G.R. No.

L-13656

January 31, 1962

COLLECTOR OF INTERNAL REVENUE, (now Commissioner), petitioner,

vs.
ALBERTO D. BENIPAYO, respondent.
Office of the Solicitor General for petitioner.
Carlos J. Antiporda for respondent.
DIZON, J.:
This is an appeal taken by the Collector of Internal Revenue from the decision of the Court of Tax
Appeals dated January 23, 1948, reversing the one rendered by the former, thereby relieving
respondent Alberto D. Benipayo from the payment of the deficiency amusement tax assessed
against him in the total amount of P12,093.45.
Respondent is the owner and operator of the Lucena Theater located in the municipality of Lucena,
Quezon. On October 3, 1953 Internal Revenue Agent Romeo de Guia investigated respondent's
amusement tax liability in connection with the operation of said theater during the period from
August, 1952 to September, 1953. On October 15, 1953 De Guia submitted his report to the
Provincial Revenue Agent to the effect that respondent had disproportionately issued tax-free 20centavo children's tickets. His finding was that during the years 1949 to 1951 the average ratio of
adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering
the theater, one child was also admitted, while during the period in question, the proportion is
reversed - three children to one adult. From this he concluded that respondent must have
fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the amusement tax
prescribed in Section 260 of the National Internal Revenue Code. Based on the average ratio
between adult and children attendance in the past years, Examiner de Guia recommended a
deficiency amusement tax assessment against respondent in the sum of P11,193.45, inclusive of
25% surcharge, plus a suggested compromise penalty of P900.00 for violation of section 260 of the
National Internal Revenue Code, or a total sum of P12,093.45 covering the period from August, 1952
to September, 1953 inclusive. On July 14, 1954, petitioner issued a deficiency amusement tax
assessment against respondent, demanding from the latter the payment of the total sum of
P12,152.93 within thirty days from receipt thereof. On August 16, 1954, respondent filed the
corresponding protest with the Conference Staff of the Bureau of Internal Revenue. After due
hearing, the Conference Staff submitted to petitioner Collector of Internal Revenue its finding to the
effect that the "meager reports of these fieldmen (Examiner de Guia and the Provincial Revenue
Agent of Quezon) are mere presumptions and conclusions, devoid of findings of the fact of the
alleged fraudulent practices of the herein taxpayer". In view thereof, and as recommended by the
Conference Staff, petitioner referred the case back to the Provincial Revenue Agent of Quezon for
further investigation. The report submitted by Provincial Revenue Officer H.I. Bernardo after this last
investigation partly reads as follows:.
The returns from July 1 to July 11, showed that 31.43% of the entire audience of 12,754
consisted of adults, the remaining 68.57% of children. During this said period due, perhaps,
to the absence of agents in the premises, subject taxpayer was able to manipulate the
issuance of tickets in the way and manner alleged in Asst. De Guia's indorsement report
mentioned above. But during the period from July 14 to July 24, 1955, when agents of this
Office supervised in the sales of admission tickets the sales for adults soared upwards to
76% while that for children dropped correspondingly to 24%.

It is opined without fear of contradiction that the ratio of three (3) adults to every one (1) child
in the audience or a proportion of 75:25 as reckoned in Asst. De Guia's indorsement report to
this Office's new findings of a proportion of 76:24, represents and conveys the true picture of
the situation under the law of averages, provided that the film being shown is not a children's
show. There is no hard and fast rule in this regard, but this findings would seem to admit no
contradiction.
Please note that the new findings of this Office is not a direct proof of what has transpired
during the period investigated by Asst. De Guia and now pending before the Conference
Staff", . . (Exh. 3, BIR Record, p. 137-138).
After considering said report, the Conference Staff of the Bureau of Internal Revenue recommended
to the Collector of Internal Revenue the issuance of the deficiency amusement tax assessment in
question.
The only issue in this appeal is whether or not there is sufficient evidence in the record showing that
respondent, during the period under review, sold and issued to his adult customers two tax-free 20centavo children's tickets, instead of one 40-centavo ticket for each adult customer; to cheat or
defraud the Government. On this question the Court of Tax Appeals said the following in the
appealed decision:.
To our mind, the appealed decision has no factual basis and must be reversed. An
assessment fixes and determines the tax liability of a taxpayer. As soon as it is served, an
obligation arises on the part of the taxpayer concerned to pay the amount assessed and
demanded. Hence, assessments should not be based on mere presumptions no matter how
reasonable or logical said presumptions may be. Assuming arguendo that the average ratio
of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the
same does not give rise to the inference that the same conditions existed during the years in
question (1952 and 1953). The fact that almost the same ratio existed during the month of
July, 1955 does not provide a sufficient inference on the conditions in 1952 and 1953. . .
In order to stand the test of judicial scrutiny, the assessment must be based on actual facts.
The presumption of correctness of assessment being a mere presumption cannot be made
to rest on another presumption that the circumstances in 1952 and 1953 are presumed to be
the same as those existing in 1949 to 1951 and July 1955. In the case under consideration
there are no substantial facts to support the assessment in question. ...
A review of the records has not disclosed anything sufficient to justify a reversal of the above finding
made by the Court of Tax Appeals. It should be borne in mind that to sustain the deficiency tax
assessed against respondent would amount, in effect, to a finding that he had, for a considerable
period of time, cheated and defrauded the government by selling to each adult patron two children's
tax-free tickets instead of one ticket subject to the amusement tax provided for in Section 260 of the
National Internal Revenue Code. Fraud is a serious charge and, to be sustained, it must be
supported by clear and convincing proof which, in the present case, is lacking.
The claim that respondent admitted having resorted to the anomalous practice already mentioned is
not entirely correct. What respondent appears to have admitted was that during a certain limited
period he had adopted a sort of rebate system applicable to cases where adults and children came
in groups and were al anomalous practice already mentioned is not entirely correct. What
respondent appears to have admitted was that during a certain limited period he had adopted a sort
of rebate ystem applicable to cases where adults and children came in group and were all charged

20 centavo admission tickets. This practice was, however, discontinued when he was informed by
the Bureau of Internal Revenue that it was not in accordance with law.
WHEREFORE, the appealed judgment is hereby affirmed with costs.

G.R. No. 166387

January 19, 2009

COMMISSIONER OF INTERNAL REVENUE, Petitioners,

vs.
ENRON SUBIC POWERCORPORATION, Respondents.
RESOLUTION
CORONA, J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Commissioner
of Internal Revenue (CIR) assails the November 24, 2004 decision 1 of the Court of Appeals (CA)
annulling the formal assessment notice issued by the CIR against respondent Enron Subic Power
Corporation (Enron) for failure to state the legal and factual bases for such assessment.
Enron, a domestic corporation registered with the Subic Bay Metropolitan Authority as a freeport
enterprise,2 filed its annual income tax return for the year 1996 on April 12, 1997. It indicated a net
loss of P7,684,948. Subsequently, the Bureau of Internal Revenue, through a preliminary five-day
letter,3 informed it of a proposed assessment of an alleged P2,880,817.25 deficiency income
tax.4 Enron disputed the proposed deficiency assessment in its first protest letter.5
On May 26, 1999, Enron received from the CIR a formal assessment notice 6 requiring it to pay the
alleged deficiency income tax of P2,880,817.25 for the taxable year 1996. Enron protested this
deficiency tax assessment.7
Due to the non-resolution of its protest within the 180-day period, Enron filed a petition for review in
the Court of Tax Appeals (CTA). It argued that the deficiency tax assessment disregarded the
provisions of Section 228 of the National Internal Revenue Code (NIRC), as amended, 8and Section
3.1.4 of Revenue Regulations (RR) No. 12-999 by not providing the legal and factual bases of the
assessment. Enron likewise questioned the substantive validity of the assessment. 10
In a decision dated September 12, 2001, the CTA granted Enrons petition and ordered the
cancellation of its deficiency tax assessment for the year 1996. The CTA reasoned that the
assessment notice sent to Enron failed to comply with the requirements of a valid written notice
under Section 228 of the NIRC and RR No. 12-99. The CIRs motion for reconsideration of the CTA
decision was denied in a resolution dated November 12, 2001.
The CIR appealed the CTA decision to the CA but the CA affirmed it. The CA held that the audit
working papers did not substantially comply with Section 228 of the NIRC and RR No. 12-99
because they failed to show the applicability of the cited law to the facts of the assessment. The CIR
filed a motion for reconsideration but this was deemed abandoned when he filed a motion for
extension to file a petition for review in this Court.

The CIR now argues that respondent was informed of the legal and factual bases of the deficiency
assessment against it.
We adopt in toto the findings of fact of the CTA, as affirmed by the CA. In Compagnie Financiere
Sucres et Denrees v. CIR,11 we held:
We reiterate the well-established doctrine that as a matter of practice and principle, [we] will not set
aside the conclusion reached by an agency, like the CTA, especially if affirmed by the [CA]. By the
very nature of its function, it has dedicated itself to the study and consideration of tax problems and
has necessarily developed an expertise on the subject, unless there has been an abuse or
improvident exercise of authority on its part, which is not present here.
The CIR errs in insisting that the notice of assessment in question complied with the requirements of
the NIRC and RR No. 12-99.
A notice of assessment is:
[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment
Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without
merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and that the report of
investigation submitted by the Revenue Officer conducting the audit shall be given due course.
The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state
the fact, the law, rules and regulations or jurisprudence on which the assessment is based,
otherwise the formal letter of demand and the notice of assessment shall be void. (emphasis
supplied)12
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the
facts on which the assessment is made. Otherwise, the assessment is void. To implement the
provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue
regulation reads:
3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and
assessment notice shall be issued by the Commissioner or his duly authorized representative. The
letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the
facts, the law, rules and regulations, or jurisprudence on which the assessment is based,
otherwise, the formal letter of demand and assessment notice shall be void. The same shall be
sent to the taxpayer only by registered mail or by personal delivery. xxx (emphasis supplied)
It is clear from the foregoing that a taxpayer must be informed in writing of the legal and factual
bases of the tax assessment made against him. The use of the word shall in these legal provisions
indicates the mandatory nature of the requirements laid down therein. We note the CTAs findings:
In [this] case, [the CIR] merely issued a formal assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due thereon. The Revenue Officers of the [the CIR] in
the issuance of the Final Assessment Notice did not provide Enron with the written bases of the law
and facts on which the subject assessment is based. [The CIR] did not bother to explain how it
arrived at such an assessment. Moreso, he failed to mention the specific provision of the Tax Code
or rules and regulations which were not complied with by Enron. 13

Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the
deductions disallowed and included these in the gross income. It also imposed the preferential rate
of 5% on some items categorized by Enron as costs. The legal and factual bases were, however, not
indicated.
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enrons representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day
letter and furnished Enron a copy of the audit working paper 14allegedly showing in detail the legal
and factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of
the laws and facts on which the deficiency tax assessment was based.
We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment. These steps were mere perfunctory discharges of the CIRs
duties in correctly assessing a taxpayer.15 The requirement for issuing a preliminary or final notice, as
the case may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly
different from the requirement of what such notice must contain. Just because the CIR issued an
advice, a preliminary letter during the pre-assessment stage and a final notice, in the order required
by law, does not necessarily mean that Enron was informed of the law and facts on which the
deficiency tax assessment was made.
The law requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. Otherwise, the express provisions
of Article 228 of the NIRC and RR No. 12-99 would be rendered nugatory. The alleged factual
bases in the advice, preliminary letter and audit working papers did not suffice. There was no
going around the mandate of the law that the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the assessment notice.
We note that the old law merely required that the taxpayer be notified of the assessment made by
the CIR. This was changed in 1998 and the taxpayer must now be informed not only of the law but
also of the facts on which the assessment is made.16 Such amendment is in keeping with the
constitutional principle that no person shall be deprived of property without due process. 17 In view of
the absence of a fair opportunity for Enron to be informed of the legal and factual bases of the
assessment against it, the assessment in question was void. We reiterate our ruling in Reyes v.
Almanzor, et al.:18
Verily, taxes are the lifeblood of the Government and so should be collected without unnecessary
hindrance. However, such collection should be made in accordance with law as any arbitrariness will
negate the very reason for the Government itself.
WHEREFORE, the petition is hereby DENIED. The November 24, 2004 decision of the Court of
Appeals isAFFIRMED.
No costs.
SO ORDERED.

G.R. No. 159694

January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581

January 27, 2006

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers
must be informed in writing of the law and the facts upon which a tax assessment is based;
otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis
for the perfection of a tax compromise.
The Case
Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court,
assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The
dispositive portion of the assailed Decision reads as follows:
"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is
ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the
proposed compromise settlement of the Maria C. Tancinco estates tax liability." 4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot
and an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village,
Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond
Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the
decedents estate (or estate). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs,
received the Letter of Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR),
issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May
10, 1998, the heirs of the decedent (or heirs) received a final estate tax assessment notice and a

demand letter, both dated April 22, 1998, for the amount ofP14,912,205.47, inclusive of surcharge
and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of
the heirs on the ground that the subject property had already been sold by the decedent sometime in
1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary
collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on
February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs
proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due,
citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess]
offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters
financial incapacity is immaterial as, in fact, the gross value of the estate amounting
to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded
payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale
of the subject property would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax
due in the amount ofP5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold
at public auction on August 8, 2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled
auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax
proceedings against the estate are void ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without surcharge [or] interest.
"Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement
Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes]
filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No.
6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or
Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety
bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property
or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending
determination of the case and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has
jurisdiction over the case[,] because the assessment against the estate is already final and

executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000,
the CTA denied [the CIRs] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue
Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering
certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise
their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or
compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as
implemented by RR No. 6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before
the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR.
The motion was granted and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this
time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still
awaiting approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset
the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed
Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet
signed the compromise[,] because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes]
posited that the absence of the requisite initials and signature[s] on said documents does not vitiate
the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess]
application for compromise with the BIR cannot be considered a perfected or consummated
compromise.
"On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a Motion for
Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for
[R]econsideration with the suggestion that[,] for an orderly presentation of her case and to prevent
piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for
[R]eview[,] setting forth the new issue of whether there was already a perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4,
2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following
issues:
1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of
Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected
and consummated compromise.
2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP)
that requires approval by the BIR [NEB].

"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax
liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either
the NEB or the Regional Evaluation Board (or REB), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted
on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED.
Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen
Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78),
computed as follows:
xxxxxxxxx
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due
of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the
Tax Code, as amended.
"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated
compromise of the estates tax liability[,] if the NEB has approved [Reyess] application for
compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated
that at the time the questioned assessment notice and letter of demand were issued, the heirs knew
very well the law and the facts on which the same were based. It also observed that the petition was
not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and
Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter
should have stated the facts and the law on which they were based; otherwise, they were deemed
void.6 The appellate court held that while administrative agencies, like the BIR, were not bound by
procedural requirements, they were still required by law and equity to observe substantive due
process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be
duly apprised of -- and could effectively protest -- the basis of tax assessments against them. 7 Since
the assessment and the demand were void, the proceedings emanating from them were likewise
void, and any order emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as perfected and
consummated the compromise of the estates tax liability. It explained that, where the basic tax
assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum
rates, the National Evaluation Boards (NEB) prior evaluation and approval were the conditio sine
qua non to the perfection and consummation of any compromise. 8 Besides, the CA pointed out,
Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or
not.9 Where the law did not distinguish, courts too should not distinguish.
Hence, this Petition.10

The Issues
In GR No. 159694, petitioner raises the following issues for the Courts consideration:
"I.
Whether petitioners assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts
and the law on which the assessment in question is based, after she had opted to propose several
compromises on the estate tax due, and even prematurely acting on such proposal by paying 20%
of the basic estate tax due."11
The foregoing issues can be simplified as follows: first, whether the assessment against the estate is
valid; and, second, whether the compromise entered into is also valid.
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as
follows:
"Sec. 228. Protesting of Assessment. -xxxxxxxxx
"The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made: otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the facts on which the
assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who
had simply relied upon the provisions of former Section 229 13 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The
old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On
April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued.
During those dates, RA 8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.

To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law
and the facts on which the assessment was based. It does not at all conform to the compulsory
requirement under Section 228. Moreover, the Letter of Authority received by respondent on March
14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the
law.
The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII,
which deals with remedies. Being procedural in nature, can its provision then be applied
retroactively? The answer is yes.
The general rule is that statutes are prospective. However, statutes that are remedial, or that do not
create new or take away vested rights, do not fall under the general rule against the retroactive
operation of statutes.14 Clearly, Section 228 provides for the procedure in case an assessment is
protested. The provision does not create new or take away vested rights. In both instances, it can
surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary
implication, that pending actions are excepted from the operation of Section 228, or that applying it
to pending proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the
taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the
CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance of estate tax
assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in
harmony with, and not supplant or modify, the law.16
It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch
of the imagination, though, to still issue a regulation that would simply require tax officials to inform
the taxpayer, in any manner, of the law and the facts on which an assessment was based. That
requirement is neither difficult to make nor its desired results hard to achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and
corresponding obligations, is given retroactive effect as of the date of the effectivity of the
statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it
was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date
prior to the issuance of the preliminary assessment notice and demand letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has
been amended. Furthermore, in case of discrepancy between the law as amended and its
implementing but old regulation, the former necessarily prevails. 18 Thus, between Section 228 of the
Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go

beyond the provision of the law. The law must still be followed, even though the existing tax
regulation at that time provided for a different procedure. The regulation then simply provided that
notice be sent to the respondent in the form prescribed, and that no consequence would ensue for
failure to comply with that form.
Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due
process. Not only was the law here disregarded, but no valid notice was sent, either. A void
assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations: that taxpayers should be able to present their case and adduce
supporting evidence.19 In the instant case, respondent has not been informed of the basis of the
estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of
the governments claim, there can be no deprivation of property, because no effective protest can be
made.20The haphazard shot at slapping an assessment, supposedly based on estate taxations
general provisions that are expected to be known by the taxpayer, is utter chicanery.
Even a cursory review of the preliminary assessment notice, as well as the demand letter sent,
reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of
the itemized deductions indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and collection "should be
made in accordance with law as any arbitrariness will negate the very reason for government itself." 21
Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the
negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot
be rendered nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions
of law are void, except when the law itself authorizes the validity of those acts. 23 Failure to comply
with Section 228 does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are
expected to be vigilant and law-abiding.
Second Issue:
Validity of Compromise
It would be premature for this Court to declare that the compromise on the estate tax liability has
been perfected and consummated, considering the earlier determination that the assessment
against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax
Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than
the prescribed minimum rates, the compromise shall be subject to the approval of the NEB
composed of the petitioner and four deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all compromises, whether
government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law
does not distinguish, we should not distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No
pronouncement as to costs.
SO ORDERED.

COMMISSIONER OF INTERNAL
REVENUE,
Petitioner,

- versus -

G.R. No. 167560

Present:
YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

DOMINADOR MENGUITO,
Promulgated:
Respondent.
September 17, 2008
x----------------------------------------------------------x

DECISION

AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules
of Court, assailing the March 31, 2005 Decision[1] of the Court of Appeals (CA) which
reversed and set aside the Court of Tax Appeals (CTA) April 2, 2002 Decision [2] and
October 10, 2002 Resolution[3] ordering Dominador Menguito (respondent) to pay the
Commissioner of Internal Revenue (petitioner) deficiency income and percentage taxes
and delinquency interest.
Based on the Joint Stipulation of Facts and Admissions [4] of the parties, the CTA
summarized the factual and procedural antecedents of the case, the relevant portions of
which read:

Petitioner Dominador Menguito [herein respondent] is a Filipino citizen,

of legal age, married to Jeanne Menguito and is engaged in the restaurant and/or
cafeteria business. For the years 1991, 1992 and 1993, its principal place of
business was at Gloriamaris, CCP Complex, Pasay City and later transferred to
Kalayaan Bar (Copper Kettle Cafeteria Specialist or CKCS), Departure
Area, Ninoy Aquino International Airport, Pasay City. During the same years,
he also operated a branch at Club John Hay, Baguio Citycarrying the business
name of Copper Kettle Cafeteria Specialist (Joint Stipulation of Facts and
Admissions, p. 133, CTA records).
xxxx
Subsequently, BIR Baguio received information that Petitioner
[herein respondent] has undeclared income from Texas Instruments and
Club John Hay, prompting the BIR to conduct another investigation.
Through a letter dated July 28, 1997, Spouses Dominador Menguito and
Jeanne Menguito (Spouses Menguito) were informed by the Assessment
Division of the said office that they have underdeclared sales
totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was followed
by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing
Petitioner [herein respondent] that in the investigation of his 1991, 1992 and
1993 income, business and withholding tax case, it was found out that there is
still due from him the total sum of P34,193,041.55 as deficiency income and
percentage tax.
On September 2, 1997, the assessment notices subject of the
instant petition were issued. These were protested by Ms. Jeanne Menguito,
through a letter datedSeptember 28, 1997 (Exhibit 14, p. 112, BIR Records),
on the ground that the 40% deduction allowed on their computed gross
revenue, is unrealistic. Ms. Jeanne Menguito requested for a period of thirty
(30) days within which to coordinate with the BIR regarding the contested
assessment.
On October 10, 1997, BIR Baguio replied, informing the Spouses
Menguito that the source of assessment was not through the disallowance of
claimed expenses but on data received from Club John Hay and Texas
Instruments Phils., Inc. Said letter gave the spouses ten (10) days to present
evidence (Exhibit 15, p. 110, BIR Records).
In an effort to clear an alleged confusion regarding Copper Kettle
Cafeteria Specialist (CKCS) being a sole proprietorship owned by the

Spouses, and Copper Kettle Catering Services, Inc. (CKCS, Inc.) being a
corporation with whom Texas Instruments and Club John Hay entered into a
contract, Petitioner [respondent] submitted to BIR Baguio a photocopy of the
SEC Registration of Copper Kettle Catering Services, Inc. on March 23, 1999
(pp. 134-141, BIR Records).
On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito,
informing the latter that a reinvestigation or reconsideration cannot be given due
course by the mere submission of an uncertified photocopy of the Certificate of
Incorporation. Thus, it avers that the amendment issued is still valid and
enforceable.
On May 26, 1999, Petitioner [respondent] filed the present case,
praying for the cancellation and withdrawal of the deficiency income tax and
percentage tax assessments on account of prescription, whimsical factual
findings, violation of procedural due process on the issuance of assessment
notices, erroneous address of notices and multiple credit/ investigation by the
Respondent [petitioner] of Petitioner's [respondents] books of accounts and
other related records for the same tax year.
Instead of filing an Answer, Respondent [herein petitioner] moved to
dismiss the instant petition on July 1, 1999, on the ground of lack of
jurisdiction. According to Respondent [petitioner], the assessment had long
become final and executory when Petitioner [respondent] failed to comply with
the letter dated October 10, 1997.
Petitioner opposed said motion on July 21, 1999, claiming that the
final decision on Petitioner's [respondents] protest is the April 12, 1999 letter of
the Baguio Regional Office; therefore, the filing of the action within thirty (30)
days from receipt of the said letter was seasonably filed. Moreover, Petitioner
[respondent] asserted that granting that the April 12, 1999 letter in question
could not be construed to mean as a denial or final decision of the protest, still
Petitioner's [respondents] appeal was timely filed since Respondent [petitioner]
issued a Warrant of Distraint and/or Levy against the Petitioner [respondent] on
May 3, 1999, which warrant constituted a final decision of the Respondent
[petitioner] on the protest of the taxpayer.
On September 3, 1999, this Court denied Respondent's [petitioners]
'Motion to Dismiss' for lack of merit.

Respondent [petitioner] filed his Answer on September 24, 1999, raising

the following Special and Affirmative Defenses:
xxxx
5. Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner
[respondent] filed false or fraudulent income and percentage tax returns with intent
to evade tax by under declaring his sales.
6. The alleged duplication of investigation of petitioner [respondent] by the BIR
Regional Office in Baguio City and by the Revenue District Office in Pasay City
is justified by the finding of fraud on the part of the petitioner [respondent], which
is an exception to the provision in the Tax Code that the examination and
inspection of books and records shall be made only once in a taxable year (Section
235, Tax Code). At any rate, petitioner [respondent], in a letter dated July 18,
1994, waived his right to the consolidation of said investigation.
7. The aforementioned falsity or fraud was discovered on August 5, 1997.
The assessments were issued on September 2, 1997, or within ten (10) years
from the discovery of such falsity or fraud (Section 223, Tax Code). Hence, the
assessments have not prescribed.
8. Petitioner's [respondents] allegation that the assessments were not
properly addressed is rendered moot and academic by his acknowledgment in
his protest letter dated September 28, 1997 that he received the assessments.
9. Respondent [petitioner] complied with the provisions of Revenue
Regulations No. 12-85 by informing petitioner [respondent] of the findings of
the investigation in letters dated July 28, 1997 and August 11, 1997 prior to the
issuance of the assessments.
10. Petitioner [respondent] did not allege in his administrative protest that
there was a duplication of investigation, that the assessments have prescribed,
that they were not properly addressed, or that the provisions of Revenue
Regulations No. 12-85 were not observed. Not having raised them in the
administrative level, petitioner [respondent] cannot raise the same for the first
time on appeal (Aguinaldo Industries Corp. vs. Commissioner of Internal
Revenue, 112 SCRA 136).
11. The assessments were issued in accordance with law and regulations.
12. All presumptions are in favor of the correctness of tax assessments (CIR vs.
Construction Resources of Asia, Inc., 145 SCRA 67), and the burden to prove
otherwise is upon petitioner [respondent].[5] (Emphasis supplied)

On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which
reads:

Accordingly, Petitioner [herein respondent] is ORDERED to PAY the

Respondent
[herein
petitioner]
the
amount
of P11,333,233.94
and P2,573,655.82 as deficiency income and percentage tax liabilities,
respectively for taxable years 1991, 1992 and 1993 plus 20% delinquency
interest from October 2, 1997 until full payment thereof.
SO ORDERED.[6]

Respondent filed a motion for reconsideration but the CTA denied the same in its
Resolution of October 10, 2002.[7]
Through a Petition for Review[8] filed with the CA, respondent questioned the CTA
Decision and Resolution mainly on the ground that Copper Kettle Catering Services, Inc.
(CKCS, Inc.) was a separate and distinct entity from Copper Kettle Cafeteria Specialist
(CKCS); the sales and revenues of CKCS, Inc. could not be ascribed to CKCS; neither
may the taxes due from one, charged to the other; nor the notices to be served on the
former, coursed through the latter.[9] Respondent cited the Joint Stipulation in which
petitioner acknowledged that its (respondents) business was called Copper Kettle
Cafeteria Specialist, not Copper Kettle Catering Services, Inc.[10]
Based on the unrefuted[11] CTA summary, the CA rendered the Decision assailed
herein, the dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED. Reversing the
assailed Decision dated April 2, 2002 and Resolution dated October 10, 2002,
the deficiency income tax and percentage income tax assessments against
petitioner in the amounts of P11,333,233.94 and P2,573,655.82 for taxable
years 1991, 1992 and 1993 plus the 20% delinquency interest thereon are
annulled.
SO ORDERED.[12]

Petitioner filed a motion for reconsideration but the CA denied the

same in its October 10, 2002 Resolution.[13]
Hence, herein recourse to the Court for the reversal of the CA decision and
resolution on the following grounds:

I
The Court of Appeals erred in reversing the decision of the Court of Tax
Appeals and in holding that Copper Kettle Cafeteria Specialist owned by
respondent and Copper Kettle Catering Services, Inc. owned and managed by
respondent's wife are not one and the same.
II
The Court of Appeals erred in holding that respondent was denied due process
for failure of petitioner to validly serve respondent with the post-reporting and
pre-assessment notices as required by law.

On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the
same corporation because [t]he contract between Texas Instruments and Copper Kettle
was signed by petitioners [respondents] wife, Jeanne Menguito as proprietress.[14]
However, the CA reversed the CTA on these grounds:
Respondents [herein petitioners] allegation that Copper Kettle
Catering Services, Inc. and Copper Kettle Cafeteria Specialists are not distinct
entities and that the under-declared sales/revenues of Copper Kettle Catering
Services, Inc. pertain to Copper Kettle Cafeteria Specialist are belied by the
evidence on record. In the Joint Stipulation of Facts submitted before the tax
court, respondent [petitioner] admitted that petitioners [herein respondents]
business name is Copper Kettle Cafeteria Specialist.
Also, the Certification of Club John Hay and Letter dated July 9, 1997
of Texas Instruments both addressed to respondent indicate that these
companies transacted with Copper Kettle Catering Services, Inc., owned and
managed by JEANNE G. MENGUITO, NOT petitioner Dominador Menguito.
The alleged under-declared sales income subject of the present assessments
were shown to have been earned by Copper Kettle Catering Services, Inc. in its
commercial transaction with Texas Instruments and Camp John Hay; NOT by
petitioners dealing with these companies. In fact, there is nothing on record
which shows that Texas Instruments and Camp John Hay conducted business
relations with Copper Kettle Cafeteria Specialist, owned by herein petitioner
Dominador Menguito. In the absence, therefore, of clear and convincing
evidence showing that Copper Kettle Cafeteria Specialist and Copper Kettle
Catering Services, Inc. are one and the same, respondent can NOT validly
impute alleged underdeclared sales income earned by Copper Kettle Catering

Services, Inc. as sales income of Copper Kettle Cafeteria Specialist.

[15]
(Emphasis supplied)

Respondent is adamant that the CA is correct. Many times in the past, the BIR
had treated CKCS separately from CKCS, Inc.: from May 1994 to June 1995, the BIR sent
audit teams to examine the books of account and other accounting records of CKCS, and
based on said audits, respondent was held liable for deficiency taxes, all of which he had
paid.[16] Moreover, the certifications[17] issued by Club John Hay and Texas Instruments
identify
the
concessionaire
operating
therein
as CKCS, Inc., owned and managed by his spouse Jeanne Menguito, and not
CKCS.[18]
Petitioner impugns the findings of the CA, claiming that these are contradicted by
evidence on record consisting of a reply to the September 2, 1997assessment notice of BIR
Baguio which Jeanne Menguito wrote on September 28, 1997, to wit:
We are in receipt of the assessment notice you have sent us,
dated September 2, 1997. Having taken hold of the same only now
following our travel overseas, we were not able to respond immediately and
manifest our protest. Also, with the impending termination of our businesses
at 19th Tee, Club John Hay and at Texas Instruments, Loakan, Baguio
City, we have already started the transfer of our records and books in Baguio
City to Manila that we will need more time to review and sort the records that
may have to be presented relative to the assessment x x x. [19] (Emphasis
supplied)

Petitioner insists that said reply confirms that the assessment notice is directed against the
businesses which she and her husband, respondent herein, own and operate at Club John
Hay and Texas Instruments, and establishes that she is protesting said notice not just for
herself but also for respondent.[20]
Moreover, petitioner argues that if it were true that CKCS, Inc. and CKCS are
separate and distinct entities, respondent could have easily produced the articles of
incorporation of CKCS, Inc.; instead, what respondent presented was merely a photocopy
of the incorporation articles.[21] Worse, petitioner adds, said document was not offered in
evidence before the CTA, but was presented only before the CA.[22]

Petitioner further insists that CKCS, Inc. and CKCS are merely employing the
fiction of their separate corporate existence to evade payment of proper taxes; that the CTA
saw through their ploy and rightly disregarded their corporate individuality, treating them
instead as one taxable entity with the same tax base and liability;[23] and that the CA should
have sustained the CTA.[24]
In effect, petitioner would have the Court resolve a purely factual issue [25] of
whether or not there is substantial evidence that CKCS, Inc. and CKCS are one and the
same taxable entity.
As a general rule, the Court does not venture into a trial of facts in proceedings
under Rule 45 of the Rules of Courts, for its only function is to review errors of law.
[26]
The Court declines to inquire into errors in the factual assessment of the CA, for the
latters findings are conclusive, especially when these are synonymous to those of the
CTA.[27] But when the CA contradicts the factual findings of the CTA, the Court deems it
necessary to determine whether the CA was justified in doing so, for one basic rule in
taxation is that the factual findings of the CTA, when supported by substantial evidence,
will not be disturbed on appeal unless it is shown that the CTA committed gross error in its
appreciation of facts.[28]
The Court finds that the CA gravely erred when it ignored the substantial evidence
on record and reversed the CTA.
In a number of cases, the Court has shredded the veil of corporate identity
and ruled that where a corporation is merely an adjunct, business conduit or alter ego of
another corporation or when they practice fraud on our internal revenue laws,[29] the fiction
of their separate and distinct corporate identities shall be disregarded, and both
entities treated as one taxable person, subject to assessment for the same taxable
transaction.
The Court considers the presence of the following circumstances, to wit: when the
owner of one directs and controls the operations of the other, and the payments effected or
received by one are for the accounts due from or payable to the other; [30] or when the
properties or products of one are all sold to the other, which in turn immediately sells them
to the public,[31] as substantial evidence in support of the finding that the two are actually
one juridical taxable personality.

In the present case, overwhelming evidence supports the CTA in disregarding the
separate identity of CKCS, Inc. from CKCS and in treating them as one taxable entity.
First, in respondents Petition for Review before the CTA, he expressly admitted
that he is engaged in restaurant and/or cafeteria business and that [i]n 1991, 1992 and
1993, he also operated a branch at Club John Hay, Baguio City with a business name
of Copper Kettle Cafeteria Specialist.[32] Respondent repeated such admission in the Joint
Stipulation.[33] And then in Exhibit 1[34] for petitioner, a July 18, 1994 letter sent by
Jeanne Menguito to BIR, Baguio City, she stated thus:
in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at
19th Tee Club John Hay, Baguio City under letter of authority nos. 0392897, 0392898, and
0392690 dated May 16, 1994, investigating my income, business, and withholding taxes for the
years 1991, 1992, and 1993.[35] (Emphasis supplied)

Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist.[36]
Related to Exhibit 1 is petitioner's Exhibit 14, which is another letter
dated September 28, 1997, in which Jeanne Menguito protested the September 2,
1997 assessment notices directed at Copper Kettle Cafeteria Specialist and referred to the
latter as our business at 19th Tee Club John Hay and at Texas Instruments. [37] Taken
along with the Joint Stipulation, Exhibits A through C and the August 3, 1993
Certification of Camp John Hay, Exhibits 1 and 14, confirm that respondent, together
with his spouse Jeanne Menguito, own, operate and manage a branch of Copper Kettle
Cafeteria Specialist, also called Copper Kettle Catering Services at Camp John Hay.
Moreover, in Exhibits A to A-1,[38] Exhibits B to B-1[39] and Exhibits C
to C-1[40] which are lists of concessionaires that operated in Club John Hay in 1992, 1993
and 1991, respectively,[41] it appears that there is no outlet with the name Copper Kettle
Cafeteria Specialist as claimed by respondent. The name that appears in the lists is
19th TEE CAFETERIA (Copper Kettle, Inc.). However, in the light of the express
admission of respondent that in 1991, 1992 and 1993, he operated a branch called Copper
Kettle Cafeteria Specialist in Club John Hay, the entries in Exhibits A through C could
only mean that said branch refers to 19th Tee Cafeteria (Copper Kettle, Inc.). There is no
evidence presented by respondent that contradicts this conclusion.

In addition, the August 9, 1993 Certification issued by Club John Hay that
COPPER KETTLE CATERING SERVICES owned and managed by MS. JEANNE G.
MENGUITO is a concessionaire in John Hay since July 1991 up to the present and is
operating the outlet 19TH TEE CAFETERIA AND THE TEE BAR [42] convincingly
establishes that respondent's branch which he refers to as Copper Kettle Cafeteria
Specialist at Club John Hay also appears in the latter's records as Copper Kettle Catering
Services with an outlet called 19th Tee Cafeteria and The Tee Bar.
Second, in Exhibit 8[43] and Exhibit E,[44] Texas Instruments identified
the concessionaire operating its canteen as Copper Kettle Catering Services,
Inc.[45] and/or COPPER KETTLE CAFETERIA SPECIALIST SVCS.[46] It being
settled that respondent's Copper Kettle Cafeteria Specialist is also known as Copper
Kettle Catering Services, and that respondent and Jeanne Menguito both own, manage
and act as proprietors of the business, Exhibit 8 and Exhibit E further establish that,
through said business, respondent also had taxable transactions with Texas Instruments.
In view of the foregoing facts and circumstances, the Articles of Incorporation of
CKCS, Inc. -- a certified true copy of which respondent attached only to his Reply filed
with the CA[47] -- cannot insulate it from scrutiny of its real identity in relation to CKCS. It
is noted that said Articles of Incorporation of CKCS, Inc. was issued in 1989, but
documentary evidence indicate that after said date, CKCS, Inc. has also assumed the name
CKCS, and vice-versa. The most concrete indication of this practice is the 1991 Quarterly
Percentage Tax Returns covering the business name/trade 19th Tee Camp John Hay. In
said returns, the taxpayer is identified as Copper Kettle Cafeteria Specialist [48] or CKCS,
not CKCS, Inc. Yet, in several documents already cited, the purported owner of 19th Tee
Bar at Club John Hay is CKCS, Inc.
All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and
1993, respondent, together with his spouse Jeanne Menguito, owned and operated outlets
in Club John Hay and Texas Instruments under the names Copper Kettle Cafeteria
Specialist or CKCS and Copper Kettle Catering Services or Copper Kettle Catering
Services, Inc..
Turning now to the second issue.

In respondent's Petition for Review with the CTA, he questioned the validity of the
Assessment Notices,[49] all dated September 2, 1997, issued by BIR,Baguio City against
him on the following grounds:
1.

The assessment notices, based on income and percentage tax returns filed
for 1991, 1992 and 1993, were issued beyond the three-year prescriptive
period under Section 203 of the Tax Code;[50]
2.
The assessment notices were addressed to Copper Kettle Specialist, Club
John Hay, Baguio City, despite notice to petitioner that respondent's principal
place of business was at the CCP Complex, Pasay City.[51]
3.
The assessment notices were issued in violation of the requirement of
Revenue Regulations No. 12-85, dated November 27, 1985, that the taxpayer
be issued a post-reporting notice and pre-assessment notice before the
preliminary findings of deficiency may ripen into a formal assessment;
[52]
and
4.
The assessment notices did not give respondent a 15-day period to reply to
the findings of deficiency.[53]
The Court notes that nowhere in his Petition for Review did respondent deny that
he received the September 2, 1997 assessment notices. Instead, during the
trial, respondent's witness, Ma. Theresa Nalda (Nalda), testified that she informed the
BIR, Baguio City that there was no Notice or letter, that we did not receive,
perhaps, because they were not addressed to Mr. Menguito's head office.[54]
The CTA correctly upheld the validity of the assessment notices. Citing Section
223 of the Tax Code which provides that the prescriptive period for the issuance of
assessment notices based on fraud is 10 years, the CTA ruled that the assessment notices
issued against respondent on September 2, 1997 were timely because petitioner discovered
the falsity in respondent's tax returns for 1991, 1992 and 1993 only on February 19, 1997.
[55]
Moreover, in accordance with Section 2 of Revenue Regulation No. 12-85, which
requires that assessment notices be sent to the address indicated in the taxpayer's return,
unless the latter gives a notice of change of address, the assessment notices in the present
case were sent by petitioner to Camp John Hay, for this was the address respondent
indicated in his tax returns.[56] As to whether said assessment notices were actually
received, the CTA correctly held that since respondent did not testify that he did not receive

said notices, it can be presumed that the same were actually sent to and received by the
latter. The Court agrees with the CTA in considering as hearsay the testimony
of Nalda that respondent did not receive the notices, because Nalda was not competent to
testify on the matter, as she was employed by respondent only in June 1998, whereas the
assessment notices were sent on September 2, 1997.[57]
Anent compliance with the requirements of Revenue Regulation No. 12-85, the
CTA held:
BIR records show that on July 28, 1997, a letter was issued by
BIR Baguio to Spouses Menguito, informing the latter of their
supposed underdeclaration of sales totaling P48,721,555.96 and giving them 5
days to communicate any objection to the results of the investigation (Exhibit
11, p. 83, BIR Records). Records likewise reveal the issuance of a Preliminary
Ten (10) Day Letter on August 11, 1997, informing Petitioner [respondent
herein] that the sum of P34,193,041.55 is due from him as deficiency income
and percentage tax (Exhibit 13, p. 173, BIR Records). Said letter gave the
Petitioner [respondent herein] a period of ten (10) days to submit his objection to
the proposed assessment, either personally or in writing, together with any
evidence he may want to present.
xxxx
As to Petitioner's allegation that he was given only ten
(10) days to reply to the findings of deficiency instead of fifteen (15) days
granted to a taxpayer under Revenue Regulations No. 12-85, this Court believes
that when Respondent [petitioner herein] gave the Petitioner [respondent herein]
on October 10, 1997 an additional period of ten (10) days to present
documentary evidence or a total of twenty (20) days, there was compliance
with Revenue Regulations No. 12-85 and the latter was amply given
opportunity to present his side x x x.[58]

The CTA further held that respondent was estopped from raising procedural issues
against the assessment notices, because these were not cited in theSeptember 28,
1997 letter-protest which his spouse Jeanne Menguito filed with petitioner.[59]
On appeal by respondent,[60] the CA resolved the issue, thus:
Moreover, if the taxpayer denies ever having received an
assessment from the BIR, it is incumbent upon the latter to prove by

competent evidence that such notice was indeed received by the

addressee. Here, respondent [petitioner herein] merely alleged that it
forwarded the assessment notices to petitioner [respondent herein]. The
respondent did not show any proof of mailing, registry receipt or
acknowledgment receipt signed by the petitioner [respondent herein]. Since
respondent [petitioner herein] has not adduced sufficient evidence that
petitioner [respondent herein] had in fact received the pre-assessment notice
and post-reporting notice required by law, it cannot be assumed that
petitioner [respondent herein] had been served said notices.[61]

No other ground was cited by the CA for the reversal of the finding of the CTA on the
issue.
The CA is gravely mistaken.
In their Petition for Review with the CTA, respondent expressly stated that
[s]ometime in September 1997, petitioner [respondent herein] receivedvarious
assessment notices, all dated 02 September 1997, issued by BIR-Baguio for alleged
deficiency income and percentage taxes for taxable years ending 31 December 1991, 1992
and 1993 x x x.[62] In their September 28, 1997 protest to the September 2, 1997
assessment notices, respondent, through his spouses Jeanne Menguito, acknowledged that
[they] are in receipt of the assessment notice you have sent us, dated September 2, 1997
x x x.[63]
Respondent is therefore estopped from denying actual receipt of the September 2,
1997 assessment notices, notwithstanding the denial of his witnessNalda.
As to the address indicated on the assessment notices, respondent cannot question
the same for it is the said address which appears in its percentage tax returns. [64] While
respondent claims that he had earlier notified petitioner of a change in his business address,
no evidence of such written notice was presented. Under Section 11 of Revenue
Regulation No. 12-85, respondent's failure to give written notice of change of address
bound him to whatever communications were sent to the address appearing in the tax
returns for the period involved in the investigation.[65]

Thus, what remain in question now are: whether petitioner issued and mailed a
post-reporting notice and a pre-assessment notice; and whether respondent actually
received them.
There is no doubt that petitioner failed to prove that it served on respondent a postreporting notice and a pre-assessment notice. Exhibit 11 [66] of petitioner is a mere
photocopy of a July 28, 1997 letter it sent to respondent, informing him of the initial
outcome of the investigation into his sales, and the release of a preliminary assessment
upon completion of the investigation, with notice for the latter to file any objection within
five days from receipt of the letter. Exhibit 13[67] of petitioner is also a mere photocopy
of an August 11, 1997 Preliminary Ten (10) Day Letter to respondent, informing him that
he had been found to be liable for deficiency income and percentage tax and inviting him
to submit a written objection to the proposed assessment within 10 days from receipt of
notice. But nowhere on the face of said documents can be found evidence that these were
sent to and received by respondent. Nor is there separate evidence, such as a registry
receipt of the notices or a certification from the Bureau of Posts, that petitioner actually
mailed said notices.
However, while the lack of a post-reporting notice and pre-assessment
notice is a deviation from the requirements under Section 1[68] and Section 2[69] of
Revenue Regulation No. 12-85, the same cannot detract from the fact that formal
assessments were issued to and actually received by respondents in accordance with
Section 228 of the National Internal Revenue Code which was in effect at the time of
assessment.
It should be emphasized that the stringent requirement that an assessment notice be
satisfactorily proven to have been issued and released or, if receipt thereof is denied, that
said assessment notice have been served on the taxpayer,[70] applies only to formal
assessments prescribed under Section 228 of the National Internal Revenue Code, but not
to post-reporting notices or pre-assessment notices. The issuance of a valid formal
assessment is a substantive prerequisite to tax collection,[71] for it contains not only a
computation of tax liabilities but also a demand for payment within a prescribed period,
thereby signaling the time when penalties and interests begin to accrue against the taxpayer
and enabling the latter to determine his remedies therefor. Due process requires that it
must be served on and received by the taxpayer.[72]

A post-reporting notice and pre-assessment notice do not bear the gravity of a

formal assessment notice. The post-reporting notice and pre-assessment notice merely hint
at the initial findings of the BIR against a taxpayer and invites the latter to an informal
conference or clarificatory meeting. Neither notice contains a declaration of the tax
liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices
inflicts no prejudice on the taxpayer for as long as the latter is properly served a formal
assessment notice. In the case of respondent, a formal assessment notice was received by
him as acknowledged in his Petition for Review and Joint Stipulation; and, on the basis
thereof, he filed a protest with the BIR, Baguio City and eventually a petition with the
CTA.
WHEREFORE, the petition is GRANTED. The March 31, 2005 Decision of
the Court of Appeals is REVERSED and SET ASIDE and the April 2, 2002 Decision
and October 10, 2002 Resolution of the Court of Tax Appeals are REINSTATED.
SO ORDERED.

G.R. No. L-36181 October 23, 1982

MERALCO SECURITIES CORPORATION (now FIRST PHILIPPINE HOLDINGS
CORPORATION), petitioner,
vs.
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of
the late Juan G. Maniago, respondents.
G.R. No. L-36748 October 23, 1982
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
HON. VICTORINO SAVELLANO and ASUNCION BARON VDA. DE MANIAGO, et al., as heirs of
the late Juan G. Maniago, respondents.
G.R. No. L-36181
San Juan, Africa, Gonzales & San Agustin for petitioner.
Ramon A. Gonzales for respondents.

TEEHANKEE, J.:
These are original actions for certiorari to set aside and annul the writ of mandamus issued by Judge
Victorino A. Savellano of the Court of First Instance of Manila in Civil Case No. 80830 ordering
petitioner Meralco Securities Corporation (now First Philippine Holdings Corporation) to pay, and
petitioner Commissioner of Internal Revenue to collect from the former, the amount of
P51,840,612.00, by way of alleged deficiency corporate income tax, plus interests and surcharges
due thereon and to pay private respondents 25% of the total amount collectible as informer's reward.
On May 22, 1967, the late Juan G. Maniago (substituted in these proceedings by his wife and
children) submitted to petitioner Commissioner of Internal Revenue confidential denunciation against
the Meralco Securities Corporation for tax evasion for having paid income tax only on 25 % of the
dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly
shortchanging the government of income tax due from 75% of the said dividends.
Petitioner Commissioner of Internal Revenue caused the investigation of the denunciation after
which he found and held that no deficiency corporate income tax was due from the Meralco
Securities Corporation on the dividends it received from the Manila Electric Co., since under the law
then prevailing (section 24[a] of the National Internal Revenue Code) "in the case of dividends
received by a domestic or foreign resident corporation liable to (corporate income) tax under this
Chapter . . . .only twenty-five per centum thereof shall be returnable for the purposes of the tax
imposed under this section." The Commissioner accordingly rejected Maniago's contention that the
Meralco from whom the dividends were received is "not a domestic corporation liable to tax under
this Chapter." In a letter dated April 5, 1968, the Commissioner informed Maniago of his findings and
ruling and therefore denied Maniago's claim for informer's reward on a non-existent deficiency. This
action of the Commissioner was sustained by the Secretary of Finance in a 4th Indorsement dated
May 11, 1971.
On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition
for mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830,
against the Commissioner of Internal Revenue and the Meralco Securities Corporation to compel the
Commissioner to impose the alleged deficiency tax assessment on the Meralco Securities
Corporation and to award to him the corresponding informer's reward under the provisions of R.A.
2338.
On October 28, 1978, the Commissioner filed a motion to dismiss, arguing that since in matters of
issuance and non-issuance of assessments, he is clothed under the National Internal Revenue Code
and existing rules and regulations with discretionary power in evaluating the facts of a case and
since mandamus win not lie to compel the performance of a discretionary power, he cannot be
compelled to impose the alleged tax deficiency assessment against the Meralco Securities
Corporation. He further argued that mandamus may not lie against him for that would be tantamount
to a usurpation of executive powers, since the Office of the Commissioner of Internal Revenue is
undeniably under the control of the executive department.
On the other hand, the Meralco Securities Corporation filed its answer, dated January 15, 1971,
interposing as special and/or affirmative defenses that the petition states no cause of action, that the
action is premature, that mandamus win not lie to compel the Commissioner of Internal Revenue to
make an assessment and/or effect the collection of taxes upon a taxpayer, that since no taxes have
actually been recovered and/or collected, Maniago has no right to recover the reward prayed for, that
the action of petitioner had already prescribed and that respondent court has no jurisdiction over the
subject matter as set forth in the petition, the same being cognizable only by the Court of Tax
Appeals.

On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for and
ordering the Commissioner of Internal Revenue to assess and collect from the Meralco Securities
Corporation the sum of P51,840,612.00 as deficiency corporate income tax for the period 1962 to
1969 plus interests and surcharges due thereon and to pay 25% thereof to Maniago as informer's
reward.
All parties filed motions for reconsideration of the decision but the same were denied by respondent
judge in his order dated April 6, 1973, with respondent judge denying respondents' claim for
attorneys fees and for execution of the decision pending appeal.
Hence, the Commissioner filed a separate petition with this Court, docketed as G.R. No. L-36748
praying that the decision of respondent judge dated January 10, 1973 and his order dated April 6,
1973 be reconsidered for respondent judge has no jurisdiction over the subject matter of the case
and that the issuance or non-issuance of a deficiency assessment is a prerogative of the
Commissioner of Internal Revenue not reviewable by mandamus.
The Meralco Securities Corporation (now First Philippine Holdings Corporation) likewise appealed
the same decision of respondent judge in G.R. No. L-36181 and in the Court's resolution dated June
13, 1973, the two cases were ordered consolidated.
We grant the petitions.
Respondent judge has no jurisdiction to take cognizance of the case because the subject matter
thereof clearly falls within the scope of cases now exclusively within the jurisdiction of the Court of
Tax Appeals. Section 7 of Republic Act No. 1125, enacted June 16, 1954, granted to the Court of Tax
Appeals exclusive appellate jurisdiction to review by appeal, among others, decisions of the
Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other law or part of law administered by the Bureau of
Internal Revenue. The law transferred to the Court of Tax Appeals jurisdiction over all cases
involving said assessments previously cognizable by courts of first instance, and even those already
pending in said courts. 1 The question of whether or not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words "disputed
assessments" or of "other matters arising under the National Internal Revenue Code . . . .In the case
of Blaquera vs. Rodriguez, et al, 2 this Court ruled that "the determination of the correctness or
incorrectness of a tax assessment to which the taxpayer is not agreeable, falls within the jurisdiction of
the Court of Tax Appeals and not of the Court of First Instance, for under the provisions of Section 7 of
Republic Act No. 1125, the Court of Tax Appeals has exclusive appellate jurisdiction to review, on appeal,
any decision of the Collector of Internal Revenue in cases involving disputed assessments and other
matters arising under the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue."
Thus, even assuming arguendo that the right granted the taxpayers affected to question and appeal
disputed assessments, under section 7 of Republic Act No. 1125, may be availed of by strangers or
informers like the late Maniago, the most that he could have done was to appeal to the Court of Tax
Appeals the ruling of petitioner Commissioner of Internal Revenue within thirty (30) days from receipt
thereof pursuant to section 11 of Republic Act No. 1125. 3 He failed to take such an appeal to the tax
court. The ruling is clearly final and no longer subject to review by the courts. 4
It is furthermore a well-recognized rule that mandamus only lies to enforce the performance of a
ministerial act or duty 5and not to control the performance of a discretionary power. 6 Purely
administrative and discretionary functions may not be interfered with by the courts. 7 Discretion, as thus
intended, means the power or right conferred upon the office by law of acting officially under certain

circumstances according to the dictates of his own judgment and conscience and not controlled by the
judgment or conscience of others. 8 mandamus may not be resorted to so as to interfere with the
manner in which the discretion shall be exercised or to influence or coerce a particular determination. 9

In an analogous case, where a petitioner sought to compel the Rehabilitation Finance Corporation to
accept payment of the balance of his indebtedness with his backpay certificates, the Court ruled that
"mandamus does not compel the Rehabilitation Finance Corporation to accept backpay certificates
in payment of outstanding loans. Although there is no provision expressly authorizing such
acceptance, nor is there one prohibiting it, yet the duty imposed by the Backpay Law upon said
corporation as to the acceptance or discount of backpay certificates is neither clear nor ministerial,
but discretionary merely, and such special civil action does not issue to control the exercise of
discretion of a public officer." 10Likewise, we have held that courts have no power to order the
Commissioner of Customs to confiscate goods imported in violation of the Import Control Law, R.A. 426,
as said forfeiture is subject to the discretion of the said official, 11 nor may courts control the determination
of whether or not an applicant for a visa has a non-immigrant status or whether his entry into this country
would be contrary to public safety for it is not a simple ministerial function but an exercise of discretion. 12
Moreover, since the office of the Commissioner of Internal Revenue is charged with the
administration of revenue laws, which is the primary responsibility of the executive branch of the
government, mandamus may not he against the Commissioner to compel him to impose a tax
assessment not found by him to be due or proper for that would be tantamount to a usurpation of
executive functions. As we held in the case of Commissioner of Immigration vs. Arca 13anent this
principle, "the administration of immigration laws is the primary responsibility of the executive branch of
the government. Extensions of stay of aliens are discretionary on the part of immigration authorities, and
neither a petition for mandamus nor one for certiorari can compel the Commissioner of Immigration to
extend the stay of an alien whose period to stay has expired.
Such discretionary power vested in the proper executive official, in the absence of arbitrariness or
grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or
control of others. " "Discretion," when applied to public functionaries, means a power or right
conferred upon them by law of acting officially, under certain circumstances, uncontrolled by the
judgment or consciences of others. A purely ministerial act or duty in contradiction to a discretional
act is one which an officer or tribunal performs in a given state of facts, in a prescribed manner, in
obedience to the mandate of a legal authority, without regard to or the exercise of his own judgment
upon the propriety or impropriety of the act done. If the law imposes a duty upon a public officer and
gives him the right to decide how or when the duty shall be performed, such duty is discretionary and
not ministerial. The duty is ministerial only when the discharge of the same requires neither the
exercise of official discretion or judgment." 14
Thus, after the Commissioner who is specifically charged by law with the task of enforcing and
implementing the tax laws and the collection of taxes had after a mature and thorough study
rendered his decision or ruling that no tax is due or collectible, and his decision is sustained by the
Secretary, now Minister of Finance (whose act is that of the President unless reprobated), such
decision or ruling is a valid exercise of discretion in the performance of official duty and cannot be
controlled much less reversed by mandamus. A contrary view, whereby any stranger or informer
would be allowed to usurp and control the official functions of the Commissioner of Internal Revenue
would create disorder and confusion, if not chaos and total disruption of the operations of the
government.
Considering then that respondent judge may not order by mandamus the Commissioner to issue the
assessment against Meralco Securities Corporation when no such assessment has been found to
be due, no deficiency taxes may therefore be assessed and collected against the said corporation.
Since no taxes are to be collected, no informer's reward is due to private respondents as the

informer's heirs. Informer's reward is contingent upon the payment and collection of unpaid or
deficiency taxes. An informer is entitled by way of reward only to a percentage of the taxes actually
assessed and collected. Since no assessment, much less any collection, has been made in the
instant case, respondent judge's writ for the Commissioner to pay respondents 25% informer's
reward is gross error and without factual nor legal basis.
WHEREFORE, the petitions are hereby granted and the questioned decision of respondent judge
dated January 10, 1973 and order dated April 6, 1973 are hereby reversed and set aside. With costs
against private respondents.

G.R. No. 88291 June 8, 1993

ERNESTO M. MACEDA, petitioner,
vs.
HON. CATALINO MACARAIG, JR., in his capacity as Executive Secretary, Office of the
President, HON. VICENTE JAYME, ETC., ET AL., respondents.
Angara, Abello, Concepcion & Cruz for respondent Pilipinas Shell Petroleum Corporation.
Siguion Reyna, Montecillo & Ongsiako for Caltex.

NOCON, J.:
Just like lightning which does strike the same place twice in some instances, this matter of indirect
tax exemption of the private respondent National Power Corporation (NPC) is brought to this Court a
second time. Unfazed by the Decision We promulgated on May 31, 1991 1 petitioner Ernesto Maceda
asks this Court to reconsider said Decision. Lest We be criticized for denying due process to the
petitioner. We have decided to take a second look at the issues. In the process, a hearing was held on
July 9, 1992 where all parties presented their respective arguments. Etched in this Court's mind are the
paradoxical claims by both petitioner and private respondents that their respective positions are for the
benefit of the Filipino people.
I
A Chronological review of the relevant NPC laws, specially with respect to its tax exemption
provisions, at the risk of being repetitious is, therefore, in order.
On November 3, 1936, Commonwealth Act No. 120 was enacted creating the National Power
Corporation, a public corporation, mainly to develop hydraulic power from all water sources in the
Philippines. 2 The sum of P250,000.00 was appropriated out of the funds in the Philippine Treasury for the
purpose of organizing the NPC and conducting its preliminary work. 3 The main source of funds for the
NPC was the flotation of bonds in the capital markets 4 and these bonds
. . . issued under the authority of this Act shall be exempt from the payment of all
taxes by the Commonwealth of the Philippines, or by any authority, branch, division

or political subdivision thereof and subject to the provisions of the Act of Congress,
approved March 24, 1934, otherwise known as the Tydings McDuffle Law, which
facts shall be stated upon the face of said bonds. . . . . 5
On June 24, 1938, C.A. No. 344 was enacted increasing to P550,000.00 the funds needed for the
initial operations of the NPC and reiterating the provision of the flotation of bonds as soon as the first
construction of any hydraulic power project was to be decided by the NPC Board. 6 The provision on
tax exemption in relation to the issuance of the NPC bonds was neither amended nor deleted.
On September 30, 1939, C.A. No. 495 was enacted removing the provision on the payment of the
bond's principal and interest in "gold coins" but adding that payment could be made in United States
dollars. 7 The provision on tax exemption in relation to the issuance of the NPC bonds was neither
amended nor deleted.
On June 4, 1949, Republic Act No. 357 was enacted authorizing the President of the Philippines to
guarantee, absolutely and unconditionally, as primary obligor, the payment of any and all NPC
loans. 8 He was also authorized to contract on behalf of the NPC with the International Bank for
Reconstruction and Development (IBRD) for NPC loans for the accomplishment of NPC's corporate
objectives 9 and for the reconstruction and development of the economy of the country. 10 It was expressly
stated that:
Any such loan or loans shall be exempt from taxes, duties, fees, imposts, charges,
contributions and restrictions of the Republic of the Philippines, its provinces, cities
and municipalities. 11
On the same date, R.A. No. 358 was enacted expressly authorizing the NPC, for the first time, to
incur other types of indebtedness, aside from indebtedness incurred by flotation of bonds. 12 As to the
pertinent tax exemption provision, the law stated as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, duties, fees, imposts, charges, and restrictions of the Republic
of the Philippines, its provinces, cities and municipalities. 13
On July 10, 1952, R.A. No. 813 was enacted amending R.A. No. 357 in that, aside from the IBRD,
the President of the Philippines was authorized to negotiate, contract and guarantee loans with the
Export-Import Bank of of Washigton, D.C., U.S.A., or any other international financial
institution. 14 The tax provision for repayment of these loans, as stated in R.A. No. 357, was not
amended.
On June 2, 1954, R.A. No. 987 was enacted specifically to withdraw NPC's tax exemption for real
estate taxes. As enacted, the law states as follows:
To facilitate payment of its indebtedness, the National Power Corporation shall be
exempt from all taxes, except real property tax, and from all duties, fees, imposts,
charges, and restrictions of the Republic of the Philippines, its provinces, cities, and
municipalities. 15
On September 8, 1955, R.A. No. 1397 was enacted directing that the NPC projects to be funded by
the increased indebtedness 16 should bear the National Economic Council's stamp of approval. The tax
exemption provision related to the payment of this total indebtedness was not amended nor deleted.

On June 13, 1958, R.A. No. 2055 was enacted increasing the total amount of foreign loans NPC was
authorized to incur to US$100,000,000.00 from the US$50,000,000.00 ceiling in R.A. No. 357. 17 The
tax provision related to the repayment of these loans was not amended nor deleted.
On June 13, 1958, R.A. No. 2058 was enacting fixing the corporate life of NPC to December 31,
2000. 18 All laws or provisions of laws and executive orders contrary to said R.A. No. 2058 were expressly
repealed. 19
On June 18, 1960, R.A. No 2641 was enacted converting the NPC from a public corporation into a
stock corporation with an authorized capital stock of P100,000,000.00 divided into 1,000.000 shares
having a par value of P100.00 each, with said capital stock wholly subscribed to by the
Government. 20 No tax exemption was incorporated in said Act.
On June 17, 1961, R.A. No. 3043 was enacted increasing the above-mentioned authorized capital
stock to P250,000,000.00 with the increase to be wholly subscribed by the Government. 21 No tax
provision was incorporated in said Act.
On June 17, 1967, R.A. No 4897 was enacted. NPC's capital stock was increased again to
P300,000,000.00, the increase to be wholly subscribed by the Government. No tax provision was
incorporated in said Act. 22
On September 10, 1971, R.A. No. 6395 was enacted revising the charter of the NPC, C.A. No. 120,
as amended. Declared as primary objectives of the nation were:
Declaration of Policy. Congress hereby declares that (1) the comprehensive
development, utilization and conservation of Philippine water resources for all
beneficial uses, including power generation, and (2) the total electrification of the
Philippines through the development of power from all sources to meet the needs of
industrial development and dispersal and the needs of rural electrification are primary
objectives of the nation which shall be pursued coordinately and supported by all
instrumentalities and agencies of the government, including the financial
institutions. 23
Section 4 of C.A. No. 120, was renumbered as Section 8, and divided into sections 8 (a) (Authority
to incur Domestic Indebtedness) and Section 8 (b) (Authority to Incur Foreign Loans).
As to the issuance of bonds by the NPC, Paragraph No. 3 of Section 8(a), states as follows:
The bonds issued under the authority of this subsection shall be exempt from the
payment of all taxes by the Republic of the Philippines, or by any authority, branch,
division or political subdivision thereof which facts shall be stated upon the face of
said bonds. . . . 24
As to the foreign loans the NPC was authorized to contract, Paragraph No. 5, Section 8(b), states as
follows:
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedeness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including

import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions. 25
A new section was added to the charter, now known as Section 13, R.A. No. 6395, which declares
the non-profit character and tax exemptions of NPC as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital
investment, as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation is hereby declared exempt:
(a) From the payment of all taxes, duties, fees, imposts, charges costs and service
fees in any court or administrative proceedings in which it may be a party, restrictions
and duties to the Republic of the Philippines, its provinces, cities, and municipalities
and other government agencies and instrumentalities;
(b) From all income taxes, franchise taxes and realty taxes to be paid to the National
Government, its provinces, cities, municipalities and other government agencies and
instrumentalities;
(c) From all import duties, compensating taxes and advanced sales tax, and
wharfage fees on import of foreign goods required for its operations and projects;
and
(d) From all taxes, duties, fees, imposts and all other charges its provinces, cities,
municipalities and other government agencies and instrumentalities, on all petroleum
products used by the Corporation in the generation, transmission, utilization, and
sale of electric power. 26
On November 7, 1972, Presidential Decree No. 40 was issued declaring that the
electrification of the entire country was one of the primary concerns of the country. And in
connection with this, it was specifically stated that:

The setting up of transmission line grids and the construction of associated

generation facilities in Luzon, Mindanao and major islands of the country, including
the Visayas, shall be the responsibility of the National Power Corporation (NPC) as
the authorized implementing agency of the State. 27
xxx xxx xxx

It is the ultimate objective of the State for the NPC to own and operate as a single
integrated system all generating facilities supplying electric power to the entire area
embraced by any grid set up by the NPC. 28
On January 22, 1974, P.D. No. 380 was issued giving extra powers to the NPC to enable it to fulfill
its role under aforesaid P.D. No. 40. Its authorized capital stock was raised to
P2,000,000,000.00, 29 its total domestic indebtedness was pegged at a maximum of P3,000,000,000.00
at any one time, 30 and the NPC was authorized to borrow a total of US$1,000,000,000.00 31in foreign
loans.

The relevant tax exemption provision for these foreign loans states as follows:
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials, supplies and services, by the
Corporation, paid from the proceeds of any loan, credit or indebtedness incurred
under this Act, shall also be exempt from all direct and indirect taxes, fees, imposts,
other charges and restrictions, including import restrictions previously and presently
imposed, and to be imposed by the Republic of the Philippines, or any of its agencies
and political subdivisions. 32 (Emphasis supplied)
Section 13(a) and 13(d) of R.A. No 6395 were amended to read as follows:
(a) From the payment of all taxes, duties, fees, imposts, charges and restrictions to
the Republic of the Philippines, its provinces, cities, municipalities and other
government agencies and instrumentalities including the taxes, duties, fees, imposts
and other charges provided for under the Tariff and Customs Code of the Philippines,
Republic Act Numbered Nineteen Hundred Thirty-Seven, as amended, and as further
amended by Presidential Decree No. 34 dated October 27, 1972, and Presidential
Decree No. 69, dated November 24, 1972, and costs and service fees in any court or
administrative proceedings in which it may be a party;
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric
power. 33 (Emphasis supplied)
On February 26, 1970, P.D. No. 395 was issued removing certain restrictions in the NPC's sale of
electricity to its different customers. 34 No tax exemption provision was amended, deleted or added.
On July 31, 1975, P.D. No. 758 was issued directing that P200,000,000.00 would be appropriated
annually to cover the unpaid subscription of the Government in the NPC authorized capital stock,
which amount would be taken from taxes accruing to the General Funds of the Government,
proceeds from loans, issuance of bonds, treasury bills or notes to be issued by the Secretary of
Finance for this particular purpose. 35
On May 27, 1976 P.D. No. 938 was issued
(I)n view of the accelerated expansion programs for generation and transmission
facilities which includes nuclear power generation, the present capitalization of
National Power Corporation (NPC) and the ceilings for domestic and foreign
borrowings are deemed insufficient; 36
xxx xxx xxx

(I)n the application of the tax exemption provisions of the Revised Charter, the nonprofit character of NPC has not been fully utilized because of restrictive interpretation
of the taxing agencies of the government on said provisions; 37

xxx xxx xxx

(I)n order to effect the accelerated expansion program and attain the declared
objective of total electrification of the country, further amendments of certain sections
of Republic Act No. 6395, as amended by Presidential Decrees Nos. 380, 395 and
758, have become imperative; 38
Thus NPC's capital stock was raised to P8,000,000,000.00, 39 the total domestic indebtedness ceiling
was increased to P12,000,000,000.00, 40 the total foreign loan ceiling was raised to
US$4,000,000,000.00 41 and Section 13 of R.A. No. 6395, was amended to read as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay to its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of all forms of taxes, duties, fees, imposts as well as costs and service fees including
filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. 42
II
On the other hand, the pertinent tax laws involved in this controversy are P.D. Nos. 882, 1177, 1931
and Executive Order No. 93 (S'86).
On January 30, 1976, P.D. No. 882 was issued withdrawing the tax exemption of NPC with regard to
imports as follows:
WHEREAS, importations by certain government agencies, including governmentowned or controlled corporation, are exempt from the payment of customs duties and
compensating tax; and
WHEREAS, in order to reduce foreign exchange spending and to protect domestic
industries, it is necessary to restrict and regulate such tax-free importations.
NOW THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by
virtue of the powers vested in me by the Constitution, and do hereby decree and
order the following:
Sec. 1. All importations of any government agency, including government-owned or
controlled corporations which are exempt from the payment of customs duties and
internal revenue taxes, shall be subject to the prior approval of an Inter-Agency
Committee which shall insure compliance with the following conditions:
(a) That no such article of local manufacture are available in sufficient quantity and
comparable quality at reasonable prices;
(b) That the articles to be imported are directly and actually needed and will be used
exclusively by the grantee of the exemption for its operations and projects or in the
conduct of its functions; and

(c) The shipping documents covering the importation are in the name of the grantee
to whom the goods shall be delivered directly by customs authorities.
xxx xxx xxx
Sec. 3. The Committee shall have the power to regulate and control the tax-free
importation of government agencies in accordance with the conditions set forth in
Section 1 hereof and the regulations to be promulgated to implement the provisions
of this Decree. Provided, however, That any government agency or governmentowned or controlled corporation, or any local manufacturer or business firm
adversely affected by any decision or ruling of the Inter-Agency Committee may file
an appeal with the Office of the President within ten days from the date of notice
thereof. . . . .
xxx xxx xxx
Sec. 6. . . . . Section 13 of Republic Act No. 6395; . . .. and all similar provisions of all
general and special laws and decrees are hereby amended accordingly.
xxx xxx xxx
On July 30, 1977, P.D. 1177 was issued as it was
. . . declared the policy of the State to formulate and implement a National Budget
that is an instrument of national development, reflective of national objectives,
strategies and plans. The budget shall be supportive of and consistent with the socioeconomic development plan and shall be oriented towards the achievement of
explicit objectives and expected results, to ensure that funds are utilized and
operations are conducted effectively, economically and efficiently. The national
budget shall be formulated within a context of a regionalized government structure
and of the totality of revenues and other receipts, expenditures and borrowings of all
levels of government-owned or controlled corporations. The budget shall likewise be
prepared within the context of the national long-term plan and of a long-term budget
program. 43
In line with such policy, the law decreed that
All units of government, including government-owned or controlled corporations, shall pay income
taxes, customs duties and other taxes and fees are imposed under revenues laws: provided, that
organizations otherwise exempted by law from the payment of such taxes/duties may ask for a
subsidy from the General Fund in the exact amount of taxes/duties due: provided, further, that a
procedure shall be established by the Secretary of Finance and the Commissioner of the Budget,
whereby such subsidies shall automatically be considered as both revenue and expenditure of the
General Fund. 44
The law also declared that
[A]ll laws, decrees, executive orders, rules and regulations or parts thereof which are
inconsistent with the provisions of the Decree are hereby repealed and/or modified
accordingly. 45

On July 11, 1984, most likely due to the economic morass the Government found itself in after the
Aquino assassination, P.D. No. 1931 was issued to reiterate that:
WHEREAS, Presidential Decree No. 1177 has already expressly repealed the grant
of tax privileges to any government-owned or controlled corporation and all other
units of government; 46
and since there was a
. . . need for government-owned or controlled corporations and all other units of
government enjoying tax privileges to share in the requirements of development,
fiscal or otherwise, by paying the duties, taxes and other charges due from them.

47

it was decreed that:

Sec. 1. The provisions of special on general law to the contrary notwithstanding, all
exemptions from the payment of duties, taxes, fees, imposts and other charges
heretofore granted in favor of government-owned or controlled corporations including
their subsidiaries, are hereby withdrawn.
Sec. 2. The President of the Philippines and/or the Minister of Finance, upon the
recommendation of the Fiscal Incentives Review Board created under Presidential
Decree No. 776, is hereby empowered to restore, partially or totally, the exemptions
withdrawn by Section 1 above, any applicable tax and duty, taking into account,
among others, any or all of the following:
1) The effect on the relative price levels;
2) The relative contribution of the corporation to the revenue generation effort;
3) The nature of the activity in which the corporation is engaged in; or
4) In general the greater national interest to be served.
xxx xxx xxx
Sec. 5. The provisions of Presidential Decree No. 1177 as well as all other laws,
decrees, executive orders, administrative orders, rules, regulations or parts thereof
which are inconsistent with this Decree are hereby repealed, amended or modified
accordingly.
On December 17, 1986, E.O. No. 93 (S'86) was issued with a view to correct presidential restoration
or grant of tax exemption to other government and private entities without benefit of review by the
Fiscal Incentives Review Board, to wit:
WHEREAS, Presidential Decree Nos. 1931 and 1955 issued on June 11, 1984 and
October 14, 1984, respectively, withdrew the tax and duty exemption privileges,
including the preferential tax treatment, of government and private entities with
certain exceptions, in order that the requirements of national economic development,
in terms of fiscals and other resources, may be met more adequately;

xxx xxx xxx

WHEREAS, in addition to those tax and duty exemption privileges were restored by
the Fiscal Incentives Review Board (FIRB), a number of affected entities,
government and private, had their tax and duty exemption privileges restored or
granted by Presidential action without benefit or review by the Fiscal Incentives
Review Board (FIRB);
xxx xxx xxx
Since it was decided that:
[A]ssistance to government and private entities may be better provided where
necessary by explicit subsidy and budgetary support rather than tax and duty
exemption privileges if only to improve the fiscal monitoring aspects of government
operations.
It was thus ordered that:
Sec. 1. The Provisions of any general or special law to the contrary notwithstanding,
all tax and duty incentives granted to government and private entities are hereby
withdrawn, except:
a) those covered by the non-impairment clause of the Constitution;
b) those conferred by effective internation agreement to which the Government of the
Republic of the Philippines is a signatory;
c) those enjoyed by enterprises registered with:
(i) the Board of Investment pursuant to Presidential Decree No. 1789,
as amended;
(ii) the Export Processing Zone Authority, pursuant to Presidential
Decree No. 66 as amended;
(iii) the Philippine Veterans Investment Development Corporation
Industrial Authority pursuant to Presidential Decree No. 538, was
amended.
d) those enjoyed by the copper mining industry pursuant to the provisions of Letter of
Instructions No. 1416;
e) those conferred under the four basic codes namely:
(i) the Tariff and Customs Code, as amended;
(ii) the National Internal Revenue Code, as amended;
(iii) the Local Tax Code, as amended;

(iv) the Real Property Tax Code, as amended;

f) those approved by the President upon the recommendation of the
Fiscal Incentives Review Board.
Sec. 2. The Fiscal Incentives Review Board created under Presidential Decree No.
776, as amended, is hereby authorized to:
a) restore tax and/or duty exemptions withdrawn hereunder in whole or in part;
b) revise the scope and coverage of tax and/or duty exemption that may be restored;
c) impose conditions for the restoration of tax and/or duty exemption;
d) prescribe the date of period of effectivity of the restoration of tax and/or duty
exemption;
e) formulate and submit to the President for approval, a complete system for the
grant of subsidies to deserving beneficiaries, in lieu of or in combination with the
restoration of tax and duty exemptions or preferential treatment in taxation, indicating
the source of funding therefor, eligible beneficiaries and the terms and conditions for
the grant thereof taking into consideration the international commitment of the
Philippines and the necessary precautions such that the grant of subsidies does not
become the basis for countervailing action.
Sec. 3. In the discharge of its authority hereunder, the Fiscal Incentives Review
Board shall take into account any or all of the following considerations:
a) the effect on relative price levels;
b) relative contribution of the beneficiary to the revenue generation effort;
c) nature of the activity the beneficiary is engaged; and
d) in general, the greater national interest to be served.
xxx xxx xxx
Sec. 5. All laws, orders, issuances, rules and regulations or parts thereof inconsistent
with this Executive Order are hereby repealed or modified accordingly.
E.O. No. 93 (S'86) was decreed to be effective 48 upon the promulgation of the rules and regulations, to
be issued by the Ministry of Finance. 49 Said rules and regulations were promulgated and published in the
Official Gazette
on February 23, 1987. These became effective on the 15th day after promulgation 50 in the Official
Gasetter, 51 which 15th day was March 10, 1987.
III
Now to some definitions. We refer to the very simplistic approach that all would-be lawyers, learn in
their TAXATION I course, which fro convenient reference, is as follows:

Classifications or kinds of Taxes:

According to Persons who pay or who bear the burden:
a. Direct Tax the where the person supposed to pay the tax really pays
it. WITHOUT transferring the burden to someone else.
Examples: Individual income tax, corporate income tax, transfer taxes (estate tax,
donor's tax), residence tax, immigration tax
b. Indirect Tax that where the tax is imposed upon goods BEFORE reaching the
consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.
Examples: the internal revenue indirect taxes (specific tax, percentage taxes, (VAT)
and the tariff and customs indirect taxes (import duties, special import tax and other
dues) 52
IV
To simply matter, the issues raised by petitioner in his motion for reconsideration can be reduced to
the following:
(1) What kind of tax exemption privileges did NPC have?
(2) For what periods in time were these privileges being enjoyed?
(3) If there are taxes to be paid, who shall pay for these taxes?
V
Petitioner contends that P.D. No. 938 repealed the indirect tax exemption of NPC as the phrase "all
forms of taxes etc.," in its section 10, amending Section 13, R.A. No. 6395, as amended by P.D. No.
380, does not expressly include "indirect taxes."
His point is not well-taken.
A chronological review of the NPC laws will show that it has been the lawmaker's intention that the
NPC was to be completely tax exempt from all forms of taxes direct and indirect.
NPC's tax exemptions at first applied to the bonds it was authorized to float to finance its operations
upon its creation by virtue of C.A. No. 120.
When the NPC was authorized to contract with the IBRD for foreign financing, any loans obtained
were to be completely tax exempt.
After the NPC was authorized to borrow from other sources of funds aside issuance of bonds it
was again specifically exempted from all types of taxes "to facilitate payment of its indebtedness."
Even when the ceilings for domestic and foreign borrowings were periodically increased, the tax
exemption privileges of the NPC were maintained.

NPC's tax exemption from real estate taxes was, however, specifically withdrawn by Rep. Act No.
987, as above stated. The exemption was, however, restored by R.A. No. 6395.
Section 13, R.A. No. 6395, was very comprehensive in its enumeration of the tax exemptions
allowed NPC. Its section 13(d) is the starting point of this bone of contention among the parties. For
easy reference, it is reproduced as follows:
[T]he Corporation is hereby declared exempt:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts and all other charges imposed by the
Republic of the Philippines, its provinces, cities, municipalities and other government
agencies and instrumentalities, on all petroleum products used by the Corporation in
the generation, transmission, utilization, and sale of electric power.
P.D. No. 380 added phrase "directly or indirectly" to said Section 13(d), which now reads as follows:
xxx xxx xxx
(d) From all taxes, duties, fees, imposts, and all other charges imposed directly or
indirectly by the Republic of the Philippines, its provinces, cities, municipalities and
other government agencies and instrumentalities, on all petroleum products used by
the Corporation in the generation, transmission, utilization and sale of electric power.
(Emphasis supplied)
Then came P.D. No. 938 which amended Sec. 13(a), (b), (c) and (d) into one very simple paragraph
as follows:
The Corporation shall be non-profit and shall devote all its returns from its capital
investment as well as excess revenues from its operation, for expansion. To enable
the Corporation to pay its indebtedness and obligations and in furtherance and
effective implementation of the policy enunciated in Section one of this Act, the
Corporation, including its subsidiaries, is hereby declared exempt from the payment
of ALL FORMS OFtaxes, duties, fees, imposts as well as costs and service fees
including filing fees, appeal bonds, supersedeas bonds, in any court or administrative
proceedings. (Emphasis supplied)
Petitioner reminds Us that:
[I]t must be borne in mind that Presidential Decree Nos. 380
and 938 were issued by one man, acting as such the Executive and Legislative.

53

xxx xxx xxx

[S]ince both presidential decrees were made by the same person, it would have been
very easy for him to retain the same or similar language used in P.D. No. 380 P.D.
No. 938 if his intention were to preserve the indirect tax exemption of NPC. 54

Actually, P.D. No. 938 attests to the ingenuousness of then President Marcos no matter what his
fault were. It should be noted that section 13, R.A. No. 6395, provided for tax exemptions for the
following items:
13(a) : court or administrative proceedings;
13(b) : income, franchise, realty taxes;
13(c) : import of foreign goods required for its operations and projects;
13(d) : petroleum products used in generation of electric power.
P.D. No. 938 lumped up 13(b), 13(c), and 13(d) into the phrase "ALL FORMS OF TAXES, ETC.,",
included 13(a) under the "as well as" clause and added PNOC subsidiaries as qualified for tax
exemptions.
This is the only conclusion one can arrive at if he has read all the NPC laws in the order of
enactment or issuance as narrated above in part I hereof. President Marcos must have considered
all the NPC statutes from C.A. No. 120 up to its latest amendments, P.D. No. 380, P.D. No. 395 and
P.D. No. 759, AND came up 55 with a very simple Section 13, R.A. No. 6395, as amended by P.D. No.
938.
One common theme in all these laws is that the NPC must be enable to pay its
indebtedness 56 which, as of P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one
time, and U$4 Billion in total foreign loans at any one time. The NPC must be and has to be exempt from
all forms of taxes if this goal is to be achieved.
By virtue of P.D. No. 938 NPC's capital stock was raised to P8 Billion. It must be remembered that to
pay the government share in its capital stock P.D. No. 758 was issued mandating that P200 Million
would be appropriated annually to cover the said unpaid subscription of the Government in NPC's
authorized capital stock. And significantly one of the sources of this annual appropriation of P200
million is TAX MONEY accruing to the General Fund of the Government. It does not stand to reason
then that former President Marcos would order P200 Million to be taken partially or totally from tax
money to be used to pay the Government subscription in the NPC, on one hand, and then order the
NPC to pay all its indirect taxes, on the other.
The above conclusion that then President Marcos lumped up Sections 13 (b), 13 (c) and (d) into the
phrase "All FORMS OF" is supported by the fact that he did not do the same for the tax exemption
provision for the foreign loans to be incurred.
The tax exemption on foreign loans found in Section 8(b), R.A. No. 6395, reads as follows:
The loans, credits and indebtedness contracted under this subsection and the
payment of the principal, interest and other charges thereon, as well as the
importation of machinery, equipment, materials and supplies by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all taxes, fees, imposts, other charges and restrictions, including
import restrictions, by the Republic of the Philippines, or any of its agencies and
political subdivisions. 57
The same was amended by P.D. No. 380 as follows:

The loans, credits and indebtedness contracted this subsection and the payment of
the principal, interest and other charges thereon, as well as the importation of
machinery, equipment, materials, supplies and services, by the Corporation, paid
from the proceeds of any loan, credit or indebtedness incurred under this Act, shall
also be exempt from all direct and indirect taxes, fees, imposts, other charges and
restrictions, including import restrictions previously and presently imposed, and to be
imposed by the Republic of the Philippines, or any of its agencies and political
subdivisions. 58 (Emphasis supplied)
P.D. No. 938 did not amend the same 59 and so the tax exemption provision in Section 8 (b), R.A. No.
6395, as amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b)
had to do only with loans and machinery imported, paid for from the proceeds of these foreign
loans, THERE WAS NO OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption
stood as is with the express mention of "direct
and indirect" tax exemptions. And this "direct and indirect" tax exemption privilege extended to "taxes,
fees, imposts, other charges . . . to be imposed" in the future surely, an indication that the lawmakers
wanted the NPC to be exempt from ALL FORMS of taxes direct and indirect.
It is crystal clear, therefore, that NPC had been granted tax exemption privileges for both direct and
indirect taxes under P.D. No. 938.
VI
Five (5) years on into the now discredited New Society, the Government decided to rationalize
government receipts and expenditures by formulating and implementing a National Budget. 60 The
NPC, being a government owned and controlled corporation had to be shed off its tax exemption status
privileges under P.D. No. 1177. It was, however, allowed to ask for a subsidy from the General Fund in the
exact amount of taxes/duties due.
Actually, much earlier, P.D. No. 882 had already repealed NPC's tax-free importation privileges. It
allowed, however, NPC to appeal said repeal with the Office of the President and to avail of tax-free
importation privileges under its Section 1, subject to the prior approval of an Inter-Agency Committed
created by virtue of said P.D. No. 882. It is presumed that the NPC, being the special creation of the
State, was allowed to continue its tax-free importations.
This Court notes that petitioner brought to the attention of this Court, the matter of the abolition of
NPC's tax exemption privileges by P.D. No. 1177 61 only in his Common Reply/Comment to private
Respondents' "Opposition" and "Comment" to Motion for Reconsideration, four (4) months AFTER the
motion for Reconsideration had been filed. During oral arguments heard on July 9, 1992, he proceeded to
discuss this tax exemption withdrawal as explained by then Secretary of Justice Vicente Abad Santos in
opinion No. 133 (S '77). 62 A careful perusal of petitioner's senate Blue Ribbon Committee Report No. 474,
the basis of the petition at bar, fails to yield any mention of said P.D. No. 1177's effect on NPC's tax
exemption privileges. 63Applying by analogy Pulido vs. Pablo, 64 the court declares that the matter of P.D.
No. 1177 abolishing NPC's tax exemption privileges was not seasonably invoked 65 by the petitioner.
Be that as it may, the Court still has to discuss the effect of P.D. No. 1177 on the NPC tax exemption
privileges as this statute has been reiterated twice in P.D. No. 1931. The express repeal of tax
privileges of any government-owned or controlled corporation (GOCC). NPC included, was
reiterated in the fourth whereas clause of P.D. No. 1931's preamble. The subsidy provided for in
Section 23, P.D. No. 1177, being inconsistent with Section 2, P.D. No. 1931, was deemed repealed
as the Fiscal Incentives Revenue Board was tasked with recommending the partial or total
restoration of tax exemptions withdrawn by Section 1, P.D. No. 1931.

The records before Us do not indicate whether or not NPC asked for the subsidy contemplated in
Section 23, P.D. No. 1177. Considering, however, that under Section 16 of P.D. No. 1177, NPC had
to submit to the Office of the President its request for the P200 million mandated by P.D. No. 758 to
be appropriated annually by the Government to cover its unpaid subscription to the NPC authorized
capital stock and that under Section 22, of the same P.D. No. NPC had to likewise submit to the
Office of the President its internal operating budget for review due to capital inputs of the
government (P.D. No. 758) and to the national government's guarantee of the domestic and foreign
indebtedness of the NPC, it is clear that NPC was covered by P.D. No. 1177.
There is reason to believe that NPC availed of subsidy granted to exempt GOCC's that suddenly
found themselves having to pay taxes. It will be noted that Section 23, P.D. No. 1177, mandated that
the Secretary of Finance and the Commissioner of the Budget had to establish the necessary
procedure to accomplish the tax payment/tax subsidy scheme of the Government. In effect, NPC, did
not put any cash to pay any tax as it got from the General Fund the amounts necessary to pay
different revenue collectors for the taxes it had to pay.
In his memorandum filed July 16, 1992, petitioner submits:
[T]hat with the enactment of P.D. No. 1177 on July 30, 1977, the NPC lost all its duty
and tax exemptions, whether direct or indirect. And so there was nothing to be
withdrawn or to be restored under P.D. No. 1931, issued on June 11, 1984. This is
evident from sections 1 and 2 of said P.D. No. 1931, which reads:
"Section 1. The provisions of special or general law to the contrary
notwithstanding, all exemptions from the payment of duties, taxes,
fees, imports and other charges heretofore granted in favor of
government-owned or controlled corporations including their
subsidiaries are hereby withdrawn."
Sec. 2. The President of the Philippines and/or the Minister of
Finance, upon the recommendation of the Fiscal Incentives Review
Board created under P.D. No. 776, is hereby empowered to restore
partially or totally, the exemptions withdrawn by section 1 above. . . .
Hence, P.D. No. 1931 did not have any effect or did it change NPC's status. Since it
had already lost all its tax exemptions privilege with the issuance of P.D. No. 1177
seven (7) years earlier or on July 30, 1977, there were no tax exemptions to be
withdrawn by section 1 which could later be restored by the Minister of Finance upon
the recommendation of the FIRB under Section 2 of P.D. No. 1931. Consequently,
FIRB resolutions No. 10-85, and 1-86, were all illegally and validly issued since FIRB
acted beyond their statutory authority by creating and not merely restoring the tax
exempt status of NPC. The same is true for FIRB Res. No. 17-87 which restored
NPC's tax exemption under E.O. No. 93 which likewise abolished all duties and tax
exemptions but allowed the President upon recommendation of the FIRB to restore
those abolished.
The Court disagrees.
Applying by analogy the weight of authority that:
When a revised and consolidated act re-enacts in the same or substantially the same
terms the provisions of the act or acts so revised and consolidated, the revision and

consolidation shall be taken to be a continuation of the former act or acts, although

the former act or acts may be expressly repealed by the revised and consolidated
act; and all rights
and liabilities under the former act or acts are preserved and may be enforced. 66
the Court rules that when P.D. No. 1931 basically reenacted in its Section 1 the first half of Section
23, P.D. No. 1177, on withdrawal of tax exemption privileges of all GOCC's said Section 1, P.D. No.
1931 was deemed to be a continuation of the first half of Section 23, P.D. No. 1177, although the
second half of Section 23, P.D. No. 177, on the subsidy scheme for former tax exempt GOCCs had
been expressly repealed by Section 2 with its institution of the FIRB recommendation of partial/total
restoration of tax exemption privileges.
The NPC tax privileges withdrawn by Section 1. P.D. No. 1931, were, therefore, the same NPC tax
exemption privileges withdrawn by Section 23, P.D. No. 1177. NPC could no longer obtain a subsidy
for the taxes it had to pay. It could, however, under P.D. No. 1931, ask for a total restoration of its tax
exemption privileges, which, it did, and the same were granted under FIRB Resolutions Nos. 1085 67 and 1-86 68 as approved by the Minister of Finance.
Consequently, contrary to petitioner's submission, FIRB Resolutions Nos. 10-85 and 1-86 were both
legally and validly issued by the FIRB pursuant to P.D. No. 1931. FIRB did not created NPC's tax
exemption status but merely restored it. 69
Some quarters have expressed the view that P.D. No. 1931 was illegally issued under the now rather
infamous Amendment No. 6 70 as there was no showing that President Marcos' encroachment on
legislative prerogatives was justified under the then prevailing condition that he could legislate "only if the
Batasang Pambansa 'failed or was unable to act inadequately on any matter that in his judgment required
immediate action' to meet the 'exigency'. 71
Actually under said Amendment No. 6, then President Marcos could issue decrees not only when the
Interim Batasang Pambansa failed or was unable to act adequately on any matter for any reason
that in his (Marcos') judgment required immediate action, but also when there existed a grave
emergency or a threat or thereof. It must be remembered that said Presidential Decree was issued
only around nine (9) months after the Philippines unilaterally declared a moratorium on its foreign
debt payments 72 as a result of the economic crisis triggered by loss of confidence in the government
brought about by the Aquino assassination. The Philippines was then trying to reschedule its debt
payments. 73 One of the big borrowers was the NPC 74 which had a US$ 2.1 billion white elephant of a
Bataan Nuclear Power Plant on its back. 75 From all indications, it must have been this grave emergency
of a debt rescheduling which compelled Marcos to issue P.D. No. 1931, under his Amendment 6 power. 76
The rule, therefore, that under the 1973 Constitution "no law granting a tax exemption shall be
passed without the concurrence of a majority of all the members of the Batasang Pambansa" 77 does
not apply as said P.D. No. 1931 was not passed by the Interim Batasang Pambansa but by then President
Marcos under His Amendment No. 6 power.
P.D. No. 1931 was, therefore, validly issued by then President Marcos under his Amendment No. 6
authority.
Under E.O No. 93 (S'86) NPC's tax exemption privileges were again clipped by, this time, President
Aquino. Its section 2 allowed the NPC to apply for the restoration of its tax exemption privileges. The
same was granted under FIRB Resolution No. 17-87 78 dated June 24, 1987 which restored NPC's tax
exemption privileges effective, starting March 10, 1987, the date of effectivity of E.O. No. 93 (S'86).

FIRB Resolution No. 17-87 was approved by the President on October 5, 1987. 79 There is no
indication, however, from the records of the case whether or not similar approvals were given by then
President Marcos for FIRB Resolutions Nos. 10-85 and 1- 86. This has led some quarters to believe that
a "travesty of justice" might have occurred when the Minister of Finance approved his own
recommendation as Chairman of the Fiscal Incentives Review Board as what happened in Zambales
Chromate vs. Court of Appeals 80 when the Secretary of Agriculture and Natural Resources approved a
decision earlier rendered by him when he was the Director of Mines, 81 and in Anzaldo vs. Clave 82 where
Presidential Executive Assistant Clave affirmed, on appeal to Malacaang, his own decision as Chairman
of the Civil Service Commission. 83
Upon deeper analysis, the question arises as to whether one can talk about "due process" being
violated when FIRB Resolutions Nos. 10-85 and 1-86 were approved by the Minister of Finance
when the same were recommended by him in his capacity as Chairman of the Fiscal Incentives
Review Board. 84
In Zambales Chromite and Anzaldo, two (2) different parties were involved: mining groups and
scientist-doctors, respectively. Thus, there was a need for procedural due process to be followed.
In the case of the tax exemption restoration of NPC, there is no other comparable entity not even
a single public or private corporation whose rights would be violated if NPC's tax exemption
privileges were to be restored. While there might have been a MERALCO before Martial Law, it is of
public knowledge that the MERALCO generating plants were sold to the NPC in line with the State
policy that NPC was to be the State implementing arm for the electrification of the entire country.
Besides, MERALCO was limited to Manila and its environs. And as of 1984, there was no more
MERALCO as a producer of electricity which could have objected to the restoration of NPC's
tax exemption privileges.
It should be noted that NPC was not asking to be granted tax exemption privileges for the first time.
It was just asking that its tax exemption privileges be restored. It is for these reasons that, at least in
NPC's case, the recommendation and approval of NPC's tax exemption privileges under FIRB
Resolution Nos. 10-85 and 1-86, done by the same person acting in his dual capacities as Chairman
of the Fiscal Incentives Review Board and Minister of Finance, respectively, do not violate
procedural due process.
While as above-mentioned, FIRB Resolution No. 17-87 was approved by President Aquino on
October 5, 1987, the view has been expressed that President Aquino, at least with regard to E.O. 93
(S'86), had no authority to sub-delegate to the FIRB, which was allegedly not a delegate of the
legislature, the power delegated to her thereunder.
A misconception must be cleared up.
When E.O No. 93 (S'86) was issued, President Aquino was exercising both Executive and
Legislative powers. Thus, there was no power delegated to her, rather it was she who was
delegating her power. She delegated it to the FIRB, which, for purposes of E.O No. 93 (S'86), is a
delegate of the legislature. Clearly, she was not sub-delegating her power.
And E.O. No. 93 (S'86), as a delegating law, was complete in itself it set forth the policy to be
carried out 85 and it fixed the standard to which the delegate had to conform in the performance of his
functions, 86 both qualities having been enunciated by this Court in Pelaez vs. Auditor General. 87
Thus, after all has been said, it is clear that the NPC had its tax exemption privileges restored from
June 11, 1984 up to the present.

VII
The next question that projects itself is who pays the tax?
The answer to the question could be gleamed from the manner by which the Commissaries of the
Armed Forces of the Philippines sell their goods.
By virtue of P.D. No. 83, 88 veterans, members of the Armed of the Philippines, and their defendants but
groceries and other goods free of all taxes and duties if bought from any AFP Commissaries.
In practice, the AFP Commissary suppliers probably treat the unchargeable specific, ad valorem and
other taxes on the goods earmarked for AFP Commissaries as an added cost of operation and
distribute it over the total units of goods sold as it would any other cost. Thus, even the ordinary
supermarket buyer probably pays for the specific, ad valorem and other taxes which theses
suppliers do not charge the AFP Commissaries. 89
IN MUCH THE SAME MANNER, it is clear that private respondents-oil companies have to absorb
the taxes they add to the bunker fuel oil they sell to NPC.
It should be stated at this juncture that, as early as May 14, 1954, the Secretary of Justice renders
an opinion, 90 wherein he stated and We quote:
xxx xxx xxx
Republic Act No. 358 exempts the National Power Corporation from "all taxes, duties,
fees, imposts, charges, and restrictions of the Republic of the Philippines and its
provinces, cities, and municipalities." This exemption is broad enough to include all
taxes, whether direct or indirect, which the National Power Corporation may be
required to pay, such as the specific tax on petroleum products. That it is indirect or is
of no amount [should be of no moment], for it is the corporation that ultimately pays
it. The view which refuses to accord the exemption because the tax is first paid by
the seller disregards realities and gives more importance to form than to substance.
Equity and law always exalt substance over from.
xxx xxx xxx
Tax exemptions are undoubtedly to be construed strictly but not so grudgingly as
knowledge that many impositions taxpayers have to pay are in the nature of indirect
taxes. To limit the exemption granted the National Power Corporation to direct taxes
notwithstanding the general and broad language of the statue will be to thwrat the
legislative intention in giving exemption from all forms of taxes and impositions
without distinguishing between those that are direct and those that are not.
(Emphasis supplied)
In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker
fuel oil to NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very
nature of indirect taxation, the economic burden of such taxation is expected to be passed on
through the channels of commerce to the user or consumer of the goods sold. Because, however,
the NPC has been exempted from both direct and indirect taxation, the NPC must beheld exempted
from absorbing the economic burden of indirect taxation. This means, on the one hand, that the oil
companies which wish to sell to NPC absorb all or part of the economic burden of the taxes

previously paid to BIR, which could they shift to NPC if NPC did not enjoy exemption from indirect
taxes. This means also, on the other hand, that the NPC may refuse to pay the part of the "normal"
purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies because to do
so may be more convenient and ultimately less costly for NPC than NPC itself importing and hauling
and storing the oil from overseas NPC is entitled to be reimbursed by the BIR for that part of the
buying price of NPC which verifiably represents the tax already paid by the oil company-vendor to
the BIR.
It should be noted at this point in time that the whole issue of who WILL pay these indirect taxes
HAS BEEN RENDEREDmoot and academic by E.O. No. 195 issued on June 16, 1987 by virtue of
which the ad valorem tax rate on bunker fuel oil was reduced to ZERO (0%) PER CENTUM. Said
E.O. no. 195 reads as follows:
EXECUTIVE ORDER NO. 195
AMENDING PARAGRAPH (b) OF SECTION 128 OF THE NATIONAL INTERNAL
REVENUE CODE, AS AMENDED BY REVISING THE EXCISE TAX RATES OF
CERTAIN PETROLEUM PRODUCTS.
xxx xxx xxx
Sec. 1. Paragraph (b) of Section 128 of the National Internal Revenue Code, as
amended, is hereby amended to read as follows:
Par. (b) For products subject to ad valorem tax only:
PRODUCT AD VALOREM TAX RATE
1. . . .
2. . . .
3. . . .
4. Fuel oil, commercially known as bunker oil and on similar fuel oils having more or
less the same generating power 0%
xxx xxx xxx
Sec. 3. This Executive Order shall take effect immediately.
Done in the city of Manila, this 17th day of June, in the year of Our Lord, nineteen
hundred and eighty-seven. (Emphasis supplied)
The oil companies can now deliver bunker fuel oil to NPC without having to worry about who is going
to bear the economic burden of the ad valorem taxes. What this Court will now dispose of are
petitioner's complaints that some indirect tax money has been illegally refunded by the Bureau of
Internal Revenue to the NPC and that more claims for refunds by the NPC are being processed for
payment by the BIR.

A case in point is the Tax Credit Memo issued by the Bureau of Internal Revenue in favor of the NPC
last July 7, 1986 for P58.020.110.79 which were for "erroneously paid specific and ad valorem taxes
during the period from October 31, 1984 to April 27, 1985. 91 Petitioner asks Us to declare this Tax
Credit Memo illegal as the PNC did not have indirect tax exemptions with the enactment of P.D. No. 938.
As We have already ruled otherwise, the only questions left are whether NPC Is entitled to a tax refund
for the tax component of the price of the bunker fuel oil purchased from Caltex (Phils.) Inc. and whether
the Bureau of Internal Revenue properly refunded the amount to NPC.
After P.D. No. 1931 was issued on June 11, 1984 withdrawing the
tax exemptions of all GOCCs NPC included, it was only on May 8, 1985 when the BIR issues its
letter authority to the NPC authorizing it to withdraw tax-free bunker fuel oil from the oil companies
pursuant to FIRB Resolution No. 10-85. 92Since the tax exemption restoration was retroactive to June
11, 1984 there was a need. therefore, to recover said amount as Caltex (PhiIs.) Inc. had already paid the
BIR the specific and ad valorem taxes on the bunker oil it sold NPC during the period above indicated and
had billed NPC correspondingly. 93 It should be noted that the NPC, in its letter-claim dated September 11,
1985 to the Commissioner of the Bureau of Internal Revenue DID NOT CATEGORICALLY AND
UNEQUIVOCALLY STATE that itself paid the P58.020,110.79 as part of the bunker fuel oil price it
purchased from Caltex (Phils) Inc. 94
The law governing recovery of erroneously or illegally, collected taxes is section 230 of the National
Internal Revenue Code of 1977, as amended which reads as follows:
Sec. 230. Recover of tax erroneously or illegally collected. No suit or proceeding
shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of
any penalty claimed to have been collected without authority, or of any sum alleged
to have been excessive or in any Manner wrongfully collected. until a claim for refund
or credit has been duly filed with the Commissioner; but such suit or proceeding may
be maintained, whether or not such tax, penalty, or sum has been paid under protest
or duress.
In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment; Provided, however, That the Commissioner may,
even without a written claim therefor, refund or credit any tax, where on the face of
the return upon which payment was made, such payment appears clearly, to have
been erroneously paid.
xxx xxx xxx
Inasmuch as NPC filled its claim for P58.020,110.79 on September 11, 1985,
correctly issued the Tax Credit Memo in view of NPC's indirect tax exemption.

95

the Commissioner

Petitioner, however, asks Us to restrain the Commissioner from acting favorably on NPC's claim for
P410.580,000.00 which represents specific and ad valorem taxes paid by the oil companies to the
BIR from June 11, 1984 to the early part of 1986. 96
A careful examination of petitioner's pleadings and annexes attached thereto does not reveal when
the alleged claim for a P410,580,000.00 tax refund was filed. It is only stated In paragraph No. 2 of
the Deed of Assignment 97 executed by and between NPC and Caltex (Phils.) Inc., as follows:

That the ASSIGNOR(NPC) has a pending tax credit claim with the Bureau of Internal
Revenue amounting to P442,887,716.16. P58.020,110.79 of which is due to
Assignor's oil purchases from the Assignee (Caltex [Phils.] Inc.)
Actually, as the Court sees it, this is a clear case of a "Mexican standoff." We cannot restrain the BIR
from refunding said amount because of Our ruling that NPC has both direct and indirect tax
exemption privileges. Neither can We order the BIR to refund said amount to NPC as there is no
pending petition for review on certiorari of a suit for its collection before Us. At any rate, at this point
in time, NPC can no longer file any suit to collect said amount EVEN IF lt has previously filed a claim
with the BIR because it is time-barred under Section 230 of the National Internal Revenue Code of
1977. as amended, which states:
In any case, no such suit or proceeding shall be begun after the expiration of two
years from the date of payment of the tax or penalty REGARDLESS of any
supervening cause that may arise after payment. . . . (Emphasis supplied)
The date of the Deed of Assignment is June 6. 1986. Even if We were to assume that payment by
NPC for the amount of P410,580,000.00 had been made on said date. it is clear that more than two
(2) years had already elapsed from said date. At the same time, We should note that there is no
legal obstacle to the BIR granting, even without a suit by NPC, the tax credit or refund claimed by
NPC, assuming that NPC's claim had been made seasonably, and assuming the amounts covered
had actually been paid previously by the oil companies to the BIR.
WHEREFORE, in view of all the foregoing, the Motion for Reconsideration of petitioner is hereby
DENIED for lack of merit and the decision of this Court promulgated on May 31, 1991 is hereby
AFFIRMED.
SO ORDERED.

G.R. No. L-19470

January 30, 1965

GONZALO P. NAVA, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
E. P. Villar and A. Tordesillas for petitioner.
Office of the Solicitor General for respondent.
REYES, J.B.L., J.:
Gonzalo P. Nava prosecuted this appeal against a decision dated September 25, 1961 by the Court
of Tax Appeals (C.T.A. Case No. 568) holding him liable in the amount of P3,052.00 as deficiency
income tax for the year 1950 as well as from its order dated February 10, 1962 denying a motion to
reconsider said decision.
The undisputed facts are: that on May 15, 1951, Nava filed his income tax return for the year 1950,
and, on the same date, he was assessed by respondent Commissioner (formerly Collector) of

Internal Revenue in the sum of P4,952.00, based solely on said return. Nava paid one-half of the tax
due, leaving a balance of P2,491.00. Subsequently, Nava offered his backpay certificate to pay said
balance, but respondent refused the offer. On July 28, 1953, he requested the respondent to hold in
abeyance the collection of said balance until the question of whether or not he was entitled to pay
the same out of his backpay shall have been decided, but this was also rejected by the latter in a
reply letter dated January 5, 1954. This rejection was followed by two more letters or notices
demanding payment of the balance thereof, the last of which was dated February 22, 1955.
On March 30, 1955, after investigation of petitioner's 1950 income tax return, respondent Collector
issued a deficiency income tax assessment notice (Exhibit "4") requiring petitioner to pay not later
than April 30, 1955 the sum of P9,124.50, that included the balance of P2,491.00, still unpaid under
the original assessment, plus a 50% surcharge. Several notices of this revised assessment are
alleged to have been issued to the taxpayer, but Nava claims to have learned of it for the first time
on December 19, 1956, more than five years since the original tax return was filed, and testified to
that effect in the court below. In a letter of January 10, 1957, Nava called attention to the fact that
more than six years had elapsed, protested the assessment, and contended that it was a closed
issue. The Director insisted upon his demand that the new assessment be paid (registered letter of
Mach 25, 1957, Exhibit "5"). Nava asked for reconsideration, and on June 16, 1958 was informed
that reinvestigation would be granted provided the taxpayer waived the statute of limitations (Exh.
"7"), a condition that was rejected (Exh. "8"). Thereupon, the reconsideration of the assessment was
denied by the Collector's letter of July 22, 1958 (Exh. "9"), and on August 8, 1958 Nava filed a
petition for review with the Court of Tax Appeals. The latter reduced the deficiency to P3,052.00, and
cancelled the 50% surcharge. The petitioner appealed to this Court.
The principal issue in this appeal is whether the enforcement of the tax assessment has prescribed.
The Court of Tax Appeals ruled that it had not, stating that:
The duplicate copy of the income tax assessment notice indicates that it was issued on
March 30, 1955 (Exh. 4, page 7, B.I.R. records). "Call-up" letters were sent to petitioner
reminding him of the obligation. These call-up letters or notices were recorded in Exh. C for
petitioner (Exh. 3 for respondent, page 6, B.I.R. records), to wit:
1st notice

4/10/56

2nd notice

7/3/56

Final

9/25/56

In addition to the written notice sent to petitioner, he was also personally interviewed. A
report on these written notices and personal interviews appears in the memorandum of an
agent of the Bureau of Internal Revenue dated December 10, 1956, the pertinent portion of
which reads as follows.
"Several call-up letters and repeated demands have been made to subject taxpayers
but in spite of the considerable length of time that has elapsed the above accounts
still remain unsettled. The warrant assemblies of the above-stated tax cases were
assigned to Agent A. H. Aguilar and an interview with Mr. G. P. Nava revealed that
the latter refused to pay alleging that these cases come within the purview of the
Avelino case, hence, the
B.I.R. has no more right to collect from him." (Exh. D, page 8, B.I.R. records).

Petitioner's claim that he came to know of the assessment only on or about December 19,
1956 can not be given much credence. We are inclined to believe that the assessment notice
dated March 30, 1955 and the several call-up letters sent to him were received by him in due
course of mail but that he ignored them because of his belief that the right of the
Government to collect the tax had prescribed in view of the decision in the Avelino case. This
conclusion finds support in a note sent or delivered by petitioner to an employee of the
Bureau who interviewed him, wherein he stated:
"This is to certify that I have received today, second final notice from the Bureau of
Internal Revenue delivered by Mrs. Canlas. My reply to your said final notice, as per
your request, will be sent to you on or before January 3, 1957, in view of the fact that
I may not be able to contact right away my Accountant." (Exh. E, page 9, B.I.R.
records; Emphasis ours.)
The fact that petitioner admitted receipt of the "second final notice" without protest is an
indication that he received the previous notices
Assuming that petitioner received the income tax assessment notice dated March 30, 1955
in due course of mail, that is, not later than April 10, 1955, the assessment was made within
the five-year period since he filed his income tax return on May 15, 1951, even granting that
the ten-year period applicable to fraud cases does not apply to this case. (The assessment
includes the fraud penalty.) Since the deficiency income tax was assessed on or about April
10, 1955, the Government is authorized to collect the same by distraint or levy or by judicial
action within five years from that date, or not later than April 10, 1960. Judicial action was
instituted in the Court of First Instance of Manila in Civil Case No. 32796 for collection of said
amount, followed by the institution of the instant appeal in this Court by petitioner himself on
August 8, 1958, both within the five-year period. Therefore, we are of the opinion that the
right of the Government to assess and collect said deficiency income tax has not
prescribed." (Annex "O", petition, pp. 134-137, records).
It is to be noted that in its decision the Court of Tax Appeals relied mainly on the duplicate copy of
the deficiency income tax notice found in the Bureau of Internal Revenue file of petitioner Nava
(Exhibit "4", page 7, B.I.R. records). On the corresponding blank space for the date of issue of said
duplicate copy was typed "3/30/55". Petitioner Nava denied having received the original copy of said
notice. The Revenue Commissioner, on the other hand, presented a witness (Mr. Pablo Sangil, an
employee [clerk] of the B.I.R.) who attempted to establish that the original copy thereof was actually
issued or sent on March 30, 1955. This witness, however, disclaimed having personal knowledge of
its issuance or release on said date either by mail or personal delivery because, according to him, he
was assigned in the income tax section of the Bureau of Internal Revenue in October, 1956 only.
Sangil also declared that there is no notation whatsover in said file copy (Exhibit "4"), nor even a slip
of paper attached to the records, to show that the original copy of said exhibit was ever actually
issued or sent to the taxpayer. He even admitted that he had no hand in the preparation or sending
of written notices or demand letters of the Bureau of Internal Revenue to the taxpayers, his duties
being merely to keep the dockets of taxpayers pertaining to income tax, to post and transmit papers
to the other branches of the Bureau for action, and to keep letters of taxpayers, memorandum and
other official matters. Respondent presented another witness, Mr. Eliseo B. Fernandez, whose
duties, as record clerk of the Records Control Section of the Bureau of Internal Revenue since 1957
(already past the limitation period of this case), are to send mail and to keep a record book of letters
which are mailed to the taxpayers. Insofar as the testimony of this witness is concerned, he only
declared as to the fact that there appears in his record book a note (Exhibit "10") that a letter dated
March 15, 1957 was mailed by special delivery with return card to Gonzalo P. Nava. He admitted,

however, that he was not the one who prepared such entry in the record book. What was the nature
of the letter does not appear; at any rate, it was mailed beyond the 5-year limitation period.
The lower court also relied on the supposed notices noted in ink (followed by an illegible initial) in
Exhibit "3" for respondent (page 6, B.I.R. records), the first of which was purportedly sent on April 10,
1956, the second on July 3, 1956, and the final one on August 25, 1956, as well as on the supposed
"call-up" or demand letters referred to in a memorandum of an agent (Mrs. Canlas) of the Bureau of
Internal Revenue. (Exhibit "D", page 8, B.I.R. records). No witness for the respondent testified to the
issuance or sending of any of these supposed written demand letters or notices, nor was there any
duplicate or even a simple copy thereof found in petitioner Nava's Bureau of Internal Revenue file.
Although witness Sangil testified as to the meaning of the dates noted in Exhibit "3", his testimony
cannot be given much credence because those supposed notices were sent on or before August 25,
1956 at the latest, and, as hereinabove pointed out, the witness was assigned in the income tax
section of the Bureau of Internal Revenue since October, 1956 only.
Thus, contrary to the finding of the Court of Tax Appeals, respondent utterly failed to prove by
substantial evidence that the assessment notice dated March 30, 1955 and the other supposed
written demand letters or notices subsequent thereto were in fact issued or sent to taxpayer Nava.
The presumption that a letter duly directed and mailed was received in the regular course of mail
(Sec. 5 [v], Rule 131, revised Rules of Court) cannot be applied to the case at bar.
The facts to be proved to raise this presumption are (a) that the letter was properly
addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the
presumption is that the letter was received by the addressee as soon as it could have been
transmitted to him in the ordinary course of the mail. But if one of the said facts fails to
appear, the presumption does not lie." (VI, Moran, Comments on the Rules of Court, 1963
ed., 56-57; citing Enriquez vs. Sun Life Assurance of Canada, 41 Phil. 269) (Emphasis
supplied).
Since none of these requirements have been shown, there has been no valid and effective issuance
or release of said deficiency income tax assessment notice dated March 30, 1955 and of the other
demand letters or notices subsequent thereto, the latest of which was purportedly sent on August 25,
1956, and these dates cannot be reckoned with in computing the period of prescription within which
a court action to collect the same may be brought.
The fact that in Exhibit "E" Nava acknowledged receipt of the second final notice personally
delivered to him is no proof that he received the first notice by mail. There is a difference between
receiving a second final notice and receiving a final notice for the second time.
It being undisputed that an original assessment of Nava's 1950 income tax return was made on May
15, 1951, and no valid and effective notice of the re-assessment having been made against the
petitioner after that date (May 15, 1951), it is evident that the period under Section 331 of the Tax
Code within which to make a re-assessment expired on May 15, 1956. Since the notice of said
deficiency income tax was effectively made on December 19, 1956 at the earliest, the judicial action
to collect any deficiency tax on Nava's 1950 income tax return has already prescribed under Section
332 (c) of the Tax Code, it having been found by the Tax Appeals court that said return was not false
or fraudulent.
While we have held that an assessment is made when sent within the prescribed period, even if
received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259,
May 27, 1959), this ruling makes it the more imperative that the release, mailing, or sending of the
notice be clearly and satisfactorily proved. Mere notations made without the taxpayer's intervention,

notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate protection or defense.
Having reached the conclusion that the action to collect said deficiency income tax has already
prescribed, it is unnecessary to discuss the other issues raised by petitioner Nava in the instant
appeal.
1wph1.t

WHEREFORE, the decision of the Court of Tax Appeals under review is reversed, without costs.

BARCELON,
ROXAS
SECURITIES,
INC.
(now
known as UBP Securities, Inc.)
Petitioner,

G. R. No. 157064
Present:
PANGANIBAN, C.J.,
Chairman,
YNARES-SANTIAGO
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

- versus -

COMMISSIONER
OF
INTERNAL REVENUE,
Respondent.

Promulgated:
August 7, 2006

x--------------------------------------------------x
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari, under Rule 45 of the Rules of
Court, seeking to set aside the Decision of the Court of Appeals in CA-G.R. SP No.
60209 dated 11 July 2002,[1] ordering the petitioner to pay the Government the
amount of P826,698.31 as deficiency income tax for the year 1987 plus 25%
surcharge and 20% interest per annum. The Court of Appeals, in its assailed
Decision, reversed the Decision of the Court of Tax Appeals (CTA) dated 17 May
2000[2] in C.T.A. Case No. 5662.

Petitioner Barcelon, Roxas Securities Inc. (now known as UBP Securities,

Inc.) is a corporation engaged in the trading of securities. On 14 April 1988,
petitioner filed its Annual Income Tax Return for taxable year 1987. After an audit
investigation conducted by the Bureau of Internal Revenue (BIR), respondent
Commissioner of Internal Revenue (CIR) issued an assessment for deficiency
income tax in the amount ofP826,698.31 arising from the disallowance of the item
on salaries, bonuses and allowances in the amount of P1,219,093,93 as part of the
deductible business expense since petitioner failed to subject the salaries, bonuses
and allowances to withholding taxes. This assessment was covered by Formal
Assessment Notice No. FAN-1-87-91-000649 dated 1 February 1991, which,
respondent alleges, was sent to petitioner through registered mail on 6 February
1991. However, petitioner denies receiving the formal assessment notice.[3]
On 17 March 1992, petitioner was served with a Warrant of Distraint and/or
Levy to enforce collection of the deficiency income tax for the year
1987. Petitioner filed a formal protest, dated 25 March 1992, against the Warrant
of Distraint and/or Levy, requesting for its cancellation. On 3 July 1998, petitioner
received a letter dated 30 April 1998 from the respondent denying the protest with
finality.[4]
On 31 July 1998, petitioner filed a petition for review with the CTA. After
due notice and hearing, the CTA rendered a decision in favor of petitioner on 17
May 2000. The CTA ruled on the primary issue of prescription and found it
unnecessary to decide the issues on the validity and propriety of the assessment. It
maintained that while a mailed letter is deemed received by the addressee in the
course of mail, this is merely a disputable presumption. It reasoned that the direct
denial of the petitioner shifts the burden of proof to the respondent that the mailed
letter was actually received by the petitioner. The CTA found the BIR records
submitted by the respondent immaterial, self-serving, and therefore insufficient to
prove that the assessment notice was mailed and duly received by the petitioner.
[5]
The dispositive portion of this decision reads:
WHEREFORE, in view of the foregoing, the 1988 deficiency tax
assessment against petitioner is hereby CANCELLED. Respondent is

hereby ORDERED TO DESIST from collecting said deficiency tax. No

pronouncement as to costs.[6]

On 6 June 2000, respondent moved for reconsideration of the aforesaid

decision but was denied by the CTA in a Resolution dated 25 July
2000. Thereafter, respondent appealed to the Court of Appeals on 31 August
2001. In reversing the CTA decision, the Court of Appeals found the evidence
presented by the respondent to be sufficient proof that the tax assessment notice
was mailed to the petitioner, therefore the legal presumption that it was received
should apply.[7] Thus, the Court of Appeals ruled that:
WHEREFORE, the petition is hereby GRANTED. The
decision dated May 17, 2000 as well as the Resolution dated July
25, 2000 are hereby REVERSED and SET ASIDE, and a new on
entered ordering the respondent to pay the amount
of P826,698.31 as deficiency income tax for the year 1987 plus
25% surcharge and 20% interest per annum from February 6,
1991 until fully paid pursuant to Sections 248 and 249 of the Tax
Code.[8]

Petitioner moved for reconsideration of the said decision but the same was
denied by the Court of Appeals in its assailed Resolution dated30 January 2003.[9]
Hence, this Petition for Review on Certiorari raising the following issues:
I
WHETHER OR NOT LEGAL BASES EXIST FOR THE COURT OF
APPEALS FINDING THAT THE COURT OF TAX APPEALS
COMMITTED GROSS ERROR IN THE APPRECIATION OF
FACTS.
II
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN
REVERSING THE SUBJECT DECISION OF THE COURT OF TAX APPEALS.

III
WHETHER OR NOT THE RIGHT OF THE BUREAU OF INTERNAL
REVENUE TO ASSESS PETITIONER FOR ALLEGED DEFICIENCY
INCOME TAX FOR 1987 HAS PRESCRIBED.
IV
WHETHER OR NOT THE RIGHT OF THE BUREAU OF INTERNAL
REVENUE TO COLLECT THE SUBJECT ALLEGED DEFICIENCY INCOME
TAX FOR 1987 HAS PRESCRIBED.
V
WHETHER OR NOT PETITIONER IS LIABLE FOR THE ALLEGED
DEFICIENCY INCOME TAX ASSESSMENT FOR 1987.
VI
WHETHER OR NOT THE SUBJECT ASSESSMENT IS VIOLATIVE OF THE
RIGHT OF PETITIONER TO DUE PROCESS.[10]

This Court finds the instant Petition meritorious.

The core issue in this case is whether or not respondents right to assess
petitioners alleged deficiency income tax is barred by prescription, the resolution
of which depends on reviewing the findings of fact of the Court of Appeals and the
CTA.
While the general rule is that factual findings of the Court of Appeals are
binding on this Court, there are, however, recognized exceptions [11] thereto, such as
when the findings are contrary to those of the trial court or, in this case, the CTA.[12]
In its Decision, the CTA resolved the issues raised by the parties thus:
Jurisprudence is replete with cases holding that if the taxpayer denies ever
having received an assessment from the BIR, it is incumbent upon the latter to
prove by competent evidence that such notice was indeed received by the
addressee. The onus probandi was shifted to respondent to prove by contrary
evidence that the Petitioner received the assessment in the due course of
mail. The Supreme Court has consistently held that while a mailed letter is
deemed received by the addressee in the course of mail, this is merely a
disputable presumption subject to controversion and a direct denial thereof shifts

the burden to the party favored by the presumption to prove that the mailed letter
was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA
351). Thus as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of
Internal Revenue, 13 SCRA 104, January 30, 1965:
The facts to be proved to raise this presumption are (a) that
the letter was properly addressed with postage prepaid, and (b) that
it was mailed. Once these facts are proved, the presumption is that
the letter was received by the addressee as soon as it could have
been transmitted to him in the ordinary course of the mail. But if
one of the said facts fails to appear, the presumption does not
lie. (VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57
citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269).
In the instant case, Respondent utterly failed to discharge this duty. No
substantial evidence was ever presented to prove that the assessment notice No.
FAN-1-87-91-000649 or other supposed notices subsequent thereto were in fact
issued or sent to the taxpayer. As a matter of fact, it only submitted the BIR
record book which allegedly contains the list of taxpayers names, the reference
number, the year, the nature of tax, the city/municipality and the amount (seeExh.
5-a for the Respondent). Purportedly, Respondent intended to show to this Court
that all assessments made are entered into a record book in chronological order
outlining the details of the assessment and the taxpayer liable thereon. However,
as can be gleaned from the face of the exhibit, all entries thereon appears to be
immaterial and impertinent in proving that the assessment notice was mailed and
duly received by Petitioner. Nothing indicates therein all essential facts that could
sustain the burden of proof being shifted to the Respondent. What is essential to
prove the fact of mailing is the registry receipt issued by the Bureau of Posts or
the Registry return card which would have been signed by the Petitioner or its
authorized representative. And if said documents cannot be located, Respondent
at the very least, should have submitted to the Court a certification issued by the
Bureau of Posts and any other pertinent document which is executed with the
intervention of the Bureau of Posts. This Court does not put much credence to the
self serving documentations made by the BIR personnel especially if they are
unsupported by substantial evidence establishing the fact of mailing. Thus:
While we have held that an assessment is made when sent
within the prescribed period, even if received by the taxpayer after
its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L12259, May 27, 1959), this ruling makes it the more imperative
that the release, mailing or sending of the notice be clearly and
satisfactorily proved. Mere notations made without the taxpayers
intervention, notice or control, without adequate supporting
evidence cannot suffice; otherwise, the taxpayer would be at the
mercy of the revenue offices, without adequate protection or
defense. (Nava vs. CIR, 13 SCRA 104, January 30, 1965).

xxxx
The failure of the respondent to prove receipt of the assessment by the
Petitioner leads to the conclusion that no assessment was issued. Consequently,
the governments right to issue an assessment for the said period has already
prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA
Case 4885, August 22, 1996).[13]

Jurisprudence has consistently shown that this Court accords the findings of
fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of
Appeals[14] this Court recognizes that the Court of Tax Appeals, which by the very
nature of its function is dedicated exclusively to the consideration of tax problems,
has necessarily developed an expertise on the subject, and its conclusions will not
be overturned unless there has been an abuse or improvident exercise of
authority. Such findings can only be disturbed on appeal if they are not supported
by substantial evidence or there is a showing of gross error or abuse on the part of
the Tax Court.[15] In the absence of any clear and convincing proof to the contrary,
this Court must presume that the CTA rendered a decision which is valid in every
respect.
Under Section 203[16] of the National Internal Revenue Code (NIRC),
respondent had three (3) years from the last day for the filing of the return to send
an assessment notice to petitioner. In the case of Collector of Internal Revenue v.
Bautista,[17] this Court held that an assessment is made within the prescriptive
period if notice to this effect is released, mailed or sent by the CIR to the taxpayer
within said period. Receipt thereof by the taxpayer within the prescriptive period is
not necessary. At this point, it should be clarified that the rule does not dispense
with the requirement that the taxpayer should actually receive, even beyond the
prescriptive period, the assessment notice which was timely released, mailed and
sent.
In the present case, records show that petitioner filed its Annual Income Tax
Return for taxable year 1987 on 14 April 1988.[18] The last day for filing by
petitioner of its return was on 15 April 1988,[19] thus, giving respondent until 15
April 1991 within which to send an assessment notice. While respondent avers
that it sent the assessment notice dated 1 February 1991 on 6 February 1991,
within the three (3)-year period prescribed by law, petitioner denies having
received an assessment notice from respondent. Petitioner alleges that it came to

know of the deficiency tax assessment only on 17 March 1992 when it was served
with the Warrant of Distraint and Levy.[20]
In Protectors Services, Inc. v. Court of Appeals,[21] this Court ruled that
when a mail matter is sent by registered mail, there exists a presumption, set forth
under Section 3(v), Rule 131 of the Rules of Court, [22] that it was received in the
regular course of mail. The facts to be proved in order to raise this presumption
are: (a) that the letter was properly addressed with postage prepaid; and (b) that it
was mailed. While a mailed letter is deemed received by the addressee in the
ordinary course of mail, this is still merely a disputable presumption subject
tocontroversion, and a direct denial of the receipt thereof shifts the burden upon the
party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.[23]
In the present case, petitioner denies receiving the assessment notice, and the
respondent was unable to present substantial evidence that such notice was, indeed,
mailed or sent by the respondent before the BIRs right to assess had prescribed
and that said notice was received by the petitioner. The respondent presented the
BIR record book where the name of the taxpayer, the kind of tax assessed, the
registry receipt number and the date of mailing were noted. The BIR records
custodian, Ingrid Versola, also testified that she made the entries
therein. Respondent offered the entry in the BIR record book and the testimony of
its record custodian as entries in official records in accordance with Section 44,
Rule 130 of the Rules of Court,[24] which states that:
Section 44. Entries in official records. - Entries in official records made in
the performance of his duty by a public officer of the Philippines, or by a person
in the performance of a duty specially enjoined by law, are prima facie evidence
of the facts therein stated.

The foregoing rule on evidence, however, must be read in accordance with

this Courts pronouncement in Africa v. Caltex (Phil.), Inc.,[25]where it has been
held that an entrant must have personal knowledge of the facts stated by him or
such facts were acquired by him from reports made by persons under a legal duty
to submit the same.

There are three requisites for admissibility under the rule just mentioned:
(a) that the entry was made by a public officer, or by another person specially
enjoined by law to do so; (b) that it was made by the public officer in the
performance of his duties, or by such other person in the performance of a duty
specially enjoined by law; and (c) that the public officer or other person had
sufficient knowledge of the facts by him stated, which must have been acquired
by him personally or through official information x x x.

In this case, the entries made by Ingrid Versola were not based on her
personal knowledge as she did not attest to the fact that she personally prepared
and mailed the assessment notice. Nor was it stated in the transcript of
stenographic notes[26] how and from whom she obtained the pertinent
information. Moreover, she did not attest to the fact that she acquired the reports
from persons under a legal duty to submit the same. Hence, Rule 130, Section 44
finds no application in the present case. Thus, the evidence offered by respondent
does not qualify as an exception to the rule against hearsay evidence.
Furthermore, independent evidence, such as the registry receipt of the
assessment notice, or a certification from the Bureau of Posts, could have easily
been obtained. Yet respondent failed to present such evidence.
In the case of Nava v. Commissioner of Internal Revenue, [27] this Court
stressed on the importance of proving the release, mailing or sending of the
notice.
While we have held that an assessment is made when sent within the
prescribed period, even if received by the taxpayer after its expiration (Coll. of
Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it
the more imperative that the release, mailing, or sending of the notice be clearly
and satisfactorily proved. Mere notations made without the taxpayers
intervention, notice, or control, without adequate supporting evidence, cannot
suffice; otherwise, the taxpayer would be at the mercy of the revenue offices,
without adequate protection or defense.

In the present case, the evidence offered by the respondent fails to convince
this Court that Formal Assessment Notice No. FAN-1-87-91-000649 was released,

mailed, or sent before 15 April 1991, or before the lapse of the period of limitation
upon assessment and collection prescribed by Section 203 of the NIRC. Such
evidence, therefore, is insufficient to give rise to the presumption that the
assessment notice was received in the regular course of mail. Consequently, the
right of the government to assess and collect the alleged deficiency tax is barred by
prescription.
IN VIEW OF THE FOREGOING, the instant Petition
is GRANTED. The assailed Decision of the Court of Appeals in CA-G.R. SP No.
60209 dated 11 July 2002, is hereby REVERSED and SET ASIDE, and the
Decision of the Court of Tax Appeals in C.T.A. Case No. 5662, dated 17 May
2000, cancelling the
1988
Deficiency
Tax
Assessment
against Barcelon, Roxas Securitites, Inc. (now known as UPB Securities, Inc.) for
being barred by prescription, is hereby REINSTATED. No costs.
SO ORDERED.