G.R. No. 159694 January 27, 2006 COMMISSIONER OF INTERNAL RE EN!E, Petitioner, vs. A"!CENA T. RE#ES, Respondent. x -- -- -- -- -- -- -- -- -- -- -- -- -- x G.R.

No. 16$5%1 January 27, 2006 A"!CENA T. RE#ES, Petitioner, vs. COMMISSIONER OF INTERNAL RE EN!E, Respondent. DECISION &ANGANI'AN, CJ.: Under the present provisions of the Tax Code and pursuant to ele entar! due pro"ess, taxpa!ers ust #e infor ed in $ritin% of the la$ and the fa"ts upon $hi"h a tax assess ent is #ased& other$ise, the assess ent is void. 'ein% invalid, the assess ent "annot in turn #e used as a #asis for the perfe"tion of a tax "o pro ise. The Case 'efore us are t$o "onsolidated( Petitions for Revie$) filed under Rule *+ of the Rules of Court, assailin% the ,u%ust -, )../ De"ision/ of the Court of ,ppeals 0C,1 in C,-2R SP No. 3(/4). The dispositive portion of the assailed De"ision reads as follo$s5 678ERE9ORE, the petition is 2R,NTED. The assailed de"ision of the Court of Tax ,ppeals is ,NNU::ED and SET ,SIDE $ithout pre;udi"e to the a"tion of the National Evaluation 'oard on the proposed "o pro ise settle ent of the <aria C. Tan"in"o estate=s tax lia#ilit!.6* The 9a"ts The C, narrated the fa"ts as follo$s5 6On >ul! -, (44/, <aria C. Tan"in"o 0or ?de"edent=1 died, leavin% a (,)4) s@uare- eter residential lot and an old house thereon 0or ?su#;e"t propert!=1 lo"ated at *4/( Pasa! Road, Das ariAas Billa%e, <aCati Cit!. 6On the #asis of a s$orn infor ation-for-re$ard filed on 9e#ruar! (3, (443 #! a "ertain Ra! ond ,#ad 0or ?,#ad=1, Revenue Distri"t Offi"e No. +. 0South <aCati1 "ondu"ted an investi%ation on the de"edent=s estate 0or ?estate=1. Su#se@uentl!, it issued a Return Berifi"ation Order. 'ut $ithout the re@uired preli inar! findin%s #ein% su# itted, it issued :etter of ,uthorit! No. (/)4D/ for the re%ular investi%ation of the estate tax "ase. ,Eu"ena T. Re!es 0or ?FRe!esG=1, one of the de"edent=s heirs, re"eived the :etter of ,uthorit! on <ar"h (*, (443. 6On 9e#ruar! (), (44-, the Chief, ,ssess ent Division, 'ureau of Internal Revenue 0or ?'IR=1, issued a preli inar! assess ent noti"e a%ainst the estate in the a ount of P(*,+-.,D(-.D3. On <a! (., (44-, the heirs of the de"edent 0or ?heirs=1 re"eived a final estate tax assess ent noti"e and a de and letter, #oth dated ,pril )), (44-, for the a ount of P(*,4(),).+.*3, in"lusive of sur"har%e and interest. 6On >une (, (44-, a "ertain 9elix <. Su #illo 0or ?Su #illo=1 protested the assess ent FoGn #ehalf of the heirs on the %round that the su#;e"t propert! had alread! #een sold #! the de"edent so eti e in (44.. 6On Nove #er (), (44-, the Co issioner of Internal Revenue 0or ?FCIRG=1 issued a preli inar! "olle"tion letter to FRe!esG, follo$ed #! a 9inal Noti"e 'efore SeiEure dated De"e #er *, (44-. 6On >anuar! +, (444, a 7arrant of Distraint andHor :ev! $as served upon the estate, follo$ed on 9e#ruar! ((, (444 #! Noti"es of :ev! on Real Propert! and Tax :ien a%ainst it. 6On <ar"h ), (444, FRe!esG protested the noti"e of lev!. 8o$ever, on <ar"h ((, (444, the heirs proposed a "o pro ise settle ent of P(,...,.......

6In a letter to Fthe CIRG dated >anuar! )3, )..., FRe!esG proposed to pa! +.I of the #asi" tax due, "itin% the heirs= ina#ilit! to pa! the tax assess ent. On <ar"h )., )..., Fthe CIRG re;e"ted FRe!es=sG offer, pointin% out that sin"e the estate tax is a "har%e on the estate and not on the heirs, the latter=s finan"ial in"apa"it! is i aterial as, in fa"t, the %ross value of the estate a ountin% to P/),*).,/D.... is ore than suffi"ient to settle the tax lia#ilit!. Thus, Fthe CIRG de anded pa! ent of the a ount of P(-,./*,/-).(/ on or #efore ,pril (+, )...F&G other$ise, the noti"e of sale of the su#;e"t propert! $ould #e pu#lished. 6On ,pril ((, )..., FRe!esG a%ain $rote to Fthe CIRG, this ti e proposin% to pa! (..I of the #asi" tax due in the a ount of P+,/(/,-4(.... She reiterated the proposal in a letter dated <a! (-, ).... 6,s the estate failed to pa! its tax lia#ilit! $ithin the ,pril (+, )... deadline, the Chief, Colle"tion Enfor"e ent Division, 'IR, notified FRe!esG on >une D, )... that the su#;e"t propert! $ould #e sold at pu#li" au"tion on ,u%ust -, ).... 6On >une (/, )..., FRe!esG filed a protest $ith the 'IR ,ppellate Division. ,ssailin% the s"heduled au"tion sale, she asserted that x x x the assess ent, letter of de andF,G and the $hole tax pro"eedin%s a%ainst the estate are void a# initio. She offered to file the "orrespondin% estate tax return and pa! the "orre"t a ount of tax $ithout sur"har%e ForG interest. 67ithout a"tin% on FRe!es=sG protest and offer, Fthe CIRG instru"ted the Colle"tion Enfor"e ent Division to pro"eed $ith the ,u%ust -, )... au"tion sale. Conse@uentl!, on >une )-, )..., FRe!esG filed a FPGetition for FRGevie$ $ith the Court of Tax ,ppeals 0or ?CT,=1, do"Ceted as CT, Case No. D()*. 6On >ul! (3, )..., FRe!esG filed a <otion for the Issuan"e of a 7rit of Preli inar! In;un"tion or Status Juo Order, $hi"h $as %ranted #! the CT, on >ul! )D, ).... Upon FRe!es=sG filin% of a suret! #ond in the a ount ofP)3,...,......, the CT, issued a FRGesolution dated ,u%ust (D, )... orderin% Fthe CIRG to desist and refrain fro pro"eedin% $ith the au"tion sale of the su#;e"t propert! or fro issuin% a F7Garrant of FDGistraint or F2Garnish ent of F'GanC F,G""ountF,G pendin% deter ination of the "ase andHor unless a "ontrar! order is issued. 6FThe CIRG filed a F<Gotion to FDGis iss the petition on the %rounds 0i1 that the CT, no lon%er has ;urisdi"tion over the "aseF,G #e"ause the assess ent a%ainst the estate is alread! final and exe"utor!& and 0ii1 that the petition $as filed out of ti e. In a FRGesolution dated Nove #er )/, )..., the CT, denied Fthe CIR=sG otion. 6Durin% the penden"! of the FPGetition for FRGevie$ $ith the CT,, ho$ever, the 'IR issued Revenue Re%ulation 0or ?RR=1 No. D-)... and Revenue <e orandu Order 0or ?R<O=1 No. *)-)... offerin% "ertain taxpa!ers $ith delin@uent a""ounts and disputed assess ents an opportunit! to "o pro ise their tax lia#ilit!. 6On Nove #er )+, )..., FRe!esG filed an appli"ation $ith the 'IR for the "o pro ise settle ent 0or ?"o pro ise=1 of the assess ent a%ainst the estate pursuant to Se". ).*0,1 of the Tax Code, as i ple ented #! RR No. D-)... and R<O No. *)-).... 6On De"e #er )D, )..., FRe!esG filed an Ex-Parte <otion for Postpone ent of the hearin% #efore the CT, s"heduled on >anuar! 4, )..(, "itin% her pendin% appli"ation for "o pro ise $ith the 'IR. The otion $as %ranted and the hearin% $as reset to 9e#ruar! D, )..(. 6On >anuar! )4, )..(, FRe!esG oved for postpone ent of the hearin% set on 9e#ruar! D, )..(, this ti e on the %round that she had alread! paid the "o pro ise a ount of P(,.D),33-.). #ut $as still a$aitin% approval of the National Evaluation 'oard 0or ?NE'=1. The CT, %ranted the otion and reset the hearin% to 9e#ruar! )3, )..(. 6On 9e#ruar! (4, )..(, FRe!esG filed a <otion to De"lare ,ppli"ation for the Settle ent of Disputed ,ssess ent as a Perfe"ted Co pro ise. In said otion, she alle%ed that Fthe
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CIRG had not !et si%ned the "o pro iseF,G #e"ause of pro"edural red tape re@uirin% the initials of four Deput! Co issioners on relevant do"u ents #efore the "o pro ise is si%ned #! the FCIRG. FRe!esG posited that the a#sen"e of the re@uisite initials and si%natureFsG on said do"u ents does not vitiate the perfe"ted "o pro ise. 6Co entin% on the otion, Fthe CIRG "ountered thatF,G $ithout the approval of the NE', FRe!es=sG appli"ation for "o pro ise $ith the 'IR "annot #e "onsidered a perfe"ted or "onsu ated "o pro ise. 6On <ar"h 4, )..(, the CT, denied FRe!es=sG otion, pro ptin% her to file a <otion for Re"onsideration ,d Cautela . In a FRGesolution dated ,pril (., )..(, the CT, denied the F<Gotion for FRGe"onsideration $ith the su%%estion thatF,G for an orderl! presentation of her "ase and to prevent pie"e eal resolutions of different issues, FRe!esG should file a FSGupple ental FPGetition for FRGevie$F,G settin% forth the ne$ issue of $hether there $as alread! a perfe"ted "o pro ise. 6On <a! ), )..(, FRe!esG filed a Supple ental Petition for Revie$ $ith the CT,, follo$ed on >une *, )..( #! its , plifi"ator! ,r%u ents 0for the Supple ental Petition for Revie$1, raisin% the follo$in% issues5 ?(. 7hether or not an offer to "o pro ise #! the FCIRG, $ith the a"@uies"en"e #! the Se"retar! of 9inan"e, of a tax lia#ilit! pendin% in "ourt, that $as a""epted and paid #! the taxpa!er, is a perfe"ted and "onsu ated "o pro ise. ?). 7hether this "o pro ise is "overed #! the provisions of Se"tion ).* of the Tax Code 0CTRP1 that re@uires approval #! the 'IR FNE'G.= 6,ns$erin% the Supple ental Petition, Fthe CIRG averred that an appli"ation for "o pro ise of a tax lia#ilit! under RR No. D-)... and R<O No. *)-)... re@uires the evaluation and approval of either the NE' or the Re%ional Evaluation 'oard 0or ?RE'=1, as the "ase a! #e. 6On >une (*, )..(, FRe!esG filed a <otion for >ud% ent on the Pleadin%s& the otion $as %ranted on >ul! ((, )..(. ,fter su# ission of e oranda, the "ase $as su# itted for FDGe"ision. 6On >une (4, )..), the CT, rendered a FDGe"ision, the de"retal portion of $hi"h pertinentl! reads5 ?78ERE9ORE, in vie$ of all the fore%oin%, the instant FPGetition for FRGevie$ is here#! DENIED. ,""ordin%l!, FRe!esG is here#! ORDERED to P,K defi"ien"! estate tax in the a ount of Nineteen <illion 9ive 8undred T$ent! 9our Thousand Nine 8undred Nine and 3-H(.. 0P(4,+)*,4.4.3-1, "o puted as follo$s5 xxxxxxxxx ?FRe!esG is liCe$ise ORDERED to P,K ).I delin@uen"! interest on defi"ien"! estate tax due of P(3,4/*,/-).(/ fro >anuar! ((, )..( until full pa! ent thereof pursuant to Se"tion )*40"1 of the Tax Code, as a ended.= 6In arrivin% at its de"ision, the CT, ratio"inated that there "an onl! #e a perfe"ted and "onsu ated "o pro ise of the estate=s tax lia#ilit!F,G if the NE' has approved FRe!es=sG appli"ation for "o pro ise in a""ordan"e $ith RR No. D-)..., as i ple ented #! R<O No. *)-).... 6,nent the validit! of the assess ent noti"e and letter of de and a%ainst the estate, the CT, stated that ?at the ti e the @uestioned assess ent noti"e and letter of de and $ere issued, the heirs Cne$ ver! $ell the la$ and the fa"ts on $hi"h the sa e $ere #ased.= It also o#served that the petition $as not filed $ithin the /.-da! re%le entar! period provided under Se". (( of Rep. ,"t No. (()+ and Se". ))- of the Tax Code.6+ Rulin% of the Court of ,ppeals In partl! %rantin% the Petition, the C, said that Se"tion ))- of the Tax Code and RR ()-44 $ere andator! and une@uivo"al in their re@uire ent. The assess ent noti"e and the

de and letter should have stated the fa"ts and the la$ on $hi"h the! $ere #ased& other$ise, the! $ere dee ed void.D The appellate "ourt held that $hile ad inistrative a%en"ies, liCe the 'IR, $ere not #ound #! pro"edural re@uire ents, the! $ere still re@uired #! la$ and e@uit! to o#serve su#stantive due pro"ess. The reason #ehind this re@uire ent, said the C,, $as to ensure that taxpa!ers $ould #e dul! apprised of -- and "ould effe"tivel! protest -- the #asis of tax assess ents a%ainst the . 3 Sin"e the assess ent and the de and $ere void, the pro"eedin%s e anatin% fro the $ere liCe$ise void, and an! order e anatin% fro the "ould never attain finalit!. The appellate "ourt added, ho$ever, that it $as pre ature to de"lare as perfe"ted and "onsu ated the "o pro ise of the estate=s tax lia#ilit!. It explained that, $here the #asi" tax assessed ex"eeded P( illion, or $here the settle ent offer $as less than the pres"ri#ed ini u rates, the National Evaluation 'oard=s 0NE'1 prior evaluation and approval $ere the "onditio sine @ua non to the perfe"tion and "onsu ation of an! "o pro ise.- 'esides, the C, pointed out, Se"tion ).*0,1 of the Tax Code applied to all "o pro ises, $hether %overn ent-initiated or not. 4 7here the la$ did not distin%uish, "ourts too should not distin%uish. 8en"e, this Petition.(. The Issues In 2R No. (+4D4*, petitioner raises the follo$in% issues for the Court=s "onsideration5 6I. 7hether petitioner=s assess ent a%ainst the estate is valid. 6II. 7hether respondent "an validl! ar%ue that she, as $ell as the other heirs, $as not a$are of the fa"ts and the la$ on $hi"h the assess ent in @uestion is #ased, after she had opted to propose several "o pro ises on the estate tax due, and even pre aturel! a"tin% on su"h proposal #! pa!in% ).I of the #asi" estate tax due.6(( The fore%oin% issues "an #e si plified as follo$s5 first, $hether the assess ent a%ainst the estate is valid& and, se"ond, $hether the "o pro ise entered into is also valid. The Court=s Rulin% The Petition is un eritorious. 9irst Issue5 Balidit! of the ,ssess ent ,%ainst the Estate The se"ond para%raph of Se"tion ))- of the Tax Code () is "lear and andator!. It provides as follo$s5 6Se". ))-. Protestin% of ,ssess ent. -xxxxxxxxx 6The taxpa!ers shall #e infor ed in $ritin% of the la$ and the fa"ts on $hi"h the assess ent is ade5 other$ise, the assess ent shall #e void.6 In the present "ase, Re!es $as not infor ed in $ritin% of the la$ and the fa"ts on $hi"h the assess ent of estate taxes had #een ade. She $as erel! notified of the findin%s #! the CIR, $ho had si pl! relied upon the provisions of for er Se"tion ))4(/ prior to its a end ent #! Repu#li" ,"t 0R,1 No. -*)*, other$ise Cno$n as the Tax Refor ,"t of (443. 9irst, R, -*)* has alread! a ended the provision of Se"tion ))4 on protestin% an assess ent. The old re@uire ent of erel! notifying the taxpa!er of the CIR=s findin%s $as "han%ed in (44- to informing the taxpa!er of not onl! the la$, #ut also of the fa"ts on $hi"h an assess ent $ould #e ade& other$ise, the assess ent itself $ould #e invalid. It $as on 9e#ruar! (), (44-, that a preli inar! assess ent noti"e $as issued a%ainst the estate. On ,pril )), (44-, the final estate tax assess ent noti"e, as $ell as de and letter,
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$as also issued. Durin% those dates, R, -*)* $as alread! in effe"t. The noti"e re@uired under the old la$ $as no lon%er suffi"ient under the new la$. To #e si pl! infor ed in $ritin% of the investi%ation #ein% "ondu"ted and of the re"o endation for the assess ent of the estate taxes due is nothin% #ut a perfun"tor! dis"har%e of the tax fun"tion of "orre"tl! assessin% a taxpa!er. The a"t "annot #e taCen to ean that Re!es alread! Cne$ the la$ and the fa"ts on $hi"h the assess ent $as #ased. It does not at all "onfor to the "o pulsor! re@uire ent under Se"tion ))-. <oreover, the :etter of ,uthorit! re"eived #! respondent on <ar"h (*, (443 $as for the sheer purpose of investi%ation and $as not even the re@uisite noti"e under the la$. The pro"edure for protestin% an assess ent under the Tax Code is found in Chapter III of Title BIII, $hi"h deals $ith re edies. 'ein% pro"edural in nature, "an its provision then #e applied retroa"tivel!L The ans$er is !es. The %eneral rule is that statutes are prospe"tive. 8o$ever, statutes that are re edial, or that do not "reate ne$ or taCe a$a! vested ri%hts, do not fall under the %eneral rule a%ainst the retroa"tive operation of statutes. (* Clearl!, Se"tion ))- provides for the pro"edure in "ase an assess ent is protested. The provision does not "reate ne$ or taCe a$a! vested ri%hts. In #oth instan"es, it "an surel! #e applied retroa"tivel!. <oreover, R, -*)* does not state, either expressl! or #! ne"essar! i pli"ation, that pendin% a"tions are ex"epted fro the operation of Se"tion ))-, or that appl!in% it to pendin% pro"eedin%s $ould i pair vested ri%hts. Second, the non-retroa"tive appli"ation of Revenue Re%ulation 0RR1 No. ()-44 is of no o ent, "onsiderin% that it erel! i ple ents the la$. , tax re%ulation is pro ul%ated #! the finan"e se"retar! to i ple ent the provisions of the Tax Code.(+ 7hile it is desira#le for the %overn ent authorit! or ad inistrative a%en"! to have one i ediatel! issued after a la$ is passed, the a#sen"e of the re%ulation does not auto ati"all! ean that the la$ itself $ould #e"o e inoperative. ,t the ti e the pre-assess ent noti"e $as issued to Re!es, R, -*)* alread! stated that the taxpa!er ust #e infor ed of #oth the la$ and fa"ts on $hi"h the assess ent $as #ased. Thus, the CIR should have re@uired the assess ent offi"ers of the 'ureau of Internal Revenue 0'IR1 to follo$ the "lear andate of the ne$ la$. The old re%ulation %overnin% the issuan"e of estate tax assess ent noti"es ran afoul of the rule that tax re%ulations -- old as the! $ere -- should #e in har on! $ith, and not supplant or odif!, the la$.(D It a! #e ar%ued that the Tax Code provisions are not self-exe"utor!. It $ould #e too $ide a stret"h of the i a%ination, thou%h, to still issue a re%ulation that $ould si pl! re@uire tax offi"ials to infor the taxpa!er, in an! anner, of the la$ and the fa"ts on $hi"h an assess ent $as #ased. That re@uire ent is neither diffi"ult to aCe nor its desired results hard to a"hieve. <oreover, an ad inistrative rule interpretive of a statute, and not de"larative of "ertain ri%hts and "orrespondin% o#li%ations, is %iven retroa"tive effe"t as of the date of the effe"tivit! of the statute. (3 RR ()-44 is one su"h rule. 'ein% interpretive of the provisions of the Tax Code, even if it $as issued onl! on Septe #er D, (444, this re%ulation $as to retroa"t to >anuar! (, (44- -- a date prior to the issuan"e of the preli inar! assess ent noti"e and de and letter. Third, neither Se"tion ))4 nor RR ()--+ "an prevail over Se"tion ))- of the Tax Code. No dou#t, Se"tion ))- has repla"ed Se"tion ))4. The provision on protestin% an assess ent has #een a ended. 9urther ore, in "ase of dis"repan"! #et$een the la$ as a ended and its i ple entin% #ut old re%ulation, the for er ne"essaril! prevails. (- Thus, #et$een Se"tion ))- of the Tax Code and the pertinent provisions of RR ()--+, the latter "annot stand #e"ause it "annot %o #e!ond the provision of the la$. The la$ ust still #e

follo$ed, even thou%h the existin% tax re%ulation at that ti e provided for a different pro"edure. The re%ulation then si pl! provided that noti"e #e sent to the respondent in the for pres"ri#ed, and that no "onse@uen"e $ould ensue for failure to "o pl! $ith that for . Fourth, petitioner violated the "ardinal rule in ad inistrative la$ that the taxpa!er #e a""orded due pro"ess. Not onl! $as the la$ here disre%arded, #ut no valid noti"e $as sent, either. , void assess ent #ears no valid fruit. The la$ i poses a su#stantive, not erel! a for al, re@uire ent. To pro"eed heedlessl! $ith tax "olle"tion $ithout first esta#lishin% a valid assess ent is evidentl! violative of the "ardinal prin"iple in ad inistrative investi%ations5 that taxpa!ers should #e a#le to present their "ase and addu"e supportin% eviden"e.(4 In the instant "ase, respondent has not #een infor ed of the #asis of the estate tax lia#ilit!. 7ithout "o pl!in% $ith the une@uivo"al andate of first infor in% the taxpa!er of the %overn ent=s "lai , there "an #e no deprivation of propert!, #e"ause no effe"tive protest "an #e ade.). The haphaEard shot at slappin% an assess ent, supposedl! #ased on estate taxation=s %eneral provisions that are expe"ted to #e Cno$n #! the taxpa!er, is utter "hi"aner!. Even a "ursor! revie$ of the preli inar! assess ent noti"e, as $ell as the de and letter sent, reveals the la"C of #asis for -- not to ention the insuffi"ien"! of -- the %ross fi%ures and details of the ite iEed dedu"tions indi"ated in the noti"e and the letter. This Court "annot "ountenan"e an assess ent #ased on esti ates that appear to have #een ar#itraril! or "apri"iousl! arrived at. ,lthou%h taxes are the life#lood of the %overn ent, their assess ent and "olle"tion 6should #e ade in a""ordan"e $ith la$ as an! ar#itrariness $ill ne%ate the ver! reason for %overn ent itself.6)( Fifth, the rule a%ainst estoppel does not appl!. ,lthou%h the %overn ent "annot #e estopped #! the ne%li%en"e or o ission of its a%ents, the o#li%ator! provision on protestin% a tax assess ent "annot #e rendered nu%ator! #! a ere a"t of the CIR . Tax la$s are "ivil in nature.)) Under our Civil Code, a"ts exe"uted a%ainst the andator! provisions of la$ are void, ex"ept $hen the la$ itself authoriEes the validit! of those a"ts.)/ 9ailure to "o pl! $ith Se"tion ))- does not onl! render the assess ent void, #ut also finds no validation in an! provision in the Tax Code. 7e "annot "ondone errant or enterprisin% tax offi"ials, as the! are expe"ted to #e vi%ilant and la$-a#idin%. Se"ond Issue5 Balidit! of Co pro ise It $ould #e pre ature for this Court to de"lare that the "o pro ise on the estate tax lia#ilit! has #een perfe"ted and "onsu ated, "onsiderin% the earlier deter ination that the assess ent a%ainst the estate $as void. Nothin% has #een settled or finaliEed. Under Se"tion ).*0,1 of the Tax Code, $here the #asi" tax involved ex"eeds one illion pesos or the settle ent offered is less than the pres"ri#ed ini u rates, the "o pro ise shall #e su#;e"t to the approval of the NE' "o posed of the petitioner and four deput! "o issioners. 9inall!, as "orre"tl! held #! the appellate "ourt, this provision applies to all "o pro ises, $hether %overn ent-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. 7here the la$ does not distin%uish, $e should not distin%uish. 78ERE9ORE, the Petition is here#! DENIED and the assailed De"ision ,99IR<ED. No pronoun"e ent as to "osts. SO ORDERED.

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