Fortune’s a criminal prosecution under the code.
exact or correct tax liability is NOT a bar to
criminal prosecution for fraudulent tax The contention is made, and is hereby rejected,
evasion. that an assessment of the deficiency tax due is
necessary before the taxpayer can be
NIRC does not require such computation and prosecuted criminally for the charges preferred.
assessment prior to criminal prosecution for
fraudulent tax evasion. The crime is complete when the violator has, as
in this case, knowingly and willfully filed
SC earlier ruled – “An assessment of a deficiency is fraudulent returns with intent to evade and
not necessary to a criminal prosecution for willful defeat a part or all of the tax.”
attempt to defeat and evade the income tax.

A crime is complete when the violator has  The ruling is undisputably on all fours with, and
knowingly and willfully filed a fraudulent return with conclusive to the case at bar.
intent to evade and defeat the tax.
 There, SC denied the prayer of therein
The perpetration of the crime is grounded upon petitioner to quash informations for tax evasion
knowledge on the part of the taxpayer that he has that had already been filed in court.
made an inaccurate return, and the government’s
failure to discover the error and promptly to assess  Despite the fact that the prosecutors in Ungab
has no connections with the commission of the had already found probably cause to try therein
crime.” petitioner for tax evasion, there was no finding
by the Court of any violation of any of
Under the Ungab doctrine - the filing of a criminal petitioner’s constitutional rights.
complaint for fraudulent tax evasion would be
proper even without a previous assessment of the  The Ungab Doctrine is good law.
correct tax.
 How can there now be a violation of private
 Involved the filing of a fraudulent income tax respondents’ constitutional rights upon a
return because the defendant failed to report requirement by the investigators that private
his income derived from the sale of banana respondents submit their counter-affidavits?

 Case at bar: fraudulent concealment of actual 7. The validity of the BIR RMC 37-93 which
price of products sold through declaration of reclassified cigarette brands “Hope” “More” and
registered wholesale prices lower than the “Champion” manufactured by Fortune to a 10%
actual wholesale prices. increase in ad valorem taxes is irrelevant to the
issue of fraudulent tax evasion involved in this


It is not a prejudicial question because any decision 2: Corresponding close supervision and monitoring
regarding the RMC will not affect private by BIR officials of the business operations of
respondents’ criminal liability for fraudulent tax cigarette companies, ensure payment of
evasion for the ff. reasons: correct taxes.

a. The RMC pertains to ad valorem taxes The argument is baseless.

of Fortune’s named brands after July 1, 1993;
the Fraudulent Tax Evasion in the present case The procedure is not a guarantee against fraudulent
pertains to 1990, 1991, and 1992. schemes resorted to by tax-evading individuals or
b. The Fraudulent Scheme allegedly
utilized by Fortune and its dummies, as It only indicates that taxpayers bent on evading
described in the BIR Complaints, was actually a payment of taxes would explore more creative
“built-in” tax evasion device already in place devices or mechanisms in order to defraud the
even before the assailed RMC was issued. Government of its sources of income even under its
very nose.
The scheme is particularly designed to result in
the underpayment of ad valorem, value-added, It is precisely to avoid and detect cases like this
and income taxes regardless of the rate applied that the President issued a Memorandum on June 1,
by the government on the cigarette products. 1993 creating a Task Force to investigate tax
liabilities of manufacturers engaged in tax evasion
8. The 2 provisions of the NIRC are both
applicable in determining the tax due. The Manufacturer’s Declaration which is the basis
for determining the “Manufacturer’s Registered
SECTION 127 (b.) – provides for the method of Wholesale Price”, even if verified by Revenue
determining the Gross Wholesale Price to be Officers and approved by the CIR, does not
registered with the BIR; necessarily reflect the actual wholesale price at
which the cigarettes are sold.
SECTION 142 (c.) – provides the rate of ad
valorem tax to be paid, expressed as a percentage This is why Manufacturers are Still Required to file
of the registered Gross Selling Price. other documents, like the “Daily Manufacturer’s
Sworn Statements” in order to assist in determining
These provisions do not involve a prejudicial WON correct taxes have been paid.
question because they are not determinative of
private respondents’ criminal liability, if any. Even if BIR Officials may have verified Fortune’s
BIR registered wholesale price for its products – the
Fortune is accused of selling at lower registered same DOES NOT ESTOP NOR PRECLUDE the
wholesale prices its cigarette brands through Government from filing criminal complaints for
dummy entities in the profits of which it has a FRAUDULENT TAX EVASION based on evidence
controlling interest. subsequently gathered to the effect that such BIR
registered wholesale prices were a mis-
The Government through BIR allege that declaration or under-declaration of the actual
respondent Fortune has purposely made use of wholesale price.
such dummy entities to under declare the Gross
Wholesale Price and evade payment of higher but It is hornbook law that the Government is not
legally correct taxes. bound or estopped by the mistakes, inadvertence,
and what more, connivance of its officials and
employees with fraudulent schemes to defraud the
9. Payment of ad valorem and other taxes based Government.
on the wholesale price registered with the BIR
presupposes and naturally assumes that the Even on the assumption that official duty of BIR
registered wholesale price correspond to the actual officials and employees has been regularly
wholesale prices at which the manufacturer sells performed, the allegations in the complaints are
the products. clear enough in that private respondents allegedly
made use of schemes to make it appear that
Fortune’s claim that they based their liability on the respondent Fortune’s tax liabilities are far less than
wholesale price registered with BIR cannot absolve what they should be actually liable for under the
Fortune and its officers of criminal liability. law.

The very nature of the offense for which

10. Private respondents contend that – respondents are being investigated, certainly makes
1: Registration with the BIR of the wholesale regularity/ irregularity in the performance of official
prices; duties irrelevant.


The difference between Fortune’s BIR-reported
wholesale prices to its “dummy” entities
12. Private respondents WERE AFFORDED due
And the actual wholesale prices at which its process and equal protection of the laws.
“dummies” sell Fortune’s products thus constitute
the amounts for which Fortune should actually incur
tax liabilities but for which it allegedly never paid The alleged haste by which the subpoena was
taxes because of the operation of the tax evasion issued to private respondents does not lessen the
scheme. investigating panel’s ability to study and examine
the complainant’s evidence.
Private respondents has not shown that there exist
exceptional grounds removing them from the
general rule that preliminary investigations of Neither does such act merit the conclusion that the
criminal offenses and criminal prosecutions cannot investigating panel was less than objective in
be stayed or enjoined by the courts. conducting the preliminary investigation.

Courts cannot interfere with the discretion of the

11. RTC’s ruling that private respondents’ investigating officer to determine the specificity and
constitutional rights have been violated, rests on adequacy of the averments in the complaints filed,
untenable grounds. except in very exceptional circumstances, which
do not obtain here.
Exceptions – must be strictly applied.
 Any claim to an exception must be fully Private Respondents’ act of filing a petition for
substantiated. certiorari and prohibition before the RTC was rather
untimely and uncalled for.
The Exceptions Enumerated in Brocka V. Enrile do
not apply in the case at bar. Reasons:
(a.) failure to exhaust administrative remedies;
(b.) grounds cited were highly speculative, more
It is important to stress that in a preliminary fancied than real.
investigation, the investigating officers’ SOLE DUTY
is: to determine, before the presentation of In Hernandez V. Albano – preliminary investigation
evidence by the prosecution and by the defense, can be stayed by court order only in extreme
WON there are reasonable grounds for proceeding cases.
formally against the accused.
“By statute, the prosecuting officer of the City of
Manila and his assistants are empowered to
This is in conformity with the purpose of securing investigate crimes committed within the city’s
the innocent against hasty, malicious and territorial jurisdiction.
oppressive prosecutions, and to protect him from
an open and public accusation of crime, from the Not a mere privilege it is the sworn duty of a
trouble, expense and anxiety of public trial, and Fiscal to conduct an investigation of a criminal
also to protect the state from useless and charge filed with his office.
expensive trials.
The power to investigate postulates the other
obligation on the part of the Fiscal to investigate
C.J. Manuel V. Moran - - “… the purpose of a promptly and file the case as speedily.
preliminary investigation is to afford the accused an
opportunity to show by his own evidence that there Public interest - - the protection of society - - so
is no reasonable ground to believe that he is guilty demands.
of the offense charged and that, therefore, there is
no good reason for further holding him to await trial Agreeably to the foregoing, a rule - - now of
in the CFI.” long standing and frequent application - - was
formulated that ordinarily criminal prosecution
may not be blocked by court prohibition or
How could private respondents’ constitutional right injunction.
to presumption of innocence be violated when, in all
stages of preliminary investigation, they were Really, if at every turn investigation of a crime
presumed innocent? will be halted by a court order, the
administration of criminal justice will meet with
an undue setback.
Declaring that there are reasonable grounds to
continue with the inquiry is not the same as Indeed, the investigative power of the Fiscal
pronouncing that a respondent is guilty or probably may suffer such a tremendous shrinkage that it
guilty of the offense charged.
may end up in hollow sound rather than as part are guilty of the offense charged in the BIR
and parcel of the machinery of criminal justice.” complaints.

 Dispositive Portion affirmed the decision It is precisely through the preliminary investigation
of the trial court dismissing the petition for that the DOJ Task Force on Revenue Cases can
certiorari and prohibition with prayer for determine WON there are grounds to file
preliminary injunction filed to stay the informations in court OR to dismiss the BIR
preliminary investigation of criminal complaints complaints.
against petitioner Hernandez.

15. The State Prosecutors did not commit grave

In Fortun V. Labang – disgruntled lawyers who lost abuse of discretion in requiring private respondents
ehir cases in the judge’s sala filed criminal to submit couinter-affidavits to the complaints for
complaints against the CFI judge. fraudulent tax evasion.

 There the complaints were filed merely Rules of Criminal Procedure do not even require, as
as a form of harassment against the judge and a condition sine qua non to the validity of a
which “could have no other purpose than to preliminary investigation, the presence of the
place petitioner-judge in contempt and respondent as long as efforts to reach him are
disrepute.” made, and an opportunity to controvert the
complainant’s evidence is accorded him.
 There was an express finding by the
The purpose of the rule is to check attempts of
Court that complaints against judges of the CFI
unscrupulous respondents to thwart criminal
are properly filed with the S.C. under E.O. No.
investigations by not appearing or employing
264 (1970) since the Court is considered as the
dilatory tactics.
department head of the judiciary.

- In the present case – Jurisdiction to Conduct

Preliminary Investigation Over Fraudulent Tax 16. Preliminary Investigation in the D.O.J. Revenue
Evasion Cases Lies with the State Prosecutors. Cases Task Force against private respondents for
alleged fraudulent tax evasion is well within its
Neither Hernandez NOR Fortun supports the jurisdiction and constitutes no grave abuse of
majority’s disposition. discretion, amounting to lack or excess of
jurisdiction when it stayed such preliminary
The Majority has altered the entire rationale and investigation.
concept of preliminary investigation of alleged
criminal offenses.
17. The successful prosecution of criminal offenders
“I will have no part in the shocking process … that is not only a right but the duty of the State.
the people have been cheated and defrauded of
their taxes to the tune allegedly of P25.6 billion There is no violation of constitutional rights in this
pesos, and yet, it is not given by this Court even a case.
beggar’s chance to prove it.”

18. The consolidation of the 3 complaints in the

13. There is great and vital public interest in the D.O.J. against private respondents should be
successful investigation and prosecution of criminal allowed since they all involve the same scheme
offenses involving fraudulent tax evasion. allegedly used by private respondents to
fraudulently evade payment of taxes.
Said public interest is much more compelling in the
present case since private respondents are not only Consolidation will :
accused of violating tax and penal laws, but are a. avoid multiplicity of suits; and
also depriving the Government of a primary source b. enable private respondents to more
of revenue so essential to the life, growth and conveniently prepare whatever responsive
development of the nation and for the pre-station of pleadings are required or expected of them.
essential services to the people.

MAIN ISSUE: WON there are valid grounds to stop or

14. This Opinion is not a pre-judgment or pre- stay the preliminary investigation of complaints
determination of the private respondents’ guilt of filed by the B.I.R. with the D.O.J. Revenue
the offense charge. Cases Task Force against Fortune Tobacco for
alleged fraudulent tax evasion for the years
No one, at this stage, is in a position to determine 1990, 1991 and 1992?
and state with finality WON the private respondents


♠ No valid grounds to stop the preliminary
investigation of the complaints with the D.O.J.
Task Force, being constitutionally and legally in 18: COMMISSIONER OF INTERNAL REVENUE V.

They should be allowed to resume until their GR No. 119761; August 29, 1996; J. Vitug
final conclusion or completion, with private
respondents given a non-extendible period of
10 days from notice to submit to the NATURE: Petition for Review
investigating panel their respective counter-
affidavits and supporting documents, if any.
FACTS: Fortune Tobacco Corporation (Fortune) is
engaged in the manufacture of different brands of
ISSUE DIFFERENTLY - STATED: Did the Trial cigarettes.
Court commit grave abuse of discretion in
stopping the subject preliminary investigation?
They registered trademark names:
1. Champion
J. PADILLA: Yes. 2. Hope
3. More
RTC should be ENJOINED from proceeding in
any manner in the civil case, at least until
further orders from the S.C. Because of foreign companies with same brands, 1987
CIR Tan was to classify them as “foreign brands” so
CA decision should be SET ASIDE. Fortune changed:
 Hope to “Hope Luxury” and
 More to “Premium More”.

J. VITUG DISSENTING: Fortune was taxed as local brands at 40%, 45% based
on NIRC SECTION 142, (c.) (2.) for:
ISSUE: WON judicial relief could be resorted to in order 1. Hope Luxury M. 100’s
to stop state prosecutors from going through with their 2. Hope Luxury M. King
investigation of complaints lodged against private 3. More Premium M. 100’s
respondents. 4. More Premium International
5. Champion Int’l M. 100’s
SC should not unduly interfere, let alone to 6. Champion M. 100’s
peremptorily prevent, the prosecuting agencies or
offices of the government in their investigatorial work  at 15%, 20% based on NIRC SECTION 142, (c.)
or in their own evaluation of the results of investigation. last paragraph for:
7. Champion M. King
In this case – the parties have exhaustively and 8. Champion Lights
adequately presented their respective caes.

In the interest of good order, the practical measure of On July 1, 1993, CIR issued Revenue Memorandum
enjoining the Trial Court from taking further cognizance Circular (RMC) 37-97, reclassifying “Hope”, “More”, and
of the case would not be unwarranted. “Champion” as bearing foreign brands [appearing in the
World Tobacco Directory] subject to 55% ad valorem
Civil Liability for the due payment of Internal Revenue tax.
Taxes, including the applicable remedies and
proceedings in the determination thereof,
CIR assessed Fortune deficiency Ad Valorem Tax of
Must be considered “apart from” and “technically P9,598,334.
independent of”:

The Criminal Aspect that may be brought to bear in 2 days later RA 7654 became effective, which
appropriate cases. amended NIRC:

A recourse in one is not necessarily preclusive of, nor

would the results thereof be conclusive on, the other. SECTION 142. CIGARS AND CIGARETTES. –

xxx xxx xxx


(c.) CIGARETTES PACKED BY MACHINE. – There and thus violative of due process following the
shall be levied, assessed and collected on cigarettes “Ang Tibay” doctrine.
packed by machine a tax at the rates prescribed below
based on the constructive manufacturer’s wholesale In addition RMC 37-93 infringed on uniformity
price or the actual manufacturer’s wholesale price, of taxation because it does not apply to other
whichever is higher: cigarettes bearing foreign brands such as:

a. Locally Manufactured by ALHAMBRA

(1.) On locally manufactured cigarettes which are
currently classified and taxed at 55% or the
exportation of which is not authorized by
contract or otherwise, 55% provided that the
minimum tax shall not be less than P5 per pack.
b. Locally Manufactured by LA SUERTE
(2.) On other locally manufactured cigarettes, 45%
provided that the minimum tax shall not be less (a.) “GOLDEN KEY”;
than P3 per pack.
(b.) “CANNON”
xxx xxx xxx
c. Locally Manufactured by LA PERLA
When the registered manufacturer’s wholesale price or
the actual manufacturer’s wholesale price, whichever is
higher of existing brands of cigarettes, including the
amounts intended to cover the taxes, of cigarettes
(b.) “RIGHT”
packed in twenties does not exceed P4.80 per pack, the
rate shall be 20%.
d. Locally Manufactured by MIGHTY

Fortune Tobacco filed a petition for review in the CTA. i. “WHITE HORSE”

CTA judged in favor of Fortune. e. Locally Manufactured by STERLING

 BIR failed to observe due process: notice and TOBACCO CORPORATION:
 RMC 37-93 is discriminatory; (a.) “UNION”;
 The deficiency assessment is cancelled for lack of
legal basis. (b.) “WINNER”

CA (1995) affirmed CTA.


ISSUE/S: WON RMC 37-97 is a mere interpretative SC differentiated 2 kinds of administrative issuances:
(administrative opinion) ruling of the BIR which 1.) a legislative rule;
(1.) can become effective without need for prior
notice and hearing, 2.) an interpretative rule
(2.) nor publication,
(3.) that its issuance is not discriminatory since it Citing: Misamis Oriental Association of Coco Traders,
would apply under similar circumstances to all Inc. V. Department of Finance Secretary:
locally manufactured cigarettes
(4.) that BIR is not prescribed from reclassifying … a legislative rule is in the nature of subordinate
“Hope” “More” and “Champion” before the legislation, designed to implement a primary
effectivity of RA 7654 legislation by providing the details therof.

In the same way that laws must have the benefit

HELD: BIR used their quasi-legislative authority in of a public hearing, it is generally required that
order to place: “Hope Luxury” “Premium More” before a legislative rule is adopted there must be
and “Champion” cigarettes within the scope of hearing.
the amendatory law and subject them to an
increased tax rate. In this connection, the ADMINISTRATIVE
CODE of 1987 provides:
Notice, Hearing and Publication are necessary.
The RMC as J. Bellosillo expresses in his required by law, an agency shall, as far as
Separate Opinion is “adjudicatory” in nature practicable, publish or circulate notices of
proposed rules and afford interested parties the Paragraph 1 – mandates taxation to be uniform and
opportunity to submit their views prior to the equitable.
adoption of any rule.

(2.) In the fixing of rates, no rule or final order Uniformity requires that all subjects or objects of
shall be valid unless the proposed rates shall taxation, similarly situated are to be treated alike or put
have been published in a newspaper of general on equal footing both in privileges and liabilities.
circulation at least 2 weeks before the 1st hearing
Thus, all taxable articles or kinds of property of the
(3.) In case of opposition, the rules on contested same class must be taxed at the same rate and the tax
cases shall be observed. must operate with the same force and effect in every
place where the subject may be found.
In addition such rule must be published.

On the other hand, interpretative rules are SC cited the Transcript of the Hearing conducted on
designed to provide guidelines to the law which Aug. 10, 1993 by the Committee on Ways and Means of
the administrative agency is in charge of the House of Representatives wherein:
1. the CIR Liwayway Vinzons-Chato admitted that
they promulgated RMC 37-93 in haste to come out
SC cited BIR RMC 10-86: EFFECTIVITY OF before the effectivity of RA 7654; (midnight law)
provides: 2. that they have prepared an RMC supposed to come
after which named the list of other locally
 1 of the problem areas bearing on compliance with manufactured cigarettes bearing a foreign brand to
Internal Revenue Tax Rules and Regulations is lack be taxed at 55% also.
or insufficiency of due notice to the tax paying
 “due process” requires due notice (1987


(4.)This Circular shall apply only to:
(a.) Revenue Regulations;
(b.) Revenue Audit Memorandum Orders;  What distresses him are:
(c.) Revenue Memorandum Circulars 1: the manner –
and Revenue Memorandum Orders bearing (a.) hastily,
on internal revenue tax rules and (b.) without due process,
regulations. (c.) singling out Fortune Tobacco alone,
(d.) confiscatory
(5.) Except when the law otherwise
expressly provides, the aforesaid internal
revenue tax issuances shall not begin to be 2: the circumstances -
operative until after due notice thereof may be (a.) To make it appear that prior to the
fairly presumed. effectivity of the statute, these brands were
already currently classified and taxed at
Due notice of the said issuances may be fairly 55%
presumed only after the ff. procedures have (b.) 2 days before a new tax law was to take
been taken: effect

xxx xxx xxx Under which RMC 37-93 was issued.

(5.)Strict Compliance with the foregoing procedure

is enjoined.  Taxpayer Rights:
1.) Due Process
 This RMC was not followed.
2.) Equal Protection of Laws

1987 Constitution
 Discussed Powers and Functions of Administrative  due process must be observed - No
Bodies: person shall be deprived of life, liberty or
property without due process of law.

Administrative agencies possess:

 Those who are brought into contest with
1.) quasi-legislative or rule making powers; Government in a quasi-judicial proceeding aimed at
and the control of their activities are entitled to be fairly
advised of what the Government proposes and to
 power to make rules and regulations be heard upon its proposal before it issues its final
which results in delegated legislation that is command. (I just want to ask what his basis is)
within the confines of the granting statute and
the doctrine of non-delegability and separability
of powers.  Cardinal Primary Rights In Administrative

 3 types: Citing: Ang Tibay V. Court of Industrial Relations:

a.) Supplementary or Detailed Legislation 1.) Right to a Hearing, which includes the
right of the party interested or affected to
b.) Contingent Legislation present his own case and submit evidence in
support thereof;
c.) Interpretative Rules – interprets,
clarifies or explain statutes; 2.) Tribunal must consider evidence
 Purpose is merely to construe
the statute being administered 3.) Decision must have something to
support itself;
 Generally refers to no single
person or party in particular but 4.) Evidence must be substantial;
concerns all those belonging to the
same class which may be covered 5.) Decision must be rendered on the
evidence presented at the hearing, or at least
 Citing: Tanada V. Tuvera: “need contained in the record and disclosed to the
not be published.” parties affected;

6.) Tribunal or any of its judges must act

2.) quasi-judicial or administrative on its or his own independent consideration of
adjudicatory powers the law and facts of the controversy, and not
simply accept the views of a subordinate in
arriving at a decision;
 power to adjudicate the rights of the
person/s before it; 7.) Tribunal should in all controversial
questions render its decision in such manner
that the parties may know the various issues
 power to hear and determine questions involved and the reasons for the decisions
of fact to which the legislative policy is to apply rendered.
and to decide in accordance with the standards
laid down by the law itself in enforcing and
administering the same law.  RMC 37-93 “adjudicatory” because the CIR:

(1.)cited and interpreted the law;

 administrative agencies are required to:
(2.)made a factual finding;
1: investigate facts
(3.)applied the law to the given set of facts;
2: hold hearings
(4.)arrived at a conclusion;
3: weigh evidence
(5.) issued a ruling aimed at a specific
4: draw conclusions individual – making it prejudicial to Fortune

• due process – notice & hearing; and
without prejudice to the power of the CIR to make
• publication are required. rulings or opinions in connection with the
implementation of the provisions of internal revenue
laws, including rulings on the classification of articles
 Reception of evidence is appropriate if not for sales tax and similar purposes.
necessary for the determination of WON a brand is

 BIR Ruling No. 410-88, Aug. 24, 1988 – “in cases  BIR has powers:
where it cannot be established OR there is dearth
of evidence as to whether a brand is foreign or 1. to investigate;
not…” 2. to initiate action and control the range of
3. to promulgate rules and regulations to better
 Comparision with RMC 47-91 in Misamis Oriental carry our statutory policies
Association of Coco Traders V. Department of 4. to adjudicate controversies within the scope of
Finance Secretary: their activities

 Both reclassify products

 The RMC reclassified cigarette brands in connection
 RMC 47-91: with NIRC SECTION 142 (c.), as amended, which
imposes ad valorem excise taxes on “locally
(1.) has no factual findings; manufactured cigarettes bearing a foreign
(2.) no application of laws to a given set of
 The criterion: “whenever it has to be determined
(3.) no conclusions of law; whether or not a cigarette bears a foreign brand,
the listing of brands manufactured in foreign
(4.)no dispositive portion directed at any particular countries appearing in the current World Tobacco
party Directory shall govern.”

 Circumstance – in Misamis, there was no new law  CIR:

yet to take effect that was involved  is not required to subject the results of her inquiries
to feedback from the concerned cigarette
 Fortune was assessed deficiency ad valorem tax for
6 hrs alone from their brands’ reclassification –  it is not desirable nor managerially sound to court
dispute thereon when the law does not, in the first
place, require debate or hearing thereon.

 is the Chief Executive Officer of BIR, an

J. HERMOSISIMA, JR. DISSENTING OPINION: administrative agency vested with quasi-legislative
powers in recognition of its more encompassing and
unequalled expertise in the field of taxation.
 The RMC is a valid interpretative ruling that the CIR
had power to promulgate and enforce.  She was acting well within her prerogatives in
issuing the RMC.
1: CIR is empowered to issue the questioned RMC.
 She has in her favor the presumption of regular
performance of official duty which must be
overcome by clearly persuasive evidence of stark
error and grave abuse of discretion in order to be
NIRC overturned and disregarded.

SECTION 245. AUTHORITY OF THE SECRETARY OF  She is guided by the principles:

REGULATIONS. – The Secretary of Finance, upon  taxes are the lifeblood of the Government
recommendation of the Commissioner, shall promulgate
all needful rules and regulations for the effective  revenue laws ought to be interpreted in favor of
enforcement of the provisions of this code … the Government, for the Government cannot
survive without the funds to underwrite its  There has been no “adjudication” – reclassification
varied operational expenses in pursuit of the in accordance with law has its natural consequences
welfare of the society which it serves and
protects.  Example cited: copra was declassified from being
an agricultural food to non-food product for
purposes of the VAT laws, resulting in the
 The contents of the RMC have not been proven to revocation of an exemption previously enjoyed by
be erroneous or illegal as to render issuance thereof copra traders.
an act of grave abuse of discretion on the part of
citing Davis:
1.) Legislative Rules – “makes” a new law;
 CIR made predetermined classifications which is  Compliance therewith may be enforced by a penal
the basis of the rates of ad valorem taxes on sanction;
SECTION 142 (c.) of the NIRC  Details and the manner of carrying out the law are
often left to the administrative agency entrusted
with its enforcement.
 The previous classification of the brands was
“other locally manufactured cigarettes” which 2.) Interpretative Rules – determines what the law
does not bind the government, being an erroneous means
interpretative ruling.  Opinion or statement of policy
 Merely advisory
 Foreign cigarette brands were legislated to be taxed
at higher rates because of their more extensive
public exposure and international reputation; their  There is no violation of equal protection of the laws
competitive edge against local brands may easily be because the RMC is one of general application for
checked by imposition of higher tax rates. all cigarettes that are similarly situated.

 The loss of revenue by the Government, because of

 Fortune’s brands were merely cited as illustrations
erroneous determinations made by its past revenue
commissioners, collected lesser taxes than what it
was entitled to.

 It is every citizen’s duty to pay the correct amount

of taxes.

 Fortune will not be shielded by any “vested 19: CIR V. PASCO REALTY AND DEVELOPMENT
rights”, for there are no vested rights to speak of, CORPORATION
respecting a wrong construction of the law by GR No. 128315; June 29, 1999; J. Panganiban
administrative officials, and such wrong
interpretation does not place the Government in
estoppels to correct or overrule the same. DOCTRINE: Assessment is not necessary before filing
criminal complaint for Tax Evasion based on
SECTION 222 itself.
 It is irrelevant that the CTA makes much of the
effect of the passing of RA 7654.
 CIR can reclassify cigarette brands prior to the NATURE: Petition for Review on Certiorari under RULE
effectivity of the RA. 45 praying for the nullification of CA decision.

2: The determination of the classification of the FACTS: Then CIR Jose U. Ong authorized Revenue
cigarette brands was an “interpretation” of the Officers to examine the books of accounts and other
CIR of the Tax Code. accounting records of Pascor Realty and Development
Corporation (PRDC) for the years 1986, 1987 and 1988.
 NIRC SECTION 142 (c.) is subject to various and
changing constructions.
The Revenue Officers:
1.) Thomas T. Que;
 The RMC did not have any penal sanction.
2.) Sonia T. Estorco; and
3.) Emmanuel M. Savellano
 No detail had to be filled in by the CIR.
Recommended issuance of an assessment in the
amounts of:
 The basis for the classification of cigarettes has
(a.) P7,498,434.65 for 1986 and
been provided for by the legislature.
(b.) P3, 015, 236.35 for 1987.


More commonly, the word “assessment”
On March 1, 1995, the CIR filed a Criminal Complaint means the official valuation of a taxpayer’s
before the D.O.J. against the PRDC, its President property for purpose of taxation. (State V.
Rogelio A. Dio, and its Treasurer Virginia S. Dio, New York, N.H. and H.R. Co. 22 A. 765,
alleging evasion of taxes in the total amount of 768, 60 Conn. 326, 325)
 CTA has unquestionably acquired jurisdiction over
the instant petition for review.
Respondents PRDC, et. al. filed an Urgent Request for
Reconsideration/ Reinvestigation disputing the tax
assessment and tax liability. CIR did not file an Answer nor an MFR, instead filed this
Petition for Review on Certiorari on June 7, 1996
On March 23, 1995, private respondents received a alleging that:
subpoena from the DOJ.
CTA acted with grave abuse of discretion and
without jurisdiction in considering the:
On May 17, 1995, the CIR denied the Request for
Reconsideration/ Reinvestigation – ground: no formal 1.) Affidavit / Report of the Revenue
assessment has yet been issued by the CIR. Officer/s and the Endorsement of Said
Report To The Secretary of Justice as an
“assessment” which may be appealed to
Private respondents elevated the case to the CTA on a the CTA;
petition for review on July 21, 1995.

CIR filed a MTD ground: CTA has no jurisdiction over

the subject matter of the petition.
TAXES. – The civil remedies for the
CTA denied MTD and ordered CIR to file an Answer
collection of internal revenues, fees, or
within 30 days.
charges and increment thereto resulting
from delinquency shall be:
 The criminal case for tax evasion is already an
(a.) by distraint of goods, chattels, or
 The complaint more particularly, the Joint Affidavit effects, and other personal property of
of Revenue Examiners Lagmay and Savellano whatever character including stocks and
attached thereto, contains the details of the other securities, debts, credits, bank
assessment like the kind and amount of tax due, accounts, and interest in and rights to
and the period covered personal property, and by levy upon real
property and interest in or rights to real
 RA 1125 relating to the Exclusive Appellate property; and
Jurisdiction of the CTA do not make any mention of
“formal assessment.” (b.) By civil or criminal action.

 The law merely states, that CTA has EAJ over Either of these remedies or both
decisions of the CIR on “disputed assessments,” simultaneously may be pursued in the
and “other matters” arising under the NIRC, other discretion of the authorities charged with
law or part administered by the BIR. the collection of such taxes:

 As far as CTA is concerned, the amount and kind of

Provided, however, That the remedies of
tax due,a dn the period covered are sufficient
distraint and levy shall not: be availed of
details needed for an “assessment.”
where the amount of tax involved is not
more than P100.
 Definitions of:
“Assessment” – is laying a tax (Johnson City V.
Clinchfield) The judgment in the criminal case shall
not only impose the penalty but shall
 When used in connection with taxation, may also order payment of the taxes subject
have more than one meaning. of the criminal case as finally decided by
the Commissioner.
The ultimate purpose of an assessment to
such a connection is to ascertain the The BIR shall advance the amounts
amount that each taxpayer is to pay. needed to defray the costs of collection
by means of civil or criminal action,
including the preservation or The purpose of the Joint-Affidavit was merely to
transportation of personal property support and substantiate the Criminal Complaint for tax
distrained and the advertisement and evasion.
sale thereof, as well as of real property
and improvements thereon. It was not meant to be a notice of tax due nor a
demand to the private respondents for payment
 Likewise BIR also cites SECTION 223 (a) –
Despite the Revenue Officers’ Recommendation for the
which states that in case of failure to file a return,
issuance of an “assessment” the CIR opted instead to
the tax may be assessed or a proceeding in court
file a Criminal Case for Tax Evasion.
may be begun without an assessment.
To consider the Affidavit – Report attached to the
2.) Denial of private respondent’s MFR
Complaint as a proper assessment is to subvert the
as a Final Decision which may be appealed nature of an assessment and to set a bad precedent
to the CTA that will prejudice innocent taxpayers.

An assessment contains not only a computation of tax

CA sustained the CTA and DISMISSED the petition. liabilities, but also a demand for payment within a
prescribed period.
 Held that the CTA committed no grave abuse of
discretion in ruling that the Criminal Complaint for It also signals the time when penalties and protests
Tax Evasion filed by the CIR with the DOJ begin to accrue against the taxpayer.
constituted an “assessment” of the tax due, and
that such “assessment” could be the subject of a To enable the taxpayer to determine his remedies
protest. thereon, due process requires that it must be served on
and received by the taxpayer.
 “Assessment” - is simply the statement of the
details and the amount of tax due from a taxpayer. The NIRC imposes a 25% penalty, in addition to the tax
due, in case the taxpayer fails to pay deficiency tax
 The assailed order of the CTA is merely within the time prescribed for its payment in the notice
interlocutory and devoid of grave abuse of of assessment.
discretion, a petition for certiorari did not lie.
Likewise, an interest of 20% per annum, or such higher
rates as may be prescribed by rules and regulations, is
ISSUE/S: to be collected from the date prescribed for its payment
1. WON the Affidavit - Report, executed by Revenue until the full payment.6
Officers stating the Tax Liabilities of a Taxpayer and
Attached to the Criminal Complaint for Tax Evasion The issuance of an “assessment” is vital in determining,
filed before the DOJ can be deemed an the period of limitation regarding the proper issuance
“ASSESSMENT” that can be questioned before the and the period within which to protest it.
SECTION 2037 of the NIRC provides that internal
2. WON Assessment is Necessary Before Filing of revenue taxes must be assessed within the 3 yrs from
the last day within which to file the return.
Criminal Complaint? (DOCTRINE FOR CLASS)


1. NO

Not all documents coming from the BIR containing a

computation of the tax liability can be deemed
SECTION 249 (b.)
Neither the NIRC nor the regulations governing the
protest of assessments5 provide a specific definition or
COLLECTION. – Except as provided in SECTION 222, internal revenue taxes
shall be assessed within 3 years after the last day prescribed by law for the filing
However, the NIRC defines the specific functions and of the return, and no proceeding in court without assessment for collection of such
effects of an assessment. taxes shall be begun after the expiration of such period:

Provided, That in a case where a return is filed beyond the period prescribed by
law, the 3 year period shall be counted from the day the return was filed before the
last day prescribed by law for the filing hereof shall be considered as filed on such
last day.


SECTION 2228, on the other hand specifies a period of An assessment is deemed made only when the
10 years in case Collector of Internal Revenue releases, mails or sends
such notice to the taxpayer (citing: Basilan Estates V.
SECTION 2289, states that said assessment must be CIR, 1967)
protested only within 30 days from receipt thereof.
In the present case, the Revenue Officers’ Affidavit
merely contained a computation of respondents’ tax
ASSESSMENT AND COLLECTION OF TAXES. – It did not state a demand or a period for payment.
(a.) In the case of a false or fraudulent return with intent to evade tax or of the
failure to file a return the tax may be assessed, or a proceeding in court for Worse it was addressed to the Justice Secretary and
the collection of such tax may be filed without assessment, at any time NOT to the Taxpayers.
within 10 years after the discovery of the falsity, fraud or omission:
What private respondents sent to the CIR was a MFR of
- Provided, That in a fraud assessment which has become final and
the tax evasion charges filed, not of an “assessment.”
executory, the fact of fraud shall be judicially taken cognizance of in civil or
criminal action for the collection thereof.

(b.) If before the expiration of the time prescribed in SECTION 203 for the
assessment of the tax, both CIR and the taxpayer have agreed in writing to 2. NO
its assessment after such time, the tax may be assessed within the period
agreed upon. NIRC
- The period so agreed upon may be extended by subsequent written
agreements made before the expiration of the period previously agreed SECTION 222 specifically states that in cases where a
upon. false or fraudulent return is submitted or in cases of
failure to file a Return such as this case, proceeding in
(c.) Any internal revenue tax, which has been assessed within the period of
limitations as prescribed in paragraph (a.) hereof may be collected by court may be commenced without an assessment.
distraint or levy or by a proceeding in court within 5 yeas following the
assessment of the tax. - This is the General Rule.
(d.) Any internal revenue tax, which has been assessed within the period agreed
upon as provided in paragraph (b.) herein above may be collected by SECTION 205 clearly mandates that the civil and
distraint or levy or by a proceeding in court within the period agreed upon in criminal aspects of the case may be pursued
writing before the expiration of the 5 year period. simultaneously.
- The period so agreed upon may be extended by subsequent written
Citing Ungab V. Cusi – petitioner therein sought the
agreements made before the expiration of the period previously agreed
upon dismissal of the criminal Complaints for being
premature, since his protest to the CTA had not yet
(e.) Provided, however, that nothing in the immediately preceding SECTION and
paragraph (a.) hereof shall be construed to authorize the examination or been resolved.
inquiry into any tax return filed in accordance with the provisions of any tax
amnesty law or decree. - The Court held that such protest could not stop or
9 suspend the criminal action which was independent
of the resolution of the protest in the CTA.
authorized representative finds that proper taxes should be assessed, he shall first - This was because the CIR had, in such tax evasion
notify the taxpayer of his findings:
cases, DISCRETION on whether to issue an
Provided, however, that a pre - assessment notice shall not be required in the ff. “assessment” OR to file a criminal case against the
taxpayer OR to do both.
(a.) When the finding for any deficiency tax is the result of mathematical error in
the computation of the tax as appearing on the face of the return; or Private Respondents insist that SECTION 222 should be
(b.) when the discrepancy has been determined between the tax withheld and the
read in relation to SECTION 25510 of the NIRC, which
amount actually remitted by the withholding agent; or penalizes failure to file a Return.
(c.) when a taxpayer who opted to claim a refund or tax credit of excess creditable 10
withholding tax for a taxable period was determined to have carried over and
automatically applied the same amount claimed against the estimated tax liabilities
for the taxable quarter or quarters of the succeeding taxable year; or SECTION 255. FAILURE TO FILE RETURN, SUPPLY CORRECT AND
(d.) When the excise tax due on excisable articles has not been paid; or REFUND EXCESS TAXES WITHHELD ON COMPENSATION. –

(e.) When an article locally purchased or imported by an exempt person, such as, Any person required under this Code or by rules and regulations promulgated
but not limited to, vehicles, capital equipment, machineries and spare parts, has there under to:
been sold, traded or transferred to non-exempt persons.
1. pay any tax,
The taxpayer shall be informed in writing of the law and the facts on which the 2. make a return,
assessment is made; otherwise, the assessment shall be void. 3. keep any record, or
4. supply correct and accurate information
Within a period to be prescribed by IRRs, the taxpayer shall be required to
respond to said notice. who willfully fails to:
1. pay such tax,
If the taxpayer fails to respond, the CIR or his duly authorized representative shall
issue an assessment based on his findings.
2. make such accurate information or
3. withhold or remit taxes withheld, or

Private Respondents failed to show that they are

entitled to an “Exception”.

Moreover, the criminal charge need only be supported 20: LASCONA LAND CO., INC. V. COMMISSIONER
by a prima facie showing of failure to file a required OF INTERNAL REVENUE
return. Associate Justice Estela M. Perlas-Bernabe

This fact need not be proven by an assessment.  CA case – 14th division

- CA G.R. SP No. 58061
The issuance of an assessment must be distinguished - October 25, 2005
from the filing of a complaint.

Before an “Assessment” is issued, there is by DOCTRINE: When to elevate assessment to the CTA
practice a “pre – assessment notice” sent to the
NATURE: Petition for Review
The taxpayer is then given a chance to submit position
papers and documents to prove that the assessment is
unwarranted. FACTS: On March 27, 1998, the CIR issued
Assessment Notice against Lascona Land Co., Inc. for
If the CIR is unsatisfied, an “assessment” signed by him deficiency Income tax for 1993 of P753,266.56.
or her is then sent to the taxpayer informing the latter
specifically and clearly that an assessment has been BIR Region No. 8, Makati City – OIC Regional Director
made against him or her. Norberto R. Odulio in their denial of Lascona’s protest
stated: that the assessment has become final,
In contrast, the criminal charge need not go through all executory and demandable because it was not elevated
these. to the CTA as mandated by the last paragraph of
SECTION 228 of the Tax Code.
The Criminal Charge is filed directly with the DOJ.
C.T.A. nullified the assessment.
Thereafter, the taxpayer is notified that a criminal case
had been filed against him, not that the CIR had issued  C.T.A. Case No. 5777; Jan. 4, 2000 (eto yung
an assessment. assigned actually pero hindi ko nahanap but this CA
case citing it has the same facts and because this
It must be stressed that a criminal complaint is not CA decision overturned the C.T.A. doctrine … )
instituted to demand payment, but to penalize the
taxpayer for violation of the Tax Code. B.I.R. filed an M.F.R. citing REVENUE REGULATIONS
No. 12-99 dated Sept. 6, 1999

DISPOSITION: Petition is GRANTED. SECTION 3.1.5. xxx

CTA Case DISMISSED. “if the Commissioner of his duly authorized
representative fails to act on the taxpayer’s protest
within 180 days from date of submission, by the
NOTES: feeling ko palpak yung pagkakatype ng: The taxpayer, of the required documents in support of his
Lawphil Project - Arellano Law Foundation nung case protest, the taxpayer may appeal to the C.T.A. within
(source) kaya kelangan i-review yung codal provisions. 30 days from the lapse of the said 180-day period,
otherwise, the assessment shall become final,
executory and demandable.”

4. refund excess taxes withheld on compensation, at the time or times required C.T.A. denied M.F.R. for lack of merit.
by law or rules and regulations,

shall in addition to other penalties provided by law, upon conviction thereof, be

punished by a fine of not less than ISSUE/S: WON the remedy of the aggrieved taxpayer
and imprisonment of not less than 1 year but nor more than 10 years. in this case has been waived or lost?
Any person who attempts to:
1. make it appear for any reason that he or another has in fact field a return or HELD: Yes.
statement, or

2. actually files a return or statement and subsequently withdraws the same Corollary thereto, C.T.A. committed reversible error in
return or statement after securing the official receiving seal or stamp of declaring RR 12-99 null and void because to sustain
receipt of an internal revenue office wherein the same was actually filed
shall, upon conviction there for, be punished by a fine of not less than P10K but
such ruling would allow the taxpayers to hamper the
not more than P20K and suffer imprisonment of not less than 1 year but not more expedient collection of taxes by their failure to act
than 3 years. within a reasonable period.


The taxpayer shall be informed in writing of the law and
RATIO: Respondent filed its protest on April 20, 1998 the facts on which the assessment is made; otherwise
and must have submitted it supporting documents the assessment shall be void.
within 60 days therefrom or until June 19, 1998.
Such assessment may be protested administratively by
Thereafter, BIR has 180 days or until Dec. 16, 1998 to filing a request for reconsideration or reinvestigation
act on the protest. within 30 days from receipt of the assessment in such
form and manner as may be prescribed by IRR.
Lascona has another 30 days – until Jan. 16, 1999 to
elevate its appeal to the C.T.A.
Within 60 days from filing of the protest, all relevant
30 days counted from whichever comes first of: supporting documents shall have been submitted;
(1.) receipt of B.I.R. decision; or otherwise the assessment shall become final.
(2.) lapse of the 180-day period.
If the protest is denied in whole or in part, or is not
Lascona appealed to C.T.A. only on April 12, 1999, 3 acted upon within 180 days from submission of
months from the lapse of the 180-day period. documents, the taxpayer adversely affected by the
decision or inaction may appeal to the C.T.A. within 30
The appeal was clearly filed out of time. days from receipt of the said decision, or from the lapse
of the 180-day period;
Taxpayer need not await the outcome of its protest
before it questions the propriety of the assessment Otherwise, the decision shall become final, executory
before the C.T.A. and demandable.

The word “decision” in the last paragraph cannot be
SECTION 228. PROTESTING OF ASSESSMENT. – strictly construed as referring only to the decision per
When the Commissioner or his duly authorized se of the BIR but should also be considered
representative finds that proper taxes should be synonymous with the disputed assessment.
assessed, he shall first notify the taxpayer of his
findings; Citing: CIR V. S.C. Johnson and Son, Inc. (1999) –
“laws are not just mere compositions, but have
Provided, however, that a pre-assessment notice shall ends to be achieved and that the general purpose
not be required in the ff. cases: is a more important aid to the meaning of a law
than any rule which grammar may lay down.
(a.) When the finding for any deficiency tax is the result
It is the duty of the courts to look to the
of mathematical error in the computation of the tax
objective to be accomplished, the evils to be
appearing on the face of the return; or
remedied, or the purpose to be subserved, and
should give the law a reasonable or liberal
(b.) when a discrepancy has been determined between construction which will best effectuate its
the tax withheld and the amount actually remitted purpose.”
by the withholding agent; or
Tax Assessments made by tax examiners are presumed
(c.) When a taxpayer who opted to claim a refund correct and made in good faith.
or tax credit of excess creditable withholding tax for
a taxable period was determined to have carried A taxpayer has to prove otherwise.
over and automatically applied the same amount
claimed against the estimated tax liabilities for the Failure of Lascona to appeal to C.T.A. in due time made
taxable quarter or quarters of the succeeding the assessments in question final, executory and
taxable year; or demandable.

Payment of taxes being admittedly a burden, taxpayers

(d.) When the excise tax due on excisable articles
should not be left without any recourse when they feel
has not been paid; or aggrieved due to the erroneous and burdensome
assessments made by a B.I.R. agent or by the
(e.) When an article locally purchased or imported Commissioner.
by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare Said right is vested upon adversely affected taxpayers
parts, has been sold, traded or transferred to non- under R.A. 1125 (now the N.I.R.C. of 1997).
exempt persons.
It cannot be rendered nugatory through the CIR’s act of
immediate filing an action for collection without ruling
beforehand on the disputed assessment.


However, the remedy of an aggrieved taxpayer is not Once a decision is rendered by the Commissioner on
without any limitation. the protest, the 30-day period to appeal from receipt of
the decision is mandatory.

DISPOSITION: Petition GRANTED. In case of inaction, Sec. 228 of the Tax Code merely
gave the taxpayer an option:
C.T.A. decision REVERSED and SET ASIDE. first, he may appeal to the CTA within 30 days from
the lapse of the 180-day period; or
Assessment Notice declared final, executory second, he may wait until the Commissioner decides
and demandable. on his protest before he elevates his case.

The court believes that the taxpayer was given this

NOTES: a digest I found online: option so that in case his protest is not acted upon
within the 180-day period, he may be able to seek
LASCONA LAND CO., INC. v. CIR, & NORBERTO immediate relief and need not wait for an indefinite
ODULIO period of time for the Commissioner to decide.
JAN. 04, 2000 – CTA 5777
But if he chooses to wait for a positive action on the
Lascona argues that its failure to appeal to the CTA part of the Commissioner, then the same could not
within 30 days from the lapse of the 180-day period did result in the assessment becoming final, executory and
not makethe assessment final and executory simply demandable.
because CIR did not act upon the protest within the
180-day period.

In such a situation, Lascona contends that it had the

option to appeal to the CTA or to continue with the
proceedings on its protest in the administrative level.



L. PARAYNO, JR. et. al. GR No. SP 29853, Sept. 19, 1994, the CA in
interpreting NIRC SECTION 180 named with
C.T.A. 6565; Nov. 3, 2004; particularity the instruments subject to D.S.T.:
Associate Justice Juanito C. Castaneda, Jr.
i. promissory note, whether negotiable or
 Decision of 2nd Division of C.T.A. Q.C. ii. bills of exchange;
iii. drafts;
iv. certificates of deposit;
NATURE: Petition for Review v. debt instruments used for deposit

FACTS: Allied Banking Corporation is a duly licensed 4. A “certificate of deposit” is a written

domestic commercial banking institution with principal acknowledgment of a bank of the receipt of
office at 6754 Ayala Avenue, Makati City, Metro Manila. money on deposit which the bank promises to
pay to the depositor, bearer or to some other
BIR assessed them for Deficiency Documentary Stamp person or order (Olson Estate 206, Iowa, 706 –
Tax on its Market Savings Deposit Placements for 1997, cited in Agbayani, p.44)
computed as:
5. Elements of Certificate of Deposit:
Total Market Savings Deposit P 8,098,772,166.67
Rate of Tax 0.30 / 200 (i.) that a bank received money on deposit;
Basic Documentary Stamp Tax Due P 12,148,158.25 (ii.) from someone who is considered a depositor;
Add: 25% Surcharge P 3,037,039.56 (iii.) that the bank acknowledges the
TOTAL AMOUNT DUE & PAYABLE: P 15,185,197.81 receipt of the deposit in writing;
(iv.) that the bank promises to pay to the
BIR final decision along with warning of Warrant of depositor/ bearer/ or to some other person or
Distraint and/ or Levy and Garnishment was received by order the deposit or any part thereof.
Allied Bank on Oct. 15, 2002.
Allied Bank’s “Market Savings Deposit” has met
Allied Bank filed this petition for review in the C.T.A. these requirements.

BIR’s Answer – Special and Affirmative Defenses: 6. SECTION 180 does not prescribe any particular
form for a “certificate of deposit.”
1. C.T.A. has no jurisdiction over the instant case as the
subject assessments have already become final, 7. All presumptions are in favor of the correctness
executory and demandable in accordance with of tax assessments.
SECTION 228 of the 1997 Tax Code;
Good Faith are tax assessors and the validity of
xxx xxx xxx their actions are presumed.

If the protest is denied in whole or in part, or is not acted They will be presumed to have taken into
upon within 180 days from submission of documents, the consideration all the facts to which their attention
taxpayer adversely affected by the decision or inaction was called. (CIR V. Construction Resources of
may appeal to the C.T.A. within 30 days from receipt of Asia, Inc.)
the said decision, or from the lapse of the 180-day period;
It is incumbent upon the taxpayer to prove the
contrary (Mindanao Bus Company V. CIR; CIR V.
Otherwise, the decision shall become final, executory
Antonio Tuazon, Inc.), and failure to do so shall
and demandable.
vest legality to respondent’s actions and

Since the 30 day period expired from the lapse of the The case was deemed submitted for decision on June
180-day period without Allied Bank filing the appeal 18, 2004.
as required by law – the assessments have become
final. Allied Bank claims that “Market Savings Deposit” is
not the same as “Time Deposit” since
BIR claims that the 180-day period ran from Sept. 24, (1.) it has no specific maturity date;
1999, the date when petitioner filed its protest-letter. (2.) it is evidenced by a regular savings passbook

2. Allied Bank’s “Market Savings Deposit” is considered a

certificate of deposit contemplated and taxable under
SECTIOn 180 of the Tax Code;
BIR counters that Allied Bank’s “Market Savings Deposit”
has the similar features to a time deposit such as:
(1.) higher interest rate than regular savings account; respondent court must be counted from
(2.) required minimum deposit balance; its receipt of said assessment.
(3.) holding period in order to avail of the preferential
rate Where a taxpayer questions an
assessment and asks the Collector to
reconsider or cancel the same because he
ISSUE/S: (the taxpayer) believes he is not liable
1. WON the C.T.A. has jurisdiction over the instant therefor, the assessment becomes a
case for failure of Allied Bank to comply with ‘disputed assesment’ that the Collector
SECTION 228 of the NIRC 1997? must decide, and the taxpayer can
appeal to the C.T.A. only upon receipt of
2. WON the Market Savings Deposit is of the same the decision of the Collector on the
nature as that of Time Deposit and therefore disputed assessment, xxx”
subject to Documentary Stamp Tax?
The same interpretation finds support in
1.) C.T.A. has jurisdiction RA 1125

2.) Yes – both the certificate of time deposit as well as SECTION 11. WHO MAY APPEAL; EFFECT
the passbook evidencing market savings deposit, are OF APPEAL. – Any person, association or
subject to Documentary Stamp Tax. corporation adversely affected by a decision or
ruling the the Collector of Internal Revenue,
the Collector of Customs or any provincial or
RATIO: city Board of Assessment Appeals may file an
(1.) In this particular case, the petition for review was appeal in the CTA within 30 days after the
filed on time, on Nov. 14, 2002, within 30 days from receipt of such decision or ruling.
receipt of the Decision of the CIR.

Citing LASCONA LAND CO., INC. V. CIR – C.T.A. Note that the law uses the word ‘decisions’,
Case No. 5777; Jan. 4, 2000: not ‘assessments’, thus further indicating
the legislative intent to subject to judicial
“It bears stressing that the wordings of Section review the decision of the Commissioner on
228 of the Tax Code clearly provide that it is only the protest against an assessment but not the
the decision not appealed by the taxpayer that assessment itself.
becomes final, executory and demandable.
Verily, in case of inaction, Sec. 228 of the Tax
Otherwise, the authors of the law could have easily Code merely gave the taxpayer an option:
included the words assessment as also becoming first, he may appeal to the CTA within 30 days
final, executory and demandable should the BIR from the lapse of the 180-day period; or
fail to act on the protest within 180 days. second, he may wait until the Commissioner
decides on his protest before he elevates his case.
As aptly cited by Petitioner, in Commissioner of
Internal Revenue V. Villa, the SC held: The court believes that the taxpayer was given this
option so that in case his protest is not acted upon
“The word “decisions” in paragraph 1, within the 180-day period, he may be able to seek
SECTION 7 of RA 1125, quoted above has immediate relief and need not wait for an indefinite
been interpreted to mean the decisions of the period of time for the Commissioner to decide.
Commissioner of Internal Revenue on the
protest of the taxpayer against the But if he chooses to wait for a positive action on
assessments. the part of the Commissioner, then the same could
not result in the assessment becoming final,
Definitely, said word does not signify the executory and demandable.”
assessment itself.

“In the first place, we believe the (2.) Terminologies are mere matters which are capable
respondent court erred in holding that of being overturned by circumstances.
the assessment in question is the
respondent Collector’s decision or ruling What is controlling is the nature and the true character
appealable to it, and that consequently, of the transaction as it is conveyed by the instrument or
the period of 30 days prescribed by document attached to it. (L.R. Heat Treating Co.)
SECTION 11 of RA 1125 within which
petitioner should have appealed to the Documentary Stamp Tax is an excise tax on the
privilege to enter into a transaction.

NIRC The Only Difference is the “Evidence of Deposit.”

SECTION 180. STAMP TAX ON ALL LOAN Time Deposit Certificate of Deposit
SECURITIES ISSUED BY THE GOVERNMENT OR The Court cited the testimony of Allied Bank’s Witness
NOT PAYABLE ON SIGHT OR DEMAND. - - On all:  The premium rate given in a Market Savings
(1.) loan agreements signed abroad wherein the object Deposit is an incentive for a client who keeps his
of the contract is located or used in the Philippines, bills money for at least 30 days in the bank.
of exchange (between points within the Philippines),
(2.) drafts, instruments and securities issued by the  The client can choose a period: 30 or 60 days.
Government or any of its instrumentalities or
(3.) certificates of deposits drawing interest, or
(4.) orders for the payment of any sum of money DISPOSITION: Petition DISMISSED for lack of merit.
otherwise than at sight or on demand, or
(5.) on all promissory notes, whether negotiable or CIR Decision assessing Allied Bank of Deficiency
non-negotiable, except bank notes issued for Documentary Stamp Tax for 1997 are hereby
circulation, and AFFIRMED.
(6.) on each renewal of any such note,
There shall be collected a Documentary Stamp Tax Allied Bank is DIRECTED TO PAY the
(DST) of P0.30 on each P200, or fractional part thereof, assessment, plus 30% delinquency interest
of the face value of any such: agreement, bill of from Nov. 14, 2002 up to the time such amount
exchange, draft, certificate of deposit, or note: is fully paid.

Provided, That only 1 DST shall be imposed on either

loan agreement, or promissory notes issued to secure NOTES: I think this decision is overturned by the Oct.
such loan whichever will yield a higher tax: 2005 CA case: Lascona V. CIR

xxx xxx xxx It’s not really fair to expect us to know the proper
interpretation when the CTA interpretation – specialized
court for taxes gets overturned by CA’s interpretation.
The law subjects a “certificate of deposit” to 
documentary stamp tax.

The law taxes the document because of the transaction

(citing The Law On Transfer and Business Taxation, by
Hector S. de Leon, 1998 ed., p. 351).

A certificate of deposit – is “any written

acknowledgment by a bank or banker of the receipt of a
sum of money on deposit which the bank or banker
promises to pay to the depositor, to the order of the
depositor, or some other person or his order xxx” (Far
East Bank & Trust Company V. Querimit).

The definition does not prescribe or require any

particular form nor does it qualify.

In determining what instruments are subject to DST –

substance would control over the form.

A “time deposit” – refers to a deposit amount paying

interest for a fixed term, with the understanding
that the funds cannot be withdrawn before maturity
without giving advanced notice.
 Usually carry “penalties” for early withdrawal in a
form of reduced interest rates.

In both Time Deposit and Market Savings Deposit – the

deposit may be withdrawn anytime, but the depositor
gets to earn a lower rate of interest.