RP v. CTA and Nielson & Co.
COLLECTOR OF INTERNAL REVENUE (petitioner) v PEDRO BAUTISTA and
April 30, 1987
J. Padilla
Ortiz
Topic: Remedies (Demand letter/follow-up letter for payment of taxes considered
notice of assessment)
Summary: CIR sent various assessment letters to Nielson. The former was relying on
the presumption found in the Rules of Court. SC ruled that the denial of receipt of the
respondent company defeated the presumption. However, the Court still ruled in
favor of CIR because of the admission of the receipt of the follow-up letter sent by the
deputy commissioner of Internal Revenue, reiterating the amounts due.
Facts:
On July 16, 1955, the Commissioner of Internal Revenue assessed the respondent with
deficiency tax for the years 1949 to 1952, totaling PhP 14.4k. CIR reiterated its
demand upon Respondent for payment of said amount, per letters dated 24 April
1956, 19 September 1956, and 9 February 1960. Private respondent did not contest
the assessment in the Court of Tax Appeals.
CIR filed a complaint for collection of the said amount against the Nielson with the
CTA. The CTA decided in favor of the CIR but was reversed on appeal.
Issues: WON a notice of assessment was sent to Nielson
Held: Yes
Dispositive: ACCORDINGLY, the appealed decision is hereby reversed. The decision of
the Court a quo is hereby reinstated.
Ratio:
[MAIN ISSUE}
The petitioner argues that if service is made by ordinary mail, unless the actual date of
receipt is shown, service is deemed complete and effective upon the expiration of five
(5) days after mailing. As the letter of demand dated 16 July 1955 was actually mailed
to private respondent, there arises the presumption that the letter was received by
Nielson in the absence of evidence to the contrary. Respondent did not offer any
evidence, except the self-serving testimony of its witness, that it had not received the
original copy of the demand letter dated 16 July 1955.
The Supreme Court did not agree with the petitioners. While the contention of
petitioner is correct that a mailed letter is deemed received by the addressee in the
ordinary course of mail, stilt this is merely a disputable presumption, subject to
controversion, 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.
The Court, however, still ruled in favor of the petitioner because of the follow-up letter
dated September 19, 1956, reiterating the demand for payment of taxes as specified in
the July 16, 1955 letter. This follow-up letter is considered a notice of assessment
in itself which was duly received by private respondent in accordance with its
own admission.
[SIDE ISSUE: Finality of Assessment]
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of
Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's failure to
appeal in due time makes the assessment in question final, executory and
demandable. Thus, Nielson is now barred from disputing the correctness of the
assessment or from invoking any defense that would reopen the question of its
liability on the merits.
DATIVA CORRALES TAN (respondents)
PEDRO BAUTISTA and DATIVA CORRALES TAN (petitioners) v CIR
(respondents)
May 27 1959 | Concepcion, J. | Leigh
Remedies
FACTS:
- Spouses Pedro Bautista and Dativa Tan each filed a separate income tax
return for the year 1947.
o The husband reported an income of P2,300 derived from the
exercise of his profession as lawyer and dividend received from the
law firm Camus, Zavalla, Bautista and Nuevas. He claimed a
personal exemption of P2,500 for being a married person or head
of family and an additional exemption of P500 for a minor child,
Lorna. He paid income tax of P9.
o The wife reported in her return an income of P9,999.90 derived
from the sale of her share in a lot and building situated at Tabora
St., Manila, after deducting the cost of her share in the property and
expenses of sale. She claimed a personal exemption of P2,500 for
being a married person or head of family and the same exemption
of P500 for their minor child. She paid income tax of P490.
- Under investigation by the BIR examiners, the returns of the spouses were
consolidated and a deficiency income tax was assessed against them in the
sum of P15,564.57. The deficiency assessment was the result of the alleged
under-declaration of the proceeds of the sale of the wifes share in the
Tabora property, and the over-valuation of its cost. The spouses contested
the assessment on these grounds:
o The amount actually received by them from the sale of the property
was P49,999.90 and not P66,606.66
o They failed to claim deduction for losses sustained as a result of the
fire which destroyed their house, including their personal
properties
o Tabora property was a capital asset and only 50% of the gain
derived from its sale was taxable because it was held for more than
12 months (Tax 1 stuff lol)
o The right to assess the deficiency income tax had prescribed
- CIR rejected the petitioners claims and upheld the assessment, plus 5%
surcharge, 1% monthly interest and a compromise penalty amounting to
P19,729.18. The spouses appealed.
- Court of Tax Appeals MODIFIED: the decision and ordered the spouses to
pay deficiency income tax for 1947 (P10,376.38), plus 50% surcharge
(P5,188.19), as well as 5% surcharge and 1% monthly interest on the said
deficiency tax (interest to be computed from March 15 1953 to date of
payment).
RULING: decision AFFIRMED
HELD:
Was there prescription of the action? NO.

The spouses base their claim that the action had already prescribed on sec. 3311 of the
NIRC. The income tax returns of the spouses for 1947 are deemed filed as of March 1
1948. The deficiency assessment of the CIR is dated January 21 1953, and bears a
stamp mark of the Office of the City Treasurer of QC dated February 13 1953,
indicating the date it was received from the BIR.
The spouses claim that the assessment was received by them on or about March 5
1953, which is more than 5 years from March 1 1948 (when the returns were deemed
filed!) CIR on the other hand claims that since the assessment dated January 21 1953
was mailed long before March 1 1953, it is presumed that it was received by the
spouses before that date; and granting that the assessment was made after 5 years
from the date the returns were filed, since the returns were false or fraudulent, the
CIR is authorized to assess the deficiency tax within 10 years from the date of
discovery of the fraud.
The SC affirmed the findings of the CTA ruling against the spouses in this regard.
Pedro Bautista testified that after receiving the assessment on March 5, he
immediately went to the BIR to consult with Atty. Dionisio Roque, his classmate, to
consult. It was then only from Roque that Bautista learned the prescription works in
his favor. Afterwards, his letter (filed with the office of the CIR, dated March 10 1953)
was prepared.
HOWEVER, Bautista did not specify the date when he received the notice of
assessment! If he was already aware of his defense of prescription, he should have
indicated in the letter the precise date when he received the notice of assessment. He
failed to do so and waited after the lapse of a considerable length of time to state that
he MUST HAVE received the notice on March 5. Bautista has been in the practice of
law profession since 1930, and it is unusual that he omitted in the letter the date,
considering its importance in the determination of the issue of prescription. The
spouses did not satisfactorily establish that the deficiency assessment notice
was received by them on March 5.
Sec. 331 says that the deficiency assessment must be made within 5 years after the
return was filed, and the assessment is deemed made when the notice is released,
mailed or sent by the CIR to the taxpayer. The section does not require that the notice
be received by the taxpayer within the period of 5 years. In this case, the CIR assessed
the deficiency tax on January 21 1953 and notice was sent prior to March 1 1953, for it
was received in the Office of the City Treasurer of QC on February 13 1953 (before the
expiration of the period.)
Besides, even if the court were to grant the spouses the benefit of the doubt, the CIR
still claims that the statute of limitations applicable is actually sec. 332, which says
that in case of a false of fraudulent return with intent to evade tax, the CIR is
1 Except as provided in the succeeding section, internal revenue taxes shall be assessed within
five years after the return was filed, and no proceeding in court without assessment for the
collection of such taxes shall be begun after the expiration of such period. For the purposes of
this section a return filed before the last day prescribed by law for the filing thereof shall be
considered as filed on such last day: xxx. (emphasis supplied)
authorized to assess taxes within 10 years from the date of discovery of the
fraud! CIRs proof that spouses filed false/fraudulent returns with intent to evade tax:
- Share of Dativa in the proceeds of the sale of the Tabora property was
undeclared
- Cost of acquisition was overvalued, resulting in the understatement of net
gain
- Spouses failed to include in their returns income from the business of
processing films, which they were engaged in at the time (however, the court
found that this point was not worthy of consideration for lack of evidence)
The first two circumstances show the intent to evade tax, and for this reason the CIR
correctly imposed the fraud penalty prescribed in sec. 72 of the Revenue Code. The
fraud penalty was also never disputed. Thus, the false/fraudulent returns with intent
to evade tax having been established, the CIR was authorized to assess the deficiency
tax within 10 years from the date of discovery of the fraud.
More on the fraud: the spouses filed separate returns, both claiming personal
exemptions not authorized by law. The law also says that a consolidated return must
be filed y either spouse to cover both incomes, and separate returns may only be filed
when it is impracticable to do otherwise. These, considered in connection with the
circumstances surrounding the sale of the Tabora property, show that the returns
were filed fraudulently with intent to evade tax.
Were the income tax returns false or fraudulent? YES.
The spouses did not particularly contest the propriety of the 50% surcharge, which is
imposable only in case of willful neglect to file the return xxx is willfully made (sec.
72 Tax Code.) They thus conceded the existence of the conditions essential therefore.
It was also found that the Tabora property was owned in common by the Corrales Tan
siblings (Gregoria, Santiago, Dativa, Amancio, and Aurelio: 10/24, 6/24, 6/24, 1/24
and 1/24 respectively). Gregoria, Dativa Aurelio and Amancio sold their rights and
interests to Santiago in consideration of the sum of P200k. The CIR determined the
share of each of them in the selling price:
Gregoria: (owner of 10/24 part of the property) 10/18
P111,111.122
Dativa: (6/24) 6/18
P66,666.66
Amancio: (1/24) 1/18
P11,111.11
Aurelio: (1/24) 1/18
P11,111.11
TOTAL P200,000
CIR claims that Dativa received from the sale of her portion of the property 6/18 of
P200k, and not 6/24 of the P200k (or (P49,999.90 as she alleged), and the Court
affirmed the CIRs findings. Naturally, Santiago (the buyer) could not have shared in
the proceeds of the sale (so his share of 6/24 was subtracted from the total, which is
2 i.e. (10/18) x P200,000
why the second column is /18 nalang! Gets!!!) Moreover, the deed of sale contained all
of these details, was signed by the 5 siblings, 2 attesting witnesses and the notary
public before whom it was acknowledged.
Should the lower court have appreciated the evidence regarding the occurrence of fire
upon which the spouses claimed deductions on account of the loss they suffered? NO.
The spouses alleged that in May 1947 they suffered losses as a result of a fire which
destroyed a portion of their residence. However, the evidence they presented was not
convincing. Also, they did not claim such a deduction when they filed their return in
1948. The claim was only advanced when a deficiency assessment was made against
them in 1953.
Even granting that there was a fire, they failed to establish the amount actually lost to
entitle them to a deduction. Sec. 30(d) of the NIRC permits individual taxpayers to
deduct from their gross income losses actually sustained during the taxable year and
not compensated for by insurance or otherwise of property not connected with the
trade or business, if the loss arises from fire or other casualties. However, the taxpayer
must prove the actual amount lost and claimed as a deduction. A mere estimate
cannot be allowed.
Here, Pedro Bautista merely estimated the losses as follows: the loss suffered by
petitioners in movie films, chemicals, photographic materials, movie equipment, stock
shorts, scripts, etc. of an aggregate value of about P37k and cash of about P20k
likewise was sufficiently traced
Were the properties ordinary assets, which meant they were to be taxed in full? YES.
The spouses contended that the Tabora property was a capital asset3, and that as such,
only 50% of the profit derived by Dativa from the sale is taxable. The question is
therefore WON the property was used in the trade or business of the taxpayer (if so,
then it is an ordinary asset.) The Court however ruled that the property was never
occupied by the spouses as their residence. It was primarily held for rent. The
property was apparently used in the trade or business of the spouses and is therefore
an ordinary asset. It followed that the gain derived is taxable in full.
The spouses then contended that the fact that the house was rented prior to the sale
does not automatically make it real property used in the trade or business of a
taxpayer. However, the court found that the property in question had been let to
others during the ENTIRE period of the existence of Dativas interest thereon.
May the CIR impose a compromise penalty even if the taxpayer refuses to agree on a
compromise? NO.
This is a contention of the government in its appeal. The Court rejected it, as already
having been decided in CIR v UST: compromise implies mutual agreement between
the parties involved in the compromise. One party cannot exact from or impose upon
another a compromise.
3 definition is in sec. 34 (a)/1/
Final matters on surcharge
Government contended that the CTA should not have held that the 5% surcharge and
1% monthly interest should be imposed on the deficiency tax only. Here the court
cited secs. 51(e) and 72 of the Tax Code.
Sec. 51(e).- To any sum or sums due and unpaid after the dates prescribed in
subsections b, c and d for the payment of the same, there shall be added the sum of 5%
on the amount of tax unpaid and interest at the rate of 1% a month upon said tax from
the time the same became due, except from the estates of insane, deceased, or
insolvent persons.
Sec. 72.- Surcharges for failure to render returns and for rendering false and
fraudulent returns.- The CIR shall assess all income taxes. In case of willful neglect to
file the return or list within the time prescribed by law, or in case of false or
fraudulent return or list is willfully made, the CIR shall add to the tax or to the
deficiency tax, in case any payment has been made on the basis of such return before
the discovery of the falsity or fraud, a surcharge of 50% of the amount of such tax or
deficiency tax. In case of any failure to make and file a return or list within the time
prescribed by law or by the collector or other internal revenue officer, not due to
willful neglect, the CIR shall add to the tax 25% of its amount, except that when a
return is voluntarily and without notice from the collector or other officer filed after
such time, and it is shown that the failure to file it was due to a reasonable cause, no
such addition shall be made to the tax. The amount so added to any tax shall be
collected at the same time and in the same manner as part of the tax unless the tax has
been paid before the discovery of the neglect, falsity, or fraud, in which case the
amount so added shall be collected in the same manner as the tax.
The surcharge of 5% and the interest of 1% month referred to in sec. 51 are imposed
upon the tax UNPAID. Similarly, under sec. 72, the surcharge of 50% of the amount of
the deficiency tax, imposable in case of false or fraudulent return shall be added to
the tax or to the deficiency tax.
In other words, the 50% is not a tax in itself, and hence, not subject to the 5%
surcharge and to the 1% interest a month on the unpaid tax.
CIR vs Metro Star Superama
December 8, 2010
Mendoza, J.
Arrow Pabiona
Topic and Provisions: Remedies, Section 228, R.R. No. 12-99 (cited in ratio for
easy reference)
Facts:
In January 26 2001, a revenue officer was authorized to examine the books of
accounts of Metro Star Superama, Inc. In April 3 2002, after the audit review, the
revenue district officer issued a formal assessment notice against Metro Star advising
the latter that it is liable to pay P292,874.16 in deficiency taxes.
Metro Star assailed the issuance of the formal assessment notice as it averred that due
process was not observed when it was not issued a pre-assessment notice.
Nevertheless, the Commissioner of Internal Revenue authorized the issuance of a
Warrant of Distraint and/or Levy (May 12, 2003) against the properties of Metro Star.
MetroStar filed a petition for review with the CTA and found merit in their petition.
The CTA-Second Division opined that [w]hile there [is] a disputable presumption that
a mailed letter [is] deemed received by the addressee in the ordinary course of mail, a
direct denial of the receipt of mail shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed received by the addressee.
It also found that there was no clear showing that Metro Star actually received the
alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of
Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated
May 12, 2003 were void, as Metro Star was denied due process.
CIR filed a petition for review with the CTA en banc but their petition was dismissed.
Issue 1: WON CIR failed to discharge its duty and present any evidence to show that
Metro Star indeed received the PAN dated January 16, 2002.
Held: YES
Issue 2: Is the failure to strictly comply with notice requirements prescribed under
Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations
(R.R.) No. 12-99 tantamount to a denial of due process? are the requirements of due
process satisfied if only the FAN stating the computation of tax liabilities and a
demand to pay within the prescribed period was sent to the taxpayer?
Held: YES, NO
Dispositive: WHEREFORE, the petition is DENIED.
Ratio:
1. The Court agrees with the CTA that the CIR failed to discharge its duty and
present any evidence to show that Metro Star indeed received the PAN dated
January 16, 2002. It could have simply presented the registry receipt or the
certification from the postmaster that it mailed the PAN, but failed. Neither did it
offer any explanation on why it failed to comply with the requirement of service
of the PAN. It merely accepted the letter of Metro Stars chairman dated April 29,
2002, that stated that he had received the FAN dated April 3, 2002, but not the
PAN; that he was willing to pay the tax as computed by the CIR; and that he just
wanted to clarify some matters with the hope of lessening its tax liability.
2. SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings xxx
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.
Section 228 of the Tax Code clearly requires that the taxpayer must first be
informed that he is liable for deficiency taxes through the sending of a PAN. He
must be informed of the facts and the law upon which the assessment is made.
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.
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently
provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax assessment:
3.1.1 Notice for informal conference. The Revenue Officer who audited the
taxpayer's records shall, among others, state in his report whether or not the taxpayer
agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the
taxpayer is not amenable, based on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in writing, by the Revenue District Office
or by the Special Investigation Division, as the case may be (in the case Revenue
Regional Offices) or by the Chief of Division concerned (in the case of the BIR National
Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal
revenue taxes, for the purpose of "Informal Conference," in order to afford the
taxpayer with an opportunity to present his side of the case. If the taxpayer fails to
respond within fifteen (15) days from date of receipt of the notice for informal
conference, he shall be considered in default, in which case, the Revenue District
Officer or the Chief of the Special Investigation Division of the Revenue Regional
Office, or the Chief of Division in the National Office, as the case may be, shall endorse
the case with the least possible delay to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his duly authorized representative, as the
case may be, for appropriate review and issuance of a deficiency tax assessment, if
warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after
review and evaluation by the Assessment Division or by the
Commissioner or his duly authorized representative, as the case
may be, it is determined that there exists sufficient basis to assess
the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary
Assessment Notice (PAN) for the proposed assessment, showing in
detail, the facts and the law, rules and regulations, or jurisprudence
on which the proposed assessment is based (see illustration in
ANNEX A hereof). If the taxpayer fails to respond within fifteen
(15) days from date of receipt of the PAN, he shall be considered in
default, in which case, a formal letter of demand and assessment
notice shall be caused to be issued by the said Office, calling for
payment of the taxpayer's deficiency tax liability, inclusive of the
applicable penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The
notice for informal conference and the preliminary assessment
notice shall not be required in any of the following cases, in which
case, issuance of the formal assessment notice for the payment of
the taxpayer's deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the
result of mathematical error in the
computation of the tax appearing on the
face of the tax return filed by the taxpayer;
or
(ii) When a discrepancy has been determined
between the tax withheld and the amount
actually remitted by the withholding agent;
or
(iii) When a taxpayer who opted to claim a
refund or tax credit of excess creditable
withholding tax for a taxable period was
determined to have carried over and
automatically applied the same amount
claimed against the estimated tax liabilities
for the taxable quarter or quarters of the
succeeding taxable year; or
(iv) When the excise tax due on excisable
articles has not been paid; or
(v) When an article locally purchased or
imported by an exempt person, such as, but
not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold,
traded or transferred to non-exempt
persons.
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 taxpayer's 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 (see
illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered
mail or by personal delivery.
If sent by personal delivery, the taxpayer or his duly
authorized representative shall acknowledge receipt thereof in the
duplicate copy of the letter of demand, showing the following: (a)
His name; (b) signature; (c) designation and authority to act for and
in behalf of the taxpayer, if acknowledged received by a person
other than the taxpayer himself; and (d) date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN
to taxpayer to inform him of the assessment made is but part of the due process
requirement in the issuance of a deficiency tax assessment, the absence of
which renders nugatory any assessment made by the tax authorities. The use of
the word shall in subsection 3.1.2 describes the mandatory nature of the
service of a PAN. The persuasiveness of the right to due process reaches both
substantial and procedural rights and the failure of the CIR to strictly comply
with the requirements laid down by law and its own rules is a denial of Metro
Stars right to due process. Thus, for its failure to send the PAN stating the facts
and the law on which the assessment was made as required by Section 228 of
R.A. No. 8424, the assessment made by the CIR is void.
The case of CIR v. Menguito cited by the CIR in support of its argument that only the
non-service of the FAN is fatal to the validity of an assessment, cannot apply to this
case because the issue therein was the non-compliance with the provisions of R. R. No.
12-85 which sought to interpret Section 229 of the old tax law. RA No. 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. The
regulation then, on the other hand, simply provided that a notice be sent to the
respondent in the form prescribed, and that no consequence would ensue for failure
to comply with that form.
Republic v. Ricarte The SC does not agree that the subsequent assessment made on Jan 19, 1961
November 12, 1985 was based on the amendatory act. Such subsequent assessment undertaken
Makasiar, C.J., by the Bureau of Internal Revenue was based merely on the income tax
RR return filed by the appellee where no assessment has been made by him. As
has been said, the amount of tax due was previously computed by the Bureau
Facts: of Internal Revenue. Finding that it made an error, the Bureau reassessed the
March 2, 1959, Ricarte filed his income tax return for the year 1958. income tax return of the appellee; but such reassessment was made
April 6, 1959, BIR made the corresponding assessment pursuant to the pursuant to the old law and not under the amendatory act.
express provision of Section 51(a) of the old NIRC (Commonwealth Act No. However, the action indeed prescribed. Section 332(c), NIRC:
466), then in effect. The BIR fixed the amount at P222. o Where the assessment of any internal revenue tax has been made
Ricarte paid his income tax in two equal installments. P111 on May 15 and within the period of limitation above described such tax may be
P111 on Aug 17. collected by distraint or levy or by a proceeding in court, but only if
June 20, 1959, RA 2343 took effect amending Commonwealth Act No. 466. begun (1) within five years after the assessment of the tax
o (CA 466) BIR assesses the taxpayer. Although a subsequent notice of assessment was allegedly made and sent to
o (RA 2343) Pay-as-you-file system: the taxpayer assesses himself, Ricarte on January 19, 1961, no evidence has been presented by the
files his return and pays the tax as shown in his return upon filing appellant that the Ricarte actually received a copy of that assessment notice.
thereof. Thus, the prescriptive period should be counted from April 6, 1959, the date
1961, BIR found that Ricarte had a deficiency of P1,136 for taxable year when the BIR assessed the income tax return of Ricarte. 6 years and 9
1958. An assessment notice was issued on Jan 19, 1961, and was mailed to months has already elapsed.
Ricarte on Jan 25, 1961.
Ricarte failed to pay his deficiency.
BIR filed a complaint for the collection of unpaid taxes on Jan 14, 1966.
The court a quo dismissed the case on the ground of prescription of action.
o The BIR made the assessment on April 6, 1959, but the present case
was filed only on January 14, 1966 or more than the prescriptive
period of 5 years under Section 322(c) of the NIRC. The said court
stated that what the Bureau of Internal Revenue sought to collect
from the appellee was based on an assessment which the Bureau
made under the provisions of a new law, R.A. No. 2343, which was
not yet in effect at the time of the filing of appellee's income tax
return for 1958; and that the action against the appellee had
already prescribed.

Issue: WON the action has already prescribed.

Held: Yes, the action has already prescribed.
Dispositive: WHEREFORE THE APPEALED DECISION DATED SEPTEMBER 29, 1968,
IS HEREBY AFFIRMED. NO COSTS.

Ratio:
The unamended provision of Sec 51(a) of the NIRC which was enforceable at
the time Ricarte filed his 1958 ITR should apply to this case and not Sec
51(b) of the same code which was amended by RA 2343 and went only in
effect on June 20, 1959.
o Clearly, before the amendment, the taxpayer files his income tax
return and the Collector (now Commissioner) of Internal Revenue
assesses the tax due and notifies the taxpayer thereof. On the other
hand, under the amendatory act, the taxpayer assesses himself, files
his return and is required to pay the tax as shown in his return
upon filing thereof.
Advertising Associates, Inc. vs. CA and CIR
December 26, 1984
Aquino, J.
Digest by Clark Uytico
FACTS
This case is about the liability of Advertising Associates, lnc. for P382,700.16 as 3%
contractor's percentage tax on its rental income from the lease of neon signs and
billboards imposed by section 191 of the Tax Code (as amended by Republic Acts Nos.
1612 and 6110) on business agents and independent contractors. Presidential Decree
No. 69, effective November 24, 1972, added paragraph 17 to section 191 by taxing
lessors of personal property.
In Advertising Associates, Inc. vs. Collector of Internal Revenue, Advertising was held
liable as a manufacturer for the.90% sales tax on its sales of neon-tube signs under
section 185(k) of the Tax Code as amended. It paid P11,986.18 as sales tax for the 4th
quarter of 1948 to 1951.
In this instant case, Advertising Associates alleges that it sold in 1949 its advertising
agency business to Philippine Advertising Counsellors, hence its business is limited to
the making, construction and installation of billboards and electric signs and making
and printing of posters, signs, handbills, etc., contending further that it is now a media
company, not an advertising company,
It paid sales taxes for selling billboards, electric signs, calendars, posters, etc., realty
dealer's tax for leasing billboards and electric signs and 3% contractor's tax for
repairing electric signs. The billboards and electric signs manufactured by it are either
sold or leased. The Commissioner of Internal Revenue subjected to 3% contractor's
tax its rental income from billboards and electric signs. The Commissioner required
Advertising Associates to pay P297,927.06 and P84,773.10 as contractor's tax for
1967-1971 and 1972, respectively, including 25% surcharge (the latter amount
includes interest) on its income from billboards and neon signs.
The basis of the assessment is the fact that the taxpayer's articles of incorporation
provide that its primary purpose is to engage in general advertising business. Its
income tax returns indicate that its business was advertising.
Advertising eventually requested the cancellation of the assessments. For 4 years,
there was no movement in the case. Then, on March 31, 1978, the Commissioner
resorted to the summary remedy of issuing two warrants of distraint, directing
the collection enforcement division to levy on the taxpayer's personal
properties as would be sufficient to satisfy the deficiency taxes. The warrants
were served upon the taxpayer on April 18 and May 25, 1978.
More than a year later, Acting Commissioner Plana justified the assessments by
stating that the rental income of Advertising Associates from billboards and neon
signs constituted fees or compensation for its advertising services. He requested the
taxpayer to pay the deficiency taxes within ten days from receipt of the demand;
otherwise, the Bureau would enforce the warrants of distraint. His letter reads:
This constitutes our final decision on the matter. If you are not agreeable,
you may appeal to the Court of Tax Appeals within 30 days from receipt of
this letter.
Upon appeal to CTA, the Tax Court enjoined the enforcement of the warrants of
distraint, but did not resolve the merits and, ruling that the warrants of distraint were
the commissioners appealable decisions; and since Advertising appealed from the
decision of May 23, 1979, the petition for review was filed out of time. CTA dismissed,
hence this appeal.
ISSUE
1. WON the warrants of distraint is the reviewable decision of the CIR
2. WON petitioner is an advertising company
3. WON the taxes have already prescribed
HELD
1. NO. The reviewable decision is that contained in Commissioner Plana's letter of May
23, 1979 and not the warrants of distraint. Therefore the petition was filed on time.
2. YES. They are an advertising company. (ADVERTISING ASSOCIATES NGA EH)
3. NO. Not yet prescribed.
Dispositive: WHEREFORE, the judgment of the Tax Court is reversed and set aside.
The Commissioner's deficiency assessments are modified by requiring the petitioner
to pay the tax proper and eliminating the 25% surcharge, interest and penalty. In case
of non-payment, the warrants of distrant should be implemented. The preliminary
injunction issued by the Tax Court on August 28, 1979 restraining the enforcement of
said warrants is lifted. No costs.
RATIO
1. No amount of quibbling or sophistry can blink the fact that said letter, as its tenor
shows, embodies the Commissioner's final decision within the meaning of section 7 of
Republic Act No. 1125. The Commissioner said so. He even directed the taxpayer to
appeal it to the Tax Court. The directive is in consonance with this Court's dictum that
the Commissioner should always indicate to the taxpayer in clear and unequivocal
language what constitutes his final determination of the disputed assessment. That
procedure is demanded by the pressing need for fair play, regularity and orderliness
in administrative action
2. Advertising argues that its act of leasing its neon signs and billboards does not make
it a business agent or an independent contractor. It stresses that it is a mere lessor of
neon signs and billboards and does not perform advertising services.
SC:
But the undeniable fact is that neon signs and billboards are primarily designed for
advertising. Hence Advertising is a business agent and an independent contractor as
contemplated in sections 191 and 194(v).
3. The taxpayer received on June 18, 1973 and March 5, 1974 the deficiency
assessments herein. The warrants of distraint were served upon it on April 18 and
May 25,1978 or within five years after the assessment of the tax. Obviously, the
warrants were issued to interrupt the five-year prescriptive period. Its enforcement
was not implemented because of the pending protests of the taxpayer and its requests
for withdrawal of the warrants which were eventually resolved in Commissioner
Plana's letter of May 23, 1979.
It should be noted that the Commissioner did not institute any judicial proceeding to
collect the tax. He relied on the warrants of distraint to interrupt the running of the
statute of limitations. He gave the taxpayer ample opportunity to contest the
assessments but at the same time safeguarded the Government's interest by means of
the warrants of distraint.
CIR v. UNION SHIPPING and CTA
21 May 1990
Paras, J.
Digest by Kat Villamin
Topic Remedies (Demand to Pay Deficiency Tax considered Final
Decision of CIR)
Summary
Union Shipping Corp. was assessed for deficiency income taxes. Although Union sent a
letter of protest, the CIR replied via an issuance and service of a Warrant of Distraint
and Levy against Union. Union moved for reconsideration but the CIR instead filed a
collection suit when the former did not pay. Union then petitioned the CTA to review
the CIRs assessment. CTA ruled in favor of Union. SC affirmed CTA and held the CIR
should always indicate to the taxpayer in clear and unequivocal language what
constitutes his final determination of the disputed assessment. The SC also ruled that
the reviewable decision of the BIR is that contained in the CIRs letter and that such
constitutes the final decision on the matter which may be appealed to the CTA
(and NOT the warrants of distraint). Under the circumstances, the CIR, not having
clearly signified his final action on the disputed assessment, legally the period to
appeal has not commenced to run and Union had timely filed its petition in the CTA.
Facts
In a letter, petitioner Commissioner of Internal Revenue (CIR) assessed against Yee
Fong Hong, Ltd. and/or herein private respondent Union Shipping Corp. (Union), the
total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972.
Said letter was received by Union on 4 Jan 1975. Also via a subsequent letter, Union
protested the assessment.
25 Nov 1976 - Petitioner, without ruling on the protest, issued and had served a
Warrant of Distraint and Levy on Union. Upon receipt, Union reiterated its request for
reinvestigation of the assessment and for the reconsideration of the summary
collection thru the Warrant of Distraint and Levy.
The CIR, again, without acting on the request for reinvestigation and reconsideration
of the Warrant of Distraint and Levy, filed a collection suit before CFI Manila against
Union. Summons were served on Union on 28 Dec 1978.
10 Jan 1979 Union then filed with the CTA its Petition for Review of the CIR's
assessment of its deficiency income taxes. CTA ruled in favor of Union. Hence, this
petition by the CIR.
CIR contends that the issuance of a Warrant of Distraint and Levy is proof of the
finality of an assessment because it is the most drastic action of all media of enforcing
the collection of tax, and is tantamount to an outright denial of a motion for
reconsideration of an assessment. CIR argues therefore that the period to appeal to
the CTA commenced to run from receipt of said warrant on 25 Nov 1976, so that on 10
Jan 1979 when respondent corporation sought redress from the CTA, petitioner's
decision has long become final and executory.
Issues
1. [RELEVANT ISSUE] WON the CTA has jurisdiction over this case (given the
finality of the CIRs decision due to the allegedly untimely appeal of respondent
corporation)
2. WON Union Shipping Corporation is liable for payment of taxes
Held 1. YES (CTA has jurisdiction) 2. NO (No liability)
Dispositive PREMISES CONSIDERED, the instant petition is hereby DISMISSED
and the assailed decision of the Court of Tax Appeals is hereby AFFIRMED.
Ratio
1. The Commissioner should always indicate to the taxpayer in clear and
unequivocal language what constitutes his final determination of the
disputed assessment.
Why is it important to have such CLEAR and UNEQUIVOCAL statement? (Surigao
Electric Co., Inc. v. C.T.A.).
- Without needless difficulty, the taxpayer would be able to determine
when his right to appeal to the tax court accrues. This would obviate all
desire and opportunity on the part of the taxpayer to continually delay the
finality of the assessment and, consequently, the collection of the amount
demanded as taxes by repeated requests for recomputation and
reconsideration.
- On the part of the Commissioner, this would encourage his office to
conduct a careful and thorough study of every questioned assessment
and render a correct and definite decision thereon in the first instance.
This would also deter the Commissioner from unfairly making the taxpayer
grope in the dark and speculate as to which action constitutes the decision
appealable to the tax court.
- Of greater import, this rule of conduct would meet a pressing need for fair
play, regularity, and orderliness in administrative action.
The request for reinvestigation and reconsideration was in effect considered
denied by petitioner when the latter filed a civil suit for collection of deficiency
income so that when Union filed the appeal with the CTA, it consumed a total of
only 13 days well within the 30-day period to appeal pursuant to Section 11 of
R.A. 1125.
2. Union is the husbanding agent4 of the vessel Yee Fong Hong, Ltd. Thus, being
merely so, Union is not liable for the payment of the income taxes due from the
foreign ship owners loading cargoes in the Philippines. Neither can Union be
liable for withholding tax under Section 53 of the Internal Revenue Code since it
is not in possession, custody or control of the funds received by and remitted to
Yee Fong Hong, Ltd., a non-resident taxpayer.
Via uncontradicted testimonies of Unions general manager/president and
its counsel, Union and CTA fully substantiated and proved that (1) Union
neither performed nor transacted any shipping business, for and in
representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated
or procured cargo to be loaded in the vessels of Yee Fong Hong, Ltd.; (2) it
never solicited or procured cargo or freight in the Philippines or elsewhere
for loading in said vessels of Yee Fong Hong, Ltd.; (3) it had not collected any
freight income or receipts for the said Yee Fong Hong, Ltd. ; (4) it never had
possession or control, actual or constructive, over the funds representing
payment by Philippine shippers for cargo loaded on said vessels; petitioner
never remitted to Yee Fong Hong, Ltd. any sum of money representing
freight incomes of Yee Fong Hong, Ltd. ; and (5) that the freight payments
made for cargo loaded in the Philippines for foreign destination were
actually paid directly by the shippers to the said Yee Fong Hong, Ltd. upon
arrival of the goods in the foreign ports.

The SC also ruled that the reviewable decision of the Bureau of Internal
Revenue is that contained in the letter of its Commissioner, that such
constitutes the final decision on the matter which may be appealed to the
CTA and NOT the warrants of distraint (Advertising Associates, Inc. v. Court of
Appeals).

In the instant case, CIR did not rule on Union's MR. It left private respondent in
the dark as to which action of the CIR is the decision appealable to the CTA. Had
he categorically stated that he denies Unions MR and that his action constitutes
his final determination on the disputed assessment, Union, without needless
difficulty, would have been able to determine when his right to appeal accrues
and the resulting confusion would have been avoided.

Under the circumstances, the CIR, not having clearly signified his final action on
the disputed assessment, legally the period to appeal has not commenced to run.
Thus, it was only when private respondent received the summons on the civil suit
for collection of deficiency income on 28 Dec 1978 that the period to appeal
commenced to run.
4 Basic Definition (Navy): A husbanding agent is one who is responsible for compliance with all
laws, ordinances, statues and regulations.
SURIGAO ELECTRIC CO. v. CTA, CIR
June 28, 1974
Castro, J.
Digest by Cate Alegre
Remedies
Short Summary
Petitioner SURECO contested the deficiency tax assessment of the CIR. It received a
letter on April 29, 1963 regarding the revised assessment and a letter on June 28,
1963 where CIR denied its request for recomputation. SURECO now alleges that the
latter date should be used to determine WON the 30-day appeal period has lapsed. SC
ruled that the controlling date is April 29 (specifically May 8 when it was received by
SURECO) as this constitutes the final determination of the CIR appealable to the CTA.
FACTS
November 1961 Surigao Electric Co. (SURECO) received a warrant of distraint
and levy to enforce the collection from Mainit Electric of a deficiency franchise tax
plus surcharge (P718.59). SURECO contested this stating that id didnt have a
franchise in Mainit, Surigao
April 2, 1961 - CIR, by letter, advised SURECO to take up the matter with the
General Auditing Office, enclosing a copy of the 4 th Indorsement of the Auditor
General dated November 23, 1960.
o The indorsement indicated that SURECOs liability for deficiency franchise
tax from Sep 1947-June 1959 was P21, 156.06, excluding surcharge
Aug 2, 1962 - SURECO, in a letter to the Auditor General asked for reconsideration
of the assessment, admitting liability only for the 2% franchise tax in accordance
with its legislative franchise and not the 5% rate imposed by Sec. 259 of the NIRC,
which the Auditor General used as basis in computing the tax deficiency.
April 29 1963 (received by SURECO: May 8, 1963) - The controversy culminated
in a revised assessment with the amount of P11,533.53, representing the deficiency
tax and surcharges from April 1, 1956-June 30, 1959.
June 6, 1963 (sent by registered mail on June 7, 1963) - SURECO requested a
recomputation in a letter to the CIR)
June 28, 1963, (received by SURECO on July 16, 1963) - CIR denied the request
in a letter
August 1, 1963 SURECO appealed to CTA
October 1, 1965 CTA dismissed the appeal on the ground that it was filed beyond
the 30-day period provided by Sec. 11 of RA 1125.
SURECOs contention: The June 28, 1963 denying its request for further
amendment of the revised assessment constitutes the ruling appealable to the tax
court and the 30-day period should be counted from July 16 the date it received
the letter.
ISSUE: WON SURECOs appeal to the CTA was time-barred - YES
DISPOSITIVE
ACCORDINGLY, the decision of the Court of Tax Appeals dated October 1, 1965 is
affirmed, at petitioner's cost.
RATIO
The demand issued by the CIR on April 29, 1963 (received May 8, 1963)
constitutes the definite determination of the deficiency franchise tax liability and
therefore the decision appealable to the tax court.
o The letter was in response to the communications of SURECO on August 2,
1962 and April 24, 1963 (when it questioned the assessment). As early as
August 2, 1962, the petitioner already disputed the assessment
o The letter of demand constitutes the final action taken by the CIR on
SURECos requests for reconsideration and recomputation. The tenor of
the letter, specifically, the statement regarding the resort to legal remedies,
unmistakably indicates the final nature of the determination made by the
Commissioner of the petitioner's deficiency franchise tax liability.
SC has considered the following communications sent by the CIR to taxpayers as
embodying rulings appealable to the tax court:
(a) a letter which stated the result of the investigation requested by the taxpayer
and the consequent modification of the assessment; (b) letter which denied the
request of the taxpayer for the reconsideration cancellation, or withdrawal of the
original assessment; 3 (c) a letter which contained a demand on the taxpayer for the
payment of the revised or reduced assessment; 4 and (d) a letter which notified the
taxpayer of a revision of previous assessments.
SURECOs contention would result in grave detriment to the interests of the
Government.
The revised assessment embodied in the Commissioner's letter dated April
29, 1963 being, in legal contemplation, the final ruling reviewable by the tax
court, the thirty-day appeal period should be counted from May 8, 1963 (the
day the petitioner received a copy of the said letter) LAPSE OF 30 DAYS
o May 8, 1963 to June 7, 1963 (day SURECO received the letter): lapse of 30
days
o June 6, 1963 request for further computation tolled the running of the
period from June 7 to July 16 (day SURECO received the CIR letter dated June
28, 1963). The prescriptive period began again on July 16, 1963. The petition
for review was filed on August 1, 1963 after the lapse of an additional 16
days.
The 30-day period prescribed by Sec. 11 of RA 1125, within which a taxpayer
adversely affected by a decision of the CIR should file his appeal with the tax
court is a jurisdictional requirement, and failure of a taxpayer to lodge an
appeal within the period bars his appeal and renders the decision final and
executor.
BUT the Commissioner of Internal Revenue should always indicate to the
taxpayer in clear and unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes his final determination on
the disputed assessment, as contemplated by sections 7 and 11 of Republic Act
1125, as amended.
o The taxpayer would be able to determine when his right to appeal to the tax
court accrues. It will also obviate all desire and opportunity on the part of
the taxpayer to continually delay the finality of the assessment.
o This would encourage the CIR office to conduct a careful and thorough study
of every questioned assessment and render a correct and definite decision
thereon in the first instance
CIR vs. Isabela Cultural Corp
July 11, 2001
PANGANIBAN, J.
Azores
Topic: Remedies
FACTS:
ICC, a domestic corporation, received (Feb. 23, 1990) from the BIR two
Assessment Notices for deficiency income tax in the amount of P333,196.86,
and for deficiency expanded withholding tax in the amount of P4,897.79,
inclusive of surcharges and interest, both for the taxable period from January
1, 1986 to December 31, 1986.
The deficiency income tax of P333,196.86, arose from:
o BIRs disallowance of ICCs claimed expense deductions for
professional and security services billed to and paid by ICC in 1986
o The alleged understatement of ICCs interest income on the three
promissory notes due from Realty Investment, Inc.
The deficiency expanded withholding tax of P4,897.79 was allegedly due to
the failure of ICC to withhold 1% expanded withholding tax on its claimed
P244,890.00 deduction for security services.
PROCEDURAL FACTS:
March 23, 1990 - ICC sought reconsideration
February 9, 1995 ICC received a final notice before seizure demanding
payment of the amounts stated in the said notices. (signed by Acting
Chief Revenue Collection Officer)
CTA dismissed - petition is premature because the final notice of
assessment cannot be considered as a final decision appealable to the tax
court.
CA reversed - a demand letter of the BIR reiterating the payment of
deficiency tax, amounts to a final decision on the protested assessment and
may therefore be questioned before the CTA.
Hence, this case.
ISSUE/HELD:
WON the Final Notice Before Seizure signed by Acting Chief Revenue Collection Officer
against ICC constitutes the final decision of the CIR appealable to the CTA YES
DISPOSITIVE: WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED.
RATIO:
It is a final order because it logically is. Lol (in my own words. Not in the case)
In the normal course, the revenue district officer sends the taxpayer a notice
of delinquent taxes, indicating the period covered, the amount due including
interest, and the reason for the delinquency. If the taxpayer disagrees with
or wishes to protest the assessment, it sends a letter to the BIR indicating its
protest, stating the reasons therefor, and submitting such proof as may be
necessary. That letter is considered as the taxpayers request for
reconsideration of the delinquent assessment. After the request is filed and
received by the BIR, the assessment becomes a disputed assessment on
which it must render a decision. That decision is appealable to the Court of
Tax Appeals for review.
Prior to the decision on a disputed assessment, there may still be exchanges
between the CIR and the taxpayer. CIR may ask clarificatory questions or
require the latter to submit additional evidence. However, the CIRs
position regarding the disputed assessment must be indicated in the
final decision. It is this decision that is properly appealable to the CTA
for review.
Indisputably, Isabella Corp. received an assessment letter dated February 9,
1990, stating that it had delinquent taxes due; and it subsequently filed its
motion for reconsideration on March 23, 1990. In support of its request for
reconsideration, it sent to the CIR additional documents on April 18,
1990. The next communication respondent received was already the Final
Notice Before Seizure dated November 10, 1994
o NOTE: hindi ko alam bakit November ang nakalagay sa ratio.
February ang nakalagay sa facts. Pati sa 2007 case, February din. So
I suggest go for Feb kapag tinanong ni maam
SO IN THE CASE AT BAR, the Final Notice Before Seizure cannot but be
considered as the commissioners decision disposing of the request for
reconsideration filed by respondent, who received no other response to its
request. Not only was the Notice the only response received; its content and
tenor supported the theory that it was the CIRs final act regarding the
request for reconsideration. The very title expressly indicated that it was
a final notice prior to seizure of property. The letter itself clearly stated that
respondent was being given this LAST OPPORTUNITY to pay; otherwise, its
properties would be subjected to distraint and levy. How then could it have
been made to believe that its request for reconsideration was still pending
determination, despite the actual threat of seizure of its properties?
It is a final order because of the lapse of 180 days
NIRC Sec 228 - a delinquent taxpayer may nevertheless directly appeal a
disputed assessment, if its request for reconsideration remains unacted
upon 180 days after submission thereof.
o Such assessment may be protested administratively by filing a
request for reconsideration or reinvestigation within 30 days from
receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within 60 days
from filing of the protest, all relevant supporting documents shall
have become final.
o If the protest is denied in whole or in part, or is not acted upon
within 180 days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the
Court of Tax Appeals within 3 days from receipt of the said
decision, or from the lapse of the 180-day period; otherwise the
decision shall become final, executory and demandable
IN THE CASE AT BAR, 180 days had already lapsed when respondent filed its
request for reconsideration on March 23, 1990, without any action on the
part of the CIR.
It is a final decision based on jurisprudence
o a final demand letter for payment of delinquent taxes may be considered a
decision on a disputed or protested assessment.
o CIR v. Ayala Securities Corporation, Surigao Electric Co., Inc. v. CTA and CIR v.
Union Shipping Corp.
o the BIR should always indicate to the taxpayer in clear and unequivocal
language what constitutes final action on a disputed assessment. The object
of this policy is to avoid repeated requests for reconsideration by the
taxpayer, thereby delaying the finality of the assessment and, consequently,
the collection of the taxes due. Furthermore, the taxpayer would not be
groping in the dark, speculating as to which communication or action of the
BIR may be the decision appealable to the tax court
o THIS CASE IS DIFFERENT FROM CIR v. Algue
o the Warrant of Distraint and Levy, issued to the taxpayer without
any categorical ruling on its request for reconsideration, was not
deemed equivalent to a denial of the request. Because such request
could not in fact be found in its records, the BIR cannot be
presumed to have taken it into consideration.
o The request was considered only when the taxpayer gave a copy of
it, duly stamp-received by the BIR. Hence, the Warrant was
deemed premature.
o IN THIS CASE, CIR received Isabella Corps protest letter.
Oceanic Wireless Network Inc. vs. Commissioner of Internal Revenue, Court of
Tax Appeals, Court of Appeals
December 9, 2005
Azcuna, J.
Bahjin
FACTS:
March 17, 1988 - petitioner Oceanic Wireless Network Inc. (OWNI) received from the
Bureau of Internal Revenue (BIR) deficiency tax assessments for the taxable year
1984 in the total amount of P8,644,998.71.
April 12, 1988 - OWNI filed its protest against the tax assessments and requested a
reconsideration or cancellation of the same in a letter to the BIR Commissioner
January 24, 1991 In a letter, acting in behalf of the BIR Commissioner, then Chief of
the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the
tax assessments while denying OWNIs request for reinvestigation. Said letter likewise
requested OWNI to pay the total amount within ten days from receipt thereof,
otherwise the case shall be referred to the Collection Enforcement Division of the BIR
National Office for the issuance of a warrant of distraint and levy without further
notice.
OWNI failed to pay and warrants of distraint and/or levy and garnishment was served
to it.
November 8, 1991 - OWNI filed a Petition for Review with the Court of Tax Appeals to
contest the issuance of the warrants to enforce the collection of the tax assessments.
September 16, 1994 - The CTA dismissed the petition for lack of jurisdiction declaring
that said petition was filed beyond the thirty-day period reckoned from the time when
the demand letter of January 24, 1991 by the Chief of the BIR Accounts Receivable and
Billing Division was presumably received by petitioner, i.e., within a reasonable time
from said date in the regular course of mail pursuant to Section 2(v) of Rule 131 of the
Rules of Court.
Petitioner filed a MfR arguing that the demand letter of January 24, 1991 cannot be
considered as the final decision of the Commissioner of Internal Revenue on its
protest because the same was signed by a mere subordinate and not by the
Commissioner himself.
The MfR was denied, and the CA affirmed the CTA.
ISSUE:
WON a demand letter for tax deficiency assessments issued and signed by a
subordinate officer who was acting in behalf of the Commissioner of Internal Revenue,
is deemed final and executory and subject to an appeal to the Court of Tax Appeals.
HELD:
Yes. The demand letter signed by said subordinate officer is thus a final decision
subject to appeal to the CTA within the reglementary period. OWNI failed to make the
appeal within the period.
DISPOSITIVE:
CTA and CA affirmed.
RATIO:
A demand letter for payment of delinquent taxes may be considered a decision on a
disputed or protested assessment. The determination on whether or not a demand
letter is final is conditioned upon the language used or the tenor of the letter being
sent to the taxpayer.
In this case, the letter of demand dated January 24, 1991, unquestionably constitutes The Court agrees with the factual findings of the CTA that the demand letter may be
the final action taken by the BIR on OWNIs request for reconsideration when it presumed to have been duly directed, mailed and was received by OWNI in the regular
reiterated the tax deficiency assessments due, and requested its payment. Failure to course of the mail in the absence of evidence to the contrary. This is in accordance
do so would result in the issuance of a warrant of distraint and levy to enforce its with Section 2(v), Rule 131 of the Rules of Court, and in this case, since the period to
collection without further notice. In addition, the letter contained a notation appeal has commenced to run from the time the letter of demand was presumably
indicating that OWNIs request for reconsideration had been denied for lack of received by petitioner within a reasonable time after January 24, 1991, the period of
supporting documents. thirty days to appeal the adverse decision on the request for reconsideration had
The demand letter received by petitioner verily signified a character of finality. already lapsed when the petition was filed with the CTA only on November 8, 1991.
Therefore, it was tantamount to a rejection of the request for reconsideration. As Hence, the CTA properly dismissed the petition as the tax delinquency assessment had
correctly held by the CTA, while the denial of the protest was in the form of a demand long become final and executory.
letter, the notation in the said letter making reference to the protest filed by petitioner
clearly shows the intention of the respondent to make it as [his] final decision.
The general rule is that the Commissioner of Internal Revenue may delegate any
power vested upon him by law to Division Chiefs or to officials of higher rank. He
cannot, however, delegate the four powers granted to him under the NIRC
enumerated in Section 75.
The act of issuance of the demand letter by the Chief of the Accounts Receivable and
Billing Division does not fall under any of the exceptions that have been mentioned as
non-delegable.
Section 6 of the Code further provides: The tax or any deficiency tax so assessed shall
be paid upon notice and demand from the Commissioner or from his duly authorized
representative. . . .
Thus, the authority to make tax assessments may be delegated to subordinate officers.
Said assessment has the same force and effect as that issued by the Commissioner
himself, if not reviewed or revised by the latter such as in this case.
A request for reconsideration must be made within thirty (30) days from the
taxpayers receipt of the tax deficiency assessment, otherwise, the decision becomes
final, unappealable and therefore, demandable6.
Here, OWNI failed to avail of its right to bring the matter before the CTA within the
reglementary period. Being a final disposition by said agency, the same would have
been a proper subject for appeal to the CTA.

5 (a) The power to recommend the promulgation of rules and regulations by the Secretary of
Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing
ruling of the Bureau;
(c) The power to compromise or abate under Section 204(A) and (B) of this Code, any tax
deficiency: Provided, however, that assessments issued by the Regional Offices involving basic
deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal
violations as may be determined by rules and regulations to be promulgated by the Secretary of
Finance, upon the recommendation of the Commissioner, discovered by regional and district
officials, may be compromised by a regional evaluation board which shall be composed of the
Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment
and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as
members; and
(d) The power to assign or reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.
6 Sec. 228. If the protest is denied in whole or in part, or is not acted upon within one hundred

(180) days from submission of documents, the taxpayer adversely affected by the decision or
inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said
decision, or from the lapse of the one hundred eighty (180) - day period; otherwise, the decision
shall become final, executory and demandable.
 November 29, 1965
FINLEY J. GIBBS and DIANE P. GIBBS vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS
REGALA, J.:
Digest by CC
Topic: Period to file refund claim; 2-year period is absolute
FACTS:
CIR issued against Gibbs a Deficiency Income Tax Assessment Notice for
P16,873.00 for tax year 1950 with the demand that it should be paid on or
before March 15, 1956.
On March 14, Allison Gibbs, signing as attorney-in-fact for Finley Gibbs,
acknowledged receipt of the assessment notice and notified CIR that Finley
G. was then living in California and that the latter was notified by him of the
said deficiency assessment.
At the same time, Allison G. questioned the disallowance of the items which
gave rise to the deficiency assessment and requested for a correction of it.
CIR denied the request on August 28, 1956. Having deemed this denial as
the final decision, Allison G. on October 3, 1956 replied that although he
considers said decision as contrary to law, to demonstrate his good faith, he
sent a check covering the full payment of the deficiency assessment.
At the same time, Allison G. demanded immediate refund of said payment.
He also stated that unless refunded on or before October 4, he will file a
Petition for Review with CTA and charge CIR with damages.
On October 26, 1956, CIR denied the demand for refund. The above
letter was received by Allison G. on November 14, 1956.
On September 29, 1958, Allison G. wrote another letter to CIR reiterating
their demand for refund. It stated that should the demand for refund be
uneffected on or before October 1, 1958, a petition would be filed with CTA.
CIR never replied to this letter.
On October 1, 1958, Gibbs filed with CTA a Petition for Review and
Refund of Income Tax with Motion for Suspension of Collection of
Additional Taxes.
CIR contends that:
1. CTA has no jurisdiction on the ground that the petition for review was filed
beyond 30 days from the date of receipt of CIRs decision, dated October 26,
1956, denying the claim for refund.
2. CTA has no jurisdiction over the credit of the amounts since request for
credit and the petition for review have been filed beyond 2 years from the
dates of payment of the amounts sought to be credited.
CTA: Gibbs causes of action were already barred by prescription.
Gibbs contends that:
1. There is neither evidence nor record that they received a copy of the
letter of October 26, 1956 denying their claim for refund, and
2. The letter of October 26, 1956 is not a denial of their claim for refund.
ISSUES/HELD:
WON Gibbs cause of action has already prescribed. YES.
Anent the insistence of Gibbs that they never received a copy of the letter of
October 26, 1956, suffice it to say that while they themselves personally
might not have received a copy of it, Allison G, as their attorney-in-fact and
actually as their counsel, received a copy of the same.
Gibbs maintains that Allison G, at least until September 30, 1957, acted
merely as agent or attorney-in-fact and never as their legal counsel. The
Court ruled otherwise:
Allison G acknowledged in their behalf receipt of the deficiency income tax
assessment, formally protested the same in writing, paid the assessment and
likewise formally demanded in writing its refund. As far back as 1952,
Allison Gs Law office had been representing the petitioners as the latter's
counsel. Atty. Collantes, to whom the assessment notice was addressed, at
the time of the said assessment, was a staff lawyer in the firm of Gibbs.
Moreover, in his letter, aside from damages, he also stated that he will be
collecting attorneys fees.
Therefore, that the receipt of the October 26, 1956 letter-decision of CIR by
Allison G. was receipt of the same by the petitioners. CTA did not err in
computing the 30-day prescriptive period from the date the said letter was
received by Allison G - November 14, 1956.
WON the letter of October 26, 1956 was a denial of their claim for refund. YES.
The letter clearly stated that "for reasons stated in our letter dated August
28, 1956, this Office finds no justifiable basis to grant your said request."
Considering that even Allison G deemed the August 28, 1956 letter as the
Commissioner's "final decision", it is difficult to see how the petitioners can
now argue that the said letter of October 26, 1956, was not a denial of their
claim for refund.
In view of the finding that CTA had no jurisdiction over the petition for
review because it was filed beyond the 30-day period; there is no need for
extensive discussion of the second issue, namely: Whether the withholding
tax credits amount to payment for the purpose of determining the two-year
period as provided for by Section 306, NIRC.
WON the claim for tax credit had already expired since it pertained to tax
payments made in 1951 and the protest and claim for demand was made only in
1958. YES.
Gibbs insist that they could not be deemed to have paid their 1951 tax
obligation until February 19, 1957, because they merely contributed to the
withholding tax system in 1951 and claimed refunds against their
contribution at the end of 1951 and they received notice of the resolution on
their claim for such refund only on February 19, 1957.
In other words, their theory is that the statute of limitation of 2 years does
not start to run until CIR has acted on the claim for refund or credit by the
non-resident taxpayer and so notified the taxpayer because until then the
withholding tax cannot be treated as a payment by the alien-resident
taxpayer; until then it is a mere deposit held by CIR for the account of the
non-resident alien taxpayer.
The Court rules otherwise A taxpayer, resident or non-resident, who
contributes to the withholding tax system, does so not really to deposit an
amount to the CIR, but, in truth, to perform and extinguish his tax obligation
for the year concerned. In other words, he is paying his tax liabilities for that
year.
Consequently, a taxpayer whose income is withheld at the source will be
deemed to have paid his tax liability when the same falls due at the end of
the tax year. It is from this latter date then, or when the tax liability falls due,
 that the 2-year prescriptive period starts to run with respect to payments
effected through the withholding tax system.
It is of no consequence whatever that a claim for refund or credit against the
amount withheld at the source may have been presented and may have
remained unresolved.
As previously explained in the case of Gibbs vs. Collector of Internal Revenue,
February 29, 1960
Section 306, NIRC should be construed together with Section 11 of RA 1125. In fine, a
taxpayer who has paid the tax, whether under protest or not, and who is claiming a
refund of the same, must comply with the requirement of both sections:
1. He must file a claim for refund with the CIR within 2 years from the date of
his payment of the tax, as required by Section 306 and appeal to CTA within
30 days from receipt of CIRs decision or ruling denying his claim for refund,
as required by Section 11, RA 1125.
2. If, however, the Collector takes time in deciding the claim, and the period of
two years is about to end, the suit or proceeding must be started in the CTA
before the end of the two-year period without awaiting the decision. This is so
because of the positive requirement of Section 306 and the doctrine that delay
of the Collector in rendering decision does not extend the peremptory period
fixed by the statute.
DISPOSITIVE: WHEREFORE, the instant petition for review is hereby dismissed, with
costs against the petitioners.
Gibbs v. CIR
Feb. 29, 1960
Barrera, J.
Digest by Jobar Buenagua
Facts:
- March 14, 1956: Gibbs protested the deficiency income tax assessment in the
amount of P12,284 for the year 1950 issued against them by the CIR because
it was based on a disallowance of bad debts and losses claimed in their
income tax return for 1950.
- Aug. 28, 1956: CIR rejected the protest. Hence, Gibbs sent a check with that
amount on Oct. 3, 1956 while still demanding a refund.
- Oct. 26, 1956: CIR again rejected the claim for refund and even asked Gibbs
to pay P1,469 and P1,997 as surcharge, interest and compromise penalty.
Gibbs received a notice of the said denial on Nov. 14, 1956.
- Sept. 27, 1957: Gibbs filed in the CTA a petition for review and refund.
- Oct. 7, 1957: CIR filed a Motion to Dismiss because the petition was filed
beyond the 30-day period provided under Section 11, in relation to Section
7, of Republic Act No. 1125.
- Gibbs opposed the said MTD on Oct. 24, 1957.
- CTA dismissed the petition:
o Gibbs received the letter of respondent denying said request for
refund on November 14, 1956.
o Pursuant to Section 11 of Republic Act No. 1125, petitioners had
only 30 days from November 14, 1956, or up to December 15,
1956, within which to file their appeal to this Court.
o However, petitioners appealed from the aforesaid decision of
respondent only on September 27, 1957, more than ten (10)
months from November 14, 1956. Obviously, the appeal has been
filed beyond the 30-day period set by law.
Issue:
WON petitioners' appeal from the decision of respondent Collector of Internal
Revenue, was filed with respondent Court of Tax Appeals within the statutory period.
Held: No.
Ratio:
- Sec. 11 of RA 1125 states that: Any person, association or corporation
adversely affected by a decision or ruling of the Collector of Internal
Revenue, the Collector of Customs or any provincial or city Board of
Assessment Appeals may file an appeal in the Court of Tax Appeals
within thirty days after the receipt of such decision or ruling
- It is not disputed that petitioners received on November 14, 1956, notice of
respondent Collector's decision denying their request for a refund of the
deficiency assessment paid by them. Pursuant to the above-quoted provision
of Section 11 of Republic Act 1125, they had 30 days from said date within
which to file their appeal (petition for review and refund) with
 respondent court. However, they filed said appeal only on September
27, 1957, or more than ten (10) months thereafter, much beyond the
aforementioned 30-day period within which to file the same.
Gibbs counter-argument:
Gibbs counters this by saying that court still had jurisdiction over the same,
by virtue of the provision of Section 306 of the NIRC that 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 Collector of Internal Revenue; but such suit or proceeding may
be maintained, whether or not such tax penalty, or sum has been paid under
protest or duress. It 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
Other issues:
The SC maintains that such argument is devoid of merit.
1. In Johnston Lumber Co., Inc. vs. CTA:
a. Sec 11 of RA 1125 was intended to cope with a situation where the
taxpayer, upon receipt of a decision or ruling of the Collector of
Internal Revenue, elects to appeal to the Court of Tax Appeals
instead of paying the tax. For this reason, the latter part of said
Section 11, provides that no such appeal would suspend the
payment of the tax demanded by the Government, unless for
special reasons, the Court of Tax Appeals would deem it fit to
restrain said collection.
b. On the other hand, Section 306, of the Tax Code, on the other hand,
contemplates of a case wherein the taxpayer paid the tax, whether
under protest or not, and later on decides to go to court for its
recovery. We can, therefore, conclude that where payment has
already been made and the taxpayer is merely asking for its refund,
he must first file with the Collector of Internal Revenue a claim for
refund before taking the matter to the Court, as required by Section
306 of the National Internal Revenue Code and that appeals from
decisions or rulings of the Collector of Internal Revenue to the Court
of Tax Appeals must always be perfected within 30 days after the
receipt of the decision or ruling that is being appealed, as required
by Section 11 of Republic Act No. 1125.
- It is clear that Section 306 of the National Internal Revenue Code
should be construed together with Section 11 of Republic Act No. 1125.
In fine, a taxpayer who has paid the tax, whether under protest or not,
and who is claiming a refund of the same, must comply with the
requirements of both sections, that is, he must file a claim for refund
with the Collector of Internal Revenue within 2 years from the date of
his payment of the tax, as required by said Section 306 of the National
Internal Revenue Code, and appeal to the Court of Tax Appeals within
30 days from receipt of the Collector's decision or ruling denying his
claim for refund, as required by said Section 11 of Republic Act No.
1125.
- If, however, the Collector takes time in deciding the claim, and the period of
two years is about to end, the suit or proceeding must be started in the Court
of Tax Appeals before the end of the two-year period without awaiting the
decision of the Collector. This is so because of the positive requirement of
Section 306 and the doctrine that delay of the Collector in rendering
decision does not extend the peremptory period fixed by the statute.
- In the case of a taxpayer who has not yet paid the tax and who is protesting
the assessment made by the Collector of Internal Revenue, he must file his
appeal with the Court of Tax Appeals within 30 days from his receipt of the
Collector's assessment, as required by said Section 11 of Republic Act No.
1125. Otherwise, his failure to comply with said statutory requirement
would bar his appeal and deprive the Court of Tax Appeals of its jurisdiction
to entertain or determine the same.
- Also, the cases cited by Gibbs involved the legality of the collection of taxes
by summary administrative methods while the case at bar involves a refund
of taxes paid.
- Re: the decision denying their request or refund of the deficiency income tax
paid by them, was signed not by the Collector, but merely by the Deputy
Collector of Internal Revenue. Only the Collector has the authority to deal in
refund cases
o The action taken by the Deputy Collector in his letter of October 26,
1956, was precisely to deny the request for refund and demand the
payment of the deficiency tax from petitioners. Certainly, this is
well within the authority of the Deputy Collector and is final and
binding unless revoked by the Collector.
- The letter of October 26 is not final because in addition to denying the refund
it demanded payment of surcharges and interests
o The case cited by the Petitioner, St. Stephens Association v. CIR is
inapplicable for there the Collector wrote two letters to the
taxpayers, one on April 6, 1955, denying their first request for the
withdrawal and cancellation of the assessment, and another on July
11, 1955, denying their second request.
CIR v TMX
January 15, 1992
Gutierrez Jr. J.
DJD
When a tax is paid in installments (like income tax return-quarterly), the prescriptive
period of two years provided in Section 306 (Section 292) should be counted from the
date of the final payment/last installment. It is the most reasonable and logical
application (which would avoid inconvenience and absurdity) of the law: to compute the
period from date of filing the Final Adjustment Return or the Annual Income Tax Return,
when it can be finally ascertained if the taxpayer still has to pay additional income tax or
if he is entitled to a refund of overpaid income tax.
Facts
TMX Sales, Inc., a domestic corporation, filed its quarterly income tax return for
the first quarter of 1981, declaring an income of P571,174.31, and paid an income
tax of P247,010.00 on May 15, 1981. During the subsequent quarters, however,
TMX Sales, Inc. suffered losses so that when it filed on April 15, 1982 its Annual
Income Tax Return for the year ended December 31, 1981, it declared a gross
income of P904,122.00 and total deductions of P7,060,647.00, or a net loss of
P6,156,525.00
TMX filed with the BIR a claim for a P247,010.00 refund (overpaid income
tax).
CIR did not act upon it, thus TMX filed a petition for review before the CTA
against the CIR, asking for order to refund to TMX the refund claim. (March 14,
1984)
o CIR: Even if refund was valid, TMX is already barred from claiming the same
considering that more than 2 years had already elapsed between the
payment (May 15, 1981) and the filing of the claim in Court (March 14,
1984)
CTA: granted the petition of TMX.
o They viewed the quarterly income tax paid as a portion or installment of the
total annual income tax due. And when a tax is paid in installments, the
prescriptive period of two years provided in Section 306 (now Section 292)
of the Revenue Code should be counted from the date of the final payment or
last installment. Ergo, reckoning point must be on April 15,1982.
CIR appealed to SC assailing that the basis in computing the two-year period of
prescription provided for in Section 292 (now Section 230) should be May 15,
1981, the date when the quarterly income tax was paid citing a minute resolution
in the Pacific Procon Limited v. CIR.
Issue: W/N the two-year prescriptive period to claim a refund of erroneously
collected tax provided for in Section 292 (now Section 230) of the NIRC runs from the
date the quarterly income tax was paid, or from the date of filing of the Final
Adjustment Return (final payment). Should run from date Final Adjustment
Return filed.
Dispositive: WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby
DENIED. The decision of the Court of Tax Appeals dated April 29, 1988 is AFFIRMED.
No costs.
Ratio:
Note: SC re-examined the Pacific Procon case. SC used this case to lay down a
categorical pronouncement (a full-blown decision) on the question as to when the
two-year prescriptive period in cases of quarterly corporate income tax commences to
run.
1. SC reiterated that the provisions of the NIRC should be interpreted as a whole,
particularly: Section 292 (now Section 230) with Sections 84, 85 (now both
incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section
69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232)
on keeping of books of accounts.
Sec 292: provides a two-year prescriptive period to file a suit for a refund of
a tax erroneously or illegally paid, counted from the tile the tax was paid.
(But a literal application of this provision in the case at bar which involves
quarterly income tax payments may lead to absurdity and inconvenience.)
Sec 85. Method of computing corporate quarterly income tax. Every
corporation shall file in duplicate a quarterly summary declaration of its gross
income and deductions on a cumulative basis for the preceding quarter or
quarters upon which the income tax, as provided in Title II of this Code shall
be levied, collected and paid. The tax so computed shall be decreased by the
amount of tax previously paid or assessed during the preceding quarters and
shall be paid not later than sixty (60) days from the close of each of the first
three (3) quarters of the taxable year, whether calendar or fiscal year.
(Emphasis supplied)
Sec. 87. Filing of adjustment returns final payment of income tax. On or
before the fifteenth day of April or on or before the fifteenth day of the fourth
month following the close of the fiscal year, every taxpayer covered by this
Chapter shall file an Adjustment Return covering the total net taxable income
of the preceding calendar or fiscal year and if the sum of the quarterly tax
payments made during that year is not equal to the tax due on the entire net
taxable income of that year the corporation shall either (a) pay the excess tax
still due or (b) be refunded the excess amount paid as the case may be. . . .
(Emphasis supplied)
Sec 321 requires that the books of accounts of companies or persons with
gross quarterly sales or earnings exceeding Twenty Five Thousand Pesos
(P25,000.00) be audited and examined yearly by an independent CPA.
THUS, the most reasonable and logical application of the law would be to
compute the two-year prescriptive period at the time of filing the Final
Adjustment Return or the Annual Income Tax Return, when it can be finally
ascertained if the taxpayer has still to pay additional income tax or if he is
entitled to a refund of overpaid income tax. Further, it is the Final Adjustment
Return, where the figures of the gross receipts and deductions have been
audited and adjusted, that is truly reflective of the results of the operations of a
business enterprise. Thus, it is only when the Adjustment Return covering the
whole year is filed that the taxpayer would know whether a tax is still due or a
refund can be claimed based on the adjusted and audited figures.
2. Therefore, the filing of quarterly income tax returns and payment of quarterly
income tax should only be considered mere installments of the annual tax due. These
quarterly tax payments which are computed based on the cumulative figures of gross
receipts and deductions in order to arrive at a net taxable income, should be treated as
advances or portions of the annual income tax due, to be adjusted at the end of the
calendar or fiscal year. Consequently, the two-year prescriptive period provided
should be computed from the time of filing the Adjustment Return or Annual
Income Tax Return and final payment of income tax.
Collector of Internal Revenue v. Antonio Prieto : when a tax is paid in installments, the
prescriptive period of two years provided in Section 306 (Section 292) of the National
internal Revenue Code should be counted from the date of the final payment.
Commission of Internal Revenue v. Carlos Palanca : where the tax account was paid on
installment, the computation of the two-year prescriptive period under Section 306
(Section 292) of the Tax Code, should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984.
Since the two-year prescriptive period should be counted from the filing of the
Adjustment Return on April 15, 1982, TMX Sales, Inc. is not yet barred by
prescription.
CIR vs Philamlife
May 29, 1995
J. Romero
Digest by: De Veyra
Topic: Remedies
Summary: Philamlife filed a claim for refund with the CIR and filed a petition for
review with CTA. CIR claims that the running of the prescriptive period commences
from the remittance/payment at the end of the first quarter of the tax withheld
instead of from the filing of the Final Adjustment Return. Court disagreed, holding that
the prescriptive period of two years should commence to run only from the time that
the refund is ascertained, which can only be determined after a final adjustment
return is accomplished.
Facts:
- Philippine American Life Insurance Co. (Philamlife) paid to BIR its first,
second, and third quarterly corporate income tax for Calendar Year 1983
- For its Fourth and final quarter, it suffered a loss and thereby had no income
tax liability. In the return for that quarter, it declared a refund representing
the first and second quarterly payments
- In 1984, private respondent again suffered a loss and declared no income tax
liability. However, it applied as tax credit for 1984, in the amount
representing its 1982 and 1983 overpaid income taxes and in the amount
charged as withholding tax on rental income for 1984.
- On December 16, 1985, it filed a claim for refund with petitioners appellate
division and on January 2, 1986, it filed a petition for review with the CTA
regarding its 1983 and 1984 claims
Issue: What is the reckoning date of the two-year prescriptive period?
Held: Only from the time that the refund is ascertained, which can only be determined
after a final adjustment return is accomplished.
Dispositive: WHEREFORE, the instant petition is DISMISSED and the decision of the
Court of Appeals is hereby AFFIRMED in toto. No costs.
Ratio:
Section 292 of the NIRC: A claim for refund of a tax alleged to have been erroneously
or illegally collected shall be filed with the Commissioner of Internal Revenue within
two years from the date of payment of the tax, and that no suit or proceeding for
refund shall be begun after the expiration of the said two-year period. As a
matter of fact, the said section further provides that: . . . 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 the date of payment of the tax or penalty regardless of any supervening
cause that may arise after payment.
Section 292 stipulates that the two-year prescriptive period to claim refunds should
be counted from date of payment of the tax sought to be refunded. When applied to
tax payers filing income tax returns on a quarterly basis, the date of payment
mentioned herein must be deemed to be qualified by Sections 68 and 69 of the
present Tax Code. Therefore, although quarterly taxes due are required to
be paid within sixty days from the close of each quarter, the fact that the amount shall
be deducted from the tax due for the succeeding quarter shows that until a final
adjustment return shall have been filed, the taxes paid in the preceding quarters are
merely partial taxes due from a corporation. Neither amount can serve as the final
figure to quantity what is due the government nor what should be refunded to the
corporation. The refundable amount, in case a refund is due a corporation, is that
amount which is shown on its final adjustment return and not on its quarterly returns.
Clearly, the prescriptive period of two years should commence to run only from the
time that the refund is ascertained, which can only be determined after a final
adjustment return is accomplished. In the present case, this date is April 16, 1984, and
two years from this date would be April 16, 1986. The record shows that the claim for
refund was filed on December 10, 1985 and the petition for review was brought
before the CTA on January 2, 1986. Both dates are within the two-year reglementary
period. Private respondent being a corporation, Section 292 (now Section 230) cannot
serve as the sole basis for determining the two-year prescriptive period for refunds.
As we have earlier said in the TMX Sales case, Sections 68, 69, and 70 on Quarterly
Corporate Income Tax Payment and Section 321 should be considered in conjunction
with it.
J. Vitug, concurring:
This two-year prescriptive period is intended to apply to suits or proceedings for the
recovery of taxes, penalties or sums erroneously, excessively, illegally or wrongfully
collected, accordingly, an availment of a tax credit granted by law may have a different
prescriptive period. Absent any specific provision in the Tax Code or special laws, that
period would be ten years under Article 1144 of the Civil Code.
Whenever applicable, the two-year prescriptive period starts from
the full and final payment of the tax sought to be recovered. The two-year period, in
the case of the quarterly income tax payment system for corporations, should be
deemed to start only from the time the final adjustment tax is due and payable. In fine,
corporate income tax payments for the first three quarters of the taxable year should,
for purposes of the two-year prescriptive period, be deemed to have been paid on the
15th day of April or of the fourth month following the close of the fiscal year covering
the entire taxable income of the preceding calendar or fiscal year.
052. PACIFIC PROCON v. CIR
Pacific Procon Limited vs. Commissioner of Internal Revenue
Jan. 25, 1984
Petition for review with the CTA
Filler, J.
Fun size version
Facts: Pacific wanted a refund of its income tax. CIR said it filed its suit for recovery
with the CTA after the 2-year period for filing claims for refund from the time of
payment had already lapsed.
Held: The period imposed is mandatory and not subject to any condition. Pacific
indeed filed suit more than 2 years after payment. CTA has no jurisdiction to entertain
the case.
Facts
Pacific Procon is a foreign corporation duly authorized to engage in business in the
Philippines as a contractor, with business address in Makati. In the first quarter of
1978, it paid P29,408.34 as income tax. Pacific's operations resulted in a loss for the
calendar year 1978 as shown by a final income tax return it filed with the BIR for that
year. The income tax was applied as tax credit in the succeeding quarters of 1979, but
Pacific continued to incur losses up to the end of the taxable year.
Upon advice of its external auditor, Pacific filed a written claim with the CIR for the
refund of income taxes. When the CIR did not act, Pacific went to the CTA.
CIR's defenses:
1. In claims for refund, the burden of proof lies with the petitioner to show that he is
entitled to that refund.
2. It is incumbent upon petitioner to show that it has complied with the provisions of
the NIRC.
3. Assuming the taxes have been paid, they are presumed to have been paid in
accordance with law and no amount is refundable.
4. Claims for refund are construed strictly against claimants.
5. (added in a memorandum) The petition for review is already barred by
prescription, the 2-year period under Sec. 292 of the NIRC within which the suit for
recovery of any national internal revenue tax alleged to have been erroneously or
illegally collected having already elapsed. Counting from May 30, 1978, when the
subject tax was paid, up to Feb. 21, 1981, when the present petition was instituted, 2
years, 8 months, and 12 days have already elapsed.
Issue
Does the CTA have jurisdiction over the case?
Disposition
Reasoning
Since jurisdiction can be challenged at any stage of the proceedings and for lack of it, a
court can dismiss a case ex mero motu (of his own accord), the Court must resolve the
issue of jurisdiction first.
Under Sec. 292 of the NIRC, a claim for refund of a tax alleged to have been
erroneously or illegally collected shall be filed with the CIR within 2 years from the
date of payment of the tax, and no suit or proceeding for refund shall be begun after
the expiration of such period. It provides that, 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.
The 2-year period for judicial recovery is a positive and mandatory requirement
under the Tax Code, and in order to confer jurisdiction upon the Court, it is necessary
that the suit be brought within 2 years and the requirements must have been duly
complied with. This is not subject to any qualification, so it applies regardless of the
conditions under which payment may have been made.
Pacific paid P29,408.34 on May 30, 1978, as income tax for the first quarter of 1978, in
accordance with Sec. 85 of the NIRC requiring every corporation to file in duplicate a
quarterly summary declaration of its gross income and deductions upon which the
income tax should be levied, collected and paid on a quarterly basis. While the gross
income and deductions in a quarter are now allowed to be cumulated with those of
the succeeding quarters, and the tax paid for any quarter on cumulative basis is
creditable against the quarterly tax liability for each succeeding quarter, PD 30 has
placed all corporations on a tax withholding system of income tax payment on a
quarterly basis.
Even on the assumption that the income tax remained outstanding as a refundable
amount until a loss is incurred at the end of the taxable year or until the filing of the
final adjustment return, Sec. 292 would still foreclose the Court's jurisdiction to take
cognizance of the case. The 2-year prescriptive period would still be reckoned from
the date of payment of the tax. And considered, for the sake of argument only, as a tax
withheld at source deemed to have been paid when the same falls due at the end of
the tax year when the 2-year prescriptive period starts to run, the petition would still
be time barred. Therefore, no jurisdiction. There is no need to delve into WON Pacific
has established its loss by clear and competent evidence.
Digest by Kat
United Airlines v. Commissioner of Internal Revenue
Sept. 29, 2010
Villarama, Jr., J.
Digest by Mimi H.
Topic: Remedies
Provisions:
1997 NIRC
SEC. 28, Rates of Income Tax on Foreign Corporations.
(A) Tax on Resident Foreign Corporations. -
xxxx
(3) International Carrier. - An international carrier doing business in the Philippines
shall pay a tax of two and one-half percent (2 1/2%) on its Gross Philippine Billings
as defined hereunder:
(a) International Air Carrier - Gross Philippine Billings refers to the amount of gross
revenue derived from carriage of persons, excess baggage, cargo and mail originating
from the Philippines in a continuous and uninterrupted flight, irrespective of the place
of sale or issue and the place of payment of the ticket or passage document: xxx.
SEC. 72. Suit to Recover Tax Based on False or Fraudulent Returns.
When an assessment is made in case of any list, statement or return, which in the
opinion of the Commissioner was false or fraudulent or contained any understatement
or undervaluation, no tax collected under such assessment shall be recovered by any
suit, unless it is proved that the said list, statement or return was not false nor
fraudulent and did not contain any understatement or undervaluation; but this
provision shall not apply to statements or returns made or to be made in good faith
regarding annual depreciation of oil or gas wells and mines.
RP-US Tax Treaty
Art. 4: Source of Income
For the purpose of this Convention:
(7) Gross revenues from the operation of ships in international traffic shall be treated
as from sources within a Contracting State to the extent they are derived from
international traffic originating in that State.
Art. 9: Shipping and Air Transport
1) Notwithstanding any other provision of this Convention, profits derived by a
resident of one of the Contracting States from sources within the other Contracting
State from the operation of ships in international traffic may be taxed by both
Contracting States; however, the tax imposed by the other Contracting State may be as
much as, but shall not exceed, the lesser of -
a) one and one-half percent of the gross revenues derived from sources in that
State; and
b) the lowest rate of Philippine tax that may be imposed on profits of the same kind
derived under similar circumstances by a resident of a third State.
2) Nothing in the Convention shall affect the right of a Contracting State to tax, in
accordance with its domestic laws, profits derived by a resident of the other
Contracting State from sources within the first-mentioned Contracting State from the
operation of aircraft in international traffic.
3) The provisions of paragraphs 1) and 2) shall also apply to profits derived from
the participation in a pool, a joint business or in an international operating agency.

Summary: Petitioner filed a tax refund claim of P15 million, consisting of P5 million
representing income taxes paid in 1999 on revenue from tickets sold in the
Philippines for flights that did not originate in the country. The CTA found that
petitioner had erroneously deducted 2 items pertaining to cargo shipping in its tax
return, and denied the refund claim on that basis. The SC held that the CTA correctly
denied the refund, because a grant of tax refund is founded on the assumption that the
tax return is valid and that the facts stated therein are true and correct. The improper
deductions in the tax return created a doubt as to the truth and accuracy of
petitioners tax return.
Facts:
Petitioner is a foreign corporation engaged in the international airline business,
organized and existing under the laws of Delaware, USA. It operated passenger
flights originating in the Philippines until it ceased in Feb. 1998. It then appointed
an independent sales agent in the Philippines Aerotel Ltd. Corp. Petitioner
continued to operate cargo flights until Jan. 2001.
CIR: April 2002: Petitioner filed a claim for income tax refund pursuant to Sec.
28(A)(3)(a), NIRC in relation to Art. 4(7) and Art. 9 of the RP-US Tax Treaty. The
total amount claimed was P15,916,680.69 as income taxes paid on gross
passenger and cargo revenues for taxable years 1999 to 2001. (More important
amt) The amount included P5,028,813 million representing income taxes
paid in 1999 on revenue from tickets sold in the Philippines, the flights of
which did not originate in the Phils. Petitioner argued that since it no longer
operated passenger flights originating from the Phils, its passenger revenue
from 1999 to 2001 cannot be considered income from sources within the
Phils, and hence should not be subject to Philippine income tax under Art. 9,
RP-US Tax Treaty.
CTA: The CIR did not resolve the claim within the required 2-year period, so
petitioner filed a petition for review with the CTA. Petitioner argued that under
the new definition of Gross Philippine Billings under the 1997 NIRC and the RP-
US Treaty, Philippine tax authorities only have jurisdiction to tax gross revenue
derived by US air and shipping carriers from outgoing traffic in the Phils. The BIR
therefore mistakenly imposed income tax on petitioners gross revenues after it
ceased flying passengers to and from the Philippines.
o CTA held against petitioner. Not entitled to any refund, because the
income tax on GPB under Sec. 28(A)(3)(a) of the NIRC also applies to gross
revenues from carriage of cargoes originating from the Phils. Moreover,
petitioner erroneously deducted 2 items (commission and other
incentives of its agent) from its gross cargo revenues. MR denied. CTA en
banc affirmed the decision, hence this petition for certiorari.
Issue:
WON petitioner is entitled to the P5 million refund it paid as income tax on
passenger revenues in 1999
Held: NO.
Dispositive: Wherefore, we DENY the petition for lack of merit and AFFIRM the
Decision dated July 5, 2007 of the Court of Tax Appeals En Banc in C.T.A. EB No. 227.
With costs against the petitioner. SO ORDERED.
Ratio:
Additional arguments of the parties
Petitioner also argues that the CIR denied its refund claim on the ground that
petitioner allegedly underpaid GPB tax on cargo revenues amounting to P31
million, which is higher than the GBP tax of P5 million. In effect, the CTAs denial
of the refund claim amounts to an offsetting of petitioners refund claim against
its alleged tax liability, which is contrary to the tax principle that internal revenue
taxes cannot be offset.
o Philex Mining v. CIR: The government and the taxpayer are not creditors
and debtors of each other. Also, a debt is due to the government in its
corporate capacity, while taxes are due to the government in its sovereign
capacity.
Petitioner argues that the CTA exceeded its jurisdiction because the CTAs
exclusive appellate jurisdiction only covers decisions or inactions of the CIR in
cases involving disputed assessments. CIR did not issue an assessment for any
deficiency tax, a power which is solely vested in the CIR, thus the alleged
deficiency tax cannot be considered a disputed assessment that may be passed
upon by the CTA.
Petitioner argues that the assessment for deficiency income tax is barred by the
prescriptive period of 3 years from the filing of the 1999 tax return. The period
therefore expired on April 17, 2003.
CIR argues that the CTA acted within its jurisdiction in denying the refund claim.
The objective of the CTAs determination of WON petitioner correctly paid its GPB
tax was to ascertain WON petitioner was entitled to the refund, and not for the
purpose of imposing the deficiency tax.
SC decision
As held in South African Airways v. CIR, the correct interpretation is that, if an
international air carrier maintains flights to and from the Philippines, it shall be
taxed at the rate of 2.5% of its GPB, while international air carriers that do not
have flights to and from the Philippines but nonetheless earn income from other
activities in the country will be taxed at the rate of 32% of such income.
Under Sec. 72, NIRC, the CTA can make a valid finding that petitioner made
erroneous deductions on its cargo revenue, and that because of the improper
deductions the petitioner paid a lower income tax thereon. The claim of offsetting
or legal compensation was also denied in the South African Airways case.
The grant of a tax refund is founded on the assumption that the tax return is
valid and that the facts stated therein are true and correct. The deficiency
assessment, although not yet final, created a doubt as to the truth and
accuracy of petitioners tax return. Therefore, it cannot be the basis of a
grant of refund. The determination of WON petitioner is entitled to a tax
refund, is dependent on both a determination of how much the government
is entitled to collect, and a determination of the correct liability of the
taxpayer.
To grant the refund without determining the proper assessment of the tax due
would result in multiplicity of suits. For instance, if the refund was allowed, and
the deficiency assessment by the government would later be upheld, the
government would be forced to institute a new suit to recover erroneously
refunded taxes. This would impose a burden on the government and drain funds.
The CTA merely determined WON petitioner was entitled to the refund based on
the facts presented. On the assumption that its tax return was valid, petitioner
had the right to a refund. However, given that the CTA found that the tax return
was erroneous due to the improper deductions of cargo revenues, the CTA
correctly denied the refund claim. Lastly, the CTA is a highly specialized quasi-
judicial agency created for the purpose of reviewing tax cases. It is a long-
standing policy that the courts shall respect their conclusions.
CIR vs Wyeth
September 30, 1991
Fernan CJ
Martin Lagmay
Topic and Provisions: Remedies Sec 222 & 223
Facts:
By virtue of Letter of Authority No. 52415 issued by the Commissioner of
Internal Revenue, a Revenue Examiner conducted an investigation and
examination of the books of accounts of Wyeth. He submitted a report containing
the result of his investigation
The report disclosed that Wyeth was paying royalties to its foreign licensors as
well as remuneration for technical services to Wyeth International Laboratories
of London. Wyeth was also found to have declared cash dividends on September
27, 1973 and these were paid on October 31, 1973. However, it allegedly failed to
remit withholding tax at source for the fourth quarter of 1973 on accrued
royalties, remuneration for technical services and cash dividends, resulting in a
deficiency withholding tax at source in the aggregate amount of P3,178,994.15
Moreover, it was reported that during the periods from November 1, 1972 to
December 31, 1972 and January 1, 1973 to October 31, 1973, Wyeth deducted the
cost of non-deductible raw materials, resulting in its alleged failure to pay the
correct amount of advance sales tax. There was reportedly also a short payment
of advance sales tax in its importation of "Mega Polymycin D" on October 3, 1972.
All these resulted in a deficiency sales tax in the amount of P60,855.21 and
compromise penalty in the amount of P300.00 or a total amount of P61,155.21.
BIR assessed Suaco on the aforesaid tax liabilities in two notices dated December
16, 1974 and December 17, 1974. These assessment notices were both received
by Wyeth Suaco on December 19, 1974
Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the BIR two
letters dated January 17, 1975 and February 8, 1975, protesting the assessments
On December 10, 1979, petitioner rendered a decision reducing the assessment
of the withholding tax at source for 1973 to P1,973,112.86. However, the amount
of P61,155.21 as deficiency sales tax remained the same
Wyeth Suaco filed a petition for review in CTA on January 18, 1980, praying that
petitioner be enjoined from enforcing the assessments by reason of prescription
and that the assessments be declared null and void for lack of legal and factual
basis
CTA rendered a decision enjoining the Commissioner of Internal Revenue from
collecting the deficiency taxes
The basis of the above decision was the finding of the Tax Court that while the
assessments for the deficiency taxes were made within the five-year period of
limitation, the right of petitioner to collect the same has already prescribed, in
accordance with Section 319 (c) of the Tax Code of 1977. The said law provides
that an assessment of any internal revenue tax within the five-year period of
limitation may be collected by distraint or levy or by a proceeding in court, but
only if begun within five (5) years after the assessment of the tax
Issue: WON the action to collect the deficiency has prescribed
Held: No
Dispositive: WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc,
is hereby ordered to pay the Bureau of Internal Revenue the amount of P1,973,112.86
as deficiency withholding tax at source, with interest and surcharge in accordance
with law, without prejudice to any reduction brought about by payments or
remittance made. Wyeth Suaco Laboratories, Inc. is also ordered to pay the Bureau of
Internal Revenue the amount of P60,855.21 as deficiency sales tax with interest and
surcharge in accordance with law
Ratio:
The applicable laws in the instant case are Sections 318 and 319 (c) of the
National Internal Revenue Code of 1977 (now Sections 203 and 224 of the
National Internal Revenue Code of 1986), to wit:
SEC. 318. Period of limitation upon assessment and collection Except as
provided in the succeeding section, internal revenue taxes shall be assessed
within five years after the return was filed, and no proceeding in court
without assessment for the collection of such taxes shall be begun after the
expiration of such period
SEC. 319. Exceptions as to period of limitations of assessment and collection
of taxes.
(c) Where the assessment of any internal revenue tax has been made
within the period of limitation above-prescribed such tax may be collected
by distraint or levy by a proceeding in court, but only if begun (1) within five
years after the assessment of the tax, or (2) prior the expiration of any
period for collection agreed upon in writing by the Commissioner and the
taxpayer before the expiration of such five-year period. The period so agreed
upon may be extended by subsequent agreements in writing made before
the expiration of the period previously agreed upon
Settled is the rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the assessment
In the case of Commissioner of Internal Revenue vs. Capitol Subdivision, Inc., this
Court held:
The period of prescription of action to collect a taxpayer's deficiency income
tax assessment is interrupted when the taxpayer request for a review or
reconsideration of said assessment, and starts to run again when said
request is denied
In another case, this Court stated that the statutory period of limitation for
collection may be interrupted if by the taxpayer's repeated requests or positive
acts the Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or that no
harassment or injustice is meant by the Goverrument
Also in the case of Cordero vs. Gonda, we held:
Partial payment would not prevent the government from suing the taxpayer.
Because, by such act of payment, the government is not thereby "persuaded
to postpone collection to make him feel that the demand was not
unreasonable or that no harassment or injustice is meant." This is the
underlying reason behind the rule that the prescriptive period is arrested by
the taxpayer's request for re-examination or reinvestigation even if he
"has not previously waived it (prescription in writing)"
Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought
reinvestigation or reconsideration of the deficiency tax assessments issued by the
Bureau of Internal Revenue
After carefully examining the records of the case, we find that Wyeth admitted
that it was seeking reconsideration of the tax assessments as shown in a letter of
James A. Gump, its President and General Manager, dated April 28, 1975
Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the letters
protesting the assessments, the Bureau of Internal Revenue, Manufacturing Audit
Division, conducted a review and reinvestigation of the assessments. This fact
was admitted by Wyeth Suaco thru its Finance Manager in a letter dated July 1,
1975 addressed to the Chief, Tax Accounts Division
Although the protest letters prepared by SGV & Co. in behalf of private
respondent did not categorically state or use th words "reinvestigation" and
"reconsideration," the same are to be treated as letters of reinvestigation and
reconsideration. By virtue of these letters, the Bureau of Internal Revenue
ordered its Manufacturing Audit Division to review the assessment made.
Furthermore, private respondent's claim that it did not seek reinvestigation or
reconsideration of the assessments is belied by the subsequent correspondence
or letters written by its officers, as shown above
These letters of Wyeth interrupted the running of the five-year prescriptive
period to collect the deficiency taxes. The Bureau of Internal Revenue, after
having reviewed the record of Wyeth, in accordance with its request for
reinvestigation, rendered a final assessment. This final assessment issue by then
Acting Commissioner Ruben B. Ancheta was date December 10, 1979 and
received by private respondent on January 2, 1980, fixed its tax liability at
P1,973,112.86 as deficiency withholding tax at source and P61,155.21 as
deficiency sales tax. It was only upon receipt by Wyeth Suaco of this final
assessment that the five-year prescriptive period started to run again
Verily, the original assessments dated December 16 and 17, 1974 were both
received by Wyeth Suaco on December 19, 1974. However, when Wyeth Suaco
protested the assessments and sought its reconsideration in two (2) letters
received by the Bureau of Internal Revenue on January 20 and February 10, 1975,
the prescriptive period was interrupted. This period started to run again when
the Bureau of Internal Revenue served the final assessment to Wyeth Suaco on
January 2, 1980. Since the warrants of distraint and levy were served on Wyeth
Suaco on March 12, 1980, then, only about four months of the five-year
prescriptive period was used
On The Merits (But Not Relevant To The Topic):
Section 54 (a) [now Section 51 (a)] provides that "the Commissioner of
Internal Revenue may, with the approval of the Secretary of Finance, require
the withholding agents to pay or deposit the taxes deducted and withheld at
more frequent intervals when necessary to protect the interest of the
government. The return shall be filed and the payment made within 25 days
from the close of each calendar quarter". Presently, Revenue Regulation No.
6-85 effective July 1, 1985, requires the filing of monthly return and payment
of taxes withheld at source within (10) days after the end of each month
Moreover, the records show that Wyeth Suaco adopted the accrual method
of accounting wherein the effect of transactions and other events on assets
and liabilities are recognized and reported in the time periods to which they
relate rather than only when cash is received or paid. The "Report of
Investigation" submitted by the tax examiner indicated that accrual was the
basis of the taxpayer's return. 18 Thus, private respondent recorded accrued
royalties and dividends payable as well as the withholding tax at source
 payable on these incomes. Having deducted and withheld the tax at source
and having recorded the withholding tax at source payable in its books of
accounts, private respondent was obligated to remit the same to the Bureau
of Internal Revenue
With regard to the accuracy of the assessment on deficiency sales tax, we
rule that the examiner's assessment should be given full weight and credit, in
the absence of proof submitted by Wyeth Suaco to the contrary. This is in
line with our ruling in several cases wherein we said that tax assessments by
tax examiners are presumed correct and made in good faith. The taxpayer
has the duty to prove otherwise. In the absence of proof of any irregularities
in the performance of duties, an assessment duly made by a Bureau of
Internal Revenue examiner and approved by his superior officers will not be
disturbed. All presumptions are in favor of the correctness of tax
assessments
The final assessment issued by the Bureau of Internal Revenue declared the
issuance of deficiency sales tax assessments to be legal and valid. It was
ascertained that during the investigation, Wyeth Suaco deducted non-
deductible raw materials which were not subjected to advance sales tax
thereby resulting in its failure to pay the correct amount of sales tax under
Section 183, in relation to Section 186 and 186-B of the Tax Code, prior to
and after amendment by Presidential Decree No. 69. Wyeth Suaco was not
able to refute this by submitting supporting documents
ABS-CBN v. CTA
October 12, 1981
Melencio Herrera, J.:
Short Summary:
ABS-CBN remitted to the CIR the withholding taxes due from the non-resident foreign
corporations it transacted with based on a Revenue Regulation issued by the CIR.
However, years later, the CIR reversed its earlier Revenue Regulation and now seeks
to compel the petitioner to pay the deficiency income taxes due from the NRFC. SC
ruled that the non-retroactivity of rulings applies in this case because the petitioner
was unduly prejudiced by the earlier RR.
Facts:
ABS-CBN was engaged in the business of telecasting local and foreign films acquired
from foreign corporations not engaged in trade or business within the Philippines. For
this reason, respondent paid rentals after withholding income tax of 30% of one-half
of the rentals paid to the non-resident foreign film distributor. The applicable law
during this time was Sec. 24 (b) of the NIRC as amended by RA 2343. The law at that
time imposed a tax on the amount received by every foreign corporation not engaged
in trade or business within the Philippines, from all sources within the Philippines.
To implement the foregoing law, the CIR issued General Circular V-334, which ruled
that, a mere return of capital or investment is not income. Since, according the
findings of the Special Team who inquired into the business of the non-resident
foreign film distributors, the distribution or exhibition right on a film is invariably
acquired for a consideration, and a part of the receipts of a NRF film distributor
derived from said film represents, therefore, a return of investment.
It further ruled that the local distributor should withhold 30% of one-half of the film
rentals paid to the NRF film distributor. Pursuant to the foregoing circular, ABS-CBN
dutifully paid the tax to the BIR.
RA 5431 later amended Sec. 24(b) of the Tax Code increasing the tax rate from 30% to
35% and revised the tax base from such amount (meaning the amount received by
the foreign corporation) to gross income. Pursuant to the amendment, the CIR
issued Revenue Memorandum Circular 4-71, revoking the previous General Circular.
On the basis of the new circular, the respondent CIR issued a letter of assessment to
the petitioner, requiring them to pay deficiency withholding income tax on the film
rentals in the total amount of P525,897.06.
Petitioner requested for a reconsideration and withdrawal of the assessment which
was not acted upon. Therefore, petitioner commenced an action with the CTA, who,
however, ruled in favour of the CIR. Hence, this petition.
Issue / Held:
WON the new Memo Circular may be applied retroactively. NO.
Rationale:

The applicable law to this issue is the law on non-retroactivity of rulings and it is
clear from the aforementioned law that rulings or circulars promulgated by the CIR
have no retroactive application where to so apply them would be prejudicial to the
taxpayers. It is beyond question that the retroactive application of the Memo Circular
would prejudice the petitioner. The assessment was made three years after the last
year that petitioner withheld taxes under the General Circular first issued by the CIR.
When the assessment was made pursuant to the new Memo Circular, petitioner was
no longer in a position to withhold taxes as it had already remitted all film rentals and
no longer had any control over them.
The CIR claims that the provision on non-retroactivity is inapplicable since General
Circular V-334 was null and void for changing the law on the matter. The SC does not
agree with the position of the CIR because law applicable at the time the General
Circular was issued taxed such amounts received by the NRF film distributor as
income and the General Circular pointed out that a part of the receipts of a NRF film
distributor represents, a return of investment.
The Court further ruled, that it is not unaware of the well-entrenched principle that
the Government
is never estopped from collecting taxes because of mistakes or errors on the part of its
agents. But, like other principles of law, this also admits of exceptions in the interest of
justice and fair play. the CIR is precluded from adopting a position inconsistent with
one previously taken where injustice would result thereform, or where there has been
a misrepresentation to the taxpayer.
WHEREFORE, the judgment of the CTA is hereby reversed, and the questioned
assessment set aside.
Emilio Lim Sr. v. CA
October 18, 1990
Fernan, CJ
Digest by Monique
Topic: Remedies
Facts
Petitioner spouses Emilio Lim Sr. and Antonia Sun Lim were engaged in the business
of selling household appliances.
On October 5, 1959, a raid was conducted at their business premises pursuant to a
search warrant.
On September 30, 1964, it was found that the petitioners were filing fraudulent tax
returns for the years 1958-1959. The Senior Revenue Examiner recommended that
P835K be assessed against the petitioners. The petitioners refused to pay.
On January 31, 1967, the BIR Commissioner informed the petitioners that their
deficiency income tax liabilities have increased to P934K including interest and
compromise penalty for late payment. Petitioners protested.
On October 10, 1967, the BIR rendered a final decision holding there was no cause for
reversal of the assessment. Petitioners were now required to pay P1.2M inclusive of
interest, surcharges, and compromise penalty for late penalty.
On July 3, 1968, the final notice and demand was served on petitioners through their
daughter-in-law. The petitioners still did not pay.
On September 1, 1969, the matter was referred to the Fiscals Office for investigation
and prosecution.
On June 23, 1970, four separate criminal informations were filed against petitioners in
the CFI of Manila for violation of Sections 45 and 51 in relation to Section 73 of the
NIRC. The petitioners were found guilty on August 19, 1975.
In Criminal Cases Nos. 1789 and 1788: the Court finds accused Spouses Lim guilty
for violating Section 51 penalised under Section 73, NIRC.
In Criminal Cases Nos. 1790 and 1791: the Court finds accused Spouses Lim guilty
for violating Section 45 in relation to Section 332, and penalised under Section 73,
NIRC.
The CA affirmed the CFIs decisions. Emilio Lim died, so the criminal case was
dismissed against him, but the civil aspect of the case was instituted against the heirs
of the deceased.
The petitioners contend that the CA erred in (1) holding that the offences charged in
Criminal Cases 1790 and 1791 prescribed in 10 years instead of 5, and (2) that the
prescriptive period in Criminal Cases 1788 and 1789 commenced to run from July 3,
1968, the date of the final assessment.
Issues / Held
WON the actions against the petitioners prescribed / NO
WON the CFI had jurisdiction over the tax collection case / NO
Dispositive
WHEREFORE the decision of the CA under review is MODIFIED.
Ratio
Re: Criminal Cases Nos. 1788 and 1789
(Refusal to Pay Deficiency Income Taxes Due)
The violations as charged can only be committed after service of notice and demand
for payment of the deficiency taxes upon the taxpayers. The SC states that it
should be counted when the final notice and demand was served on the
petitioners daughter-in-law on July 3, 1968. The offence was committed only
after receipt was coupled with the wilful refusal to pay the taxed due within the
allotted period. The two criminal actions, having been filed on June 23, 1970, are well
within the 5-year prescriptive period.
Section 51(b) Assessment and Payment of Deficiency
Tax - After the return is filed, the CIR shall examine it and
assess the correct amount of the tax. The deficiency in the
tax so discovered shall be paid upon notice and demand
from the CIR.
discovery thereof and the institution of judicial proceedings for its investigation and
proceedings. In other words, there must be a judicial proceeding for the
investigation and punishment of the crime in addition to the fact of discovery
before the 5-year prescriptive period begins to run. The referral of the case to a
public prosecutor for preliminary investigation constitutes the institution of judicial
proceedings contemplated by law. It was on September 1, 1969 that the offences of
Criminal Cases 1790-1791 were indorsed for preliminary investigation, so it was then
when the prescriptive period commenced.
The SC however held that the lower court should not have directed the collection and
payment of the unpaid deficiency taxes in Criminal Cases 1788-1789 since the basis
for the CFI in doing so was PD 69 which took effect on 1973, while the criminal cases
were instituted on 1970. PD 69 has no retroactive application. While Section 73 of the
NIRC provides for the imposition of the penalty for nonpayment of income tax or to
make a return thereof, the law fails to provide for who will collect the said tax in the
criminal proceedings, therefore the CFI cannot give itself the authority to collect the
deficiency taxes of the petitioners.

Section 73 Penalty for Failure to File Return or to Pay

Tax - Anyone liable to pay the tax, to make a return or to
supply information, who refuses or neglects to pay, make
a return, or supply information shall be punished by a fine
of not more than P2000 or by imprisonment for not more
than 6 months, or both. Any individual or officer of any
corporation, or general co-partenership required by law
to make, render, sign, or verify any return or to supply any
information, who makes any false or fraudulent return or
statement with intent to defeat or evade the assessment
required by this Code shall be punished by a fine not
exceeding P4000 or by imprisonment not exceeding 1 year,
or both.

Section 354 Prescription for Violations of Any

Violations of Any Provisions of This Code - All violations
of any provision of this Code shall prescribe after 5 years.
Prescription shall be considered to run from the day of
the commission of the violation of the law, and if the same
be not known at the time, from the discovery thereof and the
institution of judicial proceeding for its investigation
and punishment.

Re: Criminal Cases Nos. 1790 and 1791

(Filing of Fraudulent Consolidated Income Tax Returns)
The SC maintains that the crime of filing false returns can only be considered
discovered only after the manner of commission, and the nature and extent of
the fraud have been definitely ascertained. It was only on October 10, 1967 when
BIR rendered its final decision holding that there was no ground for the reversal
of the assessment and therefore required the petitioners to pay P1.2M in
deficiency taxes that the tax infractions were discovered.
Section 354 speaks not only of Discovery of Fraud, but also Institution of Judicial
Proceedings. Note that the conjunctive word and between the phrases the
CIR v CA, Lucio Tan
June 4, 1996
Kapunan
Digest by Eugenio Leynes
Topic and Provision: Remedies
Facts:
On June 1, 1993, the President issued a Memorandum creating a Task Force
to investigate the tax liabilities of manufacturers engaged in tax evasion
scheme, such as selling products through dummy marketing corporations
to avoid payment of correct internal revenue tax, to collect from them any
tax liabilities discovered from such investigation, and to file the necessary
criminal actions against those who may have violated the tax code.
o The task force was composed of the Commissioner of Internal Revenue
as Chairman, a representative of the Department of Justice and a
representative of the Executive Secretary.
On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue
Memorandum Circular No. 37-93 reclassifying best selling cigarettes
bearing the brands Hope, More, and Champion as cigarettes of foreign
brands subject to a higher rate of tax.
On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune)
questioned the validity of the reclassification of said brands of cigarettes as
violative of its right to due process and equal protection of law.
September 8, 1993, the Court of Tax Appeals by resolution ruled that the
reclassification made by the Commissioner is of doubtful legality and
enjoined its enforcement.
In a letter of August 13, 1993 which was received by Fortune on August 24,
1993, the Commissioner assessed against Fortune the total amount of
P7,685,942,221.66 representing deficiency income, ad valorem and value-
added tax for the year 1992 with the request that the said amount be paid
within thirty (30) days upon receipt thereof.
Fortune on September 17, 1993 moved for reconsideration of the
assessments.
On September 7, 1993, the Commissioner of Internal Revenue filed a
complaint with the Department of Justice against respondent Fortune, its
corporate officers, nine (9) other corporations and their respective
corporate officers for alleged fraudulent tax evasion for supposed non-
payment by Fortune of the correct amount of income tax, ad valorem tax
and value-added tax for the year 1992.
Declared net taxable income - P183,613,408.00 and an income tax due of
P64,264,693.00
o Alleged correct taxable income of the corporation for the said year is P
1,282,959,399.25 and deficiency income tax of P723,773,759.79
Declared taxable sales (VAT) - P 11,929,322,334.52
o Alleged actual taxable sales - P16,158,575,035.00
The fraudulent scheme allegedly adopted by private respondents consisted
of making fictitious and simulated sales of Fortunes cigarette products to
non-existing individuals and to entities incorporated and existing only for
the purpose of such fictitious sales by declaring registered wholesale prices
with the BIR lower than Fortunes actual wholesale prices which are
required for determination of Fortunes correct income, ad valorem, and
value-added tax liabilities.
o The ghosts wholesale buyers then ostensibly sold the products to
customers and other wholesalers/retailers at higher wholesale prices
determined by Fortune. The tax returns and manufacturers sworn
statements filed by Fortune would then declare the fictitious sales it
made to the conduit corporators and non-existing individual buyers as
its gross sales.
On October 15, 1993 the private respondents filed to the panel of
prosecutors a Verified Motion to Dismiss; Alternatively Motion to Suspend,
based principally on the following grounds:
o 1. The complaint of petitioner Commissioner follows a pattern of
prosecution against private respondents in violation of their right to
due process and equal protection of the law.
o 2. Petitioner Commissioner and the Court of Tax Appeals have still to
determine Fortunes tax liability for 1992 in question; without any tax
liability, there can be no tax evasion.
o 3. Exclusive jurisdiction to determine tax liability is vested in the Court
of Tax Appeals; therefore, the DOJ is without jurisdiction to conduct
preliminary investigation.
o 4. The complaint of petitioner Commissioner is not supported by any
evidence to serve as adequate basis for the issuance of subpoena to
private respondents and to put them to their defense.
This was dismissed by the PANEL OF PROSECUTORS.
On January 4, 1994, private respondents (Fortune Tobacco Group)
filed a petition for certiorari and prohibition with prayer for
preliminary injunction with the RTC.
RTC granted the prayer for the issuance of a preliminary injunction,
citing the grounds stated above.
On March 7, 1994, petitioners (CIR) filed a petition for certiorari and
prohibition with prayer for preliminary injunction before this Court.
Issue: WON certiorari and prohibition is the proper remedy.
Held: No. Review by this Court is inappropriate UNTIL FINAL JUDGMENT IS
RENDERED, absent a showing of grave abuse of discretion on the part of the
issuing court.
Dispositive: WHEREFORE, the instant petition is hereby DISMISSED.
Ratio:
The questioned orders issued after hearing being but interlocutory, review
thereof by this Court is inappropriate until final judgment is rendered,
absent a showing of grave abuse of discretion on the part of the issuing
court.
The factual and legal issues involved in the main case still before the
respondent Court are best resolved after trial.
Petitioners, therefore, instead of resorting to this petition for certiorari and
prohibition should have filed an answer to the petition as ordained in
Section 4, Rule 16, in connection with Rule 11 of the Revised Rules of Court,
 interposing as defense or defenses the objection or objections raised in their
motion to dismiss, then proceed to trial in order that thereafter the case may
be decided on the merits by the respondent Court.
In case of an adverse decision, they may appeal therefrom by which the
entire record of the case would be elevated for review.
Therefore, certiorari and prohibition resorted to by herein petitioners will
not lie in view of the remedy open to them.
Thus, the resulting delay in the final disposition of the case before the
respondent Court would not have been incurred.
Padilla, Dissent (Vitug, dissent raises the same argument)
o The same ratio as stated in the main opinion actually applies to the original
petition for certiorari and prohibition by private respondents.
o The rule is settled that the fiscal (prosecutor) cannot be prohibited from
conducting and finishing his preliminary investigation.
058. COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. HON. COURT OF
APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO
CORPORATION, respondents.
August 29, 1996
Vitug, J.
Short Version:
Facts: Prior to the effectivity of RA 7654, cigarette brands Hope Luxury, Premium
More and Champion were considered local brands subjected to an ad valorem tax at
the rate of 20-45%. 2 days before RA 7654 took effect, the BIR issued RMC 37-93
reclassifying Hope, More, and Champion being manufactured by Fortune Tobacco
Corporation as locally manufactured cigarettes bearing a foreign brand subject to 55%
ad valorem tax. Fortune Tobacco received a Xerox copy of RMC 37-93 a few days later.
Held: RMC 37-93 is not a valid and effective administrative issuance as it does not
comply with the notice, public hearing, and publication should have been complied
with. It is not an interpretative rule, but a legislative one which reclassifies three
brands and subjects it to a higher rate of tax, hence, it should comply with the
requirements. It is also violative of the principle of uniformity of taxation as not all
brands similarly situated are included, but only singles out Fortune Tobaccos brands.
Facts:
- Fortune Tobacco was issued separate certificates of trademark over
Champion, Hope, and More by the Philippine Paten Office.
- In a letter by the CIR Bienvenido Tan to Deputy Minister Ramon Diaz of the
PCGG, the initial position was to classify the three brands as foreign since
they were listed in the World Tobacco Directory as belonging to foreign
companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope
Luxury' and 'More' to 'Premium More,' thereby removing the said brands
from the foreign brand category. On the other hand, proof was submitted to
the BIR that Champion was an original Fortune Tobacco register and
therefore a local brand.
- The brands were imposed an ad valorem tax of 20-45%.
- RA 7654 was signed into law on June 14, 1993, amending Sec. 14(c)(1) of the
NIRC
o Sec. 142. Cigars and Cigarettes.
xxx xxx xxx
(c) Cigarettes packed by machine. There shall be levied, assessed
and collected on cigarettes packed by machine a tax at the rates
prescribed below based on the constructive manufacturer's
wholesale price or the actual manufacturer's wholesale price,
whichever is higher:
(1) On locally manufactured cigarettes which are currently
classified and taxed at fifty-five percent (55%) or the
exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum
tax shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five
percent (45%) provided that the minimum tax shall not
be less than Three Pesos (P3.00) per pack.
xxx xxx xxx
 When the registered manufacturer's wholesale price or the actual
manufacturer's wholesale price whichever is higher of existing
brands of cigarettes, including the amounts intended to cover the
taxes, of cigarettes packed in twenties does not exceed Four Pesos
and eighty centavos (P4.80) per pack, the rate shall be twenty
percent (20%).
- July 1, 1993About a month after the enactment and 2 days before the
effectivity of RA 7654, RMC 37-93 was issued by the BIR.
o It was addressed to Fortune Tobacco. It said that "HOPE," "MORE"
and "CHAMPION" cigarettes is considered a locally
manufactured cigarettes bearing a foreign brand subject to
55% ad valorem tax.
o Considering that Section 142 (c)(1) National Internal Revenue
Code, as amended by R.A. No. 6956, provides:
On locally manufactured cigarettes bearing a foreign
brand, fifty-five percent (55%) Provided, That this rate
shall apply regardless of whether or not the right to use or
title to the foreign brand was sold or transferred by its
owner to the local manufacturer. Whenever it has to be
determined whether or not a cigarette bears a foreign
brand, the listing of brands manufactured in foreign
countries appearing in the current World Tobacco
Directory shall govern.
o Thus test for the imposition of the 55% as valorem tax on cigarettes
is that the locally manufactured cigarettes bear a foreign brand
regardless of whether or not the right to use or title to the foreign
brand was sold or transferred by its owner to the local
manufacturer. The brand must be originally owned by a foreign
manufacturer or producer. If not determinable, the listing in the
current World Tobacco Directory shall govern.
o In the case of HOPE, MORE, and CHAMPION, there is no
showing who among the foreign brands listed in the World
Tobacco Directory is the real owner, then it follows that the same
shall be considered foreign brand for purposes of determining the
ad valorem tax
- The next day, July 2, a copy of RMC 37-93 was sent to Fortune Tobacco. It
was received on July 15. It was addressed to no one in particular.
- July 19, 1993Fortune Tobacco requested for a review, reconsideration,
and recall of RMC 37-93. This was denied on July 29. The following day, July
30, the CIR assessed Fortune Tobacco for ad valorem tax deficiency
amounting to P9,598,334.
- August 3, 1993Fortune Tobacco filed a petition for review with the CTA,
which upheld the Fortune Tobacco. CIRs MR dismissed for lack of merit.
- The CIR filed a petition for review with the CA. CA affirmed the CTA.
- Hence the present petition.
- CIR claims that RMC 37-93 is merely an interpretative ruling of the BIR
which can thus become effective without any prior need for notice and
hearing, nor publication, and that its issuance is not discriminatory since it
would apply under similar circumstances to all locally manufactured
cigarettes.
Issues:
1. WON RMC 37-93 is merely an interpretative rule the issuance of which needs no
prior notice and hearing, or an adjudicatory ruling which calls for the twin
requirements of prior notice and hearing
2. WON RMC 37-93 is discriminatory in nature
Reasoning:
1. Legislative Ruling, hence compliance with public hearing and due process is
required.
- There are two kinds of administrative issuances:
o Legislative Rule (Ruling) is in the nature of subordinate
legislation, designed to implement a primary legislation by
providing the details thereof . In the same way that laws must have
the benefit of public hearing, it is generally required that before a
legislative rule is adopted there must be hearing.
o Interpretative Rule (Opinion) are designed to provide guidelines
to the law which the administrative agency is in charge of
enforcing.
- When an administrative rule is merely interpretative in nature, its
applicability needs only an issuance for it gives no real consequence more
than what the law itself has already prescribed.
- When an administrative rule is legislative, a public hearing is required.
- RMC 37-93 is not a simple corrective measure or as simply construing
Section 142(c)(1) of the NIRC. It has been made in order to place "Hope
Luxury," "Premium More" and "Champion" within the classification of locally
manufactured cigarettes bearing foreign brands and to thereby have them
covered by RA 7654. Thus the BIR legislated under its quasi-legislative
authority.
o Specifically, the RA 7654 would have its amendatory provisions
applied to locally manufactured cigarettes which at the time of its
effectivity were not so classified as bearing foreign brands. Prior to
the issuance of the questioned circular, "Hope Luxury," "Premium
More," and "Champion" cigarettes were in the category of locally
manufactured cigarettes not bearing foreign brand subject to 45%
ad valorem tax. Hence, without RMC 37-93, the enactment of RA
7654, would have had no new tax rate consequence on Fortune
Tobaccos products.
- The due observance of the requirements of notice, of hearing, and of
publication should not have been then ignored.
- RMC 10-86 provides that RMCs shall not begin to be operative until after due
notice thereof may be fairly presumed.
- Nothing in the record shows that it was either impossible or impracticable
for the BIR to observe and comply with the requirements of due process
before giving effect to RMC 37-93.
2. YES
- Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates
taxation to be uniform and equitable.
 o Uniformity requires that all subjects or objects of taxation, similarly
situated, are to be treated alike or put on equal footing both in
privileges and liabilities.
o Thus all taxable articles or kinds of property of the same class must
be taxed at the same rate and the tax must operate with the same
force and effect in every place where the subject may be found.
- Why RMC 37-93 is not in compliance with the rule of uniformity and
equitablity:
o RMC 37-93 would only apply to "Hope Luxury," "Premium More"
and "Champion" cigarettes and,
o is considered adjudicatory in nature and thus violative of due
process,
o following the Ang Tibay doctrine, suffers from lack of uniformity of
taxation.
- The CTA noted other cigarettes bearing foreign brands which have not been
similarly included within the scope of the RMC.
o Some examples: Alhambra Industrys PALM TREE is listed as
manufactured by office of Monopoly, Korea. La Suerte Cigar and
Cigarette Companys GOLDEN KEY is listed as being
manufactured by United Tobacco, Pakistan, CANNON is listed as
being manufactured by Alpha Tobacco, Bangladesh, etc.
- In the transcript of hearing conducted by the Committee on Ways and Means
of the House of Representative, CIR Liwayway Vinzons-Chato admitted that
not all brands were included due to the short amount of time given to study
the matter of locally manufactured cigarettes bearing foreign brands.
- RMC 37-93 is NOT A VALID and EFFECTIVE ADMINISTRATIVE ISSUANCE
Bellosillo, Separate Opinion:
- Brief discourse on the powers and functions of administrative bodies:
o Administrative agencies possess quasi-legislative or rule making
powers and quasi-judicial or administrative adjudicatory powers.
Quasi-legislative or rule making power is the power to make rules
and regulations which results in delegated legislation that is within
the confines of the granting statute and the doctrine of
nondelegability and separability of powers.
o Interpretative rule, one of the three (3) types of quasi-legislative or
rule making powers of an administrative agency (the other two
being supplementary or detailed legislation, and contingent
legislation), is promulgated by the administrative agency to
interpret, clarify or explain statutory regulations under which the
administrative body operates. The purpose or objective of an
interpretative rule is merely to construe the statute being
administered. It purports to do no more than interpret the statute.
In Tanada v. Tuvera, the Court ruled that interpretative
rules need not be published.
o Quasi-judicial or administrative adjudicatory power on the other
hand is the power of the administrative agency to adjudicate the
rights of persons before it. It is the power to hear and determine
questions of fact to which the legislative policy is to apply and to
decide in accordance with the standards laid down by the law itself
in enforcing and administering the same law.
Due process should always be observed
- There are cardinal primary rights which must be respected in administrative
proceedings. The landmark case of Ang Tibay v. The Court of Industrial
Relations 9 enumerated these rights:
o (1) the right to a hearing, which includes the right of the party
interested or affected to present his own case and submit evidence
in support thereof;
o (2) the tribunal must consider the evidence presented;
o (3) the decision must have something to support itself;
o (4) the evidence must be substantial;
o (5) the decision must be rendered on the evidence presented at the
hearing, or at least contained in the record and disclosed to the
parties affected;
o (6) the tribunal or any of its judges must act on its or his own
independent consideration of the law and facts of the controversy,
and not simply accept the views of a subordinate in arriving at a
decision; and,
o (7) the tribunal should in all controversial questions render its
decision in such manner that the parties to the proceeding may
know the various issues involved and the reasons for the decision
rendered.
- In issuing RMC 37-93 petitioner Commissioner of Internal Revenue was
exercising her quasi-judicial or administrative adjudicatory power. She cited
and interpreted the law, made a factual finding, applied the law to her given
set of facts, arrived at a conclusion, and issued a ruling aimed at a specific
individual. Consequently prior notice and hearing are required.
- RMC 37-93 is discriminatory as it singles out only Hope Luxury, More
International, and Champion.
- The RMC was in issuing RMC 37-93 petitioner Commissioner of Internal
Revenue was exercising her quasi-judicial or administrative adjudicatory
power. She cited and interpreted the law, made a factual finding, applied the
law to her given set of facts, arrived at a conclusion, and issued a ruling
aimed at a specific individual. Consequently prior notice and hearing are
required.
- the circumstances clearly demonstrate that it was hastily issued without
prior notice and hearing, and singling out private respondent alone when
two days before a new tax law was to take effect petitioner reclassified and
taxed the cigarette brands of private respondent at a higher rate.
- this was to make it appear that even before the anticipated date of effectivity
of the statute which was undeniably priorly known to petitioner these
brands were already currently classified and taxed at fifty-five percent
(55%), thus shoving them into the purview of the law that was to take effect
two days after!
Hermosisima, Jr., J., dissenting: (bwisit ang daldal!!! May crush ata to kay Chato. This is
the shrink-towel version)
1. Section 2457 of the National Internal Revenue Code, as amended, empowers the - The RMC involves a reclassification which is the correct interpretation of Sec.
Commissioner of Internal Revenue to issue RMC 37-93 142(c)(1) of the tax code.
- The subject of RMC 37-93 is is the reclassification of cigarettes subject to - The basis for the classification of cigarettes has been provided for by the
excise taxes. It was issued in connection with Section 142 (c) (1) of the legislature, and all the CIR has to do is to proceed to make the proper
National Internal Revenue Code, as amended, which imposes ad valorem determination using the criterion stipulated by the lawmaking body
excise taxes on locally manufactured cigarettes bearing a foreign brand.
- In case it was not clear WON a cigarette bears a foreign brand, the listing of 4. Neither is the questioned Circular tainted by a violation of the equal protection
brands manufactured in foreign countries appearing in the current World clause under the Constitution
Tobacco Directory shall govern. - While at first blush the RMC does seem discriminatory, it is not so. The
- Hermosisima is of the opinion that in determining WON a cigarette is of a reclassification was made in response to Fortunes changing the names in
foreign brand, CIR should inquire into the entries in the World Tobacco order to escape the classification that it was a locally manufactured foreign
Directory for the given current year and shall be held bound by such brand. Furthermore, a scrutiny of the RMC will show that it is undisputedly
entries therein. She is not required to subject the results of her inquiries to one of general application for all cigarettes that are similarly situated as
feedback from the concerned cigarette manufacturers, and it is doubtlessly Fortune Tobaccos brands.
not desirable nor managerially sound to court dispute thereon when the law - RMC 37-93 is not discriminatory. It lays down the test in determining
does not, in the first place, require debate or hearing thereon. whether or not a locally manufactured cigarette bears a foreign brand using
o She may make such a determination because she is the Chief the cigarette brands "Hope," More and "Champion" as specific examples.
Executive Officer of the administrative agency that is the Bureau of Such test applies to all locally manufactured cigarette brands similarly
Internal Revenue in which are vested quasi-legislative powers situated as the cigarette brands aforementioned. While it is true that only
entrusted to it by the legislature in recognition of its more "Hope," "More" and "Champion" cigarettes are actually determined as locally
encompassing and unequalled expertise in the field of taxation. manufactured cigarettes bearing a foreign brand, RMC 37-93 does not state
- In fact, past determinations of the classification of HOPE, MORE, and that ONLY cigarettes fall under such classification to the exclusion of other
CHAMPION have been erroneous and contrary to the classification made in cigarettes similarly situated.
the WTD.
Dawn Chua
2. The contents of the questioned circular have not been proven to be erroneous or
illegal as to render issuance thereof an act of grave abuse of discretion on the part
of petitioner Commissioner
- CIR was within her prerogatives, in the exercise of her rule-making power, to
classify articles for taxation purposes, to interpret the laws which she is
mandated to administer, pursuant to the WTD.
- The vested rights theory advanced by Fortune Tobaccothat prerogatives,
in the exercise of her rule-making power, to classify articles for taxation
purposes, to interpret the laws which she is mandated to administer
cannot negate the loss of revenue by the Government which, because of
erroneous determinations made by its past revenue commissioners,
collected lesser taxes than what it was entitled to in the first place.
- It is every citizen's duty to pay the correct amount of taxes
- There are no vested rights to speak of respecting a wrong construction of the
law by administrative officials, and such wrong interpretation does not place
the Government in estoppel to correct or overrule the same

3. The Questioned Circular embodies an interpretative ruling of petitioner

Commissioner which as such does not require notice and hearing

7Sec. 245. Authority of Secretary of Finance to promulgate rules and regulations. The
Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful
rules and regulations for the effective enforcement of the provisions of this Code . . . without
prejudice to the power of the Commissioner of Internal Revenue to make rulings or opinions in
connection with the implementation of the provisions of internal revenue laws, including rulings
on the classification of articles for sales tax and similar purposes.
CIR v. Pascor Realty and Development Corp.
June 29, 1999
Panganiban, J.
Digest by: Kara Marcelo
TOPIC: Remedies
FACTS:
By virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U.
Ong authorized 3 revenue officers to examine the books of accounts and
other accounting records of Pascor Realty and Development Corporation
(PRDC) for the years ending 1986, 1987 and 1988, which resulted in a
recommendation for the issuance of an assessment in the amounts of
P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
CIR then filed a criminal complaint for tax evasion before the DOJ against
PRDC, its President and Treasurer. PRDC, et.al prayed for an urgent request
for reconsideration/reinvestigation and disputed such tax assessment and
tax liability.
CIR denied PRDCs request so the latter elevated the matter to the CTA. CIR
then filed a Motion to Dismiss on the ground that the CTA has no jurisdiction
over the subject matter as there was no formal assessment yet.
CTA: denied the MtD and asked CIR to file an Answer. However, the CIR did
not file an answer nor moved for reconsideration and instead appealed the
case to the CA, alleging that: the CTA acted with grave abuse of discretion
and without jurisdiction in considering the affidavit/report of the
revenue officer and the indorsement of said report to the secretary of
justice as assessment which may be appealed to the CTA.
o CTA in denying CIRs MtD: xxx An assessment simply states how
much tax is due from a taxpayer. Thus, based on these definitions,
the details of the tax as given in the Joint Affidavit of respondents
examiners, which was attached to the tax evasion complaint, more
than suffice to qualify as an assessment. Therefore, this assessment
having been disputed by petitioners, and there being a denial of
their letter disputing such assessment, this Court unquestionably
acquired jurisdiction over the instant petition for review.
CA: affirmed CTA.
Hence, present petition for review on certiorari under Rule 45.
ISSUE:
WON the revenue officers Affidavit-Report attached to the criminal complaint for tax
evasion constituted an assessment that could be questioned before the CTA
HELD:
NO!
DISPOSITIVE:
WHEREFORE, the petition is hereby GRANTED. The assailed Decision
is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.
RATIO:
Neither the NIRC nor the revenue regulations governing the protest of
assessment provide a specific definition or form of an assessment. However,
the NIRC defines the specific functions and effects of an assessment. To
consider the affidavit attached to the Complaint as a proper assessment is to
subvert the nature of an assessment and to set a bad precedent that will
prejudice innocent taxpayers.
True, as pointed out by the private respondents, an assessment informs the
taxpayer that he or she has tax liabilities. But not all documents coming from
the BIR containing a computation of the tax liability can be deemed
assessments.
The issuance of an assessment is vital in determining the period of limitation
regarding its proper issuance and the period within which to protest
it. Section 203 of the NIRC provides that internal revenue taxes must be
assessed within three years from the last day within which to file the
return. Section 222,[14] on the other hand, specifies a period of ten years in
case a fraudulent return with intent to evade was submitted or in case of
failure to file a return. Also, Section 228 of the same law states that said
assessment may be protested only within thirty days from receipt
thereof. Necessarily, the taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion would arise regarding the
period within which to make an assessment or to protest the same, or
whether interest and penalty may accrue thereon.
It should also be stressed that the said document is a notice duly sent to the
taxpayer. Indeed, an assessment is deemed made only when the collector of
internal revenue releases, mails or sends such notice to the taxpayer. In the
present case, the revenue officers Affidavit merely contained a computation
of respondents tax liability. It did not state a demand or a period for
payment. Worse, it was addressed to the justice secretary, not to the
taxpayers.
Side issue:
Assessment is not necessary before filing of criminal complaint.
Section 222 of the NIRC specifically states that in cases where a false or
fraudulent return is submitted or in cases of failure to file a return such as
this case, proceedings in court may be commenced without an
assessment. Furthermore, Section 205 of the same Code clearly mandates
that the civil and criminal aspects of the case may be pursued
simultaneously.
CIR v. Lascona Land Co (CA Case)
October 25, 2005
J. Perlas-Bernabe
Ortiz
Topic: Remedies; When protest not acted upon
Summary: CIR assessed Lascona Land for deficiency income tax. It was protested to
by Lascona. Protest was denied after almost 11 months. Lascona filed an appeal with
the CTA. SC ruled that the appeal was already filed out of time. If the protest was not
acted upon within a period of 180 days from the submission of documents, such
inaction allows the taxpayer to appeal to the Court of Tax Appeals (CTA). If there is no
appeal within 30 days after the lapse of the 180-day period, the matter/decision
under protest becomes final.
Facts:
March 27, 1998: CIR issued an assessment notice against Lascona Land informing the
latter of its alleged deficiency income tax for the year 1993 in the amount of PhP 753k.
April 20, 1998: Letter of protest was filed by Lascona
March 3, 1999: Denied by BIR Regional Director
April 12, 1999: Lascona appealed to the CTA.
January 4, 2000: CTA ruled in favor of Lascona and rendered null the subject
assessment
Petitioners argument: Assessment was proper considering respondents failure to
timely file an appeal with the CTA after the lapse of the 180 day reglementary period
provided under Section 2288 of the Tax Code. CIR also cited RR 12-999
8 SEC. 228. Protesting of Assessment. When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings; Provided, however, That a preassessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding
tax for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on excisable articles has not been paid; or
(e) When an article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.
The taxpayer shall be informed in writing of the law and the facts on which the assessment is
made; otherwise the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly
authorized representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner
as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of
the protest, all relevant supporting
documents shall have been submitted; otherwise the assessment
shall become final.
Issue: WON the tax assessment against Lascona was already final, executory, and
demandable under Section 228, NIRC
Held: YES. Assessment already final, executory, and demandable
Dispositive: WHEREFORE, premises considered, the instant petition is GRANTED.
The assailed Decision dated January 4, 2000 of the CTA in C.T.A. Case No. 5777 and its
Resolution dated March 3, 2000 are REVERSED and SET ASIDE. Accordingly,
Assessment Notice No. 0000047-93-407 dated March 27, 1998 is hereby declared
final, executory and demandable.
Ratio:
Based on the cited NIRC provision, it can be inferred that if the protest was not acted
upon within a period of 180 days from the submission of documents, such
inaction allows the taxpayer to appeal to the Court of Tax Appeals (CTA). If there
is no appeal within 30 days after the lapse of the 180-day period, the
matter/decision under protest becomes final.
The delinquent taxpayer may nevertheless directly appeal a disputed
assessment, if its request for reconsideration remains unacted upon 180 days
after submission thereof, as what happened in this case, the taxpayer need not
await the outcome of its protest with the petitioner before it can question the
propriety of the assessment before the CTA.
Right of taxpayer to contest assessments and his right to appeal in the CTA may be
waived or lost.
Also, the word decision cannot be strictly construed as referring only to the decision
per se of the petitioner as found by the CTA but should be considered as synonymous
with the disputed assessment as earlier indicated in its paragraph 4.
As applied
In the case at bar, it is undisputed that respondent filed its protest on April 20, 1998
and must have submitted its supporting documents within 60 days therefrom or until
June 19, 1998.
Thereafter, the petitioner has 180 days or until December 16, 1998 within which to
act on the subject protest. In turn, respondent has another 30 days reckoned from its
actual receipt of the latters decision, if any, or the lapse of the 180-day period counted
from December 17, 1998 or until January 16, 1999, whichever comes first, to elevate
its appeal to the CTA.
Records show that respondent appealed to the said court only on April 12, 1999,
after almost three (3) months from the lapse of the 180-day period. As such, its
appeal was clearly filed out of time rendering the disputed assessment final and
demandable.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180)
days from submission of
documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court
of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the
One Hundred Eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable.
9Section 3.1.5. If the Commissioner or his duly authorized representative fails to act on the
taxpayers protest within one hundred eighty (180) days from date of submission, by the
taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the
Court of Tax Appeals within thirty (30) days from the lapse of the said 180-day period,
otherwise, the assessment shall become final, executory and demandable.
DR . FELISA L. VDA. DE SAN AGUSTIN, in substitution of JOSE Y. FERIA, in his
capacity as Executor of the Estate of JOSE SAN AGUSTIN, petitioner,
vs. COMMISSIONER OF INTERNAL REVENUE, respondent.
Sept 10, 2001
Vitug, J
Digest by: Jonathan Pabillore.
Topic and Provisions: When to elevate to CTA.
Summary: The estate of Atty. San Agustin was assessed deficiency estate tax and
surcharges, interest, and penalties. The latter was paid under protest by the executor,
due to the denial by the CIR of their request to have the surcharges, etc., waived. After
payment, they appealed to the CTA requesting for a refund of the surcharges,
interests, and penalties which they previously paid. The commissioner countered
saying that the CTA had no jurisdiction since the filing of a tax refund before the BIR
was a condition precedent before an appeal to the CTA. Under RA 1125, the CTA is
expressly granted jurisdiction over disputed assessments, under which this case
falls, and that to require petitioner to file for tax refund would just be to impose an
unnecessary procedure, because it would just further delay the casethe BIR would
just deny the tax refund anyway, as it may be inferred from its denial of petitioners
request for waiver (in other words, it will reach the CTA either way, so better to just
resolve the case already).
Facts:
Atty. Jose San Agustin died on June 27, 1990 leaving his wife Dra. Felisa L.
San Agustin as sole heir. He left a holographic will executed on April 21,
1980 giving all his estate to his widow, and naming retired Justice Jose Y.
Feria as Executor thereof.
Probate proceedings were instituted on August 22, 1990, in the RTC and
notice of decedents death was sent to the Commissioner of Internal Revenue
on August 30, 1990.
September 3, 1990, an estate tax return reporting an estate tax due of
P1,676,432.00 was filed on behalf of the estate, with a request for an
extension of two years for the payment of the tax, inasmuch as the
decedents widow did not personally have sufficient funds, and that the
payment would have to come from the estate.
A 6 month extension was granted by BIR Deputy Commissioner Victor A.
Deoferio, Jr. and within such time the estate tax (P1.6m) was paid.
However, on Sept 23, 1991, the widow received a Pre-Assessment Notice
(PAN) from the BIR (deficiency estate tax: P538,509.50; plus surcharge,
interest and penalties. Overall, it amounted to P976,540.00).
Within 10 days (or on Oct 1, 1991) from the PAN, the executor requested
that the surcharges, etc., to be waived while expressing his willingness to pay
the deficiency estate tax of P538k.
o The commissioner denied the request for waiver, so the executor
paid the deficiency tax and paid in protest the surcharge, etc.
Feb 18, 1993 - a Petition for Review was filed by the executor with the CTA
with the prayer that the Commissioners letter/decision be reversed and that
a refund of the amount of P438,040.38 be ordered.
o The commissioner argued that the CTA had no jurisdiction because
the executor did not previously file for a tax refund with the BIR
before this petition, in violation of Secs. 204 & 230 of the NIRC.
Issue: WON CTA had jurisdiction.
Held: ,
Dispositive:
Ratio:
Appeal from the CIR to CTA
Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in providing for
appeals from
`(1) Decisions of the Collector 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 the law administered by the Bureau of
Internal Revenue
allows an appeal from a decision of the Collector in cases involving `disputed
assessments as distinguished from cases involving `refunds of internal revenue taxes,
fees or other charges, x x x; that the present action involves a disputed assessment;
because from the time petitioner received assessments disallowing certain deductions
claimed by him in his income tax returns for the years 1955 and 1956, he already
protested and refused to pay the same, questioning the correctness and legality of
such assessments; and that the petitioner paid the disputed assessments under
protest before filing his petition for review with the Court a quo.... To hold that the
taxpayer has now lost the right to appeal from the ruling on the disputed assessment
but must prosecute his appeal under section 306 of the Tax Code, which requires a
taxpayer to file a claim for refund of the taxes paid as a condition precedent to his
right to appeal, would in effect require of him to go through a useless and needless
ceremony that would only delay the disposition of the case, for the Collector (now
Commissioner) would certainly disallow the claim for refund in the same way as he
disallowed the protest against the assessment. The law, should not be interpreted as
to result in absurdities. (Roman Catholic Archbishop of Cebu vs. Collector of Internal
Revenue, which case had similar facts, there was a PAN for deficiency taxes, which the
petitioner paid under protest, then filed a petition for review with the CTA. The Court
in that case upheld the CTAs jurisdiction).
Surcharges, Interest, and Penalties
The Court held that under Sec. 248A(3), petitioner is only liable for surcharge in the
amount of
Deficiency estate tax x Interest Rate x Terms
P538,509.50 20% per annum 11/2 mo./12 mos
(11/04/91 to 12/19/91)
= P13,462.7410 Philippine Journalists Inc. vs CIR
December 16, 2004
But the Court held that the compromise penalty of P20,000.00 could not be imposed Mendoza, J.
on petitioner, a compromise being, by its nature, mutual in essence. The payment Arrow Pabiona
made under protest by petitioner could only signify that there was no agreement that Topic and Provisions: Remedies, When to elevate assessment to CTA
had effectively been reached between the parties (in other words, if there had been no
compromise, then no compromise penalty). Note: ADDED RMO 20-90 provisions at the end of the digest for your
convenience

Facts:
The Annual Income Tax Return filed by petitioner for the calendar year 1994
presented a net income of P30,877,387.00 and the tax due of P10,807,086.00. After
deducting tax credits for the year, petitioner paid the amount of P10,247,384.00.

On August 10, 1995, Revenue District Office No. 33 of the Bureau of Internal Revenue
(BIR) issued Letter of Authority for Revenue Officer and Group Supervisor to examine
petitioners books of account and other accounting records for internal revenue taxes
for the period January 1, 1994 to December 31, 1994. From the examination, the
petitioner was told that there were deficiency taxes, inclusive of surcharges, interest
and compromise penalty in the following amounts:
Value Added Tax P 229,527.90

Income Tax 125,002,892.95

Withholding Tax 2,748,012.35

Total P 127,980,433.20

In a letter dated August 29, 1997, Revenue District Officer invited petitioner to send a
representative to an informal conference on September 15, 1997 for an opportunity to
object and present documentary evidence relative to the proposed assessment. On
September 22, 1997, petitioners Comptroller, Lorenza Tolentino, executed a "Waiver
of the Statute of Limitation Under the National Internal Revenue Code (NIRC)". The
document "waive[d] the running of the prescriptive period provided by Sections 223
and 224 and other relevant provisions of the NIRC and consent[ed] to the assessment
and collection of taxes which may be found due after the examination at any time after
the lapse of the period of limitations fixed by said Sections 223 and 224 and other
relevant provisions of the NIRC, until the completion of the investigation".

On July 2, 1998, Revenue Officer submitted his audit report recommending the
issuance of an assessment and finding that petitioner had deficiency taxes in the total
amount of P136,952,408.97. On October 5, 1998, the Assessment Division of the BIR
issued Pre-Assessment Notices which informed petitioner of the results of the
investigation. Thus, BIR Revenue Region No. 6, Assessment Division/Billing Section,
issued Assessment/Demand on December 9, 1998 stating the following deficiency
taxes, inclusive of interest and compromise penalty:
Income Tax P108,743,694.88
10On 04 October 1991 petitioner received from the Commissioner notice insisting payment of
the tax due on or before the lapse of thirty (30) days from receipt thereof. The deficiency estate
tax of P538,509.50 was not paid until 19 December 1991.

Value Added Tax 184,299.20
Expanded Withholding Tax 2,363,220.38
Total P111,291,214.46
On March 16, 1999, a Preliminary Collection Letter was sent by Deputy Commissioner
Romeo S. Panganiban to the petitioner to pay the assessment within ten (10) days
from receipt of the letter. On November 10, 1999, a Final Notice Before Seizure was
issued by the same deputy commissioner giving the petitioner ten (10) days from
receipt to pay. Petitioner received a copy of the final notice on November 24, 1999. By
letters dated November 26, 1999, petitioner asked to be clarified how the tax liability
of P111,291,214.46 was reached and requested an extension of thirty (30) days from
receipt of the clarification within which to reply.
The BIR received a follow-up letter from the petitioner asserting that its (PJI) records
do not show receipt of Tax Assessment/Demand. Petitioner also contested that the
assessment had no factual and legal basis. On March 28, 2000, a Warrant of Distraint
and/or Levy signed by Deputy Commissioner Romeo Panganiban for the BIR was
received by the petitioner.
Petitioner filed a Petition for Review with the Court of Tax Appeals (CTA) which was
amended on May 12, 2000. Petitioner complains: (a) that no assessment or demand
was received from the BIR; (b) that the warrant of distraint and/or levy was without
factual and legal bases as its issuance was premature; (c) that the assessment, having
been made beyond the 3-year prescriptive period, is null and void; (d) that the
issuance of the warrant without being given the opportunity to dispute the same
violates its right to due process; and (e) that the grave prejudice that will be sustained
if the warrant is enforced is enough basis for the issuance of the writ of preliminary
injunction.
CTA: Court granted the petition for review of the petitioner. Specifically on the issue
of waiver, 3 reasons
Since the subject assessments were issued beyond the three-year prescriptive period,
it becomes imperative on our part to rule first on the validity of the waiver allegedly
executed on September 22, 1997, for if this court finds the same to be ineffective, then
the assessments must necessarily fail.
a) The waiver is an unlimited waiver. It does not contain a definite expiration
date. Under RMO No. 20-90, the phrase indicating the expiry date of the
period agreed upon to assess/collect the tax after the regular three-year
period of prescription should be filled up
b) waiver failed to state the date of acceptance by the Bureau which under the
aforequoted RMO should likewise be indicated
c) petitioner was not furnished a copy of the waiver. It is to be noted that under
RMO No. 20-90, the waiver must be executed in three (3) copies, the second
copy of which is for the taxpayer. It is likewise required that the fact of
receipt by the taxpayer of his/her file copy be indicated in the original copy.
Again, respondent failed to comply.
CA: Set aside the CTA decision stating the petition was neither timely filed nor the
proper remedy. Only decisions of the BIR, denying the request for reconsideration or
reinvestigation may be appealed to the CTA. Mere assessment notices which have
become final after the lapse of the thirty (30)-day reglementary period are not
appealable. Thus, the CTA should not have entertained the petition at all.
On waiver, court said that the period of prescription for the assessment of taxes may
be extended provided that the extension be made in writing and that it be made prior
to the expiration of the period of prescription. To these requirements provided by law,
the memorandum order adds that the length of the extension be specified by
indicating its expiration date. This requirement could be reasonably construed from
the rule on extension of the prescriptive period. But this requirement does not apply
in the instant case because what we have here is not an extension of the prescriptive
period but a waiver thereof. These are two (2) very different things. What Phil.
Journalists executed was a renunciation of its right to invoke the defense of
prescription. This is a valid waiver. When one waives the prescriptive period, it is no
longer necessary to indicate the length of the extension of the prescriptive period
since the person waiving may no longer use this defense.
Issue 1: WON the CTA has jurisdiction over this case
Held: YES
Issue 2: WON the Waiver of the Statute of Limitations is valid and binding on the
petitioner
Held: NO
Dispositive: WHEREFORE, premises considered, the instant petition for review is
GRANTED. The Decision of the Court of Appeals dated August 5, 2003 and its
Resolution dated March 31, 2004 are REVERSED and SET ASIDE. The Decision of the
Court of Tax Appeals in CTA Case No. 6108 dated May 14, 2002, declaring Warrant of
Distraint and/or Levy No. 33-06-046 null and void, is REINSTATED.
Ratio:
1. The petitioner argues that the case was brought to the CTA because the
warrant of distraint or levy was illegally issued and that no assessment was
issued because it was based on an invalid waiver of the statutes of
limitations.
Section 7(1) of Republic Act No. 1125, the Act Creating the Court of Tax Appeals,
provides for the jurisdiction of that special court:
SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal, as herein provided
(1) 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 laws or part of law
administered by the Bureau of Internal Revenue; (Emphasis supplied).
The appellate jurisdiction of the CTA is not limited to cases which involve decisions of
the Commissioner of Internal Revenue on matters relating to assessments or refunds.
The second part of the provision covers other cases that arise out of the NIRC or
related laws administered by the Bureau of Internal Revenue. The wording of
the provision is clear and simple. It gives the CTA the jurisdiction to determine if
the warrant of distraint and levy issued by the BIR is valid and to rule if the afford such protection. As a corollary, the exceptions to the law on prescription should
Waiver of Statute of Limitations was validly effected. perforce be strictly construed.
2. As found by the CTA, the Waiver of Statute of Limitations, signed by EXTRA: RMO 20-90
petitioners comptroller on September 22, 1997 is not valid and binding RMO No. 20-90 implements these provisions of the NIRC relating to the period of
because it does not conform with the provisions of RMO No. 20-90. It did not prescription for the assessment and collection of taxes. A cursory reading of the Order
specify a definite agreed date between the BIR and petitioner, within supports petitioners argument that the RMO must be strictly followed, thus:
which the former may assess and collect revenue taxes. Thus, In the execution of said waiver, the following procedures should be followed:
petitioners waiver became unlimited in time, violating Section 222(b) 1. The waiver must be in the form identified hereof. This form may be reproduced by
of the NIRC. the Office concerned but there should be no deviation from such form. The phrase
The waiver is also defective from the government side because it was signed only by a "but not after __________ 19___" should be filled up
revenue district officer, not the Commissioner, as mandated by the NIRC and RMO 2. Soon after the waiver is signed by the taxpayer, the Commissioner of Internal
No. 20-90. The waiver is not a unilateral act by the taxpayer or the BIR, but is a Revenue or the revenue official authorized by him, as hereinafter provided,
bilateral agreement between two parties to extend the period to a date certain. shall sign the waiver indicating that the Bureau has accepted and agreed to the
The conformity of the BIR must be made by either the Commissioner or the Revenue waiver. The date of such acceptance by the Bureau should be indicated
District Officer. This case involves taxes amounting to more than One Million Pesos 3. The following revenue officials are authorized to sign the waiver.
(P1,000,000.00) and executed almost seven months before the expiration of the three- A. In the National Office
year prescription period. For this, RMO No. 20-90 requires the Commissioner of
3. Commissioner For tax cases involving
Internal Revenue to sign for the BIR.
more than P1M
Petitioner was also not given a copy of the waiver. The CA did not think this was
important because the petitioner need not have a copy of the document it knowingly B. In the Regional Offices
executed. It stated that the reason copies are furnished is for a party to be notified of 1. The Revenue District Officer with respect to tax cases still pending investigation and
the existence of a document, event or proceeding. the period to assess is about to prescribe regardless of amount.
The flaw in the appellate courts reasoning stems from its assumption that the waiver 5. The foregoing procedures shall be strictly followed. Any revenue official
is a unilateral act of the taxpayer when it is in fact and in law an agreement between found not to have complied with this Order resulting in prescription of the right
the taxpayer and the BIR. When the petitioners comptroller signed the waiver on to assess/collect shall be administratively dealt with. (Emphasis supplied)
September 22, 1997, it was not yet complete and final because the BIR had not
assented. There is compliance with the provision of RMO No. 20-90 only after the
taxpayer received a copy of the waiver accepted by the BIR. The requirement to
furnish the taxpayer with a copy of the waiver is not only to give notice of the
existence of the document but of the acceptance by the BIR and the perfection of
the agreement.
The waiver document is being incomplete and defective, the three-year prescriptive
period was not tolled or extended and continued to run until April 17, 1998.
Consequently, the Assessment/Demand No. 33-1-000757-94 issued on December 9,
1998 was invalid because it was issued beyond the three (3) year period. In the same
manner, Warrant of Distraint and/or Levy No. 33-06-046 which petitioner received on
March 28, 2000 is also null and void for having been issued pursuant to an invalid
assessment.
A waiver of the statute of limitations under the NIRC, to a certain extent, is a
derogation of the taxpayers right to security against prolonged and unscrupulous
investigations and must therefore be carefully and strictly construed. The waiver of
the statute of limitations is not a waiver of the right to invoke the defense of
prescription as erroneously held by the Court of Appeals. It is an agreement between
the taxpayer and the BIR that the period to issue an assessment and collect the taxes
due is extended to a date certain. The waiver does not mean that the taxpayer
relinquishes the right to invoke prescription unequivocally particularly where the
language of the document is equivocal. For the purpose of safeguarding taxpayers
from any unreasonable examination, investigation or assessment, our tax law
provides a statute of limitations in the collection of taxes. Thus, the law on
prescription, being a remedial measure, should be liberally construed in order to
CIR v. Philippine Global Communication, Inc.
October 31, 2006
Chico-Nazario, J.
RR
Short Summary: The respondent filed 2 protest letters against the assessment
notices of the CIR. CTA granted for respondent. CIR filed a petition for review arguing
that the prescriptive period was actually interrupted when the company filed 2 letters
of protest. The SC ruled in the negative stating that only in the event of a
reinvestigation was filed can the prescriptive period be interrupted. The company
could not have asked for reinvestigation since it never submitted new evidence with
its protest letters.
Topic: Remedies
Facts:
Phil Global, a telecommunications company, filed its annual Income Tax
Return for 1990 on 15 April 1991. CIR issued letter of authority authorizing
BIR officials to examine the books of the company in connection with its
1990 income tax liability. When asked to present certain records and
documents by the BIR, respondent failed to present them.
21 April 1994, the company received a preliminary assessment notice for
deficiency income tax for P118,271,672. The following day, the company
received a formal assessment notice for deficiency tax for the same amount.
The company filed two formal protest letters against the Assessment Notices
(through Ponce Enrile Cayetano Reyes and Manalastas Law Offices and
Siguion Reyna Montecillo and Ongsiako Law Offices) in which they alleged
was invalid for lack of factual and legal basis.
More than 8 years after the assessment was issued, Ponce Enrille Offices
received from the CIR a Final Decision dated Octoer 8, 2002 denying the
respondents protest.
15 November 2002, respondent filed a Petition for Review with the CTA.
After due notice and hearing, the CTA rendered a decision in favor of the
company on 9 June 2004. It decided that the protest letters filed by the
respondent cannot constitute a request for reinvestigation, hence, they
cannot toll the running of the prescriptive period to collect the assessed
deficiency income tax. Since more than 3 years had lapsed from the
Assessment Notice was issued in 1994, the CIRs right to collect has
prescribed. CIR moved for reconsideration but it was denied by the CTA.
Issue: WON the prescriptive period was interrupted when the company filed 2 letters
of protest disputing in detail the deficiency assessment in question. (WON the 2 letters
are by nature requests for reinvestigation of the assessment) WON CIRs right to
collect respondents alleged deficiency income tax is barred by prescription under
Section 269(c) of the Tax Code of 1977.
Held: NO. There is no merit to all.
Dispositive: IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The
assailed en banc Decision of the CTA in CTA EB No. 37 dated 22 February 2005,
cancelling Assessment Notice No. 000688-80-7333 issued against Philippine Global
Communication, Inc. for its 1990 income tax deficiency for the reason that it is barred
by prescription, is hereby AFFIRMED. No costs.
Ratio
The law prescribed a period of three years from the date the return was
actually filed or from the last date prescribed by law for the filing of such
return, whichever came later, within which the BIR may assess a national
internal revenue tax. However, the law increased the prescriptive period to
assess or to begin a court proceeding for the collection without an
assessment to ten years when a false or fraudulent return was filed with the
intent of evading the tax or when no return was filed at all. In such cases, the
ten-year period began to run only from the date of discovery by the BIR of
the falsity, fraud or omission.
If the BIR issued this assessment within the three-year period or the ten-
year period, whichever was applicable, the law provided another three years
after the assessment for the collection of the tax due thereon through the
administrative process of distraint and/or levy or through judicial
proceedings.
The three-year period for collection of the assessed tax began to run on the
date the assessment notice had been released, mailed or sent by the BIR.
The assessment, in this case, was presumably issued on 14 April 1994 since
the respondent did not dispute the CIRs claim. Therefore, the BIR had until
13 April 1997. However, as there was no Warrant of Distraint and/or Levy
served on the respondents nor any judicial proceedings initiated by the BIR,
the earliest attempt of the BIR to collect the tax due based on this assessment
was when it filed its Answer in CTA Case No. 6568 on 9 January 2003, which
was several years beyond the three-year prescriptive period. Thus, the CIR is
now prescribed from collecting the assessed tax.
The Government should be estopped from collecting the tax where it failed
to make the necessary investigation and assessment within 5 years after the
filing of the return and where it failed to collect the tax within 5 years from
the date of assessment thereof. Just as the government is interested in the
stability of its collections, so also are the taxpayers entitled to an assurance
that they will not be subjected to further investigation for tax purposes after
the expiration of a reasonable period of time.
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he
will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.
Among the exceptions provided by the aforecited section, and invoked by the
CIR as a ground for this petition, is the instance when the taxpayer requests
for a reinvestigation which is granted by the Commissioner. However, this
exception does not apply to this case since the respondent never requested
for a reinvestigation. More importantly, the CIR could not have conducted a
reinvestigation where, as admitted by the CIR in its Petition, the respondent
refused to submit any new evidence.
 The two separate letters are actually requests for reconsideration. The CIRs RIZAL COMMERCIAL BANKING CORPORATION (petitioner) v CIR (respondent)
allegation that there was a request for reinvestigation is inconceivable since
respondent consistently and categorically refused to submit new evidence April 24 2007 | Ynares-Santiago, J. | Leigh
and cooperate in any reinvestigation proceedings.
Remedies
In Republic v. Lopez, the Court ruled that the five-year prescriptive period
fixed by Section 332(c) of the Internal Revenue Code within which the
Government may sue to collect an assessed tax is to be computed from the
last revised assessment resulting from a reinvestigation asked for by the SUPERFACTS! CTA denied RCBCs petition for review, and RCBC did not file a MR or an
taxpayer and (2) that where a taxpayer demands a reinvestigation, the time appeal. RCBC then filed a petition for relief from judgment on the ground of excusable
employed in reinvestigating should be deducted from the total period of negligence but this was denied by the CTA. The SC said that first, RCBC was not denied
limitation.
due process when its petition for relief was denied because it was given ample
The distinction between a request for reconsideration and a request for
opportunity to be heard, and the negligence it alleged was not excusable. Second, even
reinvestigation is significant. It bears repetition that a request for
reconsideration, unlike a request for reinvestigation, cannot suspend the if the petition for relief was granted, the action for the cancellation of its assessments
statute of limitations on the collection of an assessed tax. If both types of had already prescribed. According to the law, If the protest (against the tax) is denied
protest can effectively interrupt the running of the statute of limitations, an in whole or in part, or is not acted upon within 180 days from submission of
erroneous assessment may never prescribe. If the taxpayer fails to file a documents, the taxpayer may appeal to the CTA within 30 days from receipt of the
protest, then the erroneous assessment would become final and said decision, or from the lapse of the 180-day period; otherwise the decision shall
unappealable. On the other hand, if the taxpayer does file the protest on a become final, executory and demandable.
patently erroneous assessment, the statute of limitations would
automatically be suspended and the tax thereon may be collected long after
it was assessed.
In conclusion, the three-year statute of limitations on the collection of an The assignment is the MR. The first part of this digest will be the original case decided on
assessed tax provided under Section 269(c) of the Tax Code of 1977, a law June 16 2006.
enacted to protect the interests of the taxpayer, must be given effect. In
providing for exceptions to such rule in Section 271, the law strictly limits
the suspension of the running of the prescription period to, among other July 5 2001: RCBC received a Formal Letter of Demand dated May 25 2001 from CIR
instances, protests wherein the taxpayer requests for a reinvestigation. In
for its tax liabilities for Gross Onshore Tax in the amount of P53,998,428.29 and
this case, where the taxpayer merely filed two protest letters requesting for
Documentary Stamp Tax for its Special Savings Placements in the amount of
a reconsideration, and where the BIR could not have conducted a
reinvestigation because no new or additional evidence was submitted, the P46,717,952.76, for the taxable year 1997.
running of statute of limitations cannot be interrupted. The tax which is the
subject of the Decision issued by the CIR on 8 October 2002 affirming the
Formal Assessment issued on 14 April 1994 can no longer be the subject of July 20: RCBC filed a protest letter/request for reconsideration/reinvestigation
any proceeding for its collection. Consequently, the right of the government pursuant to Section 228 of the NIRC. As the protest was not acted upon by the CIR,
to collect the alleged deficiency tax is barred by prescription.
RCBC filed on April 30, 2002 a petition for review with the CTA for the cancellation of
the assessments.

July 15 2003: CIR filed a motion to resolve the issue of CTAs jurisdiction, which was
granted by the CTA in a resolution dated September 10 2003. The petition for review
was dismissed because it was filed beyond the 30-day period following the lapse of
180 days from RCBCS submission of documents in support of its protest, as provided
under Sec. 228 of the NIRC and Section 11 of RA 1125 (Law Creating the Court of Tax
Appeals)
RCBC did not file a MR or an appeal to the CTA En Banc from the dismissal of its
petition for review. Thus, the September 10 2003 Resolution became final and
executory on October 1 2003 and Entry of Judgment was made on December 1 2003.
CIR sent a Demand Letter to RCBC for the payment of the deficiency tax assessments.
February 20 2004: RCBC filed a Petition for Relief from Judgment on the ground of
excusable negligence of its counsels secretary who allegedly misfiled and lost the
September 10 2003 Resolution. The CTA Second Division set the case for hearing on
April 2 2004, but on May 3 the CTA Second Division rendered a Resolution denying
RCBCs Petition for Relief from Judgment. RCBCs MR was denied in a Resolution dated
November 5, 2004, hence it filed a petition for review with the CTA En Banc, which
affirmed the CTA.
RCBCs contention: it was denied due process when it was not given the opportunity
to be heard to prove that its failure to file a MR or appeal from the dismissal of its
petition for review was due to the failure of its employee to forward the copy of the
September 10, 2003 Resolution, which constitutes excusable negligence.
ISSUE: Should RCBCs petition for relief have been denied, even if based on a
technicality? YES
Considering that the subject assessment, insofar as it involves alleged deficiency DST
on special savings accounts, is an issue affecting all members of the banking industry,
should RCBC have been afforded an equal opportunity to fully litigate the issue and
have the case determined on its merits rather than on a mere technicality?
RULING: CTA decision AFFIRMED.
ON DUE PROCESS
Relief from judgment under Rule 38 of the Rules of Court is a legal remedy that is
allowed only in exceptional cases whereby a party seeks to set aside a judgment
rendered against him by a court whenever he was unjustly deprived of a hearing, or
was prevented from taking an appeal, because of fraud, accident, mistake or excusable
neglect. As long as a party is given the opportunity to defend his interests in due
course, he would have no reason to complain, for it is this opportunity to be heard that
makes up the essence of due process.
The essence of due process is a hearing before conviction and before an impartial and
disinterested tribunal, but due process does not always require a trial-type
proceeding. The essence of due process is to be found in the reasonable opportunity to
be heard and submit any evidence one may have in support of ones defense. "To be
heard" does not only mean verbal arguments in court; one may be heard also
through pleadings. Where opportunity to be heard, either through oral
arguments or pleadings, is accorded, there is no denial of procedural due
process. (Batongbakal v Zafra)
The CTA set the case for hearing on April 2 2004 after the filing by RCBC of its petition
for relief from judgment. RCBCs counsel was present on the scheduled hearing and in
fact orally argued its petition. Moreover, after the CTA dismissed the petition for relief
from judgment, RCBC filed a MR and the court further required both parties to file
their respective memorandum. Indeed, RCBC was not denied its day in court
considering the opportunities given to argue its claim.
Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the
neglect of RCBCs counsel. Otherwise, all that a losing party would do to salvage his
case would be to invoke neglect or mistake of his counsel as a ground for reversing or
setting aside the adverse judgment, thereby putting no end to litigation. Negligence to
be "excusable" must be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party have
probably been impaired. RCBCs former counsels omission could hardly be
characterized as excusable, much less unavoidable. RCBCs counsel failed to check
periodically, as an act of prudence and diligence, the status of the pending case. The
fact that counsel allegedly had not renewed the employment of his secretary, thereby
making the latter no longer attentive or focused on her work, did not relieve him of his
responsibilities to his client. It is a problem personal to him which should not in any
manner interfere with his professional commitments.
In exceptional cases, when the mistake of counsel is so palpable that it amounts to
gross negligence, this Court affords a party a second opportunity to vindicate his right.
But this opportunity is unavailing in the case at bar, especially since petitioner had
squandered the various opportunities available to it at the different stages of this case.
ON PRESCRIPTION
Assuming ex gratia argumenti that the negligence of RCBCs counsel is excusable, still
the petition must fail. Even if the petition for relief from judgment would be granted,
RCBC will not fare any better if the case were to be returned to the CTA since its action
for the cancellation of its assessments had already prescribed.

RCBC protested the assessments pursuant to Section 228 of the NIRC, which provides:
SEC. 228. Protesting of Assessment.- xxx
xxxx
Within a period to be prescribed by implementing rules and regulations, the taxpayer
shall be required to respond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representative shall issue an assessment based
on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within 30 days from receipt of the assessment in
such form and manner as may be prescribed by implementing rules and regulations.
Within 60 days from filing of the protest, all relevant supporting documents shall have
been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within 180 days
from submission of documents, the taxpayer adversely affected by the decision
or inaction may appeal to the Court of Tax Appeals within 30 days from receipt
of the said decision, or from the lapse of the 180-day period; otherwise the
decision shall become final, executory and demandable. (Emphasis supplied)
Following the periods provided, from July 20 2001 (date of RCBCs filing of protest) it
had until September 18 2001 to submit relevant documents and from September 18
2001, the Commissioner had until March 17 2002 to issue his decision. As admitted by
RCBC, the protest remained unacted by the CIR. Therefore, it had until April 16 2002
within which to elevate the case to this court. Thus, when RCBC filed its Petition for
Review on April 30, 2002, the same is outside the 30-day period. As provided in
Section 228, the failure of a taxpayer to appeal from an assessment on time rendered
the assessment final, executory and demandable. Consequently, RCBC is precluded
from disputing the correctness of the assessment.
While the right to appeal a decision to the CTA is merely a statutory remedy, the
requirement that it must be brought within 30 days is jurisdictional. If a statutory
remedy provides as a condition precedent that the action to must be commenced
within a prescribed time, such requirement is jurisdictional and failure to comply
therewith may be raised in a motion to dismiss (Ker & Company, Ltd. v CTA). Failure to
comply with the 30-day statutory period would bar the appeal and deprive the Court
of Tax Appeals of its jurisdiction to entertain and determine the correctness of the
assessment.
MOTION FOR RECONSIDERATION DENIED!
RCBC argument #1: its counsels neglect in not filing the petition for review within
the reglementary period was excusable, as the counsels secretary misplaced the
Resolution, hence the counsel was not aware of its issuance and that it had become
final and executory.
SC: (same as original decision) Relief cannot be granted on the flimsy excuse that the
failure to appeal was due to the neglect of petitioners counsel. Negligence to be
"excusable" must be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party have
probably been impaired. Petitioners former counsels omission could hardly be
characterized as excusable
RCBC argument #2: the case should have been re-opened considering that it was
allegedly not accorded its day in court when the CTA dismissed its petition for review
for late filing. The rules of procedure are intended to help secure, not override,
substantial justice.
SC: If indeed there was negligence, it would be on the part of RCBCs counsel, and his
negligence cannot support RCBCs claim for relief from judgment. Besides, tax
assessments by tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment unless proven
otherwise. ALSO, RCBCs failure to file a petition for review with the CTA within the
statutory period rendered the assessment final, executory and demandable, thereby
precluding it from interposing the defenses of legality or validity of the assessment
and prescription of the Governments right to assess.
The CTA is a court of special jurisdiction and can only take cognizance of such matters
as are clearly within its jurisdiction. Section 7 of RA 9282, amending RA 1125,
otherwise known as the Law Creating the Court of Tax Appeals, provides:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or
other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code provides a specific period of action, in which case the inaction
shall be deemed a denial;
The Court also cited Rules 4 (Jurisdiction of the Court) and 8 (Procedure in Civil
Cases) (sorry copy pasting)
Rule 4, Sec. 3. Cases Within the Jurisdiction of the Court in Divisions. The Court in
Divisions shall exercise:
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National
Internal Revenue Code or other applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the Commissioner of
Internal Revenue within the one hundred eighty day-period under Section 228 of the
National Internal Revenue Code shall be deemed a denial for purposes of allowing the
taxpayer to appeal his case to the Court and does not necessarily constitute a formal
decision of the Commissioner of Internal Revenue on the tax case; Provided, further,
that should the taxpayer opt to await the final decision of the Commissioner of
Internal Revenue on the disputed assessments beyond the one hundred eighty day-
period abovementioned, the taxpayer may appeal such final decision to the Court
under Section 3(a), Rule 8 of these Rules; and Provided, still further, that in the case of
claims for refund of taxes erroneously or illegally collected, the taxpayer must file a
petition for review with the Court prior to the expiration of the two-year period under
Section 229 of the National Internal Revenue Code;
Rule 8, Sec. 3. Who May Appeal; Period to File Petition. (a) A party adversely
affected by a decision, ruling or the inaction of the Commissioner of Internal Revenue
on disputed assessments or claims for refund of internal revenue taxes, or by a
decision or ruling of the Commissioner of Customs, the Secretary of Finance, the
Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional Trial Court
in the exercise of its original jurisdiction may appeal to the Court by petition for
review filed within thirty days after receipt of a copy of such decision or ruling, or
expiration of the period fixed by law for the Commissioner of Internal Revenue to act
on the disputed assessments. In case of inaction of the Commissioner of Internal
Revenue on claims for refund of internal revenue taxes erroneously or illegally
collected, the taxpayer must file a petition for review within the two-year period
prescribed by law from payment or collection of the taxes. (n)
It is clear that the jurisdiction of the CTA has been expanded to include not only
decisions or rulings but also inaction of the CIR. The decisions, rulings or inaction of
the CIR are necessary in order to vest the CTA with jurisdiction to entertain the
appeal, provided it is filed within 30 days after the receipt of such decision or
ruling, or within 30 days after the expiration of the 180-day period fixed by law
for the CIR to act on the disputed assessments. This 30-day period within which
to file an appeal is jurisdictional and failure to comply therewith would bar the
appeal and deprive the CTA of its jurisdiction to entertain and determine the
correctness of the assessments.
In case the CIR failed to act on the disputed assessment within the 180-day period
from date of submission of documents, a taxpayer can either: 1) file a petition for
review with the CTA within 30 days after the expiration of the 180-day period; or 2)
await the final decision of the CIR on the disputed assessments and appeal such final
decision to the CTA within 30 days after receipt of a copy of such decision. However,
these options are mutually exclusive, and resort to one bars the application of the
other.
In the instant case, the CIR failed to act on the disputed assessment within 180 days
from date of submission of documents. Thus, RCBC opted to file a petition for review
before the CTA. Unfortunately, the petition for review was filed out of time, i.e., it was
filed more than 30 days after the lapse of the 180-day period. Consequently, it was
dismissed by the CTA for late filing. RCBC did not file a MR or make an appeal; hence,
the disputed assessment became final, demandable and executory.
RCBC cannot now claim that the assessment is not yet final as it remained unacted
upon by the CIR. After availing the first option, i.e., filing a petition for review which
was however filed out of time, RCBC cannot successfully resort to the second option,
i.e., awaiting the final decision of the CIR and appealing the same to the CTA.
Lastly, RCBC is raising the issue of prescription for the first time in the instant MR.
Although the same was raised in the petition for review, it was dismissed for late
filing. No MR was filed. Thereafter, RCBC filed a petition for relief from judgment, but
failed to raise the issue of prescription therein. After its petition was denied, RCBC
filed a petition for review before this Court without raising the issue of prescription.
Issues and arguments not adequately brought to the attention of the lower court need
not be considered by the reviewing court as they cannot be raised for the first time on
appeal, much more in a MR as in this case.
BPI v. CIR
7 March 2008
Tinga, J.
Digest by Kat Villamin
Topic Remedies > When to Elevate Assessment to the CTA (Suspension of
collection requires request for reinvestigation to be granted)
Summary
BPI was assessed deficiency DST taxes by the CIR. BPI then filed its protests and
requests for reinvestigation. More than a decade later (13 years), BPI was ordered by
the CIR to pay the deficiency DST taxes. BPI petitioned to the CTA and argued that the
government s collection had already prescribed. The government contended that the
prescription was tolled by BPIs request for reinvestigation. CTA denied BPIs petition
and ruled that prescription had not yet set in against the government. SC reversed the
CTA and held that prescription had set in. In order for the request for reinvestigation
to have tolled the prescription, these should have been first been granted. There was
no showing of such grant by the CIR.
Facts
On 07 Apr 1989, respondent CIR issued to the petitioner BPI assessment/demand
notices for deficiency withholding tax at source (Swap Transactions) and DST
involving the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the
years 1982 to 1986. Subsequently, petitioner filed a protest on the
demand/assessment notices.
On 12 Mar 1993, petitioner requested for an opportunity to present or submit
additional documentation on the Swap Transactions/ reinvestigation. Petitioner also
executed several Waivers of the Statutes of Limitations, the last of which was effective
until 31 Dec 1994.
On 09 Aug 2002, although the CIR ordered the withdrawal and cancellation of the
deficiency withholding tax assessment, it ordered BPI to pay the deficiency DST
assessment within 30 days from receipt of such order. Petitioner received a copy of
the said decision on 15 Jan 2003.
BPI elevated the matter order to the CTA and argued that the collection of the tax had
already prescribed. CTA denied BPIs petition for review. MR was also denied.
BPI argued that the governments right to collect the DST had already prescribed
because the CIR failed to issue any reply granting BPIs request for reinvestigation. It
was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or
after the lapse of more than 13 years, that the CIR acted on the request for
reinvestigation, warranting the conclusion that prescription had already set in. It
further claimed that the CIR was not precluded from collecting the deficiency within 3
years from the time the notice of assessment was issued on 7 April 1989, or even until
the expiration on 31 December 1994 of the last waiver of the statute of limitations
signed by BPI.
Moreover, BPI avers that the cabled instructions to its correspondent bank are not
subject to DST because the Tax Code of 1977 does not contain a specific provision that
cabled instructions on SWAP transactions are subject to DST.
The OSG, in behalf of the CIR, asserted that the prescriptive period was tolled by the
protest letters by BPI, which it claimed were granted and acted upon by the CIR. Thus,
it was only in Jan 2003 that the period to collect commenced to run again.
Issues:
1. WON the collection of the deficiency DST is barred by prescription
2. WON BPI is liable for DST on its SWAP loan transactions.
Held 1. YES 2. (SC did not rule on this anymore)
Dispositive WHEREFORE, the petition is GRANTED. The Decision of the Court
of Tax Appeals dated 15 August 2006 and its Resolution dated 5 October 2006, are
hereby REVERSED and SET ASIDE. No pronouncement as to costs.
Ratio
Pursuant to BP Blg. 70011, the CIR has 3 years from the date of actual filing of the tax
return to assess a national internal revenue tax or to commence court proceedings for
the collection thereof without an assessment. When it validly issues an assessment
within the 3-year period, it has another 3 years within which to collect the tax due by
distraint, levy, or court proceeding. The assessment of the tax is deemed made and the
3-year period for collection of the assessed tax begins to run on the date the
assessment notice had been released, mailed or sent to the taxpayer.
As applied to the present case, the CIR had 3 years from the time he issued assessment
notices to BPI on 7 Apr 1989 or until 6 April 1992 within which to collect the
deficiency DST. However, it was only on 9 Aug 2002 that the CIR ordered BPI to pay
the deficiency.
In order to determine whether the prescriptive period for collecting the tax deficiency
was effectively tolled by BPIs filing of the protest letters, the SC examined Section
32012 of the Tax Code of 1977. According to this provision, in order to suspend the
11 Section 318 of the Tax Code of 1977 provides: Period of limitation upon assessment and
collection.Except as provided in the succeeding section, internal revenue taxes shall be
assessed within five years after the return was filed, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such period.
For the purposes of this section, a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day: Provided, That this limitation shall
not apply to cases already investigated prior to the approval of this Code.
The statute of limitations on assessment and collection of national internal revenue taxes was
shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.
12Sec. 320. Suspension of running of statute.The running of the statute of limitations provided
in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a
proceeding in court for collection, in respect of any deficiency, shall be suspended for the period
during which the Commissioner is prohibited from making the assessment or beginning distraint
or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a
re-investigation which is granted by the Commissioner; when the taxpayer cannot be located
in the address given by him in the return filed upon which a tax is being assessed or
collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the
running of the prescriptive periods for assessment and collection, the request
for reinvestigation must be granted by the CIR. In several cases, the SC held that
the act of requesting a reinvestigation alone does not suspend the period. The
request should first be granted, in order to effect suspension. Moreover, the
burden of proof that the request for reinvestigation had been actually granted
shall be on the CIR. Such grant may be expressed in its communications with the
taxpayer or implied from the action of the CIR or his authorized representative
in response to the request for reinvestigation.
There is nothing in the records of this case which indicates, expressly or impliedly,
that the CIR had granted the request for reinvestigation filed by BPI. What is reflected
in the records is the piercing silence and inaction of the CIR on the request for
reinvestigation.
The inordinate delay of the CIR in acting upon and resolving the request for
reinvestigation filed by BPI and in collecting the DST allegedly due from the
latter had resulted in the prescription of the governments right to collect the
deficiency. As this Court declared in Republic of the Philippines v. Ablaza:
The law prescribing a limitation of actions for the collection of the income
tax is beneficial both to the Government and to its citizens; to the
Government because tax officers would be obliged to act promptly in the
making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers,
not to determine the latters real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep
their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of
the Commission which recommend the approval of the law.
Given the prescription of the governments claim, the SC no longer deemed it
necessary to pass upon the validity of the assessment.
running of the statute of limitations will not be suspended; when the warrant of distraint and
levy is duly served upon the taxpayer, his authorized representative, or a member of his
household with sufficient discretion, and no property could be located; and when the taxpayer is
out of the Philippines.
PETRON CORP. v CIR
July 28, 2010
Perez, J.
Digest by Cate Alegre (di ko gets kung alin yung remedies aspect)
Remedies
FACTS
Petron is a Board of Investment (BOI) registered enterprise.
Pursuant to Deeds of Assignment executed in its favor, Petron acquired Tax Credit
Certificates (TCCs) from BOI-registered entities. This was duly approved by the
Department of Finance One-Stop Shop Inter-Agency Tax Credit and Duty Drawback
Center (Center), a tax credit window composed of representatives from DOF, BOI,
Bureau of Customs and BIR.
o Since it was issued DOF Tax Debit Memos (DOF-TDMs), Petron as assignee of
the TCCs, utilized the same to pay its excise tax liabilities for the years 1993-
1997. Upon surrender of the DOF-TDMs, TCCs and Deeds of Assignment, the
Authorities to Accept Payment of Excise Taxes (ATAPETs) were issued by
the BIR Collection Program Division. These were submitted to the BIR Head
Office which issued BIR TDMs signifying acceptance of the TCCs as payment
of excise taxes.
Due to the Deeds of Assignment, Petron issued Credit Notes in an equivalent
amount in favor of its assignors.
Petron later received a collection letter from BIR demanding payment of the total
amount of P1,107,542,547.08 in unpaid taxes, surcharges and interests for 1993-
1997. Petron protested the assessment.
CTA ruled in favor of Petron that its status as a BOI-registered enterprise qualified
it to be a transferee of the subject TCCs
November 15, 1999 - During the pendency of CIRs appeal before the CA, the Center
cancelled TCCs worth P284,390,845 on the ground that they were fraudulently
procured and transferred. CIR then issued an Assessment directing Petron to pay
deficiency excise taxes.
CTA 2nd Division issued a resolution ordering Petron to pay the deficiency excise
taxes for years 1995-1997
CTA En Banc affirmed the decision of the CTA 2nd Division
Petron: the subject TCCs were immediately effective and could be readily used by
the grantees and/or their transferees. Citing Pilipinas Shell Petroleum v. CIR, the
post-audit of the TCCs was not meant as a suspensive condition for their validity but
pertained only to computational discrepancies resulting from their transfer and
utilization.
ISSUE: WON CTA erred in ruling that the cancellation of the TCCs had the effect of
non-payment of Petrons excise taxes HERE: YES!
DISPOSITIVE
WHEREFORE, premises considered, the petition is GRANTED and the October 30,
2007 CTA En Banc Decision in CTA EB No. 238 is, accordingly, REVERSED and SET
ASIDE. In lieu thereof, another is entered invalidating respondents Assessment of
petitioners deficiency excise taxes for the years 1995 to 1997 for lack of legal bases.
No pronouncement as to costs.
RATIO
As mentioned in the Pilipinas Shell case, the post audit is not a suspensive condition
for the validity of the TCCs. TCCs are valid and effective in paying or settling tax
liabilities of the grantee or transferee as they do not make the effectivity and
validity of the TCC dependent on the outcome of a post-audit. The inescapable
conclusion is that the TCCs are not subject to post-audit as a suspensive condition,
and are thus valid and effective from their issuance.
HERE: CTA En banc erred in holding that the post-audit partook the nature of a
suspensive condition for the validity of the TCCs. Limited only to computational
discrepancies arising from the use or transfer of TCCs, the post-audit conducted by
the Center would, if at all, only give rise to an adjustment of the monetary value of
the TCCs subjected thereto.
o The subject TCCs were, consequently, valid upon their issuance in favor
of the original grantees which had the right to use them in payment of
their tax liabilities and/or transfer them in favor of assignees like
Petron which could, in turn, utilize them as payment of its own tax
liabilities.
Not being privy to the issuance of the subject TCCs and having already used them to
pay its own tax liabilities, Petron cannot be prejudiced by the fraud which
supposedly attended the issuance of the same. Also it should be noted that fraud
was not adequately established by Respondent with clear and convincing evidence.
As for the validity of the transfer of the TCCs by the grantees, it is enough that
Petron is a BOI registered-enterprise. Although not required by law to be a capital
equipment provider or a supplier of raw material and/or component supplier to the
transferors, the record, even then, shows that Petron issued credit notes to the
grantees and, as a result, delivered petroleum products in favor of the latter.
As for the government agency vested with the authority to cancel the subject TCCs,
the ruling in the Pilipinas Shell is to the effect that, pursuant to Section 3 (a), (g) and
(l) of AO 226,[66] the Center has concurrent authority to do so alongside the BIR and
the BOC. Given the nature of the TCCs immediate effectiveness and validity,
however, said authority may only be exercised before the TCC has been fully
utilized by a transferee which had no participation in the perpetration of fraud in
the issuance, transfer and utilization thereof.
Respondent had no legal basis to once again assess the excise taxes Petron already
paid with the use of the TCCs assigned in its favor, much less to impose the 25% late
payment surcharge.
o Petron was never questioned nor assessed for deficiency delinquency in the
payment of its excise taxes from 1992 to 1997, thru the use of the TCCs
assigned by the original grantees.
o In receipt of the November 15, 1999 Assessment subsequent to the Centers
cancellation of the subject TCCs, Petron filed the petition for review docketed
before the CTA Second Division as CTA Case No. 6136 as a consequence of
respondents inaction on its protest. Although the August 23, 2006 adverse
decision rendered in said case was affirmed in the herein assailed October
30, 2007 decision rendered in CTA EB No. 238, a reversal of said CTA En
Banc decision would necessarily foreclose the factual and legal bases for
respondents impugned Assessment.
CIR vs. Gonzales
October 13, 2010
VILLARAMA, JR., J.
AZORES
Topic: Remedies
Note: I included the decision of each court/officer cited in the case. Just in case maam
asks. You can just skip it if youre cramming.
FACTS:
Pursuant to Letter of Authority (LA) No. 00009361 CIR Fonacier, et al
conducted a fraud investigation for all internal revenue taxes to
ascertain/determine the tax liabilities of L. M. Camus Engineering
Corporation (LMCEC) for the taxable years 1997, 1998 and 1999.
LMEC did not comply with the subpoena duces tecum issued in connection
with the tax fraud investigation so a criminal complaint was instituted by the
BIR against LMCEC for violation of NIRC Sec. 266
it was discovered that LMCEC filed fraudulent tax returns with substantial
underdeclarations of taxable income for the years 1997, 1998 and 1999. CIR
thus assessed LMEC of total deficiency taxes amounting to P430,958,005.90
(income tax - P318,606,380.19 and value-added tax [VAT] -
P112,351,625.71) covering the said period.
October 1, 2002. - assessment notices together with a formal letter of
demand were sent to LMCEC through personal service; LMEC refused to
receive the notices
Due to this, the revenue officers resorted to constructive service (following
Sec 3, RR No. 12-99)
May 21, 2003 CIR referred to the Secretary of Justice for preliminary
investigation its complaint against LMCEC, Camus and Mendoza (President
and Comptroller of the company).
September 22, 2003 - the Chief State Prosecutor issued a Resolution
finding no sufficient evidence to establish probable cause against LMCEC,
Camus and Mendoza.
o since the payments were made by LMCEC under Economic
Recovery Assistance Payment [ERAP] Program and the Voluntary
Assessment Program [VAP]) pursuant to RR 2-99 and 8-2001
which were offered to taxpayers by the BIR itself, the latter is now
in estoppel to insist on the criminal prosecution of the respondent
taxpayer.
o The voluntary payments made thereunder are in the nature of a tax
amnesty.
o The unnumbered assessment notices were found highly irregular
and thus their validity is suspect; if the amounts indicated therein
were collected, it is uncertain how these will be accounted for and
if it would go to the coffers of the government or elsewhere.
o On fraud: there was no prior determination of fraud, there was
indiscriminate issuance of LAs, and the complaint was more of
harassment.
CIR filed a MR denied
CIR appealed to the Secretary of Justice denied
o there is yet no finality as to LMCECs payment of its 1997 taxes
since the audit report was still pending review by higher
authorities, is unsubstantiated and misplaced.
o the Termination Letter issued by the Commissioner on June 1,
1999 is explicit that the matter is considered closed.
o 1998 - LMCEC paid VAT and withholding tax in the amount
of P61,635.40 and P38,404.55, respectively. This eventually gave
rise to the issuance of a certificate of immunity from audit for 1998
by the Office of the CIR.
o 1999 - pursuant to earlier LA 38633, LMCECs 1999 tax liabilities
were still pending investigation for which reason LMCEC assailed
the subsequent issuance of LA No. 00009361 calling for a similar
investigation of its alleged 1999 tax deficiencies when no final
determination has yet been arrived on the earlier LA No. 38633
o On fraud: CIR failed to establish the existence of the following
circumstances indicating fraud in the settlement of LMCECs tax
liabilities
o CIR engaged in forum shopping in view of the fact that while there
is still pending an appeal from the Resolution of the City Prosecutor
of Quezon City in said case (disobedience to the summons),
petitioner hurriedly filed the instant case, which not only involved
the same parties but also similar substantial issues
CIR filed a MR denied
CIR filed a certiorari petition in the CA denied
o concurred with the findings and conclusions of Secretary of Justice
MR was also denied
ISSUES: WON LMCEC and its corporate officers may be prosecuted for violation of Sec
254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and
Accurate Information and Pay Tax).
HELD: YES
DISPOSITIVE: WHEREFORE, the petition is GRANTED. The Decision dated October
31, 2006 and Resolution dated March 6, 2007 of the Court of Appeals in CA-G.R. SP No.
93387 are hereby REVERSED and SET ASIDE. The Secretary of Justice is
hereby DIRECTED to order the Chief State Prosecutor to file before the Regional
Trial Court of Quezon City, National Capital Judicial Region, the corresponding
Information against L. M. Camus Engineering Corporation, represented by its
President Luis M. Camus and Comptroller Lino D. Mendoza, for Violation of Sections
254 and 255 of the National Internal Revenue Code of 1997.
RATIO:
On violation of Sec. 266
There is no dispute that prior to the filing of the complaint with the DOJ, the
report on the tax fraud investigation conducted on LMCEC disclosed that it
made substantial underdeclarations in its income tax returns for 1997, 1998
and 1999. Pursuant to RR No. 12-99, a PAN was sent to and received by
LMCEC on February 22, 2001 wherein it was notified of the proposed
assessment of deficiency taxes covering taxable years 1997, 1998 and 1999.
 In response to said PAN, LMCEC sent a letter-protest to the TFD, which
denied the same on April 12, 2001 for lack of legal and factual basis and also
for having been filed beyond the 15-day reglementary period.
the revenue officers were not given the opportunity to examine LMCECs
books of accounts and other accounting records because its officers failed to
comply with the subpoena duces tecum earlier issued, to verify its alleged
underdeclarations of income reported by the Bureaus informant under NIRC
Sec 282. Hence, a criminal complaint was filed by the Bureau against private
respondents for violation of Sec 26613
On litis pendentia
I.S. No. 00-956 involves a separate offense and hence litis pendentia is not
present considering that the outcome of it is not determinative of the issue
as to whether probable cause exists to charge the LMCEC with the crimes of
attempt to evade or defeat tax and willful failure to supply correct and
accurate information and pay tax defined and penalized under Sec 254 and
255
For the crime of tax evasion, compliance by the taxpayer with such
subpoena, if any had been issued, is irrelevant. the crime is complete when
the taxpayer has knowingly and willfully filed a fraudulent return with intent
to evade and defeat the tax. (Ungab v. Cusi, Jr.)
Secretary of Justice erred in holding that CIR committed forum shopping
when it filed the present criminal complaint during the pendency of its
appeal from the City Prosecutors dismissal of I.S. No. 00-956
Re the informer
the lack of consent of the taxpayer under investigation does not imply that
the BIR obtained the information from third parties illegally or that the
information received is false or malicious. Nor does the lack of consent
preclude the BIR from assessing deficiency taxes on the taxpayer based on
the documents.
LMCEC cannot be allowed to escape criminal prosecution under NIRC
Sec254 and 255 by mere imputation of a fictitious or disqualified
informant under Sec 282 simply because other than disclosure of the official
registry number of the third party informer, the Bureau insisted on
maintaining the confidentiality of the identity and personal circumstances of
said informer.
Re the assessment notice
13SEC. 266. Failure to Obey Summons. Any person who, being duly summoned to
appear to testify, or to appear and produce books of accounts, records, memoranda, or
other papers, or to furnish information as required under the pertinent provisions of
this Code, neglects to appear or to produce such books of accounts, records,
memoranda, or other papers, or to furnish such information, shall, upon conviction, be
punished by a fine of not less than Five thousand pesos (P5,000) but not more than
Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year
but not more than two (2) years.
A notice of assessment is a declaration of deficiency taxes issued to a
[t]axpayer who fails to respond to a 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.
the formality of a control number in the assessment notice is not a
requirement for its validity but rather the contents thereof which should
inform the taxpayer of the declaration of deficiency tax against said
taxpayer.
NIRC Sec 228 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.14
IN THE CASE AT BAR, The Formal Letter of Demand contains not only a
detailed computation of LMCECs tax deficiencies but also details of the
specified discrepancies, explaining the legal and factual bases of the
assessment. It also reiterated that in the absence of accounting records and
other documents necessary for the proper determination of the companys
internal revenue tax liabilities, due to this, the officers resorted to
information from third parties to verify the information provided by the
informant.
Re evidence used
Pursuant to NIRC Sec 5(B), access letters requesting for information and the
submission of certain documents were sent to the various clients of the
subject corporation. From these documents, the substantial
underdeclaration as defined under NIRC Sec 248(B) had been confirmed.
LMCEC was also informed that the estimated tax liabilities arising from
LMCECs underdeclaration amounted to P186,773,600.84 in
1997, P150,069,323.81 in 1998 and P163,220,111.13 in 1999. These figures
confirmed that the non-declaration by LMCEC for the taxable years 1997,
1998 and 1999 of an amount exceeding 30% income declared in its return is
considered a substantial underdeclaration of income, which
constituted prima facie evidence of false or fraudulent return under
Sec248(B)
143.1.4. 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.
Re settlement of the assessed tax deficiencies (ERAP and VAP)
Tax amnesty is a general pardon to taxpayers who want to start a clean tax
slate. It also gives the government a chance to collect uncollected tax from
tax evaders without having to go through the tedious process of a tax
case. Even assuming arguendo that the issuance of RR No. 2-99 is in the
nature of tax amnesty, it bears noting that a tax amnesty, much like a tax
exemption, is never favored nor presumed in law and if granted by statute,
the terms of the amnesty like that of a tax exemption must be construed
strictly against the taxpayer and liberally in favor of the taxing authority
the availment by LMCEC of VAP did not amount to settlement of its assessed
tax deficiencies for the period 1997 to 1999, nor immunity from prosecution
for filing fraudulent return and attempt to evade or defeat tax.
from the express terms of the aforesaid revenue regulations15, LMCEC is not
qualified to avail of the VAP granting taxpayers the privilege of last priority in
the audit and investigation of all internal revenue taxes for the taxable year
2000 and all prior years under certain conditions, considering that:
o it was issued a PAN on February 19, 2001
o it was the subject of investigation as a result of verified information
filed by a Tax Informer under Sec 282 duly recorded in the BIR
Official Registry as Confidential Information even prior to the
issuance of the PAN
the strong finding of underdeclaration in LMCECs payment of correct
income tax liability by more than 30% as supported by the written report of
the TFD detailing the facts and the law on which such finding is based,
pursuant to the tax fraud investigation authorized by petitioner under LA
No. 00009361 renders LMCEC unable invoke availment of VAP to foreclose
any subsequent audit of its account books and other accounting records16
15RR No. 8-2001 SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including estates and trusts, liable to pay any of the
above-cited internal revenue taxes for the above specified period/s who, due to
inadvertence or otherwise, erroneously paid his internal revenue tax liabilities or
failed to file tax return/pay taxes may avail of the Voluntary Assessment Program
(VAP), except those falling under any of the following instances:
1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment
Notice (FAN), or Collection Letter issued on or before July 31, 2001; or
1.2 Persons under investigation as a result of verified information filed
by a Tax Informer under Section 282 of the Tax Code of 1997, duly processed
and recorded in the BIR Official Registry Book on or before July 31, 2001;
16RR No. 8-2001 SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP.
A taxpayer who has availed of the VAP shall not be audited except upon
authorization and approval of the Commissioner of Internal Revenue when there is
strong evidence or finding of understatement in the payment of taxpayers correct tax
liability by more than thirty percent (30%) as supported by a written report of the
appropriate office detailing the facts and the law on which such finding is based:
Provided, however, that any VAP payment should be allowed as tax credit against the
deficiency tax due, if any, in case the concerned taxpayer has been subjected to tax
audit.
Re estoppel of CIR
It is axiomatic that the State can never be in estoppel, and this is particularly
true in matters involving taxation. The errors of certain administrative
officers should never be allowed to jeopardize the governments financial
position
Re the validity of BIR assessment
Tax assessments by tax examiners are presumed correct and made in good
faith, and all presumptions are in favor of the correctness of a tax assessment
unless proven otherwise.
a taxpayers failure to file a petition for review with the CTA within the
statutory period rendered the disputed assessment final, executory and
demandable, thereby precluding it from interposing the defenses of legality
or validity of the assessment and prescription of the Governments right to
assess.
any objection against the assessment should have been pursued following
the avenue paved in NIRC Sec 229 (now Sec228) on protests on assessments
of internal revenue taxes
IN THE CASE AT BAR, the assessment notice and Formal Letter of Demand
dated were duly served on LMCEC. LMCEC did not file a motion for
reconsideration of the said assessment notice and formal demand; neither
did they appeal to the CTA.
LMCEC cannot belatedly assail the said assessment, which they allowed to
lapse into finality, by raising issues as to its validity and correctness during the
preliminary investigation after the BIR has referred the matter for prosecution
under Sections 254 and 255 of the NIRC.
On determination of probable cause
The determination of probable cause is part of the discretion granted to the
investigating prosecutor and ultimately, the Secretary of Justice. However,
this Court and the CA possess the power to review findings of prosecutors in
preliminary investigations.
the power of the Secretary of Justice to review does not preclude this Court
and the CA from intervening and exercising our own powers of review with
respect to the DOJs findings, such as in the exceptional case in which grave
abuse of discretion is committed, as when a clear sufficiency or insufficiency
of evidence to support a finding of probable cause is ignored
Commissioner of Internal Revenue vs. Enron Subic Power Corporation
January 19, 2009
Corona, J.
Bahjin!
FACTS:
Enron, a freeport enterprise, 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,
informed Enron of a proposed assessment of an alleged P2,880,817 deficiency income
tax. Enron disputed the proposed deficiency assessment in its first protest letter.
On May 26, 1999, Enron received from the CIR a formal assessment notice requiring it
to pay the alleged deficiency income tax. Enron protested this deficiency tax
assessment.
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. It argued that the deficiency tax
assessment disregarded the provisions of Section 228 of the NIRC and Section 3.1.4 of
RR No. 12-99 by not providing the legal and factual bases of the assessment. Enron
likewise questioned the substantive validity of the assessment.
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. The CA
affirmed the CTA.
ISSUE and HELD:
WON Enron was informed of the legal and factual bases of the deficiency assessment
against it. NO.
DISPOSITIVE:
Petition denied. CA affirmed.
RATIO:
The CIR erred 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 taxpayer 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 taxpayer 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.
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.
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.
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 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. The CIR
failed to mention the specific provision of the Tax Code or rules and regulations which
were not complied with by Enron.
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.
CIR v FMF
June 30, 2008
Quisumbing, J.
Digest by Jobar Buenagua
Facts:
- 4/15/1996: FMF filed its Corporate Annual Income Tax Return for taxable
year 1995 and declared a loss of P3,348,932. However, it filed an amended
return and declared a loss of P2,826,541.
- The BIR sent pre-assessment notices informing it of its alleged tax liabilities.
FMF filed a protest against these notices with the BIR and requested for a
reconsideration/reinvestigation.
o Revenue District Officer (RDO) Rogelio Zambarrano informed FMF
that the reinvestigation had been referred to Revenue Officer
Alberto Fortaleza. He also advised FMF of the informal conference
to allow it to present evidence to dispute the BIR assessments.
- 2/9/99: FMF President Enrique Fernandez executed a waiver of the three-
year prescriptive period for the BIR to assess internal revenue taxes, hence
extending the assessment period until October 31, 1999. The waiver was
accepted and signed by RDO Zambarrano.
- 10/18/99: FMF received amended pre-assessment notices dated October 6,
1999 from the BIR. FMF immediately filed a protest on November 3, 1999
but on the same day, it received BIRs Demand Letter and Assessment Notice
No. 33-1-00487-95 dated October 25, 1999 reflecting FMFs alleged
deficiency taxes and accrued interests
- 11/24/99: FMF filed a letter of protest on the assessment invoking, inter
alia, the defense of prescription by reason of the invalidity of the waiver.
o In its reply, the BIR insisted that the waiver is valid because it was
signed by the RDO, a duly authorized representative of
petitioner. It also ordered FMF to immediately settle its tax
liabilities; otherwise, judicial action will be taken.
o Treating this as BIRs final decision, FMF filed a petition for review
with the CTA challenging the validity of the assessment.
- 3/20/03, the CTA granted the petition and cancelled Assessment Notice No.
33-1-00487-95 because it was already time-barred. The CTA ruled that the
waiver did not extend the three-year prescriptive period within which the
BIR can make a valid assessment because it did not comply with the
procedures laid down in Revenue Memorandum Order (RMO) No. 20-90.
- CA affirmed CTA.
Petitioners arguments:
- The waiver was validly executed mainly because it complied with Section
222 (b) of the National Internal Revenue Code (NIRC). The waiver was in
writing, signed by the taxpayer and the Commissioner, and executed within
the three-year prescriptive period.
- They also argue that the government cannot be estopped by the mistakes
committed by its revenue officer in the enforcement of RMO No. 20-90.
Respondents arguments:
- The waiver is void because it did not comply with RMO No. 20-
90. Respondent assails the waiver because (1) it was not signed by the
Commissioner despite the fact that the assessment involves an amount of
more than P1 million; (2) there is no stated date of acceptance by the
Commissioner or his duly authorized representative; and (3) it was not
furnished a copy of the BIR-accepted waiver.
- Respondent also cites Philippine Journalists, Inc. v. Commissioner of Internal
Revenue and contends that the procedures in RMO No. 20-90 are mandatory
in character, precisely to give full effect to Section 222 (b) of the
NIRC. Moreover, a waiver of the statute of limitations is not a waiver of the
right to invoke the defense of prescription.
Issue:
WON the waiver of the prescription period was validly executed.
Held: No. Petition is denied.
Ratio:
- Under Section 203 of the NIRC, internal revenue taxes must be assessed
within three years counted from the period fixed by law for the filing of the
tax return or the actual date of filing, whichever is later.
- This mandate governs the question of prescription of the governments right
to assess internal revenue taxes primarily to safeguard the interests of
taxpayers from unreasonable investigation.
- Accordingly, the government must assess internal revenue taxes on time
so as not to extend indefinitely the period of assessment and deprive
the taxpayer of the assurance that it will no longer be subjected to
further investigation for taxes after the expiration of reasonable period
of time.
- An exception to the three-year prescriptive period on the assessment of
taxes is Section 222 (b) of the NIRC, which provides: (b) If before the
expiration of the time prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have agreed in writing to its
assessment after such time, the tax may be assessed within the period
agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously
agreed upon.
- Applying RMO No. 20-90, the waiver in question here was defective and
did not validly extend the original three-year prescriptive period.
o Firstly, it was not proven that respondent was furnished a copy of
the BIR-accepted waiver.
o Secondly, the waiver was signed only by a revenue district officer,
when it should have been signed by the Commissioner as mandated
by the NIRC and RMO No. 20-90, considering that the case involves
an amount of more than P1 million, and the period to assess is not
yet about to prescribe.
 o Lastly, it did not contain the date of acceptance by the
Commissioner of Internal Revenue, a requisite necessary to FAR EAST BANK AND TRUST COMPANY vs. COURT OF APPEALS, COURT OF TAX
determine whether the waiver was validly accepted before the APPEALS and COMMISSIONER OF INTERNAL REVENUE
expiration of the original three-year period. Bear in mind that the December 9, 2005]
waiver in question is a bilateral agreement, thus necessitating the CC
very signatures of both the Commissioner and the taxpayer to give
birth to a valid agreement. AZCUNA, J.:
- RMO No. 20-90 must be strictly followed. In Philippine Journalists, Inc. v.
Commissioner of Internal Revenue, we ruled that a waiver of the statute of FACTS:
limitations under the NIRC, to a certain extent being a derogation of the
taxpayers right to security against prolonged and unscrupulous In 1992, Cavite Development Bank was merged with FEBTC with the latter as its
investigations, must be carefully and strictly construed. surviving entity. FEBTC acquired all the assets of CDB. During 1990 to 1991, CDB sold
some acquired assets in the course of which it allegedly withheld the creditable tax
- Petitioner cannot rely on its invocation of the rule that the government
from the sales proceeds which amounted to P755,715.00.
cannot be estopped by the mistakes of its revenue officers in the
enforcement of RMO No. 20-90.
In said years, CDB filed income tax returns which reflected that CDB incurred negative
o The law on prescription should be interpreted in a way conducive
taxable income or losses for both years. Since there was no tax against which to credit
to bringing about the beneficent purpose of affording protection to
or offset the taxes withheld by CDB, the result was that CDB, had excess creditable
the taxpayer within the contemplation of the Commission which
withholding tax. Thus, FEBTC, being the surviving entity, filed a Petition for Review
recommended the approval of the law.
after its administrative claim for refund was not acted upon.
o To the Government, its tax officers are obliged to act promptly in
CA denied and held that the evidence presented by FEBTC consisting of:
the making of assessment so that taxpayers, after the lapse of the
period of prescription, would have a feeling of security against 1. confirmation receipts, payment orders, and official receipts issued by the
unscrupulous tax agents who will always try to find an excuse to
Central Bank and the BIR with CDB as the payor;
inspect the books of taxpayers, not to determine the latters real
2. Income Tax Returns for 1990 and 1991 with attached financial statements
liability, but to take advantage of a possible opportunity to harass
filed by FEBTC with the BIR; and,
even law-abiding businessmen. Without such legal defense,
3. a list prepared by the Accounting Department of FEBTC purportedly
taxpayers would be open season to harassment by unscrupulous
showing the CDB schedule of creditable withholding tax applied for refund
tax agents.
for 1990 and 1991

all failed to clearly establish that the taxes arising from the sale of its acquired assets
in 1990 and 1991 were properly withheld and remitted to the BIR. It likewise ruled
that it was incumbent upon FEBTC to present BIR Form No. 1743.1 as required under
RR 6-85 to conclusively prove its right to the refund. Failure to do so was fatal to its
cause.

ISSUE/HELD: WON FEBTC adduced sufficient evidence to prove its entitlement to a

refund. NO.
DISPOSITIVE: WHEREFORE, the petition is DENIED and the Decision of the Court of
Appeals dated May 7, 1997 in CA-G.R. SP No. 41666 is AFFIRMED. No pronouncement
as to costs.

RATIO:
FEBTCs contention that it withheld, for its own account, the creditable
withholding taxes on the sale of its acquired assets cannot be given credence.
In our withholding tax system, possession of the amount that is used to settle
the tax liability is acquired by the payor as the withholding agent of the
government. Obligations of the withholding agent includes the filing of the
quarterly withholding tax returns, the submission to the payee, in respect of
his or its receipts during the calendar quarter or year, of a written statement
 showing the income or other payments made by the withholding agent
during such quarter or year and the amount of the tax deducted and
withheld therefrom, and the filing with the BIR of a reconciliation statement
of quarterly payments and a list of payees and income payments.
On the other hand, it is incumbent upon the payee to reflect in his or its own
return the income upon which any creditable tax is required to be withheld
at the source. Only when there is an excess of the amount of tax so withheld
over the tax due on the payees return can a refund become possible.
A taxpayer must thus do two things to be able to successfully make a claim for
the tax refund: (a) declare the income payments it received as part of its gross
income and (b) establish the fact of withholding. The relevant revenue regulation
provides as follows:
`Section 10. Claims for tax credit or refund. -- Claims for tax credit or refund
of income tax deducted and withheld on income payments shall be given due
course only when it is shown on the return that the income payment
received was declared as part of the gross income and the fact of withholding
is established by a copy of thestatement duly issued by the payor to the
payee (BIR Form No. 1743.1) showing the amount paid and the amount of
tax withheld therefrom
FEBTC relies heavily on the confirmation receipts with the corresponding
official receipts and payment orders to support its case. Standing alone,
however, these documents only establish that CDB withheld certain amounts
in 1990 and 1991. It does not follow that the payments reflected in the
confirmation receipts relate to the creditable withholding taxes arising from
the sale of the acquired properties. The claim that CDB had excess creditable
withholding taxes can only be upheld if it were clearly and positively shown
that the amounts on the various confirmation receipts were the amounts
withheld by virtue of the sale of the acquired assets.
As to the annual income tax returns for 1990 and 1991, mere allegations of
the figures in its returns are not a sufficient proof of the amount of its refund
entitlement.
Furthermore, we note that in the proceedings below, CIR raised the fact that
there was a discrepancy in the excess creditable withholding tax reflected in
the returns with the amounts sought to be refunded re: Income Tax Returns
vs. CBD schedule. The records are bereft of any explanation for such
discrepancy. This further undermines FEBTCs reliance on the CDB Schedule.
FEBTC also asserts that the confusion or difficulty in the implementation of
RMC 7-90 was the reason why CDB took upon itself the task of withholding
the taxes arising from the sale, to ensure accuracy. Assuming this were true,
CDB should have, nevertheless, accomplished the necessary returns to
clearly identify the nature of the payments made and file the same with the
BIR. Section 2 of the circular clearly provides that the amount of withholding
tax paid by a corporation to the BIR during the quarter on sales or exchanges
of property and which are creditable against the corporations tax liability
are evidenced by Confirmation/Official Receipts and covered by BIR Form
Nos. 1743W and 1743-B. On the other hand, Revenue Regulation 6-85 states
that BIR Form No. 1743.1 establishes the fact of withholding. The failure to
offer these returns as evidence of the amount of FEBTCs entitlement is fatal
to its cause.
We must emphasize that tax refunds, like tax exemptions, are construed
strictly against the taxpayer and liberally in favor of the taxing authority.

The confirmation receipts alone, by themselves, will not suffice to prove that
the taxes reflected in the income tax returns are the same taxes withheld
from CDBs income payments from the sale of its acquired assets. This is
because a cursory examination of the said Confirmation Receipts, Payment
Orders and Official Receipts will show that what are reflected therein are
merely the names of the payors and the amount of tax. The nature of the tax
paid, or at the very least, the income payments from which the taxes paid
were withheld are not reflected therein.

Petitioner, apparently aware of the foregoing deficiency, offered into

evidence a CDB Schedule of Creditable Withholding Tax for the period 1990
to 1991 prepared by FEBTC representative to show that the taxes CDB
withheld did, indeed, pertain to the taxes accruing on the sale of the acquired
assets. However, this was found to be self-serving and unverifiable. And
without the CDB Schedule, no evidence links the Confirmation Receipts,
Payment Orders and Official Receipts to the taxes allegedly withheld by CDB
on the sale of the acquired assets.
CIR v Azucena Reyes
January 27, 2006
Panganiban, J.
DJD
Tax laws are civil in nature 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. 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.
Facts
Maria C. Tancinco died, leaving a residential lot and an old house thereon in
Pasay Road, Dasmarias Village, Makati City. Azucena T. Reyes, one of the
decedents heirs, received the Letter of Authority for the regular investigation of
the estate .
NOTE: RA 8424 was already in effect on January 1998.
February 12, 1998: 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 of P14,912,205.47, inclusive of
surcharge and interest.
CIR issued a preliminary collection letter to [Reyes], followed by a Final Notice
Before Seizure. Thereafter, a Warrant of Distraint and/or Levy was served upon
the estate, followed by Notices of Levy on Real Property and Tax Lien against it.
March 2, 1999: Reyes protested the notice of levy. The heirs proposed a
compromise settlement of P1,000,000.00. CIR rejected the compromise, and
notified them that non-payment will result to a public auction. As the estate failed
to pay, BIR notified Reyes that the subject property would be sold at public
auction.
September 1999: RR 12-99 was issued.
June 13, 2000: Reyes filed a protest with BIR assailing that the scheduled auction
sale, assessment, letter of demand, and the whole tax proceedings against the
estate are void ab initio.
CIR did not act on the protest, and instructed the enforcement of the auction sale.
Consequently, on June 28, 2000, Reyes filed a Petition for Review with the CTA.
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.
Thus, Reyes filed an application with the BIR for the compromise settlement 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.
February 19, 2001: Reyes filed a Motion to Declare Application for the Settlement
of Disputed Assessment as a Perfected Compromise.
o She alleged that CIR had not yet signed the compromise, because of red tape.
She posited that the absence of the requisite initials and signature[s] on said
documents does not vitiate the perfected compromise. Further,
o CIR: without the approval of the NEB, [Reyess] application for compromise
with the BIR cannot be considered a perfected or consummated compromise.
o CTA: No perfected compromise since no NEB approval yet in accordance
with RR No. 6-2000, as implemented by RMO No. 42-2000. As regards the
validity of the assessment notice and letter of demand against the estate, 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.
CA: Assessment notice and demand letter were void. 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. No perfected
compromise. 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 condition sine
qua non to the perfection and consummation of any compromise. Besides, the CA
pointed out, Section 204(A) of the Tax Code applied to all compromises, whether
government-initiated or not.
Issues:
1. W/N the assessment against the estate is valid; NO.
2. W/N the compromise entered into is also valid.
Dispositive: WHEREFORE, the Petition is hereby DENIED and the assailed
Decision AFFIRMED. No pronouncement as to costs.
Ratio:
1. 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. 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.
i. RA 8424 has already amended the provision of Section 229 (old law) on
protesting an assessment. The procedure for protesting an assessment is
procedural in nature and can be applied retroactively.
o Old law: Notification of the taxpayer of the CIRs findings
o RA 8424: 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.
ii. Non-retroactive application of Revenue Regulation (RR) No. 12-99 is
immaterial, considering that it merely implements the law.
o 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. 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.
iii. Neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax
Code.
o Pertinent provisions of RR 12-85 which 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 was
already amended by RA 8424.
 iv. CIR violated due process. A void assessment bears no valid fruit. An
assessment based on estimates that appear to have been arbitrarily or
capriciously arrived at is INVALID. 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.
v. 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 .
AS APPLIED IN THE CASE:
i. 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.
o 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.
ii. 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.
o 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.
2. 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.
Judy Anne Santos vs People of the Philippines & BIR
August 26, 2008
J. Chico-Nazario
Digest by: De Veyra
Topic: Remedies
Summary: A criminal information was filed against Judy Anne Santos for
underdeclaration of her income, violating Section 255 in relation to Sections 254 and
248(B) of the NIRC, as amended. She filed with CTA First Division a Motion to Quash
which was denied. She then filed with CTA en banc a Motion for Extension of Time to
File Petition for Review which was also denied. Court held that she could not file a
Petition for Review with the CTA en banc to appeal the Resolution of the CTA First
Division denying her Motion to Quash. The Resolution is interlocutory and, thus,
unappealable.
Facts:
- BIR Commissioner wrote to the Department of Justice Secretary regarding
the possible filing of criminal charges against Judy Anne Santos. In said
letter, BIR Commissioner Parayno summarized the findings of the
investigating BIR officers that Santos, in her Annual Income Tax Return for
taxable year 2002 filed with the BIR, declared an income of P8,033,332.70
derived from her talent fees solely from ABS-CBN; However, it was
confirmed that she received in 2002 income in the amount of at
least P14,796,234.70, not only from ABS-CBN, but also from other sources,
such as movies and product endorsements; the estimated tax liability arising
from petitioners underdeclaration amounted to P1,718,925.52, including
incremental penalties;
- The Prosecution Attorney Torrevillas issued a Resolution finding probable
cause and recommending the filing of a criminal information against
petitioner for violation of Section 255 in relation to Sections 254 and 248(B)
of the NIRC, as amended. The said Resolution was approved by Chief State
Prosecutor . An Information was filed with the CTA, pursuant to such DOJ
Resolution.
- Santos filed with the CTA First Division a Motion to Quash the Information
which was denied and accordingly scheduled her arraignment. She then filed
a Motion for Reconsideration and/or Reinvestigation, which was again
denied
- Subsequently, Santos filed with the CTA en banc a Motion for Extension of
Time to File Petition for Review which was also denied
Issue: WON a Resolution of a CTA Division denying a motion to quash is a proper
subject of an appeal to the CTA en banc
Held: NO. CTA en banc did not err in denying petitioners Motion for Extension of
Time to File Petition for Review. She cannot file a Petition for Review with the CTA en
banc to appeal the Resolution of the CTA First Division denying her Motion to Quash.
The Resolution is interlocutory and, thus, unappealable.
Dispositive: WHEREFORE, premises considered, the instant Petition for Review is
hereby DENIED. Costs against petitioner. SO ORDERED.
Ratio:
Denial of a motion to quash is an interlocutory order which is not the proper
subject of an appeal or a petition for certiorari
There is no dispute that a court order denying a motion to quash is interlocutory. The
denial of the motion to quash means that the criminal information remains pending
with the court, which must proceed with the trial to determine whether the accused is Reconsideration, respectively, and explained the reasons for the denial of
guilty of the crime charged therein. Equally settled is the rule that an order denying a both Motions. There is nothing to sustain a finding that these Resolutions
motion to quash, being interlocutory, is not immediately appealable, nor can it were rendered capriciously, whimsically, or arbitrarily, as to constitute
be the subject of a petition for certiorari. Such order may only be reviewed in the grave abuse of discretion amounting to lack or excess of jurisdiction.
ordinary course of law by an appeal from the judgment after trial.
Remedy was not to file a petition for certiorari but to go to trial without
prejudice on her part to reiterate the special defenses she had invoked in his
motion and, if, after trial on the merits, an adverse decision is rendered, to
appeal therefrom in the manner authorized by law. This is the procedure that
he should have followed as authorized by law and precedents.
Exceptions: Certiorari is an appropriate remedy to assail an interlocutory order (1)
when the tribunal issued such order without or in excess of jurisdiction or with grave
abuse of discretion; and (2) when the assailed interlocutory order is patently
erroneous, and the remedy of appeal would not afford adequate and expeditious
relief.
The CTA First Division did not commit grave abuse of discretion
The Petition for Review which petitioner intended to file before the CTA en banc relied
on two grounds: (1) the lack of authority of Prosecuting Attorney Torrevillas to file the
Information; and (2) the filing of the said Information in violation of petitioners
constitutional rights to due process and equal protection of the laws.
1. Torrevillas had authority to file the Information as the DOJ is the principal
law agency of the Philippine government which shall be both its legal
counsel and prosecution arm. It has the power to investigate the commission
of crimes, prosecute offenders and administer the probation and correction
system. In addition, the Information was filed with the approval of the BIR
Commissioner pursuant to Section 220 of NIRC, as amended, contrary to
petitioners argument. This is in light of BIR Commissioner Paraynos letter
to DOJ Secretary Gonzales referring "for preliminary investigation and filing
of an information in court if evidence so warrants," the findings of the BIR
officers recommending the criminal prosecution of petitioner.
2. No violation of due process. Santos was given the opportunity to file her
affidavits and other pleadings and submit evidence before the DOJ during the
preliminary investigation of her case and before the Information was filed
against her. Due process is merely an opportunity to be heard. In addition,
preliminary investigation conducted by the DOJ is merely inquisitorial. It is
not a trial of the case on the merits. Hence, if the investigating prosecutor is
already satisfied that he can reasonably determine the existence of probable
cause based on the parties evidence thus presented, he may terminate the
proceedings and resolve the case
3. No violation of equal protection. She claims otherwise because similar
charges were filed against Regine Velasquez but were dismissed. The
prosecution of one guilty person while others equally guilty are not
prosecuted, however, is not, by itself, a denial of the equal protection of the
laws. A discriminatory purpose is not presumed, there must be a showing of
"clear and intentional discrimination." The presumption is that the
prosecuting officers regularly performed their duties, and this presumption
can be overcome only by proof to the contrary, not by mere speculation. The
remedy for unequal enforcement of the law in such instances does not lie in
the exoneration of the guilty at the expense of society.
4. Lastly, the Resolutions of the CTA First Division directly addressed the
arguments raised by petitioner in her Motion to Quash and Motion for
Fitness by Design Inc (Fitness) v. CIR
October 17, 2008
CARPIO MORALES, J.
Digest by Doms Gana
Topic and Provision: RA 9503 further expanding the composition of CTA cases
(note: Dont see the connection of the topic to the case :l)
Facts:
On March 17, 2004, the CIR assessed Fitness by Design, Inc. for deficiency
income taxes for the tax year 1995 in the total amount of P10,647,529.69.
Fitness protested the assessment on the ground that it was issued beyond
the three-year prescriptive period under Section 203 of the Tax Code and
that since it was incorporated only on May 30, 1995, there was no basis to
assume that it had already earned income for the tax year 1995.
On February 1, 2005, CIR issued a warrant of distraint and/or levy against
Fitness. Fitness filed a petition for review.
CIR contends and claims:
o It has the right to assess Fitness for deficiency income
tax, VAT and Documentary Stamp Tax for the year
1995 has not prescribed pursuant to Section 222(a) of
the 1997 Tax Code.
o Fitness 1995 ITR filed on April 11, 1996 was false and
fraudulent for its deliberate failure to declare its true
sales - it was on its pre-operation stage and has not
declared its income. However, investigation by the
revenue officers of the CIR disclosed that it has been
operating/doing business and had sales operations for
the year 1995 in the total amount of P7,156,336.08
which it failed to report in its 1995 ITR. Thus, for the
year 1995, petitioner filed a fraudulent annual income
return with intent to evade tax. Likewise, petitioner
failed to file Value-Added Tax (VAT) Return and
reported the amount of P7,156,336.08 as its gross
sales for the year 1995. Hence, for failure to file a VAT
return and for filing a fraudulent income tax return for
the year 1995, the corresponding taxes may be
assessed at any time within ten (10) years after the
discovery of such omission or fraud pursuant to
Section 222(a) of the 1997 Tax Code.
The BIR filed on March 10, 2005 a criminal complaint before
the DOJ against the officers and accountant of Fitness for
violation of the provisions of NIRC, the taxable year 1995.
On motion of Fitness, a preliminary hearing on the issue of
prescription was conducted during which Fitness former
bookkeeper attested that a former colleague certified public
accountant Leonardo Sablan (Sablan) illegally took custody of
Fitness accounting records, invoices, and official receipts and
turned them over to the BIR.
On Fitness request, a subpoena ad testificandum was issued to
Sablan for the hearing before the CTA scheduled on September
4, 2006 but he failed to appear. In addition, Fitness requested
for another subpoena ad testificandum to Sablan and a
subpoena duces tecum to the chief of the National Investigation
Division of the BIR, along with written interrogatories.
The CTA denied petitioners Motion for Issuance of Subpoenas
and disallowed the submission by petitioner of written
interrogatories to Sablan, who is not a party to the case, and the
revenue officers, it finding that the testimony, documents, and
admissions sought are not relevant. And the CTA found that to
require Sablan to testify would violate Section 2 of Republic Act
No. 2338, as implemented by Section 12 of Finance Department
Order No. 46-66, proscribing the revelation of identities of
informers of violations of internal revenue laws, except when
the information is proven to be malicious or false.
Issue: WON THE CTA resolutions were tainted by grave abuse of discretion? NO!
Held: THE CTA resolutions were proper. The BIR can validly obtain information from
any other person regarding information relating to a person liable for tax.
Dispositive: WHEREFORE, in light of the foregoing disquisition, the petition is
DISMISSED. Costs against petitioner. SO ORDERED.
Ratio:
Interrogating Sablan was Illegal
However, the subpoenas and answers to the written interrogatories would
violate Section 2 of Republic Act No. 2338 as implemented by Section 12 of
Finance Department Order No. 46-66. Despite Fitness claim that it is only
intended to elicit information on the whereabouts of the documents it needs
in order to refute the assessment, and not to disclose the identity of the
informer.
The court held that the interrogatories addressed to Sablan and the revenue
officers show that they were intended to confirm Fitness belief that Sablan
was the informer.
The information received by the BIR is not illegal
For in requesting the issuance of the subpoenas and the submission of written
interrogatories, Fitness sought to establish that its accounting records and
related documents, invoices, and receipts which were the bases of the
assessment against it were illegally obtained.
Fitness claims that the information received by the BIR is illegal because
Sablan having allegedly submitted them to the BIR without its Fitness
consent.
The court held that Fitness lack of consent does not imply that the BIR
obtained them illegally or that the information received is false or
malicious. Nor does the lack of consent preclude the BIR from assessing
deficiency taxes on Fitness based on the documents.
o Section 5 of the Tax Code provides: In ascertaining the correctness of
any return, or in making a return when none has been made, or in
determining the liability of any person for any internal revenue tax, or
in collecting any such liability, or in evaluating tax compliance, the
 Commissioner is authorized:(A) To examine any book, paper, record
or other data which may be relevant or material to such query; (B) To
obtain on a regular basis from any person other than the person
whose internal revenue tax liability is subject to audit or
investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including
the Bangko Sentral ng Pilipinas and government-owned and
controlled corporations, any information such as, but not limited to,
costs and volume of production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and financial statements of
corporations, mutual fund companies, insurance companies, regional
operating headquarters of multinational companies, joint accounts,
associations, joint ventures or consortia and registered partnerships
and their members;
(C) To summon the person liable for tax or
required to file a return, or any officer or
employee of such person, or any person
having possession, custody, or care of the
books of accounts and other accounting
records containing entries relating to the
business of the person liable for tax, or any
other person, to appear before the
Commissioner or his duly authorized
representatives at a time and place specified
in the summons and to produce such books,
papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person
concerned, under oath, as may be relevant or
material to such inquiry; and
(E) To cause revenue officers and employees
to make a canvass from time to time of any
revenue district or region and inquire after
and concerning all persons therein who may
be liable to pay any internal revenue tax, and
all persons owning or having the care,
management or possession of any object with
respect to which a tax is
The law thus allows the BIR access to all relevant or material records
and data in the person of the taxpayer, and the BIR can accept
documents which cannot be admitted in a judicial proceeding where the
Rules of Court are strictly observed. To require the consent of the
taxpayer would defeat the intent of the law to help the BIR assess and
collect the correct amount of taxes.
Asia International Auctioneers, Inc. and Subic Bay Motors Corp. v. Hon. Parayno
(Commissioner of BIR)
Dec. 18, 2007
Puno, C.J.
Digest by Mimi H.
Topic: RA 9503, further expanding the composition of CTA by adding 3 new justices
(9 in all)
*Note: Theres nothing about CTA justices here. It just discussed the CTAs appellate
jurisdiction over CIR rulings. Also, the specifics of RA 7277 and the RMCs arent really
important, but I included them in case Maam asks.
Provisions:
Sec. 12, RA 7277
(a) Within the framework and subject to the mandate and limitations of the
Constitution and the pertinent provisions of the Local Government Code, the [SSEZ]
shall be developed into a self-sustaining, industrial, commercial, financial and
investment center to generate employment opportunities in and around the zone and
to attract and promote productive foreign investments;
(b) The [SSEZ] shall be operated and managed as a separate customs territory
ensuring free flow or movement of goods and capital within, into and exported out of
the [SSEZ], as well as provide incentives such as tax and duty-free importations of raw
materials, capital and equipment. However, exportation or removal of goods from
the territory of the [SSEZ] to the other parts of the Philippine territory shall be
subject to customs duties and taxes under the Customs and Tariff Code and
other relevant tax laws of the Philippines;
(c) The provision of existing laws, rules and regulations to the contrary
notwithstanding, no taxes, local and national, shall be imposed within the [SSEZ]. In
lieu of paying taxes, three percent (3%) of the gross income earned by all businesses
and enterprise within the [SSEZ] shall be remitted to the National Government, one
percent (1%) each to the local government units affected by the declaration of the
zone in proportion to their population area, and other factors. In addition, there is
hereby established a development fund of one percent (1%) of the gross income
earned by all business and enterprise within the [SSEZ] to be utilized for the
development of municipalities outside the City of Olongapo and the Municipality of
Subic, and other municipalities contiguous to the base areas.
In case of conflict between national and local laws with respect to tax exemption
privileges in the [SSEZ], the same shall be resolved in favor of the latter;
xxxx
RMC 32-2003
II. The imported motor vehicles after its release from Customs custody are sold
through public auction/negotiated sale by the consignee within or outside of the
Freeport Zone:
A. The gross income earned by the consignee-seller from the public
auction/negotiated sale of the imported vehicles shall be subject to the preferential
tax rate of five percent (5%) in lieu of the internal revenue taxes imposed by the
National Internal Revenue Code of 1997, provided that the following conditions are
present:
1.That the consignee-seller is a duly registered enterprise entitled to such preferential
tax rate as well as a registered taxpayer with the Bureau of Internal Revenue (BIR).
2.That the total income generated by the consignee-seller from sources within the
customs territory does not exceed thirty percent (30%) of the total income derived
from all sources.
B. In case the consignee-seller is a registered enterprise and/or locator not entitled to
the preferential tax treatment or if the same is entitled from such incentive but its
total income from the customs territory exceeds thirty percent (30%) of its entire
income derived from the customs territory and the freeport zone, the sales or income
derived from the public auction/negotiated sale shall be subjected to the regular
internal revenue taxes imposed by the Tax Code. The consignee-seller shall also
observe the compliance requirements prescribed by the Tax Code. When public
auction or negotiated sale is conducted within or outside of the freeport zone, the
following tax treatment shall be observed:
1. Value Added Tax (VAT)/ Percentage Tax (PT) VAT or PT shall be imposed on
every public auction or negotiated sale.
2. Excise Tax The imposition of excise tax on public auction or negotiated sale shall
be held in abeyance pending verification that the importers selling price used as a
basis by the Bureau of Customs in computing the excise tax is correctly determined.
Sec. 4, NIRC:
The power to interpret the provisions of this Code and other tax laws shall be under
the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under
this Code or other laws or portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner, subject to the exclusive
appellate jurisdiction of the Court of Tax Appeals.
Summary: Petitioners filed a complaint before the RTC, to have RMC 31-2003 and
RMC 32-2003 declared unconstitutional and ultra vires. Petitioners alleged that they
were merely challenging the CIRs authority to issue the RMCs, and not the imposition
of the taxes, hence the case falls within the RTCs jurisdiction. Respondents sought to
dismiss the case, as jurisdiction over such belonged to exclusive appellation
jurisdiction of the CTA over CIR decisions. The SC found for respondents. The RMCs
are in reality rulings of the CIR which implement RA 7227, and were issued pursuant
to the CIRs power to interpret internal revenue laws.
Facts:
Congress enacted RA 7277, the Bases Conversion and Development Act, creating
Subic Special Economic Zone (SSEZ) and extending economic or tax incentives.
June 2003: CIR Parayno issued Revenue Memorandum Circular (RMC) No. 31-
2003 setting the Allocating Two Percent (2%) of the Gross Income Earned by All
Businesses and Enterprises Within the Subic, Clark, John Hay, Poro Point Special
Economic Zones and other Special Economic Zones under PEZA."
Petitioners are corporations organized under Philippine laws, with their principal
places of businesses within the SSEZ. They are engaged in the importation of
secondhand motor vehicles and heavy transportation or construction equipment,
which they sell through public auction.
RTC: Petitioners filed a complaint praying for nullification of RMC 31-2003 for
being unconstitutional and ultra vires. They also applied for an injunction to
enjoin respondent from implementing the RMC.
o They particularly question paragraphs II(A)(1) and (3), II(B)(1.2), (1.4)
and (1.5) of RMC 31-2003, and paragraphs II(A)(2) and (B) of RMC 32-
2003 (which amended RMC 31-2003). Petitioners later included certain
provisions of RR 1-95, RR 12-97, and RR 16-99, which allegedly had some
provisions identical to the RMCs.
o Sec. of Finance filed a motion to dismiss, alleging that he is not a party to
the suit and petitioners have no cause of action against him. Respondents
also filed a motion to dismiss, alleging that the RTC has no jurisdiction
over the subject matter.
o BIR Revenue District Officer sent a 10-day preliminary notice to
petitioners, for unpaid VAT on auction sales, as per RMC 32-2003. The RTC
later issued the injunction.
CA: Respondents CIR, BIR Regional Director of Region III, and the BIR Revenue
District Officer of the SSEZ, and the OSG filed a petition for certiorari with prayer
for TRO to enjoin the RTC from exercising jurisdiction over the case.
o Meanwhile, BIR Regional Director sent a preliminary assessment notice to
petitioners, reiterating the VAT due on auction sales, plus interest and
penalty. A formal letter of demand was later sent to petitioners.
o CA granted petition, and declared that the RTC had no jurisdiction over the
case, and dismissed the injunction order.
Issue: WON the RTC has jurisdiction over the subject matter of the case
Held: NO. It is within the CTAs exclusive appellate jurisdiction over CIR
decisions.
Dispositive: IN VIEW WHEREOF, the petition is DENIED. SO ORDERED.
Ratio:
Petitioners contend that jurisdiction over the case properly pertains to regular
courts, as it is an action to declare the RMCs unconstitutional. They argue that
they do not challenge the rate, structure or figures of the imposed taxes, but
instead challenge the authority of the CIR to impose and collect said taxes.
Therefore, the challenge on the CIRs authority to issue the RMCs does not
fall within the CTAs jurisdiction.
First of all, jurisdiction is defined as the power and authority of a court to hear,
try and decide a case. The issue is so basic that it may be raised at any stage of the
proceedings, even on appeal. The courts may consider the issue even if not raised
by the parties themselves. There is therefore no reason to preclude the CA from
ruling on the issue, even if it had not been resolved by the RTC.
The SC disagrees with petitioners. Sec. 7, RA 1125 provides that the CTA shall
exercise exclusive appellate jurisdiction to review by appeal, 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 NIRC or other laws or part of
law administered by the Bureau of Internal Revenue. RMCs are considered
administrative rulings.
Two applicable cases
 The case of Rodriguez v. Blaquera is applicable. The case involved CA 466 which
imposed upon firearm holders the duty to pay an initial license fee of P15 and an
annual fee of P10, except that in the case of members of active and accredited gun
clubs, the annual fee is reduced to P5 per firearm. However, the CIR issued a
circular imposing an initial fee of P15 and annual fee of P5 per firearm for active
and accredited gun club members. The plaintiff in that case also contended that
their petition was an attempt to nullify the circular, and not an appeal from the
CIRs ruling. The SC disagreed, and held that the circular incorporates a
decision of the CIR as to the enforcement of CA 466, which therefore falls
within the exclusive appellate jurisdiction of the CTA over decisions of the
CIR.
The case of CIR v. Leal is also applicable. Pursuant to Sec. 116, PD 1158 (NIRC as
amended), which provides that dealers in securities shall pay a tax of 6% of their
gross income, and lending investors pay 5% of their gross income, the CIR issued
RMO 15-91 imposing 5% lending investors tax on pawnshops, after finding that
pawnshop businesses are like lending investors. As such, pawn tickets were later
subject to DST. The plaintiff filed a petition for prohibition before the RTC. The SC
held that appellate jurisdiction belonged to the CTA as the RMO was issued
by the CIR pursuant its power to make rulings or opinions in connection
with the implementation of internal revenue laws.
The rulings in both cases are applicable here. In this case, the RRs and RMCs are
actually rulings of opinions of the CIR on tax treatment of motor vehicles
sold at public auction within the SSEZ. They implement Sec. 12, RA 7227,
and were issued pursuant to the CIRs power to interpret NIRC provisions
and decide disputed assessments, refunds of internal revenue taxes, and
other matters arising under the NIRC, under Sec. 4, NIRC.
British American Tobacco vs. Jose Camacho (Sec. of Finance) and Guillermo
Parayno, Jr. (BIR Commissioner)
August 20, 2008
Ynares-Santiago, J.
Bahjin ....(-_-).... this case ....(-_-).... tax2
Topic: Excise Tax on Certain Goods
FACTS:
In 1997, RA 8424 or The Tax Reform Act of 1997, took effect. The said law recodified
par(c) of Sec. 145 of the NIRC and provided for four tiers of tax rates based on the net
retail price per pack of cigarettes.
The tiers provided that the higher the retail price, the higher the tax rate. (See law for
specifics, too long to reproduce here).
To determine the applicable tax rates of existing cigarette brands, a survey of the net
retail prices per pack of cigarettes was conducted as of October 1, 1996, the results of
which were embodied in Annex D of the NIRC.
The said law also provides: The classification of each brand of cigarettes based on its
average net retail price as of October 1, 1996, as set forth in Annex D of this Act, shall
remain in force until revised by Congress.
As for the new brands, or brands that will be introduced after January 1, 1997, they
shall be classified according to their current net retail price. The current net retail
price of these brands would initially be the suggested retail price until a survey in
supermarkets will be conducted by the BIR to update the classification.
As such, new brands of cigarettes shall be taxed according to their current net retail
price while existing or old brands shall be taxed based on their net retail price as of
October 1, 1996. This means that even if the old brands increase their prices, they
would still be taxed based on the classification made in Annex D (their net retail price
in 1996) while new brands would be taxed based on the classification at the time they
were introduced. Hence a situation may emerge wherein a new brand, though sold at
the same price as an old brand, would be taxed higher, as what happened in this case.
In June 2001, petitioner British American Tobacco introduced into the market Lucky
Strike Filter, Lucky Strike Lights and Lucky Strike Menthol Lights cigarettes, with a
suggested retail price of P9.90 per pack. Pursuant to Sec. 145 (c), the Lucky Strike
brands were initially assessed the excise tax at P8.96 per pack.
On February 17, 2003, the BIR issued Revenue Regulations No. 9-2003, providing,
among others, a periodic review every two years or earlier of the current net retail
price of new brands and variants thereof for the purpose of establishing and updating
their tax classification.
Subsequently, Revenue Regulations No. 22-2003 was issued on August 8, 2003 to
implement the revised tax classification of certain new brands introduced in the
market after January 1, 1997, based on the survey of their current net retail price. This
RR also granted the BIR the power to reclassify or update the classification of new
brands every two years or earlier.
The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike
Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23,
per pack, respectively. Respondent Commissioner thus recommended the applicable
tax rate of P13.44 per pack inasmuch as Lucky Strikes average net retail price is
above P10.00 per pack.
Thus British Tobacco filed before the Makati RTC a petition for injunction with prayer
for the issuance of a TRO and/or writ of preliminary injunction, seeking to enjoin the
implementation of Section 145 of the NIRC and the Revenue Regulations for its
implementation. The RTC ruled for the BIR and the case was brought to the SC for
review on a pure question of law.
British Tobacco assailed the constitutionality of the assailed law and regulations on
grounds of equal protection and uniformity of taxation. It contends that even if its
products are sold at the same price as the older brands such as Marlboro, it is being
made to pay at a higher tax rate because the older brands enjoy the benefit of the
legislative classification freeze in Annex D.
While the petition was pending, RA 9334 was enacted, amending the NIRC, increasing
the tax rates in Sec. 145 but still retaining the provision on legislative classification
freeze.
ISSUES and HELD:
1. WON the Sec. 145 as amended by RA 9334 is unconstitutional under grounds of
equal protection and uniformity of taxation. NO.
2. WON RR 22-2003 is invalid for granting the BIR the power to reclassify or update
the classification of new brands every two years or earlier. YES.
DISPOSITIVE:
Petition is partly granted. RTC decision is modified. (1) Section 145 of the NIRC, as
amended by Republic Act No. 9334, is CONSTITUTIONAL. RRs are INVALID insofar as
they grant the BIR the power to reclassify or update the classification of new brands
every two years or earlier.
RATIO:
1. Sec. 145 as amended by RA 9334 is constitutional. The legislative classification
freeze does not violate the equal protection or the uniformity of taxation clauses.
A legislative classification that is reasonable does not offend the constitutional
guaranty of the equal protection of the laws. The classification is considered valid and
reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to
the purpose of the law; (3) it applies, all things being equal, to both present and future
conditions; and (4) it applies equally to all those belonging to the same class.
The first, third and fourth requisites are clearly satisfied. As for the 2 nd requisite, the
SC reasoned: in our jurisdiction, the standard and analysis of equal protection
challenges in the main have followed the rational basis test, coupled with a
deferential attitude to legislative classifications and a reluctance to invalidate a law
unless there is a showing of a clear and unequivocal breach of the Constitution.
Thus it is necessary to show that the legislative classification freeze was made to
rationally further a legitimate state interest. The Court ruled that the law satisfied this
requisite.
The classification freeze provision was inserted in the law for reasons of practicality
and expediency. The SC quoted deliberations in the Senate and House of
Representatives to the effect that the legislators were concerned that if the BIR and
the Department of Finance were given the power to periodically conduct surveys and
reclassify the tax tiers of the brands, this system would be susceptible to abuse and
corruption:
Sen. Roco: Is it more advantageous that this judgment be exercised by the House? Should
we not concur or modify in terms of the exercise by the House of its power or are we
better off giving this judgment call to the Department of Finance? Let me now submit,
Mr. President, that in so doing, it is more advantageous to fix the rate so that even if we
modify the rates identified by Congress, it is better and less susceptible to abuse.
(Because Congress is less susceptible to corruption. HAHAHAHAHAHAHA!!!! WHAT AN
EFFING JOKE!!!)
Congressman Javier: the frozen classification was intended to give stability to the
industry as the BIR would be prevented from tinkering with the classification since it
would remain unchanged despite the increase in the net retail prices of the previously
classified brands. This would also assure the industry players that there would be no new
impositions as long as the law is unchanged.
Hence, the SC posited that the classification freeze provision was in the main the
result of Congresss earnest efforts to improve the efficiency and effectivity of the tax
administration over sin products while trying to balance the same with other state
interests. In particular, the questioned provision addressed Congresss administrative
concerns regarding delegating too much authority to the DOF and BIR as this will open
the tax system to potential areas for abuse and corruption. Congress may have
reasonably conceived that a tax system which would give the least amount of
discretion to the tax implementers would address the problems of tax avoidance and
tax evasion.
Aside from the major concern regarding the elimination of potential areas for abuse
and corruption from the tax administration of sin products, the legislative
deliberations also show that the classification freeze provision was intended to
generate buoyant and stable revenues for government. With the frozen tax
classifications, the revenue inflow would remain stable and the government would be
able to predict with a greater degree of certainty the amount of taxes that a cigarette
manufacturer would pay given the trend in its sales volume over time. The reason for
this is that the previously classified cigarette brands would be prevented from moving
either upward or downward their tax brackets despite the changes in their net retail
prices in the future and, as a result, the amount of taxes due from them would remain
predictable. The classification freeze provision would, thus, aid in the revenue
planning of the government.
All in all, the classification freeze provision addressed Congresss administrative
concerns in the simplification of tax administration of sin products, elimination of
potential areas for abuse and corruption in tax collection, buoyant and stable revenue
generation, and ease of projection of revenues. Consequently, there can be no denial of
the equal protection of the laws since the rational-basis test is amply satisfied.
2. RR 22-2003 and related RRs are invalid because they authorize the Commissioner
of Internal Revenue to update the tax classification of new brands every two years or
earlier subject only to its issuance of the appropriate Revenue Regulations, when
nowhere in Section 145 is such authority granted to the Bureau.
Unless expressly granted to the BIR, the power to reclassify cigarette brands remains
a prerogative of the legislature which cannot be usurped by the former.
Moreover, Congress enacted RA 8424 as amended by RA 9334 with the provision on
legislative classification freeze precisely because they seek to potential areas for
abuse and corruption on the part of the BIR. It would thus, be absurd to conclude that
Congress intended to allow the periodic reclassification of new brands by the BIR after
their classification is determined based on their current net retail price while limiting
the freezing of the classification to Annex D brands.
However, unfortunately for petitioner, the invalidation of the RRs will not cause a
downward reclassification of Lucky Strike. Petitioner introduced Lucky Strike in June
2001. However, the BIR did not conduct the required market survey within three
months from product launch. As a result, Lucky Strike was never classified based on
its actual current net retail price.
It was only after the lapse of two years or in 2003 that the BIR conducted a market
survey which was the first time that Lucky Strikes actual current net retail price was
surveyed and found to be from P10.34 to P11.53 per pack, which is within the
premium-priced tax bracket.
The case of petitioner falls under a situation where there was no reclassification based
on its current net retail price which would have been invalid as previously explained.
Thus, we cannot grant petitioners prayer for a downward reclassification of Lucky
Strike because it was never REclassified (only classified) by the BIR based on its actual
current net retail price.
Commissioner of Customs (COC) v. Hypermix Feeds Corp.
February 1, 2012
Sereno, J.:
Facts:
On November 7, 2003, the COC issued (Customs Memorandum Order) CMO 27-2003.
Under the aforesaid Memorandum, wheat was classified according to the following:
(1) importer or consignee; (2) country of origin; and (3) port of discharge. The
regulation provided for an exclusive list of corporations, ports of discharge,
commodity descriptions and countries of origin. Depending on the foregoing factors,
wheat would be classified either as food grade (3% tariff) or feed grade (7% tariff).
Respondent the filed a Petition for Declaratory Relief with the RTC alleging that the
Memo was issued without following the mandate on public participation, prior notice,
and publication or registration with the UP Law Center. Moreover, respondent alleges
that the regulation summarily adjudged it to be a feed grade supplier without the
benefit of prior assessment and examination, thus violating their right to due process.
The RTC ruled for the respondent, declaring the CMO null and void. Hence, this
petition was filed by the COC.
Issue:
WON a petition for declaratory relief was the proper remedy. YES.
WON the CMO was issued in accordance with law. NO.
Ratio:
as to the petition for declaratory relief being the proper remedy
Under Rule 63.1, the requirements for a petition for declaratory relief are as follows:
(1) there must be a justiciable controversy; (2) the controversy must be between
persons whose interests are adverse; (3) the party seeking declaratory relief must
have a legal interest in the controversy; and (4) the issue involved must be ripe for
judicial determination.
All these requirements were met.
as to the extrinsic validity of the CMO
Since the questioned regulation would affect the substantive rights of the respondent,
it therefore follows that the COC should have applied the pertinent provisions of Book
VII, Chapter 2 of the Revised Administrative Code.
Suffice it to say that the CMO should have been filed with the UP Law Center.
Moreover, public participation is a requirement with respect to the CMO issued
because it goes beyond merely providing for the means that can facilitate or render
least cumbersome the implementation of the law but substantially increases the
burden of those governed.
Since petitioner failed to follow the requirements enumerated by the Revised
Administrative Code, the assailed regulation must be struck down.
as to the intrinsic validity of the CMO
The guarantee of the EPC is not violated if there is reasonable classification. For a
classification to be reasonable, it must be shown that: (1) it rests on substantial
distinctions; (2) it is germane to the purpose of the law; (3) it is not limited to existing
conditions only; and (4) it applies equally to all members of the same class.
The SC found that the CMO is unconstitutional for being violative of the EPC of the
Constitution. The SC does not see how the quality of wheat is affected by who imports
it, where it is discharged, or which country it came from.
Thus, the SC found, that if the miller is excluded from the exclusive list provided by the
COC, and it has imported food grade wheat, the product would still be declared as feed
grade wheat, subjecting them to the 7% tariff rate instead of the 3% tariff rate. It
forecloses the possibility that other corporations excluded from the list, will import
food grade wheat. It further creates an assumption that those who meet the criteria do
not import feed grade wheat.
Petitioner COC also went beyond his powers when the regulation limited the the
customs officers duties mandated by Sec. 1403 of the Tariff and Customs Law.
The law also mandates the customs officer to first assess and determine the
classification of the imported article before tariff may be imposed. Unfortunately, the
CMO already classified the article even before the customs officer had the chance to
examine it. In effect, the COC diminished the powers granted by the Tariff and
Customs Code with regard to wheat importation when it no longer required the
customs officers prior examination and assessment of the proper classification of the
wheat.
In summary, respondents right to due process was violated. Respondents right to
equal protection of the laws was also violated. Finally, the COC went beyond his
powers of delegated authority when the regulation limited the powers of the customs
officer.
WHEREFORE, in view of the foregoing, the Petition is DENIED.
CIR v. San Roque Power Corporation
October 8, 2013
Carpio, J.
Digest by Monique
Topic: Remedies > Regulations
Facts
To recap: On April 10, 2003, a mere 13 days after San Roque Power Corporation filed its
amended administrative claim with the CIR, San Roque filed a Petition for Review with
the CTA. San Roque thus, did not wait for the 120 day period to lapse before filing its
judicial claim. This Court in its February 12, 2013 Decision stated that compliance with
the 120-day waiting period is mandatory and jurisdictional.
This case is the Resolution that resolves the MR filed by San Roque Power Corporation
which prayed that the February 2013 Decision finding that San Roque violated the
120+30 day rule as prescribed by Section 112(C) of the NIRC, should only be given
prospective effect. San Roque claims that when it filed the judicial claim with the CTA
before the lapse of 30 days from its decision, it based its action on BIR Ruling No. DA-
489-03 which expressly ruled that the taxpayer-claimant need not wait for the lapse
of the 120-day period before it could seek judicial relief with the CTA by way of
judicial review. Further, San Roque asserts that the BIR and the CTA in actual
practice did not observe and did not require refund seekers to comply with the
120+30 day periods. San Roque prayed that the Doctrine of Operative Fact be
applied in its case. (The Doctrine of Operative Fact means that acts done pursuant to a
law which was subsequently declared unconstitutional or unlawful remain valid.)
Issue / Held
WON San Roque must comply with the 120+30 day period rule / YES. The Doctrine of
Operative Fact is not applicable in this case.
Ratio
For the Operative Fact Doctrine to apply, there must be a law or executive
issuance that is invalidated by the Court. From the passage of the law or
promulgation of such executive issuance until its invalidation by the court, the effects
of the law or executive issuance, when relied upon by the public in good faith, may
have to recognized as valid. In this case, there was no such law or executive
issuance, except for BIR Ruling No. DA-489-03.
Before the issuance of that BIR Ruling, there was no administrative practice by the BIR
that supported simultaneous filing of administrative and judicial claims. Prior to the
said Ruling, the BIR considered the 120+30 day periods mandatory and jurisdictional.
Thus, prior to the BIRs Ruling, the BIRs actual administrative practice was to
contest the simultaneous filing of claims at the administrative and judicial
levels.
San Roques argument must therefore fail. The Court recognized the BIR Ruling as
applied by taxpayers in good faith from the period between December 10, 2003
(issuance of the BIR Ruling) and October 6, 2010 (decision in the Aichi case
wherein the Court struck down the Ruling and once more upheld the 120+30
day period rule as mandatory and jurisdictional). San Roque cannot claim to have
been guided by the Ruling because it filed its judicial claim with the CTA on April 10,
2003, a mere 13 days after it filed its administrative claim on March 28, 2003.
The Doctrine of Operative Fact is incorporated in Section 246 of the NIRC, which
provides:
SEC. 246. Non-Retroactivity of Rulings. - Any revocation,
modification or reversal of any of the rules and regulations
promulgated in accordance with the preceding Sections or
any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application
if the revocation, modification or reversal will be
prejudicial to the taxpayers

Under this Section, taxpayers may rely upon a rule issued by the CIR from the time the
rule is issued up to its reversal by the CIR or this Court. The reversal is not given
retroactive effect. Thus, in essence, is the Operative Fact Doctrine. There must
however be a rule or ruling issued by the CIR that is relied upon by the taxpayer in
good faith. San Roques assertion that since the BIR and CTA in actual practice did not
observe the 120+30 day periods, it does not have to comply with what the law
requires is a glaring error because administrative practice is neither law nor an
executive issuance. Moreover, in the present case, there is even no such
administrative practice by the BIR as claimed by San Roque. And even if there
were such an administrative practice, if it is not formalised into a rule or ruling, it will
not suffice because a mere administrative practice may not be uniformly and
consistently applied. An administrative practice, if not formalised as a rule or ruling,
will not be known to the general public and can be availed only by those with informal
contacts with the government agency.