CIR V Fortune Tobacco Escra

200 SUPREME COURT REPORTS ANNOTATED
Commissioner of Internal Revenue vs. Court of Appeals
*
G.R. No. 119322. June 4, 1996.
COMMISSIONER OF INTERNAL REVENUE, SENIOR

STATE PROSECUTOR AURORA S. LAGMAN, SENIOR
STATE PROSECUTOR BERNELITO R. FERNANDEZ,
SENIOR STATE PROSECUTOR HENRICK P.
GINGOYON, ROGELIO F. VISTA, STATE PROSECUTOR
ALFREDO AGCAOILI, PROSECUTING ATTORNEY
EMMANUEL VELASCO, CITY PROSECUTOR CANDIDO
V. RIVERA, AND ASSISTANT CITY PROSECUTOR
LEOPOLDO E. BARAQUIA, petitioners, vs. THE
HONORABLE COURT OF APPEALS, THE HONORABLE
TIRSO D’C VELASCO, PRESIDING JUDGE, REGIONAL
TRIAL COURT OF QUEZON CITY, BRANCH 88,
FORTUNE TOBACCO CORPORATION, LUCIO TAN,
HARRY C. TAN, CARMEN KAO TAN, FLORENCIO
SANTOS, SALVADOR MISON, CHUNG POE KEE,
ROJAS CHUA, MARIANO TANENGLIAN, JUANITA LEE
AND ANTONIO P. ABAYA, respondents.
DAGUPAN COMBINED COMMODITIES, INC.,

TOWNSMAN COMMERCIALS, INC., LANDMARK
SALES AND MARKETING, INC., CRIMSON CROCKER
DISTRIBUTORS, INC., MOUNT MATUTUM
MARKETING CORP., FIRST UNION TRADING CORP.,
CARLSBURG AND SONS, INC., OMAR ALI
DISTRIBUTORS, INC., ORIEL AND COMPANY,
_______________
* FIRST DIVISION.
201
VOL. 257, JUNE 4, 1996 201

NEMESIO TAN, QUINTIN CALLEJA, YOLANDA
MANALILI, CARLOS CHAN, ROMEO TAN, VICENTE
CO, WILLIAM YU, LETICIA LIM, GLORIA LOPEZ,
ROBERT TANTAMCO, FELIPE LOY, ROLANDO CHUA,
HONORINA TAN, WILLIE TANTAMCO, HENRY
WEECHEE, JESUS LIM, TEODORO TAN, ANTONIO
APOSTOL, DOMINGO TENG, CANDELARIO LI,
ERLINDA CRUZ, CARLOS TUMPALAN, LARRY JOHN
SY, ERNESTO ONG, WILFREDO MACROHON,
ANTONIO TIU, ROSARIO LESTER, WILFREDO ONG,
BONIFACIO CHUA, GO CHING CHUAN, HENRY CHUA,
LOPE LIM GUAN, EMILIO TAN, FELIPE TAN SEH
CHUAN, ANDRES CO, FELIPE KEE, HENRY GO CO,
NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO
CABIGUN, GABRIEL QUINTELA, NELSON TE, EMILIO
GO, EDWIN LEE, CESAR LEDESMA, JR., JAO CHEP
SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP
JAO, JOSE P. YU, AND DAVID R. CORTES, respondents-
intervenors.
Actions; Certiorari; Words and Phrases; “Grave Abuse of

Discretion,” Defined.—In resolving the issue raised in the petition,
the Court may be guided by its definition of what constitutes
grave abuse of discretion. By grave abuse of discretion is meant
such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. The abuse of discretion must be
patent and gross as to amount to an evasion of positive duty or a
virtual refusal to perform a duty enjoined by law, or to act at all
in contemplation of law as where the power is exercised in an
arbitrary and despotic manner by reason of passion and hostility.
Taxation; Ad Valorem Taxes; Cigarettes; It is significant to
note that among the goods subject to ad valorem tax, the law—
specifically Section 142(c) of the Tax Code—requires that the
corresponding tax on cigarettes shall be levied, assessed and
collected at the rates based on the “manufacturer’s registered
wholesale price.”—There can be no question that under Section
127(b), the ad valorem tax should be based on the correct price
excluding the value-added tax, at which goods are sold at
wholesale in the place of production. It is significant to note that
among the goods subject to ad valorem tax, the law—specifically
Section 142(c)—requires that the corresponding tax on cigarettes
shall be levied, assessed and collected at the rates
202

based on the “manufacturer’s registered wholesale price.” Why

does the wholesale price need to be registered and what is the
purpose of the registration? The reason is self-evident, which is to
ensure the payment of the correct taxes by the manufacturers of
cigarettes through close supervision, monitoring and checking of
the business operations of the cigarette companies. As pointed out
by private respondents, no industry is as intensely supervised by
the BIR and also by the National Tobacco Administration (NTA).
Thus, the purchase and use of raw materials are subject to prior
authorization and approval by the NTA. Importations of bobbins
or cigarette paper, the manufacture, sale, and utilization of the
same, are subject to BIR supervision and approval.
Same; Same; Same; Tax Evasion; If every step in the
production of cigarettes was closely monitored and supervised by
the BIR personnel specifically assigned to the manufacturer’s
premises, and considering that the Manufacturer’s Sworn
Declarations on the data required to be submitted were scrutinized
and verified by the BIR and, further, since the manufacturer’s
wholesale price was duly approved by the BIR, in such case, and
in the absence of contrary evidence, it was precipitate and
premature to conclude that the manufacturer made fraudulent
returns or wilfully attempted to evade payment of taxes due.—
Now, if every step in the production of cigarettes was closely
monitored and supervised by the BIR personnel specifically
assigned to Fortune’s premises, and considering that the
Manufacturer’s Sworn Declarations on the data required to be
submitted by the manufacturer were scrutinized and verified by
the BIR and, further, since the manufacturer’s wholesale price
was duly approved by the BIR, then it is presumed that such
registered wholesale price is the same as, or approximates “the
price, excluding the value-added tax, at which the goods are sold
at wholesale in the place of production,” otherwise, the BIR would
not have approved the registered wholesale price of the goods for
purposes of imposing the ad valorem tax due. In such case, and in
the absence of contrary evidence, it was precipitate and
premature to conclude that private respondents made fraudulent
returns or wilfully attempted to evade payment of taxes due.
Same; Same; Same; Same; Words and Phrases; “Willful” and
“Fraud,” Defined.—“Wilful” means “premeditated; malicious; done
with intent, or with bad motive or purpose, or with indifference to
the natural consequence x x x.” “Fraud” in its general sense, “is
203

VOL. 257, JUNE 4, 1996 203
deemed to comprise anything calculated to deceive, including all

acts, omissions, and concealment involving a breach of legal or
equitable duty, trust or confidence justly reposed, resulting in the
damage to another, or by which an undue and unconscionable
advantage taken of another.”
Same; Same; Same; Same; Fraud cannot be presumed.—
Fraud cannot be presumed. If there was fraud or wilful attempt to
evade payment of ad valorem taxes by private respondents
through the manipulation of the registered wholesale price of the
cigarettes, it must have been with the connivance or cooperation
of certain BIR officials and employees who supervised and
monitored Fortune’s production activities to see to it that the
correct taxes were paid. But there is no allegation, much less
evidence, of BIR personnel’s malfeasance. In the very least, there
is the presumption that the BIR personnel performed their duties
in the regular course in ensuing that the correct taxes were paid
by Fortune.
Same; Same; Same; Same; Before one is prosecuted for wilful
attempt to evade or defeat any tax under Sections 253 and 255 of
the Tax Code, the fact that a tax is due must first be proved.—We
share with the view of both the trial court and Court of Appeals
that before the tax liabilities of Fortune are first finally
determined, it cannot be correctly asserted that private
respondents have wilfully attempted to evade or defeat the taxes
sought to be collected from Fortune. In plain words, before one is
prosecuted for wilful attempt to evade or defeat any tax under
Sections 253 and 255 of the Tax Code, the fact that a tax is due
must first be proved.
Same; Same; Same; Same; Instant case distinguished from
Ungab v. Cusi, 97 SCRA 877 (1980).—Reading Ungab carefully,
the pronouncement therein that deficiency assessment is not
necessary prior to prosecution is pointedly and deliberately
qualified by the Court with following statement quoted from
Guzik v. U.S.: “The crime is complete when the violator has
knowingly and wilfully filed a fraudulent return with intent to
evade and defeat a part or all of the tax.” In plain words, for
criminal prosecution to proceed before assessment, there must be
a prima facie showing of a wilful attempt to evade taxes. There
was a wilful attempt to evade tax in Ungab because of the
taxpayer’s failure to declare in his income tax return “his income
derived from banana sapplings.” In the mind of the trial court and
the Court of Appeals, Fortune’s situation is quite apart
204
factually since the registered wholesale price of the goods,

approved by the BIR, is presumed to be the actual wholesale
price, therefore, not fraudulent and unless and until the BIR has
made a final determination of what is supposed to be the correct
taxes, the taxpayer should not be placed in the crucible of
criminal prosecution. Herein lies a whale of difference between
Ungab and the case at bar.
Criminal Procedure; Preliminary Investigation; Exceptions to
the general rule that criminal prosecutions cannot be enjoined.—
As a general rule, criminal prosecutions cannot be enjoined.
However, there are recognized exceptions which, as summarized
in Brocka v. Enrile are: a. To afford adequate protection to the
constitutional rights of the accused (Hernandez vs. Albano, et al.,
L-19272, January 25, 1967, 19 SCRA 95); b. When necessary for
the orderly administration of justice or to avoid oppression or
multiplicity of actions (Dimayuga, et al. vs. Fernandez, 43 Phil.
304; Hernandez vs. Albano, supra; Fortun vs. Labang, et al., L-
38383, May 27, 1981, 104 SCRA 607); c. When there is a
prejudicial question which is sub judice (De Leon vs. Mabanag, 70
Phil. 202); d. When the acts of the officer are without or in excess
of authority (Planas vs. Gil, 67 Phil. 62); e. Where the prosecution
is under an invalid law, ordinance or regulation (Young vs.
Rafferty, 33 Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385,
389); f. When double jeopardy is clearly apparent (Sangalang vs.
People and Alvendia, 109 Phil. 1140); g. Where the court had no
jurisdiction over the offense (Lopez vs. City Judge, L-25795,
October 29, 1966, 18 SCRA 616); h. Where it is a case of
persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R.
No. 4760, March 25, 1960); i. Where the charges are manifestly
false and motivated by the lust for vengeance (Recto vs. Castelo,
18 L.J. [1953], cited in Rañoa vs. Alvendia, CA-G.R. No. 30720-R,
October 8, 1962; Cf. Guingona, et al. vs. City Fiscal, L-60033,
April 4, 1984, 128 SCRA 577); and j. When there is clearly no
prima facie case against the accused and a motion to quash on
that ground has been denied (Salonga vs. Paño, et al., L-59524,
February 18, 1985, 134 SCRA 438).
Same; Same; Same; Preliminary investigation may be
enjoined where exceptional circumstances warrant.—Contrary to
petitioners’ submission, preliminary investigation may be
enjoined where exceptional circumstances so warrant. In
Hernandez v. Albano and Fortun v. Labang, injunction was issued
to enjoin a preliminary investigation. In the case at bar, private
respondents filed a motion to dismiss the complaint against them
before the prosecution and
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VOL. 257, JUNE 4, 1996 205
alternatively, to suspend the preliminary investigation on the

grounds cited hereinbefore, one of which is that the complaint of
the Commissioner is not supported by any evidence to serve as
adequate basis for the issuance of the subpoena to them and put
them to their defense. Indeed, the purpose of a preliminary
injunction is to secure the innocent against hasty, malicious and
oppressive prosecution and to protect him from an open and
public accusation of crime, from the trouble, expense and anxiety
of a public trial and also to protect the state from useless and
expensive trials.
Actions; Certiorari; Pleadings and Practice; Certiorari will not
be issued to cure errors in proceedings or correct erroneous
conclusions of law or fact—as long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment
which are reviewable by timely appeal and not by a special civil
action of certiorari.—We believe that the trial court in issuing its
questioned orders, which are interlocutory in nature, committed
no grave abuse of discretion amounting to lack of jurisdiction.
There are factual and legal bases for the assailed orders. On the
other hand, the burden is upon the petitioners to demonstrate
that the questioned orders constitute a whimsical and capricious
exercise of judgment, which they have not. For certiorari will not
be issued to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a court acts within its
jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment
action of certiorari. Consequently, the Regional Trial Court acted
correctly and judiciously, and as demanded by the facts and the
law, in issuing the orders granting the writs of preliminary
injunction, in denying petitioners’ motion to dismiss and in
admitting the supplemental petitions. What petitioners should
have done was to file an answer to the petition filed in the trial
court, proceed to the hearing and appeal the decision of the court
if adverse to them.
BELLOSILLO, J., Concurring and Dissenting:
Due Process; Preliminary Injunction; Pleadings and Practice;

The dismissal of the main case as a result of a mere incident
relative to the issuance of an ancillary writ is procedurally
awkward and violates due process.—If grave abuse of discretion
attended the issuance of the writ of preliminary injunction, then
by all means
206
nullify the abusive act—but only that. The main case should be
allowed to proceed according to due process. The trial court should
receive the evidence from the contending parties, weigh and
evaluate the same and then make its findings. Clearly, the
dismissal of the main case as a result of a mere incident relative
to the issuance of an ancillary writ is procedurally awkward and
violates due process, as it deprives private respondents of their
right to present their case in court and support it with its
evidence.
Taxation; While “taxes are the lifeblood of the government,”
the power to tax has its limits, inspite of all its plenitude.—In
resolving the fundamental issue at hand, i.e., whether the trial
court committed grave abuse of discretion in issuing the subject
writs of preliminary injunction, we cannot avoid balancing on the
scales the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the
equal protection of the laws on the other. Obviously the scales
must tilt in favor of the individual, for a citizen’s right is amply
protected by the Bill of Rights of the Constitution. Thus while
“taxes are the lifeblood of the government,” the power to tax has
its limits, inspite of all its plenitude. Hence in Commissioner of
Internal Revenue v. Algue, Inc., we said—Taxes are the lifeblood
of the government and so should be collected without unnecessary
hindrance. On the other hand, such collection should be
accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities and the
taxpayers so that the real purpose of taxation, which is the
promotion of the common good, may be achieved.
Courts; Judicial Statesmanship; In days of great pressure, it
is alluring to take short cuts by borrowing dictatorial techniques,
but when courts do, they set in motion an arbitrary or subversive
influence by their own design which destroys them from within.—
Finally, courts indeed should not hesitate to invoke the
constitutional guarantees to give adequate protection to the
citizens when faced with the enormous powers of the State, even
when what is in issue are only provisional remedies, as in the case
at hand. In days of great pressure, it is alluring to take short cuts
by borrowing dictatorial techniques. But when we do, we set in
motion an arbitrary or subversive influence by our own design
which destroys us from within. Let not the present case
dangerously sway towards that trend.
207
VOL. 257, JUNE 4, 1996 207

PADILLA, J., Dissenting:
Criminal Procedure; Preliminary Investigation; Prosecutors;

The decision of the majority clearly constitutes an untenable
usurpation of the primary duty and function of the prosecutors to
conduct the preliminary investigation of a criminal offense and the
power of the Secretary of Justice to review the resolution of said
prosecutors.—The rule is settled that the fiscal (prosecutor)
cannot be prohibited from conducting and finishing his
preliminary investigation. The private respondents’ petition
before the trial court in this case was clearly premature since the
case did not fall within any of the exceptions when prohibition lies
to stop a preliminary investigation. The decision of the majority in
this case clearly constitutes an untenable usurpation of the
primary duty and function of the prosecutors to conduct the
preliminary investigation of a criminal offense and the power of
the Secretary of Justice to review the resolution of said
prosecutors.
Same; Taxation; Tax Evasion; The lack of a final
determination of a manufacturer’s exact or correct tax liability is
not a bar to criminal prosecution for fraudulent tax evasion.—The
lack of a final determination of respondent Fortune’s exact or
correct tax liability is not a bar to criminal prosecution for
fraudulent tax evasion. While a precise computation and
assessment is required for a civil action to collect a tax deficiency,
the National Internal Revenue Code does not require such
computation and assessment prior to criminal prosecution for
fraudulent tax evasion. Thus, as this Court had earlier ruled
—“An assessment of a deficiency is not necessary to a criminal
prosecution for willful attempt to defeat and evade the income
tax. A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon
knowledge on the part of the taxpayer that he has made an
inaccurate return, and the government’s failure to discover the
error and promptly to assess has no connections with the
commission of the crime.” It follows that, under the Ungab
doctrine, the filing of a criminal complaint for fraudulent tax
evasion would be proper even without a previous assessment of
the correct tax.
Same; Same; Same; Estoppel; It is hornbook law that the
Government is not bound or estopped by the mistakes,
inadvertence, and what more, connivance of its officials and
employees with
208
fraudulent schemes to defraud the Government.—In fine, even if

BIR officials may have verified Fortunes’ BIR registered
wholesale price for its products, the same does not estop or
preclude the Government from filing criminal complaints for
fraudulent tax evasion based on evidence subsequently gathered
to the effect that such BIR registered wholesale prices were a
misdeclaration or underdeclaration of the actual wholesale price.
It is hornbook law that the Government is not bound or estopped
by the mistakes, inadvertence, and what more, connivance of its
officials and employees with fraudulent schemes to defraud the
Government.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Ocampo, Quiroz, Mina & Associates and Estelito P.
Mendoza for private respondents.
Douglas G. Baarde for David R. Cortes.
Abad & Associates for respondents-intervenors.
KAPUNAN, J.:
The pivotal issue in this petition for review is1 whether or

not respondent Court of Appeals in its decision in CA-G.R.
SP No. 33599 correctly ruled that the Regional Trial Court
of Quezon City (Branch 88) in Civil Case No. Q-94-18790
did not commit grave abuse of discretion amounting to lack
of jurisdiction in issuing four (4) orders directing the
issuance of writs of preliminary injunction restraining
petitioner prosecutors from continuing with the
preliminary injunction of I.S. Nos. 93-508 and 93-584 in the
Department of Justice and I.S. No. 93-17942 in the Office
of the City Prosecutors of Quezon City wherein private
respondents were respondents and denying 2petitioners’
Motion to Dismiss said Civil Case No. 94-18790.
_______________
1 Rollo, pp. 98-129.

2 Annexes “C,” “D,” “E,” and “F,” Petition, Rollo, pp. 128-145;
209
VOL. 257, JUNE 4, 1996 209

In resolving the issue raised in the petition, the Court may

be guided by its definition of what constitutes grave abuse
of discretion. By grave abuse of discretion is meant such
capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction. The abuse of discretion
must be patent and gross as to amount to an evasion of
positive duty or a virtual refusal to perform a duty enjoined
by law, or to act at all in contemplation of law as where the
power is exercised in an arbitrary
3
and despotic manner by
reason of passion and hostility.
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. 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.
Parenthetically, on September 8, 1993, the Court of Tax
Appeals by resolution ruled that the reclassification made
by the Commissioner “is
_______________
149-153.
3 Philippine Airlines, Inc. v. Confesor, 231 SCRA 41 (1994); Sinon v.
Civil Service Commission, 215 SCRA 410 (1992); Producers Bank of the
Philippines v. NLRC, 165 SCRA 248 (1988); Litton Mills, Inc. v. Galleon
Trader, Inc., 163 SCRA 494 (1988).
210

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
amount4 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. The
complaint alleged, among others, that:
In the said income tax return, the taxpayer declared a net taxable
income of P183,613,408.00 and an income tax due of
P64,264,693.00. Based mainly on documentary evidence
submitted by the taxpayer itself, these declarations are false and
fraudulent because the correct taxable income of the corporation
for the said year is P1,282,959,399.25.
This underdeclaration which resulted in the evasion of the
amount of P723,773,759.79 as deficiency income tax for the year
1992 is a violation of Section 45 of the Tax Code, penalized under
Section 253 in relation to Sections 252(b) and (d) and 253 thereof,
thus: x x x.
x x x x x x x x x Fortune Tobacco Corporation, through
its Vice-President for Finance, Roxas Chua, likewise filed value-
added tax returns for the 1st, 2nd, 3rd and 4th quarters of 1992
with the Rev. District Office of Marikina, Metro Manila, declaring
therein gross taxable sales, as follows:
1st Qtr. P2,924,418,055.00

2nd Qtr. 2,980,335,235.00
________________
4 Rollo, pp. 345-346.
211
VOL. 257, JUNE 4, 1996 211

3rd Qtr. 2,839,519,325.00

4th Qtr. 2,992,386,005.00
However, contrary to what have been reported in the said

value-added tax returns, and based on documentary evidence
obtained from the taxpayer, the total actual taxable sales of the
corporation for the year 1992 amounted to P16,158,575,035.00
instead of P11,929,322,334.52 as declared by the corporation in
the said VAT returns.
These fraudulent underdeclarations which resulted in the
evasion of value-added taxes in the aggregate amount of
P1,169,688,645.63 for the entire year 1992 are violations of
Section 110 in relation to Section 100 of the Tax Code, which are
likewise penalized under the aforequoted Section 253, in relation
to Section 252, thereof. Sections 110 and 100 provide:
x x x x x x x x x
Furthermore, based on the corporation’s VAT returns, the
corporation reported its taxable sales for 1992 in the amount of
P11,736,658,580. This declaration is likewise false and fraudulent
because, based on the daily manufacturer’s sworn statements
submitted to the BIR by the taxpayer, its total taxable sales
during the year 1992 is P16,686,372,295.00. As a result thereof,
the corporation was able to evade the payment of ad valorem
taxes in the aggregate amount of P5,792,479,816.24 in violation of
Section 127 in relation to Section 142, as amended by R.A. 6956,
penalized under the aforequoted Section 253, in relation to
Section 252, all of the Tax Code. Sections 127 and 142, as
amended by R.A. 6956, are quoted as follows: x x x.
The complaint docketed as I.S. No. 93-508, was referred to

the Department of Justice Task Force on revenue cases
which found sufficient basis to further investigate the
allegations that Fortune, through fraudulent means,
evaded payment of income tax, ad valorem tax, and value-
added tax for the year 1992 thus, depriving the government
of revenues in the amount of Seven and One-half (P7.5)
Billion Pesos.
The fraudulent scheme allegedly adopted by private
respondents consisted of making fictitious and simulated
sales of Fortune’s cigarette products to non-existing
individuals and to entities incorporated and existing only
for the purpose of such fictitious sales by declaring
registered whole-
212

sale prices with the BIR lower than Fortune’s actual

wholesale prices which are required for determination of
Fortune’s correct income, ad valorem, and value-added tax
liabilities. 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 manufacturer’s sworn
statements filed by Fortune would then declare the
fictitious sales it made to the conduit corporators
5
and non-
existing individual buyers as its gross sales.
On September 8, 1993, the Department of Justice Task
Force issued a subpoena directing private respondents to
submit their
6
counter-affidavits not later than September
20, 1993.
Instead of filing their counter-affidavits, the private
respondents on October 15, 1993 filed a Verified Motion
7
to
Dismiss; Alternatively Motion to Suspend, based
principally on the following grounds:
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.
2. Petitioner Commissioner and the Court of Tax
Appeals have still to determine Fortune’s tax
liability for 1992 in question; without any tax
liability, there can be no tax evasion.
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.
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.
At the scheduled preliminary investigation on October 15,

1993, private respondents were asked by the panel of
prosecutors to inform it of the aspects of the Verified
Motion to
_______________
5 Id., at 13.
6 Id., at 16.
7 Id., at 264-325.
213
VOL. 257, JUNE 4, 1996 213

Dismiss which counsel for private respondents did so

briefly. Counsel for the Commissioner of Internal Revenue
asked for fifteen (15) days within which to file a reply in
writing to private respondents’ Verified Motion to Dismiss.
Thereupon, the panel of prosecutors declared a recess.
Upon reconvening, the panel of prosecutors denied the
motion to dismiss and treated 8
the same as private
respondents’ counter-affidavits.
On October 20, 1993, private respondents filed a motion
9
for reconsideration of the order of October 15, 1993. On
October 21, 1993, private respondents filed a motion to
require the submission by the Bureau of Internal Revenue
of certain documents in further support of their Verified
Motion to Dismiss. Among the documents sought to be
produced are the “Daily Manufacturer’s Sworn Statements”
which according to petitioner Commissioner in her
complaint were submitted by Fortune to the BIR and which
were the basis of her conclusion that Fortune’s tax
declarations were false and fraudulent. Fortune claimed
that without the “Daily Manufacturer’s Sworn
Statements,” there is no evidence to support the complaint,
hence, warranting its outright dismissal.
On October 26, 1993, private respondents moved for the
inhibition of the State Prosecutors
10
assigned to the case for
alleged lack of impartiality. Private respondents also
sought the production of the “Daily Manufacturer’s Sworn
Statements” submitted by certain cigarette companies
similarly situated as Fortune but were not proceeded
against, thus, private respondents charged that Fortune
and its officers were being singled out for criminal
prosecution which is discriminatory and in violation of the
equal protection clause of the Constitution.
On December 20,11 1993, the panel of prosecutors issued
an Omnibus Order denying private respondents’ motion
for reconsideration, motion for suspension of investigation,
_______________
8 Id., at 402-405.
9 Id., at 412-415.
10 Id., at 416-421.
11 Rollo, pp. 539-545.
214

motion to inhibit the State Prosecutors, and motion to

require submission by the BIR of certain documents to
further support private respondents’ motion to dismiss.
On January 4, 1994, private respondents filed a petition
for certiorari and prohibition with prayer for preliminary
injunction with the Regional Trial Court, Branch 88,
Quezon City, docketed as Q-94-18790, praying that the
complaint of the Commissioner of Internal Revenue and
the orders of the prosecutors in I.S. No. 93-508 be
dismissed or set aside, alternatively, the proceedings on the
preliminary investigation be suspended pending final
determination by the Commissioner of Fortune’s motion for
reconsideration/reinvestigation
12
of the August 13, 1993
assessment of the taxes due.
On January 17,13 1994, petitioners filed a motion to
dismiss the petition on the grounds that (a) the trial court
is bereft of jurisdiction to enjoin a criminal prosecution
under preliminary investigation; (b) a criminal prosecution
for tax fraud can proceed independently of criminal or
administrative action; (c) there is no prejudicial question to
justify suspension of the preliminary investigation; (d)
private respondents’ rights to due process was not violated;
and (e) selective prosecution is not a valid defense in this
jurisdiction.
On January 19, 1994, at the hearing of the incident for
the issuance of a writ of preliminary injunction in the
petition, private respondents offered in evidence their
verified petition for certiorari and prohibition and its
annexes. Petitioners responded by praying that their
motion to dismiss the petition for certiorari and prohibition
be considered as their opposition to private respondents’
application for the issuance of a writ of preliminary
injunction.
On January 25, 1994, the trial court issued an order
granting the14
prayer for the issuance of a preliminary
injunction. The trial court rationalized its order in this
wise:
_______________
12 Id., at 156-263.
13 Id., at 18.
14 Annex “C,” Petition, Rollo, pp. 128-142.
215
VOL. 257, JUNE 4, 1996 215

a) It is private respondents’ claim that the ad valorem

tax for the year 1992 was levied, assessed and
collected by the BIR under Section 142(c) of the Tax
Code on the basis of the “manufacturer’s registered
wholesale price” duly approved by the BIR.
Fortune’s taxable sales for 1992 was in the amount
of P11,736,658,580.00.
b) On the other hand, it is petitioners’ contention that
Fortune’s declaration was false and fraudulent
because, based on its daily manufacturer’s sworn
statements submitted to the BIR, its taxable sales
in 1992 were P16,686,372,295.00, as a result of
which, Fortune was able to evade the payment of ad
valorem tax in the aggregate amount of
P5,792,479,816.24.
c) At the hearing for preliminary investigation, the
“Daily Manufacturer’s Sworn Statements” which,
according to petitioners, were submitted to the BIR
by private respondents and made the basis of
petitioner Commissioner’s complaint that the total
taxable sales of Fortune in 1992 amounted to
P16,686,372,295.00 were not produced as part of
the evidence for petitioners. In fact, private
respondents had filed a motion to require petitioner
Commissioner to submit the aforesaid daily
manufacturer’s sworn statements before the DOJ
panel of prosecutors to show that Fortune’s actual
taxable sales totaled P16,686,373,295.00, but the
motion was denied.
d) There is nothing on record in the preliminary
investigation before the panel of investigators
which supports the allegation that Fortune made a
fraudulent declaration of its 1992 taxable sales.
e) Since, as alleged by private respondents, the ad
valorem tax for the year 1992 should be based on
the “manufacturer’s registered wholesale price”
while, as claimed by petitioners, the ad valorem
taxes should be based on the wholesale price at
which the manufacturer sold the cigarettes, which
is a legal issue as admitted by a BIR lawyer during
the hearing for preliminary injunction, the correct
interpretation of the law involved,
216

which is Section 142(c) of the Tax Code, constitutes

a prejudicial question which must first be resolved
before criminal proceedings for tax evasion may be
pursued. In other words, the BIR must first make a
final determination, which it has not, of Fortune’s
tax liability relative to its 1992 ad valorem, value-
added and income taxes before the taxpayer can be
made liable for tax evasion.
f) There was a precipitate issuance by the panel of
prosecutors of subpoenas to private respondents, on
the very day following the filing of the complaint
with the DOJ consisting of about 600 pages, and the
precipitate denial by the panel of prosecutors, after
a recess of about twenty (20) minutes, of private
respondents’ motion to dismiss, consisting of one
hundred and thirty five (135) pages.
g) Private respondents had been especially targeted by
the government for prosecution. Prior to the filing
of the complaint in I.S. No. 93-508, petitioner
Commissioner issued Revenue Memorandum
Circular No. 37-93 reclassifying Fortune’s best
selling cigarettes, namely “Hope,” “More,” and
“Champion” as cigarettes bearing a foreign brand,
thereby imposing upon them a higher rate of tax
that would price them out of the market.
h) While in petitioner Commissioner’s letter of August
13, 1993, she gave Fortune a period of thirty (30)
days from receipt thereof within which to pay the
alleged tax deficiency assessments, she filed the
criminal complaint for tax evasion before the period
lapsed.
i) Based on the foregoing, the criminal complaint
against private respondents was filed prematurely
and in violation of their constitutional right to
equal protection of the laws.
On January 26, 1994, private respondents filed with the

trial court a Motion to Admit Supplemental Petition and
sought the issuance of a writ of preliminary injunction to
enjoin the State Prosecutors from continuing with the
preliminary investigation filed by them against private
respon-
217
VOL. 257, JUNE 4, 1996 217

dents with the Quezon City Prosecutor’s Office, docketed as

I.S. 93-17942, for alleged fraudulent tax evasion,
committed by private respondents for the taxable year
1990. Private respondents averred in their motion that no
supporting documents or copies of the complaint were
attached to the subpoena in I.S. 93-17942; that the
subpoena violates private respondents’ constitutional right
to due process, equal protection and presumption of
innocence; that I.S. 93-17942 is substantially the same as
I.S. 93-508; that no tax assessment has been issued by the
Commission of Internal Revenue and considering that
taxes paid have not been challenged, no tax liability exists;
and that since Assistant City Prosecutor Baraquia was a
former classmate of Presidential Legal Counsel Antonio T.
Carpio, the former cannot conduct the preliminary
investigation in an impartial manner.
On January 28, 1994, private respondents 15
filed with the
trial court a second supplemental petition, also seeking to
stay the preliminary investigation in I.S. 93-584, which
was the third complaint filed against private respondents
with the DOJ for alleged fraudulent tax evasion for the
taxable year 1991.
On January 31, 1994, the lower court admitted the two
(2) supplemental petitions and issued a temporary 16
restraining order in I.S. 93-17942 and I.S. 93-584. Also, on
the same day, petitioners filed an Urgent Motion for
Immediate Resolution of petitioners’ motion to dismiss.
On February 7, 1994, the trial court issued an order
denying petitioners’ motion to dismiss private respondents’
petition seeking to stay preliminary investigation in I.S.
93-508, ruling that the issue of whether Sec. 127(b) of the
National Tax Revenue Code should be the basis of private
respondents’ tax liability as contended by the Bureau of
Internal Revenue, or whether it is Section 142(c) of the
same Code that applies, as argued by herein private
respondents, should first be settled before any complaint
for fraudulent tax
_______________
15 Rollo, p. 21.
16 Annex “D,” Petition, Rollo, pp. 143-145.
218

17
evasion can be initiated.
On February 14, 1994, the trial court issued an order
granting private respondents’ petition for a supplemental
writ of preliminary injunction, likewise enjoining the
preliminary investigation of the two (2) other complaints
filed with the Quezon City Prosecutor’s Office and the DOJ
for fraudulent tax evasion, I.S. 93-17942 and I.S. 93-584,
for alleged tax
18
evasion for the taxable years 1990 and 1991,
respectively. In granting the supplemental writ, the trial
court stated that the two other complaints are the same as
in I.S. 93-508, except that the former refer to the taxable
years 1990 and 1991.
On March 7, 1994, petitioners filed a petition for
certiorari and prohibition with prayer for preliminary
injunction before this Court. However, the petition was
referred to the Court of Appeals for disposition by virtue of
its original concurrent jurisdiction over the petition.
On December 19, 1994, the Court of Appeals in CA-G.R.
No. SP-33599 rendered a decision denying the petition. The
Court of Appeals ruled that the trial court committed no
grave abuse of discretion in ordering the issuance of writs
of preliminary injunction and in denying petitioners’
motion to dismiss. In upholding the reasons and
conclusions given by the trial court in its orders for the
issuance of the questioned writs, the Court of Appeals said
in part:
In making such conclusion the respondent Court must have

understood from herein petitioner Commissioner’s letter-
complaint of 14 pages (pp. 477-490, rollo of this case) and the joint
affidavit of eight revenue officers of 17 pages attached thereto (pp.
491-507, supra) and its annexes (pp. 508-1077, supra), that the
charge against herein respondents is for tax evasion for non-
payment by herein respondent Fortune of the correct amounts of
income tax, ad valorem tax and value added tax, not necessarily
‘fraudulent tax evasion.’ Hence, the need for previous assessment
of the correct amount by herein petitioner Commissioner before
herein respon-
_______________
17 Annex “E,” Petition, Rollo, pp. 140-148.

18 Annex “F,” Petition, Rollo, pp. 149-153.
219
VOL. 257, JUNE 4, 1996 219

dents may be charged criminally. Certiorari will not be issued to

cure errors in proceedings or correct erroneous conclusions of law
or fact. As long as a Court acts within its jurisdiction, any alleged
error committed in the exercise of its jurisdiction, will amount to
nothing more than errors of judgment which are reviewable by
timely appeal and not by a special civil action of certiorari
(Santos, Jr. vs. Court of Appeals, 152 SCRA 378; Gold City
Integrated Port Services, Inc. vs. Intermediate Appellate Court,
171 SCRA 579).
The questioned orders issued after hearing (Annexes A, B, C
and D, petition) 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 (See Van Dorn vs. Romillo, 139 SCRA 139, 141; Newsweek,
Inc. vs. IAC, 171, 177; Mendoza vs. Court of Appeals, 201 SCRA
343, 352). 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 (See
Mendoza vs. Court of Appeals, supra). 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.
Grave abuse of discretion as a ground for issuance of writs of
certiorari and prohibition implies capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, or
where the power is exercised in an arbitrary or despotic manner
by reason of passion, prejudice, or personal hostility, amounting
to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined, or to act at all in contemplation of law
(Confederation of Citizens Labor Union vs. NLRC, 60 SCRA 84;
Bustamante vs. Commission on Audit, 216 SCRA 134). For such
writs to lie, there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of both civil law and common law
traditions (Young vs. Sulit, 162 SCRA 659, 664; FCC vs. IAC, 166
SCRA 155; Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari
and prohibition are remedies narrow in scope
220

and inflexible in character. They are not general utility tools in

the legal workshop (Vda. de Guia vs. Veloso, 158 SCRA 340, 344).
Their function is but limited to correction of defects of jurisdiction
solely, not to be used for any other purpose (Garcia vs. Ranada,
166 SCRA 9), such as to cure errors in proceedings or to correct
erroneous conclusions of law or fact (Gold City Integrated Ports
Services vs. IAC, 171 SCRA 579). Due regard for the foregoing
teachings enunciated in the decisions cited can not bring about a
decision other than what has been reached herein.
Needless to say, the case before the respondent court involving
those against herein respondents for alleged non-payment of the
correct amounts due as income tax, ad valorem tax and value
added tax for the years 1990, 1991 and 1992 (Civil Case No. Q-94-
18790) is not ended by this decision. The respondent Court is still
to try the case and decide it on the merits. All that is decided here
is but the validity of the orders of the respondent Court granting
herein respondents’ application for preliminary injunction and
denying herein petitioners’ motion to dismiss. If upon the facts
established after trial and the applicable law, dissolution of the
writ of preliminary injunction allowed to be issued by the
respondent Court is called for and a judgment favorable to herein
petitioners is demanded, the respondent Court is duty bound to
render judgment accordingly.
WHEREFORE, the instant petition for certiorari and
prohibition with application for issuance of restraining order19and
writ of preliminary injunction is DISMISSED. Costs de oficio.
Their motion for reconsideration having been denied by

respondent appellate court on February 23, 1995,
petitioners filed the present petition for review based on
the following grounds:
THE RESPONDENT COURTS COMMITTED GRAVE ABUSE

OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN HOLDING THAT:
I. THERE IS A PREJUDICIAL AND/OR LEGAL

QUESTION TO JUSTIFY THE SUSPENSION OF THE
PRELIMINARY INVESTIGATION.
_______________
19 Rollo, pp. 122-129.
221
VOL. 257, JUNE 4, 1996 221

II. PRIVATE RESPONDENTS’ RIGHTS TO DUE PROCESS,

EQUAL PROTECTION AND PRESUMPTION OF
INNOCENCE WERE VIOLATED; ON THE CONTRARY,
THE STATE ITSELF WAS DEPRIVED OF DUE
PROCESS.
III. THE ADMISSION OF PRIVATE RESPONDENTS’
SUPPLEMENTAL PETITIONS WERE PROPER.
IV. THERE WAS SELECTIVE PROSECUTION.
V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE
HYPOTHETICALLY ADMITTED IN A MOTION TO
DISMISS BASED ON JURISDICTIONAL GROUNDS.
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS
NOT A DECISION ON THE MERITS
20
OF THE PETITION
BEFORE THE LOWER COURT.
The petition is bereft of merit.

In essence, the complaints in I.S. Nos. 93-508, 93-584
and 93-17942 charged private respondents with fraudulent
tax evasion or wilfully attempting to evade or defeat
payment of income tax, ad valorem tax and value-added tax
for the year 1992, as well as for the years 1990-1991.
The pertinent provisions of law involved are Sections
127(b) and 142(c) of the National Internal Revenue Code
which state:
Sec. 127. x x x
(b) Determination of gross selling price of goods subject to ad

valorem tax.—Unless otherwise provided, the price,
excluding the value-added tax, at which the goods are sold
at wholesale in the place of production or through their
sales agents to the public shall constitute the gross selling
price. If the manufacturer also sells or allows such goods
to be sold at wholesale price in another establishment of
which he is the owner or in the profits at which he has an
interest, the wholesale price in such establishment shall
constitute the gross selling price. Should such price be less
than the costs of manufacture plus expenses incurred
until the goods are finally sold,
_______________
20 Rollo, p. 33.
222

then a proportionate margin of profit, not less than 10% of

suchmanufacturing costs and expenses, shall be added to
constitute thegross selling price.
Sec. 142. x x x
(c) Cigarettes packed in twenties.—There shall be levied,
assessed and collected on cigarettes packed in twenties an
ad valorem tax at the rates prescribed below based on the
manufacturer’s registered wholesale price:
x x x.
Private respondents contend that per Fortune’s VAT

returns, correct taxable sales for 1992 was in the amount of
P11,736,658,580.00 which was the “manufacturer’s
registered wholesale price” in accordance with Section
142(c) of the Tax Code and paid the amount of
P4,805,254,523 as ad valorem tax.
On the other hand, petitioners allege, as specifically
worded in the complaint in I.S. No. 93-508, that “based on
the daily manufacturer’s sworn statements submitted to
the BIR by the Taxpayer (Fortune’s) total taxable sales
during the year 1992 is P16,686,372,295.00,” as a result of
which Fortune “was able to evade the payment of ad
valorem taxes in the aggregate amount of
P5,792,479,816.24 x x x.”
Petitioners now argue that Section 127(b) lays down the
rule that in determining the gross selling price of goods
subject to ad valorem tax, it is the price, excluding the
valueadded tax, at which the goods are sold at wholesale
price in the place of production or through their sales
agents to the public. The registered wholesale price shall
then be used for computing the ad valorem tax which is
imposable upon removal of the taxable goods from the place
of production. However, petitioners claim that Fortune
used the “manufacturer’s registered wholesale price” in
selling the goods to alleged fictitious individuals and
dummy corporations for the purpose of evading the
payment of the correct ad valorem tax.
There can be no question that under Section 127(b), the
ad valorem tax should be based on the correct price
excluding the value-added tax, at which goods are sold at
wholesale in the
223
VOL. 257, JUNE 4, 1996 223

place of production. It is significant to note that among the

goods subject to ad valorem tax, the law—specifically
Section 142(c)—requires that the corresponding tax on
cigarettes shall be levied, assessed and collected at the
rates based on the “manufacturer’s registered wholesale
price.” Why does the wholesale price need to be registered
and what is the purpose of the registration? The reason is
self-evident, which is to ensure the payment of the correct
taxes by the manufacturers of cigarettes through close
supervision, monitoring and checking of the business
operations of the cigarette companies. As pointed out by
private respondents, no industry is as intensely supervised
by the BIR and also by the National Tobacco
Administration (NTA). Thus, the purchase and use of raw
materials are subject to prior authorization and approval
by the NTA. Importations of bobbins or cigarette paper, the
manufacture, sale, and utilization21
of the same, are subject
to BIR supervision and approval.
Moreover, as pointed to by private respondents, for
purposes of closer supervision by the BIR over the
production of cigarettes, Revenue Enforcement Officers are
detailed on a 24-hour basis in the premises of the
manufacturer to secure production and removal of finished
products. Composite Mobile Teams conduct counter-
security on the business operations as well as the
performance of the Revenue Enforcement Officers detailed
thereat. Every transfer of any raw material is not allowed
unless, in addition to the required permits, accompanied by
Revenue Enforcement Officer. For the purpose of
determining the “Manufacturer’s Registered Wholesale
Price” a cigarette manufacturer is required to file a
Manufacturer’s Declaration (BIR Form No. 3103) for each
brand of cigarette manufactured, stating: a) Materials; b)
Labor; c) Overhead; d) Tax Burden and the Wholesale Price
by Case. The data submitted therewith is verified by the
Revenue Officers and approved by the Commission of
Internal Revenue. Any change in the manufacturer’s
registered
_______________
21 Private respondent’s “Comment on the Petition for Review,” pp. 7-10.
224

wholesale price of any brand cannot be effected without

submitting the corresponding Sworn Manufacturer’s
Declaration and verified by the Revenue Officer22 and
approved by the Commissioner of Internal Revenue. The
amount of ad valorem tax payments together with the
Payment Order and Confirmation Receipt Nos. must be
indicated in the sales and delivery invoices and together
with the Manufacturer’s Sworn Declarations on: (a) the
quantity of raw materials used during the day’s operations;
(b) the total quantity produced according to brand; and (c)
the corresponding quantity removed during the day, the
corresponding wholesale price thereof, and the VAT paid
thereon must be presented to the corresponding BIR
representative for authentication before removal.
Thus, as observed by the trial court in its order of
January 25, 1994 granting private respondents’ prayer for
the issuance of a writ of preliminary injunction, Fortune’s
registered wholesale price (was) duly approved
23
by the BIR,
which fact is not disputed by petitioners.
Now, if every step in the production of cigarettes was
closely monitored and supervised by the BIR personnel
specifically assigned to Fortune’s premises, and considering
that the Manufacturer’s Sworn Declarations on the data
required to be submitted by the manufacturer were
scrutinized and verified by the BIR and, further, since the
manufacturer’s wholesale price was duly approved by the
BIR, then it is presumed that such registered wholesale
price is the same as, or approximates “the price, excluding
the value-added tax, at which the goods are sold at
wholesale in the place of production,” otherwise, the BIR
would not have approved the registered wholesale price of
the goods for purposes of imposing the ad valorem tax due.
In such case, and in the absence of contrary evidence, it
was precipitate and premature to conclude that private
respondents made fraudulent returns or wilfully attempted
to evade payment of taxes due. “Wilful” means
“premeditated; malicious; done with intent, or with
_______________
22 Id.
23 Rollo, pp. 135-136.
225
VOL. 257, JUNE 4, 1996 225

bad motive or purpose,24

or with indifference to the natural
consequence x x x.” “Fraud” in its general sense, “is
deemed to comprise anything calculated to deceive,
including all acts, omissions, and concealment involving a
breach of legal or equitable duty, trust or confidence justly
reposed, resulting in the damage to another, or by which25an
undue and unconscionable advantage taken of another.”
Fraud cannot be presumed. If there was fraud or wilful
attempt to evade payment of ad valorem taxes by private
respondents through the manipulation of the registered
wholesale price of the cigarettes, it must have been with
the connivance or cooperation of certain BIR officials and
employees who supervised and monitored Fortune’s
production activities to see to it that the correct taxes were
paid. But there is no allegation, much less evidence, of BIR
personnel’s malfeasance. In the very least, there is the
presumption that the BIR personnel performed their duties
in the regular course
26
in ensuing that the correct taxes were
paid by Fortune.
It is the opinion of both the trial court and respondent
Court of Appeals, that before Fortune and the other private
respondents could be prosecuted for tax evasion under
Sections 253 and 255 of the Tax Code, the fact that the
deficiency income, ad valorem and value-added taxes were
due from Fortune for the year 1992 should first be
established. Fortune received from the Commissioner of
Internal Revenue the deficiency assessment notices in the
total amount of P7,685,942,221.06 on August 24, 1993.
However, under Section 229 of the Tax Code, the taxpayer
has the right to move for reconsideration of the assessment
issued by the Commissioner of Internal Revenue within
thirty (30) days from receipt of the assessment; and if the
motion for reconsideration is denied, it may appeal to the
Court of Appeals within
_______________
24 BLACK’S LAW DICTIONARY, 5th Ed., p. 1434.

25 People v. Sabio, Sr., 86 SCRA 568 (1978); Philippine Legal
Encyclopedia, 1986, Ed., p. 352.
26 Rule 131, section 3(m), Rules of Court.
226

thirty (30) days from receipt of the Commissioner’s

decision. Here, Fortune received the Commissioner’s
assessment notice dated August 13, 1993 on August 24,
1993 asking for the payment of the deficiency taxes. Within
thirty (30) days from receipt thereof, Fortune moved for
reconsideration. The Commissioner has not resolved the
request for reconsideration up to the present.
We share with the view of both the trial court and Court
of Appeals that before the tax liabilities of Fortune are first
finally determined, it cannot be correctly asserted that
private respondents have wilfully attempted to evade or
defeat the taxes sought to be collected from Fortune. In
plain words, before one is prosecuted for wilful attempt to
evade or defeat any tax under Sections 253 and 255 of the
Tax Code, the fact that a tax is due must first be proved.
Suppose the Commissioner eventually resolves
Fortune’s motion for reconsideration of the assessments by
pronouncing that the taxpayer is not liable for any
deficiency assessment, then, the criminal complaints filed
against private respondents will have no leg to stand on.
In view of the foregoing reasons, we cannot 27
subscribe to
the petitioners’ thesis citing Ungab v. Cusi, that the lack
of a final determination of Fortune’s exact or correct tax
liability is not a bar to criminal prosecution, and that while
a precise computation and assessment is required for a civil
action to collect tax deficiencies, the Tax Code does not
require such computation and assessment prior to criminal
prosecution.
Reading Ungab carefully, the pronouncement therein
that deficiency assessment is not necessary prior to
prosecution is pointedly and deliberately qualified by the 28
Court with following statement quoted from Guzik v. U.S.:
“The crime is complete when the violator has knowingly
and wilfully filed a fraudulent return with intent to evade
and defeat a part or all of the tax.” In plain words, for
criminal prosecution to proceed before assessment, there
must be a prima facie showing of a
_______________
27 97 SCRA 877 (1980).

28 54 F 2d. 618.
227
VOL. 257, JUNE 4, 1996 227

wilful attempt to evade taxes. There was a wilful attempt

to evade tax in Ungab because of the taxpayer’s failure to
declare in his income tax return “his income derived from
banana sapplings.” In the mind of the trial court and the
Court of Appeals, Fortune’s situation is quite apart
factually since the registered wholesale price of the goods,
approved by the BIR, is presumed to be the actual
wholesale price, therefore, not fraudulent and unless and
until the BIR has made a final determination of what is
supposed to be the correct taxes, the taxpayer should not be
placed in the crucible of criminal prosecution. Herein lies a
whale of difference between Ungab and the case at bar.
This brings us to the erroneous disquisition that private
respondents’ recourse to the trial court by way of special
civil action of certiorari and prohibition was improper
because: a) the proceedings before the state prosecutors
(preliminary injunction) were far from terminated—private
respondents were merely subpoenaed and asked to submit
counter affidavits, matters that they should have appealed
to the Secretary of Justice; b) it is only after the submission
of private respondents’ counter affidavits that the
prosecutors will determine whether or not there is enough
evidence to file in court criminal charges for fraudulent tax
evasion against private respondents; and c) the proper
procedure is to allow the prosecutors to conduct and finish
the preliminary investigation and to render a resolution,
after which the aggrieved party can appeal the resolution
to the Secretary of Justice.
We disagree.
As a general rule, criminal prosecutions cannot be
enjoined. However, there are recognized
29
exceptions which,
as summarized in Brocka v. Enrile are:
a. To afford adequate protection to the constitutional

rights of the accused (Hernandez vs. Albano, et al.,
L-19272, January 25, 1967, 19 SCRA 95);
_______________
29 192 SCRA 183 (1990).
228

b. When necessary for the orderly administration of

justice or to avoid oppression or multiplicity of
actions (Dimayuga, et al. vs. Fernandez, 43 Phil.
304; Hernandez vs. Albano, supra; Fortun vs.
Labang, et al., L-38383, May 27, 1981, 104 SCRA
607);
c. When there is a prejudicial question which is sub
judice (De Leon vs. Mabanag, 70 Phil. 202);
d. When the acts of the officer are without or in excess
of authority (Planas vs. Gil, 67 Phil. 62);
e. Where the prosecution is under an invalid law,
ordinance or regulation (Young vs. Rafferty, 33
Phil. 556; Yu Cong Eng vs. Trinidad, 47 Phil. 385,
389);
f. When double jeopardy is clearly apparent
(Sangalang vs. People and Alvendia, 109 Phil.
1140);
g. Where the court had no jurisdiction over the offense
(Lopez vs. City Judge, L-25795, October 29, 1966,
18 SCRA 616);
h. Where it is a case of persecution rather than
prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760,
March 25, 1960);
i. Where the charges are manifestly false and
motivated by the lust for vengeance (Recto vs.
Castelo, 18 L.J. [1953], cited in Rañoa vs. Alvendia,
CA-G.R. No. 30720-R, October 8, 1962; Cf.
Guingona, et al. vs. City Fiscal, L-60033, April 4,
1984, 128 SCRA 577); and
j. When there is clearly no prima facie case against
the accused and a motion to quash on that ground
has been denied (Salonga vs. Paño, et al., L-59524,
February 18, 1985, 134 SCRA 438).
In issuing the questioned orders granting the issuance of a

writ of preliminary injunction, the trial court believed that
said orders were warranted to afford private respondents
adequate protection of their constitutional rights,
particularly in reference to presumption of innocence, due
process and equal protection of the laws. The trial court
also found merit in private respondents’ contention that
preliminary injunction should be issued to avoid oppression
and because the acts of the state prosecutors were without
or in excess of authority and for the reason that there was
a prejudicial question.
Contrary to petitioners’ submission, preliminary
investigation may be enjoined where exceptional
circumstances so
229
VOL. 257, JUNE 4, 1996 229

30 31
warrant. In Hernandez v. Albano and Fortun v. Labang,
injunction was issued to enjoin a preliminary investigation.
In the case at bar, private respondents filed a motion to
dismiss the complaint against them before the prosecution
and alternatively, to suspend the preliminary investigation
on the grounds cited hereinbefore, one of which is that the
complaint of the Commissioner is not supported by any
evidence to serve as adequate basis for the issuance of the
subpoena to them and put them to their defense. Indeed,
the purpose of a preliminary injunction is to secure the
innocent against hasty, malicious and oppressive
prosecution and to protect him from an open and public
accusation of crime, from the trouble, expense and anxiety
of a public trial and also
32
to protect the state from useless
and expensive trials. Thus, the pertinent provisions of
Rule 112 of the Rules of Court state:
SECTION 3. Procedure.—Except as provided for in Section 7

hereof, no complaint or information for an offense cognizable by
the Regional Trial Court shall be filed without a preliminary
investigation having been first conducted in the following
manner:
(a) The complaint shall state the known address of the

respondent and be accompanied by affidavits of the
complainant and his witnesses as well as other supporting
documents, in such number of copies as there are
respondents, plus two (2) copies for the official file. The
said affidavits shall be sworn to before any fiscal, state
prosecutor or government official authorized to administer
oath, or, in their absence or unavailability, a notary
public, who must certify that he personally examined the
affiants and that he is satisfied that they voluntarily
executed and understood their affidavits.
(b) Within ten (10) days after the filing of the complaint, the
investigating officer shall either dismiss the same if he
finds no ground to continue with the inquiry, or issue a
subpoena to the respondent, attaching thereto a copy of
the complaint, affidavits and other supporting documents.
Within ten (10) days from receipt
_______________
30 19 SCRA 95 (1967).
31 104 SCRA 607 (1981).
32 Salonga v. Cruz Paño, 134 SCRA 438 (1985).
230
thereof, the respondent shall submit counter-affidavits

and other supporting documents. He shall have the right
to examine all other evidence submitted by the
complainant.
(c) Such counter-affidavits and other supporting evidence
submitted by the respondent shall also be sworn to and
certified as prescribed in paragraph (a) hereof and copies
thereof shall be furnished by him to the complainant.
(d) If the respondent cannot be subpoenaed, or if subpoenaed,
does not submit counter-affidavits within the ten (10) day
period, the investigating officer shall base his resolution
on the evidence presented by the complainant.
(e) If the investigating officer believes that there are matters
to be clarified, he may set a hearing to propound
clarificatory questions to the parties or their witnesses,
during which the parties shall be afforded an opportunity
to be present but without the right to examine or cross-
examine. If the parties so desire, they may submit
questions to the investigating officer which the latter may
propound to the parties or witnesses concerned.
(f) Thereafter, the investigation shall be deemed concluded,
and the investigating officer shall resolve the case within
ten (10) days therefrom. Upon the evidence thus adduced,
the investigating officer shall determine whether or not
there is sufficient ground to hold the respondent for trial.
As found by the Court of Appeals, there was obvious haste

by which the subpoena was issued to private respondents,
just the day after the complaint was filed, hence, without
the investigating prosecutors being afforded material time
to examine and study the voluminous documents appended
to the complaint for them to determine if preliminary
investigation should be conducted. The Court of Appeals
further added that the precipitate haste in the issuance of
the subpoena justified private respondents’ misgivings
regarding the objectivity and neutrality of the prosecutors
in the conduct of the preliminary investigation and so, the
appellate court concluded, the grant of preliminary
investigation by the trial court to afford adequate
protection to private respondents’ constitutional rights and
to avoid oppression does not constitute grave abuse of
discretion amounting to lack of jurisdiction.
231
VOL. 257, JUNE 4, 1996 231
The complaint filed by the Commissioner of Internal

Revenue states itself that the primary evidence
establishing the falsity of the declared taxable sales in
1992 in the amount of P11,736,658,580.00 were the “Daily
Manufacturer’s Sworn Statements” submitted by the
taxpayer which would show that the total taxable sales in
1992 are in the amount of P16,686,372,295.00. However,
the Commissioner did not present the “Daily
Manufacturer’s Sworn Statements” supposedly submitted
to the BIR by the taxpayer, prompting private respondents
to move for their production in order to verify the basis of
petitioners’ computation. Still, the Commissioner
33
failed to
produce the declarations. In Borja v. Moreno, it was held
that the act of the investigator in proceeding with the
hearing without first acting on respondents’ motion to
dismiss is a manifest disregard of the requirement of due
process. Implicit in the opinion of the trial court and the
Court of Appeals is that, if upon the examination of the
complaint, it was clear that there was no ground to
continue with the inquiry, the investigating prosecutor was
duty bound to dismiss the case. On this point, the trial
court stressed that the prosecutors conducting the
preliminary investigation should have allowed the
production of the “Daily Manufacturer’s Sworn
Statements” submitted by Fortune without which there
was no valid basis for the allegation that private
respondents wilfully attempted to evade payment of the
correct taxes. The prosecutors should also have produced
the “Daily Manufacturer’s Sworn Statements” by other
cigarette companies, as sought by private respondents, to
show that these companies which had paid the ad valorem
taxes on the same basis and in the same manner as
Fortune were not similarly criminally charged. But the
investigating prosecutors denied private respondents’
motion, thus, indicating that only Fortune was singled out
for prosecution. The trial court and the Court of Appeals
maintained that at that stage of the preliminary
investigation, where the complaint and the accompanying
affidavits and supporting documents did not
_______________
33 11 SCRA 568 (1964).
232
show any violation of the Tax Code providing penal

sanctions, the prosecutors should have dismissed the
complaint outright because of total lack of evidence,
instead of requiring private respondents to submit their
counter affidavits under Section 3(b) of Rule 112.
We believe that the trial court in issuing its questioned
orders, which are interlocutory in nature, committed no
grave abuse of discretion amounting to lack of jurisdiction.
There are factual and legal bases for the assailed orders.
On the other hand, the burden is upon the petitioners to
demonstrate that the questioned orders constitute a
whimsical and capricious exercise of judgment, which they
have not. For certiorari will not be issued to cure errors in
proceedings or correct erroneous conclusions of law or fact.
As long as a court acts within its jurisdiction, any alleged
errors committed in the exercise of its jurisdiction will
amount to nothing more than errors of judgment which are
reviewable by timely 34
appeal and not by a special civil
action of certiorari. Consequently, the Regional Trial
Court acted correctly and judiciously, and as demanded by
the facts and the law, in issuing the orders granting the
writs of preliminary injunction, in denying petitioners’
motion to dismiss and in admitting the supplemental
petitions. What petitioners should have done was to file an
answer to the petition filed in the trial court, proceed to the
hearing and appeal the decision of the court if adverse to
them.
WHEREFORE, the instant petition is hereby
DISMISSED. SO ORDERED.
Hermosisima, Jr., J., concur.

Padilla (Chairman), J., See dissenting opinion.
Bellosillo, J., Pls. see concurring and dissenting
opinion.
_______________
34 New Testament of Church of God v. CA, 246 SCRA 266 (1995);

Santos v. CA, 152 SCRA 378 (1987); Villalon v. IAC, 144 SCRA 443 (1986).
233
VOL. 257, JUNE 4, 1996 233

Vitug, J., Pls. see separate opinion (dissenting).
CONCURRING AND DISSENTING
BELLOSILLO, J.:
I am in full accord with the conclusion of the majority that

the trial court committed no grave abuse of discretion in
issuing the assailed injunctive writs. But I am constrained
to dissent insofar as it finds that there was “selective
prosecution” in charging private respondents.
Let me first touch on “selective prosecution.” There is no
showing that petitioner Commissioner of Internal Revenue
is not going after others who may be suspected of being big
tax evaders and that only private respondents are being
prosecuted, or even merely investigated, for tax evasion. As
pointed out by the Solicitor General, assuming ex hypothesi
that other corporate manufacturers are guilty of using
similar schemes for tax evasion, the proper remedy is not
the dismissal of the complaints against private
respondents, but the prosecution of other similar evaders.
In this regard, in the absence of willful or malicious
prosecution, or so-called “selective prosecution” the choice
on whom to prosecute ahead of the others belongs
legitimately, and rightly so, to the public prosecutors.
But, I share the view of the majority that the trial court
did not commit grave abuse of discretion amounting to lack
of jurisdiction. At once it must be pointed out that the trial
court merely issued writs of preliminary injunction.
However to grant the prayer of herein petitioners would
effectively dismiss the petition for certiorari and
prohibition filed by private respondents with the trial court
even before the issues in the main case could be joined,
which seems to me to be a procedural lapse since the main
case is already being resolved when the only issue before
the Court is the propriety of the ancillary or provisional
remedy.
The trial court granted the writs of preliminary
injunction upon finding, after hearing for the purpose, that
private respondents sufficiently established that “they are
entitled to
234

certain constitutional
1
rights and that these rights have
been violated,” and that they have complied 2
with the
requirements of Sec. 3, Rule 58, Rules of Court. In support
of its conclusion, the trial court enumerated its reasons:
first, inspite of the motion of respondent Fortune Tobacco
Corporation, petitioner Commissioner of Internal Revenue
failed to present the “daily manufacturer’s sworn
statements submitted to the BIR by the taxpayer,”
supposedly stating that the total taxable sales of
respondent Corporation for the year 1992 is
P16,686,372,295.00, which is the basis of petitioner
Commissioner’s allegation that private respondents failed
to pay the correct taxes since it declared in its VAT returns
that its total taxable sales in 1992 was only
P11,736,658,580.00; second, the proper application of Sec.
142, par.(c), of the National Internal Revenue Code is a
prejudicial question which must first be resolved by the
Court of Tax Appeals to determine whether a tax liability
which is an essential element of tax evasion exists before
criminal proceedings may be pursued; third, from the
evidence submitted, it appears that the Bureau of Internal
Revenue has not yet made a final determination of the tax
liability of private respondents with respect to its ad
valorem, value added and income taxes for 1992; and,
fourth, the precipitate issuance by the prosecutors of
subpoenas to private respondents one (1) day after the
_______________
1 Order of 25 January 1994, p. 11.

2 Section 3, Rule 58, Rules of Court, provides that “[a] preliminary
injunction may be granted at any time after the commencement of the
action and before judgment, when it is established: (a) That the plaintiff is
entitled to the relief demanded, and the whole or part of such relief
consists in restraining the commission or continuance of the acts
complained of, or in the performance of an act or acts, either for a limited
period or perpetually; (b) That the commission or continuance of some act
complained of during the litigation or the non-performance thereof would
probably work injustice to the plaintiff; or (c) That the defendant is doing,
threatens, or is about to do, or is procuring or suffering to be done, some
act probably in violation of the plaintiff’s rights respecting the subject of
the action, and tending to render the judgment ineffectual.”
235
VOL. 257, JUNE 4, 1996 235

filing of the complaint, consisting of about 600 pages,
inclusive of the 14-page complaint, 17-page joint affidavit of
eight (8) revenue officers and the annexes attached thereto,
and their hasty denial of private respondents’ 135-page
motion to dismiss, after a recess of only about 20 minutes,
show that private respondents’ constitutional rights may
have been violated.
These circumstances as well as the other traces of
discrimination mentioned by the trial court, i.e., the
announcement by the PCGG that it would take over the
various corporations associated with respondent Lucio C.
Tan; the creation of the Task Force on Revenue Cases
among the functions of which is to “[i]nvestigate the tax
liabilities of manufacturers that engage in well-known tax
evasion schemes, such as selling products through dummy
marketing companies to evade the payment of the correct
internal revenue taxes,” the very charge against
respondent Tan; the reclassification of respondent
corporation’s best selling cigarettes as foreign brands
thereby imposing upon them a higher tax rate that would
price them out of the market without notice and hearing;
the singling out of private respondents as subjects of a
complaint for tax evasion when other cigarette
manufacturers have been using the same basis private
respondents are using in paying ad valorem, value added
and income taxes; and, the failure of petitioner
Commissioner to wait for the expiration of the 30-day
period she herself gave to private respondents to pay the
supposed tax deficiencies before the filing of the complaint,
obviously impelled the trial court to issue the writ of
preliminary injunction. Practically the same grounds were
found by the trial court when it provisionally restrained the
investigation of the two (2) other complaints, i.e., tax
evasion complaints for FYs 1990 and 1991.
On the basis of the findings of the trial court, it indeed
appears that private respondents’ constitutional rights to
due process of law and equal protection of the laws may
have been for the moment set aside, if not outright
violated. The trial court was convinced that the tell-tale
signs of malice and partiality were indications that the
constitutional rights of
236

private respondents may not have been afforded adequate
protection. Accordingly I see no manifest abuse, much less
grave, on the part of the trial court in issuing the injunctive
writs. Thus it is my opinion that the trial court did not
commit grave abuse of discretion in granting the assailed
writs.
Well entrenched is the rule that the issuance of the writ
of preliminary injunction as an ancillary or preventive
remedy to secure the rights of a party in a pending case
rests upon the sound discretion of the court hearing it. The
exercise of sound judicial discretion by the trial court in
injunctive matters should
3
not be interfered with except in
case of manifest abuse, which is not true in the case before
us. Equally
4
well settled is that under Sec. 7, Rule 58,5
Rules
of Court, a wide latitude is given to the trial court. This is
because the conflicting claims in an application for a
provisional writ more often than not involves a factual
determination which is not the function of this Court, or
even respondent appellate court. Thus in the case at bar
the ascertainment of the actual tax liability, if any, based
on the evidence already presented and still to be presented,
is more within the competence of the trial court before
which the parties have raised the very same issue in the
main case. The truth or falsity of the divergent
_______________
3 Searth Commodities Corporation v. Court of Appeals, G.R. No. 64220,

31 March 1992, 207 SCRA 622; S & A Gaisano Incorporated v. Judge
Hidalgo, G.R. No. 80397, 10 December 1990, 192 SCRA 224; Government
Service Insurance System v. Judge Florendo, No. L-48603, 29 September
1989, 178 SCRA 76; Genoblazo v. Court of Appeals, G.R. No. 79303, 20
June 1989, 174 SCRA 124; Belisle Investment and Finance Co. v. State
Investment House, Inc., G.R. No. 71917, 30 June 1987, 151 SCRA 630;
Yaptinchay v. Judge Torres, No. L-26462, 9 June 1969, 28 SCRA 489;
Detective & Protective Bureau, Inc. v. Judge Cloribel, No. L-23428, 29
November 1968, 26 SCRA 255; North Negros Sugar Co. v. Hidalgo, 63
Phil. 664 (1936).
4 Section 7, Rule 58, Rules of Court, provides that “[a]fter hearing on
the merits the court may grant or refuse, continue, modify or dissolve the
injunction as justice may require.”
5 Detective & Protective Bureau, Inc. v. Judge Cloribel, see Note 3.
237
VOL. 257, JUNE 4, 1996 237

statements that there was deliberate haste in issuing the
subpoenas and in denying private respondents’ motion to
dismiss may be confirmed not by this Court but by the trial
court during that hearing on the merits.
In fine, no grave abuse of discretion can be attributed to
a judge or body in the issuance of a writ of preliminary
injunction where a party was not deprived of its day in
court as it was heard and had 6
exhaustively presented all
its arguments and defenses. It is undisputed that in the
case before us petitioners and private respondents were
given sufficient time and opportunity to present their
respective pieces of evidence as well as arguments in
support of their positions.
Consequently, I concur with the finding of the majority
that the trial court committed no grave abuse of discretion.
As respondent appellate court said, “[g]rave abuse of
discretion as a ground for issuance of writs of certiorari and
prohibition implies capricious and whimsical exercise of
judgment as is equivalent to lack of jurisdiction, or where
the power is exercised in an arbitrary or despotic manner
by reason of passion, prejudice or personal hostility
amounting to an evasion of positive duty or to a virtual
refusal to perform the 7
duty enjoined, or to act at all in
contemplation of law. For such writs to lie there must be
capricious, arbitrary and whimsical exercise of power, the
very antithesis of the judicial prerogative in accordance8
with centuries of both civil and common law traditions.”
The trial court, to my mind, is not guilty of
_______________
6 Santos v. Court of Appeals, G.R. No. 61218, 23 September 1992, 214

SCRA 162.
7 Decision of respondent Court of Appeals, p. 29, citing Confederation of
Citizens Labor Union v. NLRC, Nos. L-38955-56, 31 October 1974, 60
SCRA 450; Paredes v. Commission on Audit, G.R. No. 88177, 4 December
1990, 192 SCRA 84; and Bustamante v. Commission on Audit, G.R. No.
103309, 27 November 1992, 216 SCRA 134.
8 Ibid., citing Young v. Sulit, G.R. No. 57839, 27 June 1988, 162 SCRA
659; Filinvest Credit Corp. v. Intermediate Appellate Court, G.R. No.
65935, 30 September 1988, 166 SCRA 155; and Pure Foods Corp. v.
NLRC, G.R. No. 78591, 21 March 1989, 171 SCRA
238

any of these. Thus I accord respect to the exercise of the
trial court’s sound judicial discretion and hold that the
same should not be interfered with.
To permanently enjoin the trial court from proceeding in
any manner in Civil Case No. Q-94-19790 and allow the
preliminary investigation of the complaints docketed as I.S.
Nos. 93-508, 93-17942 and 93-584 with the Department of
Justice to resume until their final conclusion and
completion would go against the prevailing rule that courts
should avoid issuing a writ of preliminary injunction which
9
would in effect dispose of the main case without trial. Due
process considerations dictate that the assailed injunctive
writs are not judgments on the merits but merely orders for
the grant of a provisional and ancillary remedy to preserve
the status quo until the merits of the case can be heard.
The hearing on the application for issuance of a writ of
preliminary injunction is separate and distinct from the
trial on the merits of the main case. The quantum of
evidence required for one is different from that for the
other, so that it does not necessarily follow that if the court
grants and issues the temporary writ applied for the same
court will now have to rule in favor of the petition for
prohibition and ipso facto make the provisional injunction
permanent.
If grave abuse of discretion attended the issuance of the
writ of preliminary injunction, then by all means nullify
the abusive act—but only that. The main case should be
allowed to proceed according to due process. The trial court
should receive the evidence from the contending parties,
weigh and evaluate the same and then make its findings.
Clearly, the dismissal of the main case as a result of a mere
incident
_______________
415.
9 Searth Commodities Corporation v. Court of Appeals, See Note 3;
Rivas v. Securities and Exchange Commission, G.R. No. 53772, 4 October
1990, 190 SCRA 295; Government Service Insurance System v. Judge
Florendo, See Note 3; Ortigas & Company Limited Partnership v. Court of
Appeals, G.R. No. 79128, 16 June 1988, 162 SCRA 165.
239
VOL. 257, JUNE 4, 1996 239

relative to the issuance of an ancillary writ is procedurally
awkward and violates due process, as it deprives private
respondents of their right to present their case in court and
support it with its evidence.
In resolving the fundamental issue at hand, i.e., whether
the trial court committed grave abuse of discretion in
issuing the subject writs of preliminary injunction, we
cannot avoid balancing on the scales the power of the State
to tax and its inherent right to prosecute perceived
transgressors of the law on one side, and the constitutional
rights of a citizen to due process of law and the equal
protection of the laws on the other. Obviously the scales
must tilt in favor of the individual, for a citizen’s right is
amply protected by the Bill of Rights of the Constitution.
Thus while “taxes are the lifeblood of the government,” the
power to tax has its limits, inspite of all its plenitude. 10
Hence in Commissioner of Internal Revenue v. Algue, Inc.,
we said—
Taxes are the lifeblood of the government and so should be

collected without unnecessary hindrance. On the other hand, such
collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself. It
is therefore necessary to reconcile the apparently conflicting
interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good,
may be achieved.
xxxx
It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for the lack of
the motive power to activate and operate it. Hence, despite the
natural reluctance to surrender part of one’s hard-earned income
to taxing authorities, every person who is able to must contribute
his share in the running of the government. The government for
its part is expected to respond in the form of tangible and
intangible benefits intended to improve the lives of the people and
enhance their moral and material values. This symbiotic
relationship is the rationale of taxation and should dispel the
erroneous notion that it is an
_______________
10 No. L-28896, 17 February 1988, 158 SCRA 9.
240

arbitrary method of exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of
taxation, it is a requirement in all democratic regimes that it be
exercised reasonably and in accordance with the prescribed
procedure. If it is not, then the taxpayer has a right to complain
and the courts will then come to his succor. For all the awesome
power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate x x x that the law has not been
observed.
In the instant case, it seems that due to the

overzealousness in collecting taxes from private
respondents and to some accident of immediate
overwhelming interest which distressingly impassions and
distorts judgment, the State has unwittingly ignored the
citizens’ constitutional rights. Thus even the rule that
injunction will not lie to prevent a criminal prosecution has
admitted
11
exceptions, which we enumerated 12
in Brocka v.
Enrile and in Ocampo IV v. Ombudsman —(a) to afford
adequate protection to the constitutional rights of the
accused; (b) when necessary for the orderly administration
of justice or to avoid oppression or multiplicity of actions;
(c) when there is a prejudicial question which is sub-judice;
(d) when the acts of the officer are without or in excess of
authority; (e) where the prosecution is under an invalid
law, ordinance or regulation; (f) when double jeopardy is
clearly apparent; (g) when the court has no jurisdiction
over the offense; (h) where it is a case of persecution rather
than prosecution; (i) where the charges are manifestly false
and motivated by lust for vengeance; (j) when there is
clearly no prima facie case against the accused and a
motion to quash on that ground has been denied; and, (k) to
prevent a threatened unlawful arrest.
Finally, courts indeed should not hesitate to invoke the
constitutional guarantees to give adequate protection to the
citizens when faced with the enormous powers of the State,
even when what is in issue are only provisional remedies,
as in the case at hand. In days of great pressure, it is
alluring to
_______________
11 G.R. Nos. 69863-65, 10 December 1990, 192 SCRA 183.

12 G.R. Nos. 103446-47, 30 August 1993, 225 SCRA 725.
241
VOL. 257, JUNE 4, 1996 241

take short cuts by borrowing dictatorial techniques. But

when we do, we set in motion an arbitrary or subversive
influence by our own design which destroys us from within.
Let not the present case dangerously sway towards that
trend.
For all the foregoing, I vote to dismiss the instant
petition for lack of merit, and to order the trial court to
proceed with Civil Case No. Q-94-19790 with reasonable
dispatch.
DISSENTING OPINION
PADILLA, J.:
Because of what I humbly perceive to be the crippling,

chilling and fatal effects of the majority opinion on the
power of the state to investigate fraudulent tax evasion in
the country, I am constrained to dissent, as vigorously as I
can, from the majority opinion.
THE ISSUE
The main issue in this petition for review on certiorari is
whether or not there are valid grounds to stop or stay the
preliminary investigation of complaints filed by the Bureau
of Internal Revenue (BIR) with the Department of Justice
(DOJ) Revenue Cases Task Force against private
respondents for alleged fraudulent tax evasion for the years
1990, 1991 and 1992. Stated differently, the issue is: did
respondent trial court commit grave abuse of discretion
amounting to lack or excess of jurisdiction in stopping the
subject preliminary investigation?
THE CASE AND THE FACTS

On 7 September 1993, petitioner Commissioner of Internal
Revenue filed a complaint with the DOJ against private
respondents Fortune Tobacco Corporation (hereinafter
referred to simply as “Fortune”), its corporate officers, nine
(9) other corporations, and their respective corporate
officers, for alleged fraudulent tax evasion for the year
1992.
242

The complaint, docketed as I.S. No. 93-508, was referred to
the DOJ Task Force on Revenue Cases which found
sufficient grounds to further investigate the allegation that
Fortune fraudulently evaded payment of income, value-
added and ad valorem taxes for the year 1992 thus
depriving the Government of revenue allegedly in excess of
seven and one-half (7 1/2) billion pesos.
The fraudulent scheme allegedly adopted and employed
by private respondents, is described by the BIR as follows:
“In order to evade payment of said taxes, [Fortune] made

fictitious and simulated sales of its cigarette products to non-
existent 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 [Fortune’s] actual
wholesale prices which are required for determination of
[Fortune’s] correct ad valorem, income and value-added tax
liabilities. These ‘ghost wholesale buyers’ then ostensibly sold the
product to consumers and other wholesalers/retailers at higher
wholesale prices determined by [Fortune]. The tax returns and
manufacturer’s sworn statements filed by [Fortune] as aforesaid
declare the fictitious sales it made to the conduit 1corporations and
non-existent individual buyers as its gross sales.”
Based on the initial evaluation of the DOJ Task Force,

private respondents were subpoenaed and required to
submit their counter-affidavits not later than 20 September
1993.2 Instead of filing counter-affidavits, private
respondents filed a “Verified 3 Motion to Dismiss;
Alternatively, Motion to Suspend.” Said motion was denied
by the DOJ Task Force and treated as private respondents’
4
counter-affidavit, in an order dated 15 October 1993.
Private respondents sought reconsideration of the
aforementioned order of denial and likewise filed motions
to
_______________
1 Rollo, p. 13.
2 Rollo, p. 16.
3 Rollo, pp. 264-325.
4 Rollo, pp. 402-403.
243
VOL. 257, JUNE 4, 1996 243

require submission by the Bureau of Internal Revenue
(BIR) of certain documents to support the verified motion
to dismiss or suspend the investigation, and for the
inhibition of the state prosecutors
5
assigned to the case for
alleged lack of impartiality.
On 20 December 1993, an6 omnibus order was issued by
the investigating Task Force:
a. denying reconsideration;
b. denying suspension of investigation; and
c. denying the motion to inhibit the investigating
state prosecutors.
Thereupon, or on 4 January 1994, private respondents

went to court. They filed a petition for certiorari and
prohibition with prayer for preliminary injunction in the
Regional Trial Court, Branch 88, Quezon City, praying that
the proceedings (investigation) before the DOJ Task Force
be stopped.
7
The petition was docketed as Civil Case No. Q-
94-19790.
On 17 January 1994, petitioners filed with the 8
trial
court a motion to dismiss the aforesaid petition. On 25
January 1994, the trial court issued instead an order
granting the herein private 9respondents’ prayer for a writ
of preliminary injunction, to stop the preliminary
investigation in the DOJ Revenue Cases Task Force.
On 26 January 1994, private respondents filed with the
trial court a Motion to Admit Supplemental Petition
seeking this time the issuance of another writ of
preliminary injunction against a second complaint of the
BIR with the DOJ docketed as I.S. No. 93-17942 likewise
against herein private respondents for fraudulent tax
evasion for the year 1990. Private respondents averred in
their aforesaid motion with the trial court that—
_______________
5 Rollo, pp. 404-415.

6 Rollo, pp. 539-545.
7 Rollo, pp. 156-263.
8 Rollo, p. 18.
9 Rollo, pp. 128-142.
244

a. no supporting documents nor copies of the
complaint were attached to the subpoena in I.S. No.
93-17942;
b. the abovementioned subpoena violates private
respondents’ constitutional rights to due process,
equal protection and presumption of innocence;
c. I.S. No. 93-17942 is substantially the same as I.S.
No. 93-508, except that it concerns the year 1990.
d. no tax assessment has been issued by the
Commissioner of Internal Revenue and since taxes
already paid have not been challenged by the BIR,
no tax liability exists;
e. Assistant Quezon City Prosecutor Leopoldo E.
Baraquia was a former classmate of then
Presidential Legal Counsel Antonio T. Carpio, thus,
he cannot conduct the preliminary investigation in
an impartial manner.
On 28 January 1994, private respondents filed 10

with the
trial court a second supplemental petition this time
seeking to stay the preliminary investigation in I.S. No. 93-
548, a third BIR complaint with the DOJ against private
respondents for fraudulent tax evasion for the year 1991.
On 31 January 1994, the trial court admitted the two (2)
supplemental petitions and issued a temporary restraining
order stopping the preliminary investigation of the two (2)
later complaints with the DOJ against private respondents
for alleged fraudulent tax evasion for the years 1990 and
1991.
On 7 February 1994, the trial court also issued an order
denying herein petitioners’ motion to dismiss private
respondents’ petition seeking to stay the preliminary
investigation in I.S. No. 93-508. The trial court ruled that
the issue of whether Sec. 127(b) of the National Internal
Revenue (Tax) Code should be the basis of herein private
respondents’ tax liability, as contended by the Bureau of
Internal Revenue, or whether it is Sec. 142(c) of the same
code that applies, as argued by herein private respondents,
should first be settled before any criminal complaint for
fraud ulent tax evasion can be initiated or maintained.
_______________
10 Rollo, p. 21.
245
VOL. 257, JUNE 4, 1996 245

On 14 February 1994, the trial court issued a supplemental

writ of preliminary injunction this time enjoining the
preliminary investigations of the two (2) other BIR
complaints with the DOJ for fraudulent tax evasion. The
trial court then denied motions to dismiss the two (2)
supplemental petitions, filed by herein respondents
Commissioner of Internal Revenue and the DOJ Revenue
Cases Task Force investigators.
On 7 March 1994, herein petitioners filed with this
Court a petition for certiorari and prohibition with prayer
for preliminary injunction which questioned the orders
issued by the trial court granting the private respondents’
prayer for preliminary injunction to stop the preliminary
investigation in the DOJ of the BIR’s complaints for
fraudulent tax evasions against private respondents and
denying petitioners’ motions to dismiss private
respondents’ various petitions with the trial court. The
petition was referred by this Court to the Court of Appeals
which has original concurrent jurisdiction over the petition.
On 19 December 1994, the Court of Appeals rendered a
decision which, in part, reads:
“In making such conclusion the respondent Court (the Regional

Trial Court of Quezon City, Branch 88) must have understood
from herein petitioner Commissioner’s letter-complaint of 14
pages and the joint affidavit of eight revenue officers of 17 pages
attached thereto and its annexes, that the charge against herein
respondents is for tax evasion for non-payment by herein
respondent Fortune of the correct amounts of income tax, ad
valorem tax and value added tax, not necessarily ‘fraudulent tax
evasion.’ Hence, the need for previous assessment of the correct
amount by herein petitioner Commissioner before herein
respondents may be charged criminally. Certiorari will not be
issued to cure errors in proceedings or correct erroneous
conclusions of law or fact. As long as a Court acts within its
jurisdiction, any alleged error committed in the exercise of its
jurisdiction, will amount to nothing more than errors of judgment
action of certiorari.
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
246
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.
Grave abuse of discretion as a ground for issuance of writs of
certiorari and prohibition implies capricious and whimsical
exercise of judgment as is equivalent to lack of jurisdiction, or
where the power is exercised in an arbitrary or despotic manner
by reason of passion, prejudice, or personal hostility, amounting
to an evasion of positive duty or to a virtual refusal to perform the
duty enjoined, or to act at all in contemplation of law. For such
writs to lie, there must be capricious, arbitrary and whimsical
exercise of power, the very antithesis of the judicial prerogative in
accordance with centuries of both civil law and common law
traditions. Certiorari and prohibition are remedies narrow in
scope and inflexible in character. They are not general utility
tools in the legal workshop. Their function is but limited to
correction of defects of jurisdiction solely, not to be used for any
other purpose, such as to cure errors in proceedings or to correct
erroneous conclusions of law or fact. Due regard for the foregoing
teachings enunciated in the decision cited can not bring about a
decision other than what has been reached herein.
Needless to say, the case before the respondent Court involving
those against herein respondents for alleged non-payment of the
correct amount due as income tax, ad valorem tax and value-
added tax for the years 1990, 1991, and 1992 is not ended by this
decision. The respondent Court is still to try the case and decide it
on the merits. All that is decided here is but the validity of the
orders of the respondent Court granting herein respondents’
application for preliminary injunction and denying herein
petitioners’ motion to dismiss. If upon the facts established after
trial and the applicable law, dissolution of the writ of preliminary
injunction allowed to be issued .
247
VOL. 257, JUNE 4, 1996 247
by the respondent Court is called for and a judgment favorable to

herein petitioners is demanded, the respondent Court is duty
bound to render judgment accordingly.
WHEREFORE, the instant petition for certiorari and
prohibition with application for issuance of restraining order and
writ of preliminary injunction is DISMISSED. 11
Costs de officio.
(references to annexes and citations omitted)
Petitioners’ motion for reconsideration of the aforequoted

judgment was denied by respondent appellate court on 23
February 1995, hence, the present petition for review on
certiorari based on the following grounds:
GROUNDS FOR THE PETITION
“THE RESPONDENT COURTS COMMITTED GRAVE ABUSE

OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN HOLDING THAT:
I. THERE IS A PREJUDICIAL AND/OR LEGAL

QUESTION TO JUSTIFY THE SUSPENSION OF THE
PRELIMINARY INVESTIGATION
II. PRIVATE RESPONDENTS’ RIGHTS TO DUE PROCESS,
EQUAL PROTECTION AND PRESUMPTION OF
INNOCENCE WERE VIOLATED; ON THE CONTRARY,
THE STATE ITSELF WAS DEPRIVED OF DUE
PROCESS
III. THE ADMISSION OF PRIVATE RESPONDENTS’
SUPPLEMENTAL PETITIONS WERE PROPER
IV. THERE WAS SELECTIVE PROSECUTION
V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE
HYPOTHETICALLY ADMITTED IN A MOTION TO
DISMISS BASED ON JURISDICTIONAL GROUNDS
VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS
NOT A DECISION ON THE MERITS
12
OF THE PETITION
BEFORE THE LOWER COURT
_______________
11 Annex “A” of the petition.

12 Rollo, p. 33.
248
DISCUSSION
At the outset, it should be pointed out that respondent
appellate court’s observations to the effect that herein
petitioners’ recourse to said court through a special civil
action of certiorari and prohibition was improper (as
discussed in the aforequoted portion of the CA decision)
actually and appropriately apply to private respondents
when they resorted to the remedy of certiorari and
prohibition with application for preliminary injunction with
the respondent Regional Trial Court to stop the
preliminary investigation being conducted by the DOJ
Revenue Cases Task Force of the BIR complaints for
fraudulent tax evasion against private respondents. It is to
be noted that the proceedings before the investigators
(preliminary investigation before the DOJ Revenue Cases
Task Force) are far from terminated. In fact, private
respondents were merely subpoenaed and asked to submit
counter-affidavits. They instead resorted to the courts for
redress after denial of their motion to dismiss. The proper
procedure on the part of private respondents after their
motion to dismiss was denied by the investigating panel,
should have been an appeal from such an adverse
resolution to the Secretary of Justice, not a special civil
action for certiorari and prohibition with application for
preliminary injunction before the respondent trial court.
As a corollary, the respondent trial court should have
desisted from entertaining private respondents’ original
petition for certiorari and prohibition with prayer for
preliminary injunction because a court order to stop a
preliminary investigation is an act of interference with the
investigating officers’ discretion, absent any showing of
grave abuse of discretion on the part of the latter in
conducting such preliminary investigation.
The rule is settled that the fiscal (prosecutor) cannot be
prohibited from
13
conducting and finishing his preliminary
investigation. The private respondents’ petition before the
_______________
13 Guingona v. City Fiscal of Manila, G.R. No. L-60033, 18 July
249
VOL. 257, JUNE 4, 1996 249

trial court in this case was clearly premature since the case
did not fall within any of the exceptions14
when prohibition
lies to stop a preliminary investigation.
The decision of the majority in this case clearly
constitutes an untenable usurpation of the primary duty
and function of the prosecutors to conduct the preliminary
investigation of a criminal offense and the power of the
Secretary of Justice to review the resolution of said
prosecutors.
In Guingona, supra, the Court en banc ruled thus:
“As a general rule, an injunction will not be granted to restrain a

criminal prosecution.” With more reason will injunction not lie
when the case is still at the preliminary investigation stage. This
Court should not usurp the primary function of the City Fiscal to
conduct the preliminary investigation of the estafa charge and of
the petitioners’ countercharge for perjury, which was consolidated
with the estafa charge.
The City Fiscal’s office should be allowed to finish its
investigation and make its factual findings. This Court should not
conduct the preliminary investigation. It is not a trier of facts.
(Reference to footnotes omitted)
Before resolving the main issue in this petition, as earlier

stated in this opinion, several preliminary issues raised by
private respondents in their “Verified Motion to Dismiss;
Alternatively, Motion To Suspend” need to be addressed,
namely:
A.) Private respondent Fortune’s right to due process

and equal protection of the laws have been violated
because of the subject preliminary investigation
before the DOJ Revenue Cases Task Force.
B.) Jurisdiction over Fortune’s tax liability pertains to
the Court of Tax Appeals and not the Regional Trial
Courts, thus, the Department of Justice, through its
state prosecutors, is without jurisdiction to conduct
the subject preliminary inves-
_______________
1985, 137 SCRA 597.

14 Hernandez v. Albano, 125 Phil. 513.
250
tigation.
C.) The complaints for fraudulent tax evasion are
unsupported by any evidence to serve as basis for
the issuance of a subpoena.
D.) The lack of final determination of Fortune’s tax
liability precludes criminal prosecution.
1. On the alleged violation of Fortune’s rights to due

process and equal protection of the laws, I fail to see any
violation of said rights.
Fortune, its corporate officers, nine (9) other
corporations and their respective corporate officers alleged
by the BIR to be mere “dummies” or conduits of Fortune in
the fraudulent tax evasion on the Government, were given
the opportunity to file their counter-affidavits to refute the
allegations in the BIR complaints, together with their
supporting documents. It is only after submission of
counter-affidavits that the investigators will determine
whether or not there is enough evidence to file in court
criminal charges for fraudulent tax evasion against private
respondents or to dismiss the BIR complaints. At this stage
of the preliminary investigation, the constitutional right of
private respondents to due process is adequately protected
because they have been given the opportunity to be heard,
i.e., to file counter-affidavits.
Nor can it be said, as respondents falsely argue, that
there was no ground or basis for requiring the private
respondents to file such counter-affidavits. As respondent
Court of Appeals admitted in its here assailed decision, the
BIR complaint (1st complaint) signed by the Commissioner
of Internal Revenue consisted of fourteen (14) pages
supported by an annex consisting of seventeen (17) pages
in the form of a joint affidavit of eight (8) revenue officers,
to which were attached voluminous documents as annexes
which, when put together, constituted a formidable
network of evidence tending to show fraudulent tax evasion
on the part of private respondents. When, on the basis of
such BIR complaint and its supporting documents, the
investigating Task Force saw a need to proceed with the
inquiry and, consequently, required private
251
VOL. 257, JUNE 4, 1996 251

respondents to file their counter-affidavits, grave abuse of

discretion could hardly be imputed to said investigators.
2. On respondents’ assertions that there is selective
prosecution (no equal protection of the laws) since other
corporations similarly situated as they are, are not being
prosecuted and/or investigated, the argument is quite
ludicrous, to say the least. As pointed out by the Solicitor
General, more than one thousand (1,000) criminal cases for
tax evasion have been filed in Metro Manila alone. This
number, even if it seems to represent but a small fraction
of cases of actual tax evasion, undoubtedly show that
respondents are not being singled out. It is of note that the
memorandum issued by the President of the Philippines
creating a task force to investigate tax evasion schemes of
manufacturers was issued three (3) months before the
complaints against private respondents were filed. This
makes any charge of selective prosecution baseless since it
could not then be shown, nor has it been shown by private
respondents that only they (respondents) were being
investigated/prosecuted. In fact, up to this time,
respondents have failed to substantiate this allegation of
selective prosecution against them.
Moreover, assuming arguendo that other corporate
manufacturers are guilty of using similar schemes for tax
evasion, allegedly used by respondents, the Solicitor
General correctly points out that the remedy is not
dismissal of the complaints against private respondents or
stoppage of the investigations of said complaints, but
investigation and prosecution of other similar violators
(fraudulent tax evaders).
3. Private respondents’ allegations that the Assistant
Quezon City Prosecutor (among those investigating the
complaints against them) lacks impartiality, are so
unsubstantiated, imaginary, speculative and indeed
puerile. They need not be elaborately refuted as a mere
denial would suffice under the circumstances.
4. On the issue of jurisdiction, the rule is settled that
city and state prosecutors are authorized to conduct
preliminary investigations of criminal offenses under the
National Internal Revenue Code. Said criminal offenses are
within the
252

15
jurisdiction of the Regional Trial Court.
5. The issue of whether or not the evidence submitted by
petitioners is sufficient to warrant the filing of criminal
informations
16
for fraudulent tax evasion is prematurely
raised. To argue, as private respondents do, that one piece
of evidence, i.e., the Daily Manufacturer’s Sworn
Statements, should be produced at a particular stage of the
investigation, in order to determine the probable guilt of
the accused, is to dictate to the investigating officers the
procedure by which evidence should be presented and
examined. Further, “a preliminary investigation is not the
occasion for the full and exhaustive display of the parties’
evidence; it is for the presentation of such evidence only as
may engender a well grounded belief that an offense has
been committed 17
and that the accused is probably guilty
thereof x x x.”
Besides, the preliminary investigation has not yet been
terminated. The proper procedure then should be to allow
the investigators, who undeniably have jurisdiction, to
conduct and finish the preliminary investigation and to
render a resolution. The party aggrieved by said 18
resolution
can then appeal it to the Secretary of Justice, as required
by the settled doctrine of exhaustion of administrative
remedies. What special qualification or privilege, I may
ask, do private respondents have, particularly Fortune and
Lucio Tan, as to exempt them from the operation of this
rooted principle and entitle them to immediate judicial
relief from the respondent trial court in this case?
6. The respondents Court of Appeals and the trial court
maintain, as private respondents do, that a previous
assessment of the correct amount of taxes due is necessary
before private respondents may be charged criminally for
fraudulent tax evasion. This view is decidedly not
supported by law and jurisprudence.
_______________
15 Ungab v. Cusi, L-41919-24, 30 May 1980, 97 SCRA 877.

16 Astorga v. Puno, L-25600, 30 September 1975, 67 SCRA 182.
17 Paderanga vs. Drilon, 196 SCRA 86, 92-93.
18 Guingona, Jr. v. City Fiscal of Manila, Supra.
253
VOL. 257, JUNE 4, 1996 253

The lack of a final determination of respondent Fortune’s
exact or correct tax liability is not a bar to criminal
prosecution for fraudulent tax evasion. While a precise
computation and assessment is required for a civil action to
collect a tax deficiency, the National Internal Revenue
Code does not require such computation and assessment
prior to criminal prosecution for fraudulent tax evasion.
Thus, as this Court had earlier ruled—
“An assessment of a deficiency is not necessary to a criminal

prosecution for willful attempt to defeat and evade the income
tax. A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and defeat
the tax. The perpetration of the crime is grounded upon
knowledge on the part of the taxpayer that he has made an
inaccurate return, and the government’s failure to discover the
error and promptly to 19assess has no connections with the
commission of the crime.”
It follows that, under the Ungab doctrine, the filing of a

criminal complaint for fraudulent tax evasion would be
proper even without a previous assessment of the correct
tax.
The argument that the Ungab doctrine will not apply to
the case at bar because it involves a factual setting
different from that of the case at bar, is erroneous. The
Ungab case involved the filing of a fraudulent income tax
return because the defendant failed to report his income
derived from sale of banana saplings. In the case at bar,
the complaints filed before the DOJ for investigation
charge private respondents with fraudulent concealment of
the actual wholesale price of products sold through
declaration of registered wholesale prices lower than the
actual wholesale prices, resulting in underpayment of
income, ad valorem, and value-added taxes. Both cases
involve, therefore, fraudulent schemes to evade payment to
the Government of correct taxes.
The Court in Ungab stated further as follows:
_______________
19 Ungab vs. Cusi, Jr., L-41919-24, 30 May 1980, 97 SCRA 877, 884.
254

“The petitioner also claims that the filing of the informations was
precipitate and premature since the Commissioner of Internal
Revenue has not yet resolved his protests against the assessment
of the Revenue District Officer; and that he was denied recourse
to the Court of Tax Appeals.
The contention is without merit. What is involved here is not
the collection of taxes where the assessment of the Commissioner
of Internal Revenue may be reviewed by the Court of Tax
Appeals, but a criminal prosecution for violations of the National
Internal Revenue Code which is within the cognizance of courts of
first instance. While there can be no civil action to enforce
collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a
criminal prosecution under the Code.
“The contention is made, and is here rejected, that an
assessment of the deficiency tax due is necessary before the
taxpayer can be prosecuted criminally for the charges preferred.
The crime is complete when the violator has, as in this case,
knowingly and wilfully filed fraudulent returns with intent to
evade and defeat a part or all of the tax. [Guzik vs. U.S., 54 F2d
618.]” (emphasis supplied)
The ruling in the Ungab case is undisputably on all fours

with, and conclusive to the case at bar. It should be
stressed and pointed out that in Ungab the Court denied
the prayer of therein petitioner to quash informations for
tax evasion that had already been filed in court. In other
words, the prosecutors in Ungab had already found
probable cause to try therein petitioner for tax evasion.
Despite this fact there was no finding by the Court of
violation of any of petitioner’s constitutional rights.
In the present case, private respondents were merely
being required to submit counter-affidavits to the
complaints filed. If no violation of constitutional rights was
committed in Ungab, upon the filing of the criminal
informations in Court, how can there now be a violation of
private respondents’ constitutional rights upon a
requirement by the investigators that private respondents
submit their counter-affidavits?
The Court has not been presented any compelling or
persuasive argument why the Ungab doctrine has to be
abandoned. It is good law and should be the nemesis of
fraudulent
255
VOL. 257, JUNE 4, 1996 255

tax evaders. It gives teeth to the proper enforcement of our

tax laws.
7. Private respondents argue that a case earlier filed
before20the Court of Tax Appeals (CTA) and now before this
Court involves a prejudicial question justifying or
requiring suspension of the preliminary investigation of the
complaints for fraudulent tax evasion against private
respondents. Said case involves the validity of BIR
Revenue Memorandum Circular No. 37-93 dated 1 July
1993 which reclassified cigarettes manufactured by
respondent Fortune. The circular subjects cigarettes with
brand names “Hope,” “More” and “Champion” to a 10%
increase in ad valorem taxes starting 2 July 1993.
Respondent Fortune has assailed the validity of said
revenue circular and the case has yet to be decided with
finality.
But the foregoing issue is irrelevant to the issue of
fraudulent tax evasion involved in this case. A final
decision either upholding or nullifying the aforementioned
revenue circular will not affect private respondents’
criminal liability for fraudulent tax evasion, for the
following reasons:
a) The revenue circular involved in the other case

pertains to ad valorem taxes on sales of Fortune’s
named cigarette brands after 1 July 1993 while the
fraudulent tax evasion involved in the present case
pertains to years 1990, 1991 and 1992.
b) The fraudulent scheme allegedly utilized by
Fortune and its dummies, as described in the BIR
complaints pending with the DOJ Revenue Cases
Task Force, which resulted in the
misdeclaration/underdeclaration of Fortune’s gross
sales receipts resulting in turn in underpayment of
ad valorem, value-added and income taxes was
actually a “built-in” tax evasion device already in
place even before the assailed revenue circular was
issued. The scheme is particularly designed to
result in the underpayment of ad valorem, value-
added and income taxes regardless of the tax rate
fixed by the
_______________
20 Commission of Internal Revenue vs. Court of Appeals, Court of Tax

Appeals and Fortune Tobacco Corp., G.R. No. 119761.
256

government on cigarette products.
8. Respondents also argue that the issue of whether

Section 127(b) or Section 142(c) of the National
Internal Revenue Code is applicable to private
respondents should first be settled before any
criminal cases can be filed against them. This
argument is both misleading and erroneous.
The aforementioned provisions read:
“Sec. 127 x x x x x x
(b) Determination of gross selling price of goods subject to ad

valorem tax.—Unless otherwise provided, the price,
excluding the value-added tax, at which the goods are sold
at wholesale in the place of production or through their
sales agents to the public shall constitute the gross selling
price. If the manufacturer also sells or allows such goods
to be sold at wholesale price in another establishment of
which he is the owner or in the profits at which he has an
interest, the wholesale price in such establishment shall
constitute the gross selling price. Should such price be less
than the cost of manufacture plus expenses incurred until
the goods are finally sold, then a proportionate margin of
profit, not less than 10% of such manufacturing cost and
expenses, shall be added to constitute the gross selling
price.”
“Sec. 142 x x x x x x
(c) Cigarettes packed in twenties.—There shall be levied,

assessed and collected on cigarettes packed in twenties an
ad valorem tax at the rates prescribed below based on the
manufacturer’s registered wholesale price:
(1) 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.
(2) On other locally manufactured cigarettes, forty-five
percent (45%).
Duly registered or existing brands of cigarettes packed in

twenties shall not be allowed to be packed in thirties.
257
VOL. 257, JUNE 4, 1996 257

When the existing registered wholesale price, including tax, of

cigarettes packed in twenties does not exceed P4.00 per pack, the
rate shall be twenty percent (20%).”
As the Solicitor General correctly points out, the two (2)

aforequoted provisions of the Tax Code are both applicable
in determining the amount of tax due. Section 127(b)
provides for the method of determining the gross wholesale
price to be registered with the BIR while Section 142(c)
provides for the rate of ad valorem tax to be paid. Said rate
is expressed as a percentage of the registered gross selling
price which is determined, in turn, based on Section 127(b).
The aforementioned two (2) provisions of the Tax Code
are certainly not determinative of private respondents’
criminal liability, if any. A reading of the BIR complaints
pending with the DOJ Revenue Cases Task Force shows
that private respondent Fortune is being accused of using
“dummy” corporations and business conduits as well as
non-existent individuals and entities to enable the
company (Fortune) to report gross receipts from sales of its
cigarette brands lower than gross receipts which are
actually derived from such sales. Such lower gross receipts
of the company, as reported by respondent Fortune thus
result in lower ad valorem, value-added and income taxes
paid to the government. Stated a little differently,
respondent Fortune is accused of selling at wholesale prices
its cigarette brands through dummy entities in the profits
of which it has a controlling interest. Under Section 127(b),
the gross selling price of the goods should be the wholesale
price of such dummy—entities to its buyers but it is alleged
by the government that respondent Fortune has purposely
made use of such entities to evade payment of higher but
legally correct taxes.
9. As to respondents’ additional claim that with regard
to ad valorem tax, they merely based their liability on the
wholesale price registered with the Bureau of Internal
Revenue (BIR) following the method used by all cigarette
manufacturers, said claim cannot absolve Fortune and its
officers from
258

21
criminal liability. Payment of ad valorem and other taxes
based on the wholesale price registered with the BIR
presupposes and naturally assumes that the registered
wholesale prices correspond to the actual wholesale prices at
which the manufacturer sells the product. If a
manufacturer makes use of a method or device to make it
appear that products are sold at a wholesale price lower
than the amounts that the manufacturer actually realizes
from such wholesale of its products, as what respondent
Fortune is accused of doing, through the use of dummy
entities, then there arises criminal liability under the penal
provisions of the Tax Code. This is clear from Section
127(b) aforequoted in relation to the penal provisions of the
Tax Code.
10. Private respondents contend that the registration
with the BIR of manufacturer’s wholesale price and the
corresponding close supervision and monitoring by BIR
officials of the business operations of cigarette companies,
ensure payment of correct taxes. The argument is baseless.
It does not follow that the cited procedure is a guarantee
against fraudulent schemes resorted to by tax-evading
individuals or entities. It only indicates that taxpayers bent
on evading payment of taxes would explore more creative
devices or mechanisms in order to defraud the government
of its sources of income even under its very nose. It is
precisely to avoid and detect cases like this that the
President issued a Memorandum on 1 June 1993 creating a
task force to investigate tax liabilities of manufacturers
engaged in tax evasion schemes, such as selling products
through dummy marketing companies at underdeclared
wholesale prices registered with the BIR.
Moreover, the Manufacturer’s Declaration which is the
basis for determining the “Manufacturer’s Registered
Wholesale Price” (which in turn becomes the basis for the
imposition of ad valorem tax), even if verified by revenue
officers and approved by the Commissioner of Internal
Revenue, does not necessarily reflect the actual wholesale
price at which the
_______________
21 Respondents’ Comment, p. 20.
259
VOL. 257, JUNE 4, 1996 259

cigarettes are sold. This is why manufacturers are still

required to file other documents, like the “daily
manufacturer’s sworn statements” in order to assist in
determining whether or not correct taxes have been paid.
In fine, even if BIR officials may have verified Fortunes’
BIR registered wholesale price for its products, the same
does not estop or preclude the Government from filing
criminal complaints for fraudulent tax evasion based on
evidence subsequently gathered to the effect that such BIR
registered wholesale prices were a misdeclaration or
underdeclaration of the actual wholesale price. It is
hornbook law that the Government is not bound or
estopped by the mistakes, inadvertence, and what more,
connivance of its officials and employees
22
with fraudulent
schemes to defraud the Government.
Even on the assumption that official duty of BIR officials
and employees has been regularly performed, the
allegations in the complaints are clear enough in that
private respondents allegedly made use of schemes to make
it appear that respondent Fortune’s tax liabilities are far
less than what it (Fortune) should be actually liable for
under the law. The very nature of the offense for which
respondents are being investigated, certainly makes
regularity/irregularity in the performance of official duties
irrelevant.
It should also be pointed out that the offense allegedly
committed by private respondents consists in the
intentional use of “dummy” entities to make it appear that
respondent Fortune sells its products at lower wholesale
prices, which prices would correspond to the wholesale
prices registered by Fortune with the BIR, but not to the
prices at which its products are sold by Fortune’s dummies.
The difference between Fortune’s BIR-reported wholesale
prices and the prices at which its dummies sell Fortune’s
products thus constitutes amounts for which Fortune
should actually incur tax liabilities but for which it
allegedly never paid taxes because of the operation of the
tax evasion scheme founded on a combined
_______________
22 Republic v. Intermediate Appellate Court, 209 SCRA 90; Sharp

International Marketing v. Court of Appeals, 201 SCRA 299.
260

underdeclaration with the BIR of Fortune’s wholesale price

of its products and the sale of such products to is “dummy”
corporations or to non-existing individuals or entities. This
is the obvious reason why the government has sought to
investigate the alleged tax evasion scheme purportedly
utilized by respondent Fortune and its dummy
corporations. Based on the foregoing discussions, it follows
that the answer to the main issue formulated earlier in this
opinion is in the negative since the private respondents
have not shown that there exist, in this case, exceptional
grounds removing it from the general rule that preliminary
investigations of criminal offenses and criminal 23
prosecutions cannot be stayed or enjoined by the courts.
11. The trial court’s ruling that private respondents’
constitutional rights have been violated, rests on untenable
grounds. It must be remembered, in this connection, that
exceptions to a settled rule, by their nature, must be
strictly applied. And any claim to an exception must be
fully substantiated. In other words, it must have real basis
for existing.
The exceptions to the general rule against restraining
orders or injunctions to stop preliminary investigations or
criminal24
prosecutions are enumerated in Brocka vs.
Enrile. One specific exception is when an injunction is
needed for the adequate protection of the accused’s
constitutional rights. The exception definitely does not
apply in the case at bar.
Before proceeding to illustrate this point, it is important
to stress that in a preliminary investigation, the
investigating officers’ sole duty is to determine, before the
presentation of evidence by the prosecution and by the
defense, if the latter should wish to present any, whether
or not there are reasonable
25
grounds for proceeding formally
against the accused. This is in conformity with the
purpose of a preliminary investigation which is to secure
the innocent against hasty, malicious, and oppressive
prosecutions, and to protect him
_______________
23 Brocka v. Enrile, 192 SCRA 183, 10 December 1990.

24 Supra.
25 Francisco, Ricardo, Criminal Procedure 80 (1994).
261
VOL. 257, JUNE 4, 1996 261

from an open and public accusation of crime, from the

trouble, expense and anxiety of public trial, and also
26
to
protect the state from useless and expensive trials. As
restated by the illustrious late Chief Justice Manuel V.
Moran—
“x x x the purpose of a preliminary investigation is to afford the

accused an opportunity to show by his own evidence that there is
no reasonable ground to believe that he is guilty of the offense
charged and that, therefore, there is no good reason for27 further
holding him to await trial in the Court of First Instance.”
Prescinding from the tenets above-discussed, it is clear

from the inception that there had been no violation of
private respondents’ constitutional rights to presumption of
innocence, due process and equal protection of the laws.
The preliminary investigation, I repeat, has not yet been
terminated. At this stage, only the complainant has
finished presenting its affidavits and supporting
documents. Obviously then, the investigating panel found
that there were grounds to continue with the inquiry,
hence, the issuance of subpoena and an order for the
submission of counter-affidavits by private respondents.
Instead of filing counter-affidavits, private respondents
filed a Verified Motion to Dismiss; Alternatively, Motion to
Suspend. At this point, it may be asked, how could private
respondents’ constitutional right to presumption of
innocence be violated when, in all stages of the preliminary
investigation, they were presumed innocent? Declaring
that there are reasonable grounds to continue with the
inquiry is not the same as pronouncing that a respondent is
guilty or probably guilty of the offense charged.
12. Private respondents cannot also claim that they were
not afforded due process and equal protection of the laws.
In fact, the investigating panel was concerned with just
that when it ordered the submission of private respondents’
dents the opportunity to show by their own evidece that no
counter-affidavits. This procedure afforded private respon-
________________
26 U.S. vs. Grant, 18 Phil. 122, 147.

27 IV Moran, Comments on the Rules of Court (1963) p. 91.
262

reasonable grounds exist for the filing of informations

against them. Furthermore, contrary to the findings of the
trial court and the Court of Appeals, the alleged haste by
which the subpoena was issued to private respondents (the
day after the filing of the 600-page annexed complaint)
does not lessen the investigating panel’s ability to study
and examine the complainant’s evidence. Neither does such
act merit the conclusion that the investigating panel was
less than objective in conducting the preliminary
investigation. Consequently, the general and settled rule
must apply that the courts cannot interfere with the
discretion of the investigating officer to determine the
specificity and adequacy of the averments in the28 complaint
filed, except in very exceptional circumstances, which do
not obtain here.
Therefore, private respondents’ act of filing a petition for
certiorari and prohibition before the Regional Trial Court
was rather untimely and uncalled for, not only because
private respondents failed to exhaust their administrative
remedies but also because the grounds cited in their
petition before the trial court were highly speculative—
more fancied than real.
Finally, Hernandez v. Albano (19 SCRA 95), cited by the
majority to support the conclusion that preliminary
investigation can be stayed by the courts, clearly states
that preliminary investigation can be stayed by court order
only in extreme cases. Hernandez also states that:
“By statute, the prosecuting officer of the City of Manila and his
assistants are empowered to investigate crimes committed within
the city’s territorial jurisdiction. Not a mere privilege, it is the
sworn duty of a Fiscal to conduct an investigation of a criminal
charge filed with his office. The power to investigate postulates
the other obligation on the part of the Fiscal to investigate
promptly and file the case of as speedily. Public interest—the
protection of society—so demands. Agreeably to the foregoing, a
rule—now of long standing and frequent application—was
formulated that ordinarily criminal prosecution may not be
blocked by court prohibition or
_______________
28 Ocampo, IV v. Ombudsman, G.R. Nos. 103446-47, 30 August 1993, 225 SCRA

725.
263
VOL. 257, JUNE 4, 1996 263

injunction. Really, if at every turn investigation of a crime will be

halted by a court order, the administration of criminal justice will
meet with an undue setback. Indeed, the investigative power of
the Fiscal may suffer such a tremendous shrinkage that it may
end up in hollow sound rather than as a part and parcel of the
machinery of criminal justice.”
It should be noted that while Hernandez lays down the

extreme grounds when preliminary investigation of
criminal offenses may be restrained by the courts, the
dispositive portion of the decision affirmed the decision of
the trial court dismissing a petition for certiorari and
prohibition with prayer for preliminary injunction filed to
stay the preliminary investigation of criminal complaints
against petitioner Hernandez.
The other case cited by the majority 29
to support its
decision in this case, Fortun v. Labang involves criminal
complaints filed against a judge of the Court of First
Instance by disgruntled lawyers who had lost their cases in
the judge’s sala. Clearly, the basis for the Court to stay
preliminary investigation in Fortun was a finding that said
complaints were filed merely as a form of harassment
against the judge and which “could have no other purpose
than to place petitioner-judge in contempt and disrepute.”
The factual situation in the case at bar is poles apart from
the factual situation in Fortun.
Further, in Fortun there was an express finding by the
Court that complaints against judges of the Courts of First
Instance are properly filed with the Supreme Court under
Executive Order No. 264 (1970) since the Court is
considered as the department head of the judiciary. In the
present case it cannot be disputed that jurisdiction to
conduct preliminary investigation over fraudulent tax
evasion cases lies with the state prosecutors (fiscals).
It cannot therefore be denied that neither Hernandez
nor Fortun supports with any plausibility the majority’s
disposition of the issues in the present case. On the other
hand, it
_______________
29 104 SCRA 607 (1981).
264

appears to me all too clearly that the majority opinion, in

this case, has altered the entire rationale and concept of
preliminary investigation of alleged criminal offenses. That
alteration has, of course, served the purposes of
distinguished private respondents. But I will have no part
in the shocking process especially in light of the fact that
Government cries out that the people have been cheated
and defrauded of their taxes to the tune allegedly of P25.6
billion pesos, and yet, it is not given by this Court even a
beggar’s chance to prove it!
13. There is great and vital public interest in the
successful investigation and prosecution of criminal
offenses involving fraudulent tax evasion. Said public
interest is much more compelling in the present case since
private respondents are not only accused of violating tax
and penal laws but are also, as a consequence of such
violations, possibly depriving the government of a primary
source of revenue so essential to the life, growth and
development of the nation and for the prestation of
essential services to the people.
14. It should be made clear, at this point, however, that
this opinion is not a pre-judgment or pre-determination of
private respondents’ guilt of the offense charged. No one,
not even the prosecutors investigating the cases for
fraudulent tax evasion, is, at this stage of the proceedings,
when private respondents have yet to file their counter-
affidavits, in a position to determine and state with finality
or conclusiveness whether or not private respondents are
guilty of the offense charged in the BIR complaints, now
with the DOJ Revenue Cases Task Force. It is precisely
through the preliminary investigation that the DOJ Task
Force on Revenue Cases can determine whether or not
there are grounds to file informations in court or to dismiss
the BIR complaints.
15. I see no grave abuse of discretion committed by the
state prosecutors in requiring private respondents to
submit counter-affidavits to the complaints for fraudulent
tax evasion and to determine the existence or absence of
probable criminal liability.
The Rules on Criminal Procedure do not even require, as
a condition sine qua non to the validity of a preliminary
265
VOL. 257, JUNE 4, 1996 265

investigation, the presence of the respondent as long as

efforts to reach him are made and an opportunity to
controvert the complainant’s evidence is accorded him. The
purpose of the rule is to check attempts of unscrupulous
respondents to thwart criminal investigations
30
by not
appearing or employing dilatory tactics.
16. Since the preliminary investigation in the DOJ
Revenue Cases Task Force against private respondents for
alleged fraudulent tax evasion is well within its jurisdiction
and constitutes no grave abuse of discretion, it was in fact
the respondent trial court that committed grave abuse of
discretion, amounting to lack or excess of jurisdiction, when
it stayed such preliminary investigation.
17. The successful prosecution of criminal offenders is
not only a right but the duty of the state. Only when the
state’s acts clearly violate constitutional rights can the
courts step in to interfere with the state’s exercise of such
right and performance of such duty. I am indubitably
impressed that there is no violation of private respondents’
constitutional rights in this case.
18. Lastly, the consolidation of the three (3) complaints
in the DOJ against private respondents should be allowed
since they all involve the same scheme allegedly used by
private respondents to fraudulently evade payment of
taxes. Consolidation will not only avoid multiplicity of suits
but will also enable private respondents to more
conveniently prepare whatever responsive pleadings are
required or expected of them.
It is, therefore, my considered view that the decision of
the Court of Appeals of 19 December 1994 in CA G.R. SP
No. 33599 should be SET ASIDE. The respondent trial
court should be ENJOINED from proceeding in any
manner in Civil Case No. Q-94-19790, or at least until
further orders from this Court.
_______________
30 Mercado v. The Honorable Court of Appeals, G.R. No. 109036, 5 July
1995, 245 SCRA 594.
266

The preliminary investigation of the BIR complaints

docketed as I.S. Nos. 93-508, 93-17942 and 93-584 with the
Department of Justice Revenue Cases Task Force, being
constitutionally and legally in order, should be allowed to
resume until their final conclusion or completion, with
private respondents give a non-extendible period of ten (10)
days from notice to submit to the investigating panel their
respective counter-affidavits and supporting documents, if
any.
SEPARATE OPINION
VITUG, J.:
I see in the petition the overriding issue of whether or not

judicial relief could be resorted to in order to stop state
prosecutors from going through with their investigation of
complaints lodged against private respondents. Almost
invaribly, this Court has resolved not to unduly interfere,
let alone to peremptorily prevent, the prosecuting agencies
or offices of the government in their investigatorial work or
in their own evaluation of the results of investigation. It
would indeed be, in my view, an act precipitate for the
courts to take on a case even before the complaint or
information is filed by the prosecution. Of course, one
cannot preclude the possibility that at times compelling
reasons may dictate otherwise; I do not think, however,
that the instant case could be the right occasion for it.
While I do understand the concern expressed by some of
my colleagues, i.e., that stopping the trial court from now
proceeding with Civil Case No. Q-94-9170 would,
effectively, mean a disposition of the main case without its
merits having first been fully heard in the court below, in
this particular situation before the Court, however, the
parties have since exhaustively and adequately presented
their respective cases. In the interest of good order, the
practical measure of enjoining the trial court from taking
further cognizance of the case would not thus appear to be
really all that unwarranted.
267
VOL. 257, JUNE 4, 1996 267

A final word: The matter affecting the civil liability for the
due payment of internal revenue taxes, including the
applicable remedies and proceedings in the determination
thereof, must be considered apart from and technically
independent of the criminal aspect that may be brought to
bear in appropriate cases. A recourse in one is not
necessarily preclusive of, nor would the results thereof be
conclusive on, the other. Accordingly, I vote to grant the
petition.
Petition dismissed.
Notes.—The Commissioner of Internal Revenue is not

bound by the ruling of his predecessors. (Misamis Oriental
Association of Coco Traders, Inc. vs. Department of Finance
Secretary, 238 SCRA 63 [1994])
The two-year prescriptive period to claim refunds
commences to run only from the time the refund is
ascertained, which can only be determined after a final
adjustment return is accomplished. (Commissioner of
Internal Revenue vs. Philippine American Life Insurance
Co., 244 SCRA 446 [1995])
Section 4, Rule 112 of the Rules of Court recognizes the
authority of the Secretary of Justice to reverse the
resolution of the provincial or city prosecutor or chief state
prosecutor upon petition by a proper party. (Roberts, Jr. vs.
Court of Appeals, 254 SCRA 307[1996])
——o0o——
268
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200 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

COMMISSIONER OF INTERNAL REVENUE, SENIOR

DAGUPAN COMBINED COMMODITIES, INC.,

VOL. 257, JUNE 4, 1996 201

Actions; Certiorari; Words and Phrases; “Grave Abuse of

Commissioner of Internal Revenue vs. Court of Appeals

based on the “manufacturer’s registered wholesale price.” Why

VOL. 257, JUNE 4, 1996 203

Commissioner of Internal Revenue vs. Court of Appeals

deemed to comprise anything calculated to deceive, including all

204 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

factually since the registered wholesale price of the goods,

VOL. 257, JUNE 4, 1996 205

Commissioner of Internal Revenue vs. Court of Appeals

alternatively, to suspend the preliminary investigation on the

BELLOSILLO, J., Concurring and Dissenting:

Due Process; Preliminary Injunction; Pleadings and Practice;

206 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

VOL. 257, JUNE 4, 1996 207

PADILLA, J., Dissenting:

Criminal Procedure; Preliminary Investigation; Prosecutors;

208 SUPREME COURT REPORTS ANNOTATED

Commissioner of Internal Revenue vs. Court of Appeals

fraudulent schemes to defraud the Government.—In fine, even if

PETITION for review on certiorari of a decision of the

The facts are stated in the opinion of the Court.

The pivotal issue in this petition for review is1 whether or

1 Rollo, pp. 98-129.

VOL. 257, JUNE 4, 1996 209

In resolving the issue raised in the petition, the Court may

210 SUPREME COURT REPORTS ANNOTATED

of doubtful legality” and enjoined its enforcement.

1st Qtr. P2,924,418,055.00

4 Rollo, pp. 345-346.

VOL. 257, JUNE 4, 1996 211

3rd Qtr. 2,839,519,325.00

However, contrary to what have been reported in the said

The complaint docketed as I.S. No. 93-508, was referred to

212 SUPREME COURT REPORTS ANNOTATED

sale prices with the BIR lower than Fortune’s actual

At the scheduled preliminary investigation on October 15,

VOL. 257, JUNE 4, 1996 213

Dismiss which counsel for private respondents did so

214 SUPREME COURT REPORTS ANNOTATED

motion to inhibit the State Prosecutors, and motion to

VOL. 257, JUNE 4, 1996 215

a) It is private respondents’ claim that the ad valorem

216 SUPREME COURT REPORTS ANNOTATED

which is Section 142(c) of the Tax Code, constitutes

On January 26, 1994, private respondents filed with the

VOL. 257, JUNE 4, 1996 217

dents with the Quezon City Prosecutor’s Office, docketed as

218 SUPREME COURT REPORTS ANNOTATED

In making such conclusion the respondent Court must have

17 Annex “E,” Petition, Rollo, pp. 140-148.

VOL. 257, JUNE 4, 1996 219

dents may be charged criminally. Certiorari will not be issued to

220 SUPREME COURT REPORTS ANNOTATED

and inflexible in character. They are not general utility tools in

Their motion for reconsideration having been denied by