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[ GR No. L-10507, May 30, 1958 ]

EUGENIO PEREZ. v. CTA +

DECISION

G. R. No. L-10507

REYES, J.B.L., J.:

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This is an appeal by certiorari to review the decision of the Court of Tax Appeals in the case of Eugenio
Perez vs. J.Antonio Araneta as acting Collector of Internal Revenue (B. T. A. 189), whereby the petitioner
was ordered to pay the sum of P41, 547.77 as deficiency income taxes and surcharges corresponding to
the years 1947, 1943, 1949 and 1950, more particularly as follows:

For 1946

none

" 1947

P 5,110.47

" 1948

9,360.45

" 1949

2,053.38

" 1950

-
25,023.00

This amount was arrived at by the Court of Tax Appeals on the basis of petitioner-appellant's increase in
net worth.

It appears from the records that petitioner filed his income tax returns for 1947, 1948, 1949 and 1950
on March 1, 1943, May 10, 1949, February 23, 1950 and February 23, 1951 respectively, and paid taxes
thereon as follows:

Year

Net Income

Income Tax Paid

1947

P 9,012.10

P 361.57

1948

6,921.01

145.26

1949

6,396.24

113.77

1950

7,643.51

167.00

On September 3, 1952, respondent Collector of Internal Revenue assessed against the petitioner the
sum of P369,708.27 as deficiency income taxes and 50% surcharge from 1945 to 1950, but which
amount was later reduced to P186,170.43, upon petitioner's request for reconsideration. Subsequently,
however, the said amount was increased to P197,179.85 in a letter of the said respondent, dated
November 6, 1953. Upon his (Collector of Internal Revenue) refusal to consider further requests for
reinvestigation and reexamination of the case, the petitioner appealed to the then Board of Tax Appeals
by filing a petition for review, as amended March 23, 1954. An answer to this petition was filed by the
respondent Collector of Internal Revenue on April 13, 1954. This case was later transferred to the Court
of Tax Appeals by virtue of Republic Act No. 1125.
In making the deficiency assessments, the Collector employed what is known as the "net worth"
technique and started by determining the opening net worth of petitioner at the start of the year 1947
which he fixed at P936.72, as follows:

1946

Assets

Lot No. 1, Block 35, Quezon City------ P 66.67

Lot No. 2, Block 32, Quezon City------ 1,349.08

Lot No. 4, Block 32, Quezon City ----- 2,240.00

Furniture & Fixtures-------------------- 5,000.00

Initial subscription in the Far

Eastern Construction Corporation-- 2,500.00

Current account deposit balance

with Phil. National Bank ----------- 5,000.00

Back pay received from

U.S. Army--------P 1,013.33

Back pay received from

Phil. Congress -- P 7,200.00

Back pay received from

Phil. Congress -- 15.557.14

23,770.47

Total Assets --------- P44,707.19

Deduct adjustment of back pay:

From U. S. Army P 1,013.33

From Phil. Congress 7,200.00


From Phil. Congress 15.557.34

23,770.47

Total adjusted assets - P23.770.47

Liabilities

Salary loan with the Phil. Na-

tional Bank---------------------- P 20.000.00

Net worth as of end of 1946 - P 936.72

======

Thereafter, the increases in the taxpayer's net worth were determined:

1947

Assets

Lot No. 1, Block 35, Quezon City ------ P 66.67

Lot No. 2, Block 32, Quezon City ------ l,849.08

Lot No. 4, Block 32, Quezon City ----- 2,240.00

Residential Building & Improve-

ments----------------------------- 35,210.00

Furniture and fixtures ------------------- 5,000.00

Current account deposit balance with

the Philippine National Bank ----- 22.165.18

Total assets ----- P 66,530.97


Deduct adjustment of back pay:

Cost of residential

improvements from

back pay -P3 5,210.00

Unexpended balance of

back pay-------- P2,327.96

37,537.96

Total adjusted assets

P 28,992.97

Liabilities

Salary loan with the Phil. Na-

tional Bank----------------------- P 2,653.71

Net worth as of end of 1946 -- P26,339.26

Deduct: Net worth as of be-

ginning of 1947 ------------------ P 936.81[x]

Increase in net worth in 1947-----P25,402.54

[x](Note) This amount of P936.72 is

the net worth of the petitioner-

appellant on December 31, 1946.

1948

Assets

Lot No. 1, Block 35, Quezon City------- P 66.67


Lot No. 2, Block 32, Quezon City------ 1,849.08

Lot No. 4, Block 32, Quezon City ----- 2,240.00

Residential building & improve-

ments------------------------------ 35,210.00

Furniture and fixtures ------------------- 5,000.00

365 shares of stock of the Hind

Sugar Co., Inc.-------------------- 49,640.00

Current account deposit balance

with the Phil. National Bank--------- 6.046.73

Total assets--------- P100,052.48

Deduct adjustment of back pay:

Cost of residential

building and improve-

ments from back pay

funds------------ P35,210.00

Unexpended balance of

back pay---------- 2.327.96

37.537.96

Total adjusted assets- P62,514.52

Liabilities

None

Net worth as of the end of 1948 P62,514.52

Deduct: Net worth as of beginning of

1948----------------------------

26.339.26

Increase in net worth in 1948 --- P36.175.26


1949

Assets

Lot No. 1, Block 35, Quezon City--------- 66.67

Lot No. 2, Block 32, Quezon City------ 1,849.08

Lot No. 4, Block 32, Quezon City ----- 2,240.00

Lot No. 1, Block 227-A, Quezon City 30,000.00

Lot No. 11, Block 264, Quezon City- - 9,163.86

Lot No. 13, Block 264, Quezon City--- 5,220.02

Lot No. 15, Block 141, Quezon City--- 1,545.20

Lot No. 41-c-2-a-1, San Mateo, Rizal

Province -------------- 27,114.00

Residential building and improvements- 35,210.00

Furniture and fixtures -------------------5,000.00

Automobile-station wagon-------------- 6,260.00

365 shares of stock of the Hind

Sugar Co., Inc------------------- P49,640.00

Investment in the Freedom Magazine

Publications------------------------- 9,000.00

Subscription in the Congressional

Club-------------------------------- 1,293.06

Current account deposit with P. N. B. - 5,311.52

Total assets ------- P147,147.35

Deduct adjustment of backpay:

Cost of residential building

and improvements---- P35,210.00

Unexpended balance of back


pay-------------------- 2,327.96

37.537.96

Total adjusted assets P109,609.39

Liabilities

Salary loan with the Phil. National

Bank -------------------------------- 542.10

Mortgage loan with the China Bank

Corporation (Mrs. Perez)--------- 30.000.00

P33.548.10

Net worth as of the end of 1949 P 76,061.79

Net worth as of the beginning

of the year------------------------ 62.514.52

Increase in net worth in 1949 P13.547.27

1950

Assets

Lot No. 1, Block 35, Quezon City--------- 66.67

Lot No. 2, Block 32, Quezon City------ 1,849.08

Lot No. 4, Block 32, Quezon City ----- 2,240.00

Lot No. 1, Block 227-A, Quezon City 30,000.00

Lot No. 11, Block 264, Quezon City- - 9,163.86

Lot No. 13, Block 264, Quezon City--- 5,220.02

Lot No. 15, Block 141, Quezon City--- 1,545.20

Lot No. 41-c-2-a-1, San Mateo, Rizal

Province -------------- 27,114.00


Lot No. 2, Block 310, Quezon City --- 4,074.90

Residential building and improvements- 45,210.00

Furniture and fixtures -------------------5,000.00

Automobile-station wagon-------------- 7,492.00

365 shares of stock of the Hind

Sugar Co., Inc------------------- P49,640.00

Investment in the Freedom Magazine

Publications------------------------- 9,000.00

Subsciption in the Congressional

Club-------------------------------- 1,293.06

Current account deposit with P. N. B. - 5,311.52

Total assets -------- P204,200.31

Deduct adjustment of backpay:

Cost of residential building

and improvements---- P35,210.00

Unexpended balance of back

pay-------------------- 2,327.96

37.537.96

Total adjusted assets P166,682.31

Liabilities

Mortgage loan with the China Bank

Corporation (Mrs. Perez) ---------25,000.00

Balance of mortgage with the R. F. C.

(Mrs. Perez)------------------------ 9.360.00

Total liabilities------- P34,360.10

Net worth as of the end of 1950--- P 132,322.25


Deduct: Net worth as of the be-

ginning of the year--------------- P 76.061,79

Increase in net worth in 1950 --- P 56.260.46

=========

The Court of Tax Appeals declared the "net worth" method of deter raining understated income to have
been validly and properly applied; found that the consistent underdeclaration of income, unexplained
acquisition of properties, and the fact of petitioner's having claimed fictitious losses evidenced
fraudulent intent, and ordered him to pay deficiency income taxes and surcharges in the sum of
P241,547.77, summarized as follows:

50%

Year

Deficiency

Surcharge

Total

1946

None

1947

P 3,406.98

P 1,703.49

P5,110.47

1948

6,240.30

3,120.15

9,360.45
1949

1,369.23

648.62

2,053.85

1950

16,682.00

8,341.00

25,023.00

and to pay the costs. Against the decision of the Court of Tax Appeals, the petitioner applied for a review
by this Supreme Court, and his petition was given due course.

The three major issues in this appeal, as stated by the petitioner's counsel in his written memorandum
filed with this Court on June 8, 1957, are: (1) whether the appellee Collector of Internal Revenue is
empowered by law to investigate appellant's (petitioner) income tax returns for 1947, 1948, and 1949
and to enforce collection of the alleged deficiency income taxes for said years by summary proceedings
of distraint and levy more than three years after the income tax returns covering them were filed; (2)
whether the use of the "net worth" method by the respondent in computing appellant's net income is
valid; and (3) whether the 50% surcharge imposed upon the appellant is legal and justified.

In view, however, of the rulings of this Court, particularly in the cases of Collector of Internal Revenue
vs. A. P. Reyes (G.R. No. L-86S5, Jan. 31, 1957) and Collector of Internal Revenue vs. Jose Avelino (G. R. L-
9202, November 15, 1956), reiteratirg a long line of decisions to the effect that the three-year
prescriptive period under section 51 (d) of the National Internal Revenue Code constituted a limitation
to the right of the government to enforce the collection of income taxes by summary proceedings of
distraint and levy, though, it could proceed to recover the taxes due by the institution of the
corresponding civil action (Philippine Sugar Estate Development Co., Inc. vs. Juan Posadas, 68 Phil.216;
Collector of Internal Revenue vs. Villegas, 56 Phil. 554; Juan; de la Vina vs. El Gobierno de las Filipinas, G.
R. 42669, January 29, 193&), the Collector in his Reply Memorandum (in lieu of oral argument) concedes
that the summary distraint and .levy to collect the deficiency income taxes assessed against appellant
Perez, for the years 1947, 1948 and 1949,should be declared invalid. Nevertheless, the appeal of the
taxpayer vested jurisdiction on the Court of Tax Appeals to review and determine his tax liability for the
aforesaid period.

On the second question, regarding the validity of the application of the "net worth" method in this
jurisdiction, the respondent Collector of Internal Revenue bases his alleged right on sections 15 and 38
of the National Internal Revenue Code which provide:

"SEC. 15. ten a report required by law as a basis for the assessment of any national internal revenue tax
shall not be forthcoming within the time fixed by law or regulation, or when there is reason to believe
that any such report is false, incomplete, or erroneous, the Collector of Internal Revenue shall assess the
proper tax on the best evidence obtainable". (Emphasis supplied)

"SEC. 38. General rule. The net income shall be computed upon the basis of the taxpayer's annual
accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of
accounting regularly employed in keeping the books of such taxpayer; but if no such method of
accounting has been so employed, or if the method does not clearly reflect the income, the computation
shall be made in accordance with such method as in the opinion of the Collector of Internal Revenue
does clearly reflect the income." (Emphasis supplied)

The Court of Tax Appeals fully explained this me this of proving unreported income in its decision: "The
net worth technique for determining income may be expressed in the following formula: Increase in Net
Worth plus Non-Deductible Expenditures minus Non-Taxable Receipts equals Taxable Net Income
(Samuel Byer, 'Net Worth Technique for Determining Income1, Proc. NYU 13th Ann. Inst. on Federal;
Taxation 1058, 1955). The net worth expenditures method is based on the accounting formula that an
increase in net worth plus non-deductible disbursements, minus non-receipts equals taxable net income
(Aviakan, 'The Net Worth Method of Establishing Fraud', Proc. NYU 11th Ann. Inst. on Federal Taxation,
707)".(p. 5, B.T.A. 189)

In the recent case of Marion L. Holland vs. U. S., decided in 1954 (348 U. S. 121, 99 L. Ed. 127), the
Supreme Court of the United States gave this brief exposition:

"In a typical net worth prosecution, the Government, having concluded that the taxpayer's records are
inadequate as a basis for determining the income tax liability, attempts to establish an 'opening net
worth' or total net value of the taxpayer's assets at the beginning of a given year. It then proves
increases in the taxpayer's net worth for each succeeding year, during the period under examination
and calculates the difference between the adjusted net values of the taxpayer's assets at the beginning
and end of each of the years involved. The taxpayer's non-deductible expenditures, including living
expenses, are added to these increases, and if the resulting figure for any year is substantially greater
than the taxable income reported by the taxpayer for that year, the Government claims the excess
representing unreported taxable income (Spies vs. United States, 317 U. S. 492; 63 S. Ct. 364)."

This method of proving unreported income, according to the Court of Tax Appeals, is based upon the
general theory that money and other assets in excess of liabilities of a taxpayer (after an accurate and
proper adjustment of non-deductible items) not accounted for by his income tax returns, leads to the
inference that part of his income has not been reported (p. 6, B.T.A. 189).

There is no question that the application of the "net worth" method of determining the taxable income
of a taxpayer has been an accepted practice under the United States Internal Revenue Code (Harris vs.
Com'r., 174 F (2d) 70; Louis Halle , 7 TC 245, aff'd. 175 F (2d) 500; Federal Income, Gift, & Estate Taxation
by Rabkin & Johnson, sec. 12.02, 1217 (a); United States vs. Johnson, 63 S. Gt. 1233). It is however,
contended by the petitioner, that the application of the "net worth" method in the United States is
based not under section 41 of the United States Internal Revenue Code (which is an exact copy of
section 3$ of our National Internal Revenue Code), but on section 57 thereof:

"SEC. 57. As soon as practicable after the return is filed, the Commissioner shall examine it and shall
determine the correct amount of the tax." which has no counterpart in our Code. Moreover, he insists,
section 38 of the Code does not authorize the Collector of Internal Revenue to change the method of
accounting employed by the taxpayer unless such method does not clearly reflect the income .

The Supreme Court of the United States, in an opinion by Justice Claik in the aforecited case of Holland
vs. United States (supra, affirming its former decision in the case of United States vs. Johnson, 319 U.S.
503, supra), although recognizing the danger to a taxpayer where the government seeks to prove tax
evasion by the use of the net worth theory, and declaring that such danger requires that each net worth
case be given close judicial scrutiny, unanimously affirmed its use. Referring to section 41 of the U. S.
Internal Revenue Code, the court said that this section, expressly limiting the authority of the
government to deviate from the taxpayer's method of accounting, had reference to true accounting
methods and did not forbid the use of the net worth technique, which was not an accounting method at
all, but merely an evidence of income (See also, Estate of Bartley, 22 U.S. Tax Ct. Reports 1230; Hurley,
22 U.S. Tax Ct. Reports 1264).

"The proposition that the commissioner's authority to use the 'net worth1 method in determining
income, is rooted in or stems from section 41 of the Internal Revenue of 1939 his been supported by the
courts so frequently that the mere mention of the indirect technique for determining income calls forth
a recitation of the I provisions of that section". (Samuel Byer, "The Net Worth Technique for
Determining Income") This seems to be the consensus obtaining in the United States (Baiter, Fraud
Under Fed. Tax Law, sec. 224; p. 6, B.T.A. 139; Vol. 2, 1951 CCH 366.011), aid no cogent reason is shown
for deviating from it.

The petitioner further contends that, conceding arguendo that the "net worth" method of proving
taxable income is valid under section 38 of the National Internal Revenue Code, the requirements for its
application in the instant case have not been fully complied with, i.e., that there is no sufficient basis
upon which to establish an unreported income. An examination of the records of this case will disclose
that this issue was not raised in the lower court. As a matter of fact, as the Court of Tax Appeals found,
the petitioner was deemed to have impliedly waived this issue, for he made use himself of this net
worth method in computing his taxable income , in the event that the lower court should finally find the
validity of this method in this jurisdiction under section 33 of the Code. It is well to note that while the
issue was raised on whether or not section 38 sanctions the indirect method of proving unreported
income, it was not questioned that the method would be justified under the present circumstances,
should it be ultimately resolved that the aforesaid section authorizes the use of this method in tills
country. it is well settled that issues not raised in the lower court cannot be raised for the first time on
appeal (Spencer, Kellogg & Sons, Inc. vs. Celino, G. R. No. 46271, Oct. 13, 1939; Tiacho vs.Tan Si Kiok, 45
O.G. (6) 2466; Comments on the Rules of Court, Moran, Vol. I, p. 952, 52 Ed.).

However, assuming argeuendo that this issue was properly raised in the lower court, the decisions of
the Supreme Court of the United States, in the recent cases of Holland vs. U. S., 343 U.S. 121; David
Friedberg vs. U.S., 207 F. 2d 777; Daniel Smith vs. U. S., 210 F. 2d 496; and U.S. vs. Edward Calderon, 207
F. 2d 377, all decided December 6, 1954, establish the following requisites for the use of the Inventory
(or Net Worth) Method:

First, the establishment, with reasonable certainty, of an opening net worth to serve as a starting point,
from which to calculate future increases in the taxpayer's assets (see also, Byer, "The Net Worth
Technique for Determining Income", supra). The Court of Tax Appeals fixed as the total assets of the
petitioner as of 1947 the amount of P66,530.93, based on the Amended Stipulation of Facts of the
parties. This opening net worth is not disputed by. them in this appeal.

Second, the net worth increases must be attributable to taxable income.

Petitioner claims that no evidence was introduced to prove that he was engaged in an income producing
business to which his increases in net worth may be attributed. Respondent, on the other hand, states
that the petitioner failed to show that his bank balances, acquisition of assets and investments in various
enterprises came from non-taxable income. It is easily discernible that the settlement of this question
hinges, ultimately on who has the burden of proof to show that the net worth increases was derived
from taxable income or non-taxable income. More concretely said, "Is the government required to show
the specific sources of the alleged unreported income"?

In the decisions of the United States Supreme Court, among them the Holland vs. U.S. case, supra, direct
proof of the source of the income was held rot essential;

"But petitioners claim the Government failed to adduce adequate proof because it did not negative all
possible nontaxable sources of the alleged net worth increases gifts, loans, inheritances, etc. We cannot
agree. The Government's proof, in our view carries with it the negations the petitioners' urge. Increases
in net worth, standing alone, cannot be assumed to be attributable to a currently taxable income. But
proof of a likely source, from which the jury could reasonably find that the, net worth increases sprang,
is sufficient. In the Johnson case, where there was no direct evidence of the sources of the taxpayer's
income, this court's conclusion that the taxpayer 'had large unreported incone was reinforced by
proof...that for certain years his private expenditures exceeded the available declared resources'... This
was sufficient to support the 'finding that he had some unreported income, which was properly
attributable to his earnings'. There the taxpayer was the owner of an undisclosed business capable of
producing taxable income."

In civil cases, as the one at bar, it has been held that the application of the net worth method does not
require identification of the sources of the alleged unreported income and that the determination of the
tax deficiency by the Government is prima facie correct. Such was the holding of the United States Court
of Appeals in the case of Thomas vs. Commissioner, 223 F. 2d S3, decided on June 14, 1955:

"The petitioners contend that the Commissioner was unwarranted in using the net worth method of
computing their income because they did keep certain records of their various business activities,
because their income tax returns for the years in question accurately reflected the cash register tapes
and other business records turned over to the accounting firm by Joseph Thomas, and because the
Commissioner failed to prove any additional source of income.These contentions are not enough. The
fact that the taxpayers' books and other records were consistent with their income tax returns proves
nothing more than that they were consistent; it does not establish that they were truthful. Similarly, the
failure of the Government to find any source of the alleged unreported income does not necessarily
establish anything more than that the source was well-hidden. Nor does the fact that books and records
were kept prevent the Commissioner from resorting to the net worth method if he properly determined
that the books and records did not accurately reflect the taxpayer's true income. That was expressly
decided in Holland vs. U. S. * * *. There is no reason why use of the net worth method should be more
circumscribed in the case of a deficiency determination, involving neither criminal nor even civil fraud
penalties."
This was reiterated in the subsequent case of Laughinghouse vs. Commissioner, 227 F. 2d 477,
November 16, 1955, in affirming the ruling of the Tax Court of the United States, which sustained a
deficiency determination in income taxes with the use of the net worth method:

"Obviously, the petitioner's contention are based upon a misconception of the net worth plus
expenditures method of proof employed in this case, which method is not a direct, but an indirect
method of proving the receipt of unreported income. The theory of this method is that during the tax
period, the aggregate nondeductible expenditures, plus any increase in net worth unaccounted for by
gifts, or inheritances, constitutes the taxable income. If the sum thus derived is greater than the income
reported, then the taxpayer has failed to return all of his taxable income. This indirect method of
proving the receipt of unreported income clearly involves additional data and an accounting approach
substantially different from the specific receipts and disbursements method customarily used by
taxpayers. Moreover, the net worth plus expenditures method does not identify the sources of the total
net income thus calculated, and the burden of disproving the net worth determination of taxable
income is upon-the taxpayer." (Emphasis supplied)

Considering that, normally, acquisitions of property are made from accumulations of taxable income,
and where not so made, it lies within the peculiar province of the taxpayer to explain how such
acquisitions were made with non-taxable resources, and that no such explanations were made, we see
no error in the conclusion that appellant's increase in net worth was due to undeclared taxable income.

The last issue is the legality of the action taken by the Collector of Internal Revenue in imposing upon
the petitioner the 50% surcharge provided under section 72 of the National Internal Revenue Code. This
section authorizes the Collector to impose a surcharge of 50% of the amount of the tax or deficiency tax
in a case of a false or fraudulent return. Appellant contends that no fraud has been shown by the
Government to warrant the surcharge. In sustaining the Collector, the Court of Tax Appeals expressed
the view; that the substantial under-declaration of income in the income tax returns of the appellant for
four consecutive years, coupled with his intentional overstatement of deductions, made the imposition
of the fraud penalty proper. Certainly, these findings of large;, unreported income of the petitioner as
found by the tax court, and as substantiated by the expenses and investments shown in the Amended
Stipulation of Facts (Rec. p. 225), together with appellant's declaration of substantial and Unspecified
"losses" (none of which were explained, since the appellant failed to testify more than suffices to sustain
the findings of fraud, and do not warrant a reversal from us. At any rate, we have already ruled that

"The question of fraud is a question of fact which frequently requires a nicely balanced judgment to
answer (Mertens, Fed. Income Taxation,chapter 55) x x x. In passing upon petitions to review decisions
of the Court of Tax Appeals, we have to confine ourselves to questions 1957). (Gutierrez vs. Collector, G.
R. No. L-9771, May 31,
"On the matter of fraud, although it is fundamental that this is a fact which the Commissioner is
required to prove by clear and convincing evidence, it. like other findings of fact, will not be upset unless
clearly erroneous. Boyett vs. Commissioner, 204 F. 2d 205. The Tax Court, in concluding that the tax
deficiencies were due to fraud, expressed the view that consistent substantial understatements of
income for a period of four years, together with a clear pattern of reporting deductions with accuracy in
detail while being deliberately evasive in the matter of income, made it impossible to believe the
understatements were due to inadvertence, negligence or honest errors. Circumstances such as these
are competent upon which to base a finding of fraud. Cf. Bryan vs. Commissioner, 5 dr., 1954, 209 F. 2d
322, 828." (Archer vs. Commissioner, 227 F. 2d., 270, 274) (Emphasis supplied)

Again, in the case of Lee vs. Commissioner, 227 F. 2d the same U.S. Federal Court of Appeals, in
affirming the use of the net worth method, has this to say on the fraud issue:

"We find ourselves in agreement with the Commissioner in these contentions. Of the fraud issue, we
think it need only be said that the Tax Court, in its unreported opinion, correctly placed the burden on
the Commissioner, and, marshalling the evidence and making findings in accordance therewith,
correctly, we think, determined that that burden was carried. It is settled law that where, as here. there
is credible evidence supporting a charge that an understatement of income by taxpayer was due to
fraud with intent to evade tax, whether the charge has or has not been proved is a question of fact for
the Tax Court to determine. and its finding on this issue, just as any other issue of fact. is final unless
shown to be clearly erroneous." (Emphasis supplied)

The same rule applies to the case of the P30,000.00 loans allegedly made by Attorney Juan F. David to
the appellant, and which are claimed to be valid deductions from his net worth determination. Whether
or not such loans were made as claimed is essentially a question of fact: and the absence of any credible
note or document evidencing the alleged loans and their alleged partial repayment, leaves the entire
issue dependent upon the testimony of the supposed creditor, whom the Court of Tax Appeals refused
credence. Considering that the creditor is an attorney at law of long practice and established standing
who must have been familiar with legal requirements and the notorious fallibility of debtor's memories;
the large amount allegedly loaned; the indetermination of their maturity, and his passivity at their non-
payment, we can not declare that the Tax Court's rejection of this item was not supported by substantial
evidence or constituted an abuse of discretion.

Appellant invokes our decision in Knowles vs. Insular Government, 60 Phil. 461, to the effect that it is
incumbent upon the Collector to establish his claim with certainty. The case is not applicable, for the
items in the Collector's claim and which constitute the basis of his determination of the appellant's net
worth from 1947 to 1950 are practically unconstested. The issue here centered on the justification for
the use of the net worth method as basis for determining unreported income, and such issue is more of
law than of fact.
In fine. we hold:

That section 38 of our National Internal Revenue Code authorizes the application of the Net Worth
Method in this jurisdiction (Baiter, Fraud Under Fed.Tax Law, sec. 224; Vol. 2, 1951 CCH 386. Oil, Byer
Net Worth Technique for Determining Income, supra: Holland vs. U.S., supra; Estate of Bartley, 22
U.S.Tax Ct. lep. 1230; Hurley, 22 U. S. Tax Ct. Rep. 1264; S B.T.A. 169).

That no civil cases, the Government need not prove the specific source of income (this is reasonable on
the basic assumption that most assets are derived from a taxable source and that when this is not true
the taxpayer is in a position to explain the discrepancy, {see Holland case, supra);

That the determination of the tax deficiency by the Government has prima facie validity and the burden
rests upon the taxpayer to overcome this presumption and to show to the satisfaction of the Tax Court
that the determination was not correct (Archer vs. Commissioner, supra; Thomas vs. Commissioner,
supra; Laughinghouse vs. Commissioner, sutra: William Lias, 24 T.C. No. 23,May 26, 1955, Virginia Law
Review, 41 p. 7; Halle, 7 T.C. 245, aff'd 175 F. 2d 500, 339 U.S. 949; Byer, "Net Worth Technique for
Determining Income").

And finally, that no sufficient grounds exist to warrant a reversal of the findings of fraud of the lower
court as being "clearly erroneous"; on the contrary, we find them supported by reason.

WHEREFORE, the decision appealed from, requiring appellant to pay the sum of P41,547.77 is affirmed,
with the sole modification that the Collector'sk resort to summary distraint to enforce the taxpayer's
liability for the years 1947, 1943 and 1949 is hereby declared improper and void. Costs against
appellant. So Ordered.

Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., Endencia, and Felix, JJ.,
concur.

Chief Justice Ricardo Paras and Justice Sabino Padilla and Alex Reyes took no part.

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Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 84111 December 22, 1989

JIMMY O. YAOKASIN, petitioner,

Vs.

THE COMMISSIONER OF CUSTOMS, SALVADOR M. MISON and the DISTRICT COLLECTOR OF THE PORT
OF TACLOBAN, VICENTE D. YUTANGCO, respondents.

GRIÑO-AQUINO, J.:

This petition questions the power of automatic review of the Commissioner of Customs over the
decision of the Collector of Customs in protest and seizure cases.

On May 27, 1988, the Philippine Coast Guard seized 9000 bags/ sacks of refined sugar, which were being
unloaded from the M/V Tacloban, and turned them over to the custody of the Bureau of Customs.
The petitioner presented a sales invoice from the Jordan Trading of Iloilo (Annex A, Petition) to prove
that the sugar was purchased locally. The District Collector of Customs, however, proceeded with the
seizure of the bags of sugar.

On June 3 and 6, 1988, show-cause hearings were conducted. On June 7, 1988, the District Collector of
Customs ordered the release of the sugar as follows:

WHEREFORE, premises considered subject Nine Thousand (9,000) sacks/bags of refined sugar are
hereby ordered released to Mr. Jimmy O. Yaokasin, consignee/claimant and the immediate withdrawal
of Customs Guard within its bodega’s premises. (p. 276, Rollo.)

On June 10, 1988, the decision, together with the entire records of the case, were transmitted to, and
received by, the Commissioner of Customs (Annex H, Petition, p. 277, Rollo).

On June 14, 1988, without modifying his decision, the District Collector of Customs ordered the
warehouse, wherein the bags of sugar were stored, to be sealed.

On June 19, 1988, the Economic Intelligence and Investigation Board (EIIB) filed a Motion for
Reconsideration (Annex I, Petition, p. 278, Rollo), for “further hearing on the merits” (p. 279, Rollo),
based on evidence that the seized sugar was of foreign origin. Petitioner opposed the motion for being
merely pro forma and/or that the same was, in effect, a motion for new trial.

Hearing Officer Paula Alcazaren set the Motion for reconsideration for hearing on July 13, 1988.

But before that, or on July 4, 1988, the Commissioner of Customs by “2nd Indorsement” returned to the
District Collector of Customs the:

… folder of Tacloban S.I. No. 06-01 (R.P. vs. 9000 bags/sacks of refined sugar, MR. JIMMY YAOKASIN,
consignee/claimant), together with the proposed decision, for hearing and/or resolution of the
government is motion for reconsideration … . (p. 437, Rollo, Emphasis Ours.)

On the same date, July 4, 1988, petitioner applied for and secured a writ of replevin from the Regional
Trial Court of Leyte (CC 7627, Branch VII), through a Petition/Complaint for certiorari Prohibition with
Replevin and Damages with Preliminary Injunction and/or Restraining Order (Annex L, Petition, p. 288,
Rollo).

On July 12, 1988, respondent District Collector of Customs filed an Answer assailing the court’s
jurisdiction. On the same day, the District Collector and the Commissioner of Customs filed in the Court
of Appeals a Petition for certiorari and Prohibition with Application for a Writ of Preliminary Injunction
and/or Restraining Order to annul the July 4, 1988 — “Order Granting Replevin with Temporary
Restraining Order” (CA-G.R. SP NO. 15090; p. 396, Rollo).

On July 15, 1988, the Collector of Customs reconsidered his June 7, 1988 decision, as follows:

WHEREFORE, the undersigned hereby reconsiders his Decision, finds that the 9,000 bags/sacks of
refined sugar in question are of foreign origin, smuggled into the country, and declares them forfeited in
favor of the government.

Considering the provision in the quoted Customs Memorandum Order, especially the latter part thereof
prohibiting the release of the articles in question to the claimant, and considering also that the said
sacks of sugar are presently stored in the bodega of claimant, and considering further that there are no
facilities for storage in Tacloban City, for security reasons, the Honorable Commissioner of Customs is
respectfully and earnestly urged to order the immediate transfer of the sugar from the said bodega to
any Customs Warehouse, preferably in Manila and to this end to order the setting aside of such sum of
money in order to effectively accomplish this purpose.” (p. 11, Rollo.)

Also, on the same day, the Court of Appeals: (a) gave due course to respondent’s petition; and (b)
restrained Judge Pedro S. Espina, Regional Trial Court, Leyte, from further proceeding in Civil Case No.
7627, and from enforcing his Order of July 4, 1988.

It is petitioner’s contention that the June 7, 1988 decision of the District Collector of Customs became
final and executory, in view of the absence of an appeal therefrom by the “aggrieved party” (himself)
within the 15-day period provided for in Sec. 2313 of the Tariff and Customs Code. Hence, the release of
the 9,000 bags of sugar must be upheld.

On the other hand, the District Collector and the Commissioner of Customs argue that since the June 7,
1988 decision is adverse to the government, the case should go to the Commissioner of Customs on
automatic review, pursuant to Memorandum Order No. 20-87, dated May 18, 1987, of former Acting
Commissioner of Customs Alexander Padilla, which provides:
CUSTOMS MEMORANDUM ORDER

NO. 20-87

TO: All Collectors of Customs and Others Concerned

Effective immediately, you are hereby directed to implement strictly the following —

Decisions of the Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however, that where a decision of
the Collector of Customs in such seizure and protest cases is adverse to the government it shall
automatically be reviewed by the Commissioner of Customs. (PD. No. 1, Annex C.)

In view thereof, no releases in any seizure or like cases may be effected unless and until the decision of
the Collector has been confirmed in writing by the Commissioner of Customs.

For immediate and strict compliance.

(Sgd.) ALEXANDER A. PADILLA

Acting Commissioner of Customs

(p. 436, Rollo; Emphasis Ours)

The memorandum order implements Section 12 (Art. IV, Part. IV, Vol. I) of the Integrated Reorganization
Plan (hereafter, “PLAN”) which provides:

12. The Collector of Customs at each principal port of entry shall be the official head of the customs
service in his port and district responsible to the Commissioner. He shall have the authority to take final
action on the enforcement of tariff and customs laws within his collection district and on administrative
matters in accordance with Chapter III, Part II of this Plan. Decisions of the Collector of Customs in
seizure and protest cases are subject to review by the Commissioner upon appeal as provided under
existing laws; provided, however, that where a decision of a Collector of Customs in such seizure and
protest cases is adverse to the government, it shall automatically be reviewed by the Commissioner of
Customs which, if affirmed, shall automatically be elevated for final review by the Secretary of Finance;
provided, further that if within thirty days from receipt of the records of the case by the Commissioner
of Customs or the Secretary of Finance, no decision is rendered by the Commissioner of Customs or the
Secretary of Finance, the decision under review shall become final and executory. (Emphasis supplied)

In Presidential Decree No. 1, dated September 24, 1972, former President Marcos decreed and ordered
that the Plan be (4 adopted, approved, and made as part of the law of the land.” Under the 1987
Constitution, “[a]ll existing laws, decrees, executive orders, proclamations, letters of instruction, and
other executive issuances not inconsistent with this Constitution shall remain operative until amended,
repealed, or revoked” (Sec. 3, Art. XVIII). While some provisions of the Plan have ceased to be operative
because of subsequent reorganizations, other provisions, such as Section 12 have not been repealed by
subsequent legislation.

Section 12 of the Plan applies to petitioner’s shipment of 9,000 bags of sugar. Taxes being the lifeblood
of the Government, Section 12, which the Commissioner of Customs in his Customs Memorandum
Order No. 20-87, enjoined all collectors to follow strictly, is intended to protect the interest of the
Government in the collection of taxes and customs duties in those seizure and protest cases which,
without the automatic review provided therein, neither the Commissioner of Customs nor the Secretary
of Finance would probably ever know about. Without the automatic review by the Commissioner of
Customs and the Secretary of Finance, a collector in any of our country’s far-flung ports, would have
absolute and unbridled discretion to determine whether goods seized by him are locally produced,
hence, not dutiable or of foreign origin, and therefore subject to payment of customs duties and taxes.
His decision, unless appealed by the aggrieved party (the owner of the goods), would become final with
‘the no one the wiser except himself and the owner of the goods. The owner of the goods cannot be
expected to appeal the collector’s decision when it is favorable to him. A decision that is favorable to the
taxpayer would correspondingly be unfavorable to the Government, but who will appeal the collector’s
decision in that case certainly not the collector.

Evidently, it was to cure this anomalous situation (which may have already defrauded our government
of huge amounts of uncollected taxes), that the provision for automatic review by the Commissioner of
Customs and the Secretary of Finance of unappealed seizure and protest cases was conceived to protect
the government against corrupt and conniving customs collectors.

Section 12 of the Plan and Section 2313 of the Tariff and Customs Code do not conflict with each other.
They may co-exist. Section 2313 of the Code provides for the procedure for the review of the decision of
a collector in seizure and protest cases upon appeal by the aggrieved party, i.e., the importer or owner
of the goods. On the other hand, Section 12 of the Plan refers to the general procedure in appeals in
seizure and protest cases with a special proviso on automatic review when the collector’s decision is
adverse to the government. Section 2313 and the proviso in Section 12, although they both relate to the
review of seizure and protest cases, refer to two different situations — when the collector’s decision is
adverse to the importer or owner of the goods, and when the decision is adverse to the government.

The decision of the Court in the case of Sy Man vs. Jacinto (93 Phil. 1093 [19531]), which the petitioner
invokes as precedent, is riot in point. In the present case the Acting Commissioner, in issuing the
memorandum circular, was directing strict compliance with an existing provision of law, which mandates
automatic review of decisions of collectors in seizure and protest cases which are adverse to the
government. On the other hand, in Sy Man, the memorandum order of the Insular Collector of Customs
directed the elevation of records in seizure and forfeiture cases for automatic review even if he had not
been expressly granted such power under the then existing law.

The objection to the enforcement of Section 12 of the Plan and CMO No. 20-87 on the ground that they
had not been published in the Official Gazette, is not well taken. The Plan, as part of P.D. No. 1, was
“adopted, approved and made as part of the law of the land” and published in Volume 68, No. 40, p.
7797 of the Official Gazette issue of October 2, 1972.

Article 2 of the Civil Code, which requires laws to be published in the Official Gazette, does not apply to
CMO No. 20-87 which is only an administrative order of the Commissioner of Customs addressed to his
subordinates. The customs collectors.

Commonwealth Act No. 638 (an Act to Provide for the Uniform Publication and Distribution of the
Official Gazette) enumerates what shall be published in the Official Gazette besides legislative acts and
resolutions of a public nature of the Congress of the Philippines. Executive and administrative orders
and proclamations, shall also be published in the Official Gazette, except such as have no general
applicability.” CMO No. 20-87 requiring collectors of customs to comply strictly with Section 12 of the
Plan, is an issuance which is addressed only to particular persons or a class of persons (the customs
collectors). “It need not be published, on the assumption that it has been circularized to all concerned”
(Tanada vs. Tuvera, 136 SCRA 27).

WHEREFORE, the petition for review is denied for lack of merit. The temporary restraining order which
we issued in this case is hereby made permanent. Cost against the petitioner.

SO ORDERED.

Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento and Cortes, JJ., concur.
Padilla, Jr., took no part.

Separate Opinions

MEDIALDEA, J., dissenting:

The present case involves two decisions of the Collector of Customs of Tacloban City on a seizure case.
The first decision was rendered on June 7, 1988, ordering the release of 9,000 bags of sugar belonging to
petitioner Jimmy Yaokasin which were seized by the Philippine Coast Guard and turned over to the
custody of customs authorities. The second, rendered on July 15, 1988 reverses the first decision and
orders the forfeiture of the sugar. Petitioner did not appeal the June 7decision and the Collector of
Customs rendered the second decision predicated on the automatic review powers of the Commissioner
in decisions adverse to the government as embodied in Customs Memorandum Order (CMO) No. 20-87.

The memorandum was issued by then Acting Commissioner of Customs Alexander Padilla on May 18,
1987, and provides as follows:

CUSTOMS MEMORANDUM ORDER NO. 20-87

TO: All Collectors of Customs and Others Concerned

Effective immediately, you are hereby directed to implement strictly the following —
Decisions of the Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however, that where a decision of
the Collector Customs in such seizure and protest cases is adverse to the government, it shall
automatically be reviewed by the Commissioner of Customs.’

In view thereof, no releases iii any seizure or like cases may be effected unless and until the decision of
the Collector has been confirmed in writing by the Commissioner of Customs.

For immediate and strict compliance.

(Sgd.) ALEXANDER A. PADILLA

Acting Commissioner of Customs

(p. 436, Rollo) (Italics Ours)

Petitioner disputes the validity of the memorandum, claiming instead that the law applicable to his case
is Sec. 2313 of the Tariff and Customs Code of the Philippines of 1982.

The main issue in this case is whether or not the Commissioner of Customs has the power of automatic
review over decisions of the Collector of Customs in seizure and protest cases.

The majority upholds the automatic review power, based on CMO No. 20-87. I disagree, based on the
provisions of Section 2313 of the Tariff and Customs Code.

The facts of this case are similar to that involved in Sy Man v. Jacinto (93 Phil. 1093), briefly stated
below:

On January 2, 1951, the Manila Port Collector of Customs ordered the seizure of the shipments of textile
and a number of sewing machines, consigned to Sy Man. On June 4, 1951, he ordered the release of the
articles covered by the seizure order, upon payment of the corresponding customs duties, except the
sewing machines which were declared forfeited to be sold, if saleable or otherwise, destroyed.
On June 27, 1951, Sy Man received a copy of the decision. Sy Man’s counsel sought execution of the
decision, based on the facts that the Commissioner of Customs could no longer review the decision after
the lapse of 15 days from notification of said decision to Sy Man.

The issue centered on the power of automatic review of the Commissioner of Customs, based on his
power and supervision and control over the Collector of Customs allegedly implemented by way of the
Memorandum promulgated by the Insular Collector of Customs, dated August 18, 1947, which provides
that as in protest cases, decisions of the Collector of Customs in seizure cases, whether appealed or not,
are subject to review by the Insular Collector (now Commissioner).

We ruled that:

(1) Since the Memorandum Order dated August 18, 1947 was never approved by the department
head and was never published in the Official Gazette, as required by Sec. 551 of the Revised
Administrative Code, the same cannot be given legal effect;

(2) Additionally, the Memorandum is adjudged in consistent with law, since there is no law giving
the Commissioner the power to review and revise unappealed decision of the Collector of
Customs in seizure cases;

(3) Under the law then in force, governing the Bureau of Customs, the decisions of the Collector of
Customs in a seizure case, if not protested and appealed by the importer to the Commissioner of
Customs on time becomes final, not only to him, but also against the Government as well, and
neither the Commissioner nor the Department Head has the power to review, revise or modify
such unappealed decision.

In the present case, it is claimed that CMO No. 20-87 merely implements Section 12 (Part IV, Chp. I, Art.
IV) of the Integrated Reorganization Plan (Plan) of former President Marcos. The Plan was prepared by
the Commission on Reorganization (authorized under RA 5435) and submitted to former President
Marcos for the reorganization of the Executive Branch of the government. It was adopted as law,
pursuant to P.D. No. 1, issued on September 24, 1972.

Section 12 of the Plan provides in part as follows:


Part. IV — Revenue Administration

Chp. I — Department of Finance

Xxx xxx xxx

Art. IV — Bureau of Customs

12. … Decisions of the Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however, that where a decision of
a Collector of Customs in such seizure and protest case is adverse to the government, it shall
automatically be reviewed by the Commissioner of Customs which, if affirmed, shall automatically be
elevated for final review by the Secretary of Finance; provided, further, that if within thirty days from
receipt of the records of the case by the Commissioner of Customs or the Secretary of Finance, no
decision is rendered by the Commissioner of Customs or the Secretary of Finance the decision under
review shall become final and executory. (Emphasis ours)

As will be noted, the Plan grants the Commissioner of Customs the power to review automatically,
decisions of the Collector of Customs in seizure and protest cases adverse to the government. Cases not
decided by the Commissioner within 30 days from receipt of the records become final and executory.

There is no question that P. D. No. 1/ the Plan is still a valid law. However, I do not agree that this is legal
authority to uphold the Commissioner’s right to automatically review decisions of the Collector of
Customs in seizure cases, and, in the process, allow a reversal of a decision favorable to the importer.
When the Plan became law pursuant to P.D. No. 1, Section 2313 of RA 1937 (Tariff and Customs Code of
the Philippines) already governed the review powers of the Commissioner of Customs. Thus, while both
Section 12 of the Plan and 2313 of the Tariff and Customs Code deal with the review powers of the
Commissioner of Customs, the Plan is a general law, as it concerns itself with the reorganization of the
executive branch of the government in a martial law regime, whereas the Code is a special law, i.e.,
specifically on tariff and customs duties. Consequently, the Plan is subservient to the Code and the
automatic review power granted therein can not be upheld.

Prior to subsequent amendments, Section 2313 of the Code provided as follows:


SEC. 2313. Review by Commissioner. — The person aggrieved by the decision or action of the
Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen
days after notification in writing by the collector of his action or decision, give written notice to the
Collector of his desire to have the matter reviewed by the Commissioner. Thereupon the Collector shall
forthwith transmit all the records of the proceedings to the Commissioner, who shall approve, modify or
reverse the action or decision of the Collector and take such steps and make such orders as may be
necessary to give effect to his decision. (Emphasis ours)

As will be noted, the foregoing provision does not contain any automatic review powers of the
Commissioner of Customs.

On October 27, 1972, former President Marcos issued P.D. No. 34, amending the Tariff and Customs
Revision Act of 1972 (earlier issued by the former Congress, martial law having been proclaimed)
without any reference to the provisions of Sec. 12 of P.D. No. 1.

As amended by P.D. No. 34, Section 2313 provided as follows:

SEC. 2313. Review by Commissioner. — The person aggieved by the decision or action of the
Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen
(15) days after notificaton in writing by the Collector of his action or decision, give written notice to the
Collector and one copy furnished to the Commissioner of his desire to have the matter reviewed by the
Commissioner. Thereupon the Collector shall forthwith transmit all the records of the proceedings to
the Commissioner, who shall approve, modify or reverse the action or decision of the Collector and take
such steps and make such orders as may be necessary to give effect to his decision. (Emphasis ours)

One notes that except for the phrase requiring a copy of the notice to be furnished to the Commissioner
of Customs, no other substantial change was introduced by P.D. No. 34. Consequently, the right to
elevate the case to the Commissioner of Customs remained an exclusive authority of the aggrieved
party.

On June 11, 1978, P.D. No. 1464 was issued directing the consolidation and codification of the tariff and
customs laws of the Philippines into a single code, to be known as the Tariff and Customs Code of 1978.
The Code was subsequently codified as the “Tariff and Customs Code of 1982” pursuant to Executive
Order No. 688, dated May 9, 1981, again without any reference to Section 12 of P.D. No. 1.

Throughout the various amendments/modifications of the tariff and customs laws, the review power of
the Commissioner of Customs in seizure cases has remained the same, i.e., it arises only upon appeal of
the aggrieved party. Hence, if no appeal is made, the decision of the Collector of Customs becomes final
and executory, even as against the government.

It is therefore clear that while it was intended by the Plan to invest the Commissioner of Customs with
automatic review powers over decisions of the Collector of Customs in seizure cases, more importantly
in cases adverse to the government, this intention was never carried out.

As a matter of fact, despite the requirement of P.D. No. 1, viz:

Xxx xxx xxx

Implementation of the Integrated Reorganization Plan as herein adopted, approved and decreed shall
be carried out by Letters of Implementation which will be issued by me from time to time or by my duly
elected authorized representative.

. . . (Emphasis ours)

And the Plan itself

I. After this Plan shall have been approved, the President of the Philippines shall, in
consultation with the department or agency head concerned, prepare the implementing
details with the assistance of such technical groups or agencies which he may designate, and
issue the necessary executive order or orders within three months after the approval of this
plan; …. (Emphasis ours.)

No Letter of Implementation as called for, was ever issued.

Private respondents contend that CMO No. 20-87 implements the Plan on the automatic review powers.
I do not agree. Section 12 of the Plan/P.D. No. 1 is no longer good law, as earlier pointed out, since
despite various presidential issuances and amendments on customs laws, the Commissioner of customs
was never granted any automatic review power.
The power of review of the Commissioner of customs found in Sec. 2313 is different from the
supervisory authority of the Commissioner of Customs presently embodied in Sec. 2315 of the Tariff
Customs Code, quoted below, and which gives him the authority of automatic review of the decisions of
the Collector of Customs in assessment of duties adverse to the government.

SEC. 2315. Supervisory Authority of Commissioner and of Secretary of Finance in Certain Cases — If in
any case involving the assessment of duties, the Collector renders a decision adverse to the government,
such decision shall automatically be elevated to and reviewed by, the Commissioner; and if the
Collector’s decision would be affirmed by the Commissioner, such decision shall be automatically
elevated to, and be finally reviewed by, the Secretary of Finance: Provided, however, That if within thirty
(30) days from receipt of the record of the case by the Commissioner or by the Secretary of the Finance:
as the case may be, no decision is rendered by either of them, the decision under review shall become
final and executory: Provided, further, That any party aggrieved by either the decision of the
Commissioner or of the Secretary of Finance may appeal to the Court of Tax Appeal within thirty (30)
days from receipt of a copy of such decision. For to purpose Republic Act Numbered Eleven Hundred
and twenty-five is hereby amended accordingly. ( Emphasis Ours)

Prior to the amendment introduced by P.D. No. 34, Sec. 2315 read as follows:

SEC. 2315. Supervisory Authority of Commissoner and of Department Head in Certain Cases. — If in any
case involving the assessment of duties the importer shall fail to protest the ruling of the Collector, and
the Commissioner shall be of the opinion that the ruling was erroneous and unfavorable to the
Government, the latter may order a reliquidation; and if the ruling of the Commissioner in any
unprotested case should, in the opinion of the department head, be erroneous and unfavorable to the
government, the department head may require the Commissioner to order a reliquidation. (Emphasis
ours)

Xxx xxx xxx

Under the old provision, We note that the Commissioner of Customs had the right to order a
reliquidation in unprotested cases of assesment of duties, where he is “of the opinion that the ruling of
the Collector of Customs was erroneous and unfavorable to the government.”

As amended, Sec. 2315 has been rephrased, giving the Commissioner of Customs the power of
“automatic review” (not reliquidation) over adverse decisions of the Collector of Customs in cases
involving assessment of duties, but must do so within a period of thirty days; otherwise, his decision
becomes final and executory.
The 30-day period appears to be a response to a defect We noted in the Sy Man case found in the old
provision of Sec. 2315 which did not prescribe a period within which a reliquidation may be undertaken.
The absence of a period was “decidedly unsatisfactory and even unjust, if not oppressive” to the
importer, who was willing “to abide by the decision of the Collector, to pay the amounts fixed, including
the fines, and desired to get the goods released so as to be able to dispose of them,” but was unable to
do so because of the prolonged inaction of the Commissioner. (See Sy Man, supra, p.1101)

In the Sy Man case, We noted two defects. The first pertained to the absence of the period found in Sec.
2315, while the second referred to a need for a provision on review and revision by the Commissioner of
Customs on unappealed seizure cases, as governed by Sec. 2313. Thus:

But if the Government deems it necessary to provide for review and revision by the Commissioner or
even by the Department Head of the decision of the Collector of Customs in an unappealed seizure
cases, the Legislature may be requested to insert a section in the Revised Administrative Code similar to
Section 1393 (now Section of the Customs Law) which applies to unprotested cases of assessment
duties. The defect in said section however is that it does not fix the period within which the automatic
review and revision or reliquidation to be ordered by the Commissioner and the Secretary of Finance
must be effected. This defect should be remedied. (p. 1107)

Unfortunately, as can be seen, our legislators merely acted on the defect found in Sec. 2315 by providing
for a period in cases of assessment of duties. Additionally, they invested the Commissioner with
automatic review powers where an assessment was adverse to the government, thus, eliminating any
possible prejudice to the government. They did not, however, provide any authority for automatic
review in unappealed seizure cases, similar to that found in Sec. 2313, thus belying any intent to
implement the Plan with respect to the automatic review powers.

As in the Sy Man case, it is now argued that the lack of automatic review causes prejudice to the
government. We quote from Sy Man:

It is argued that if this power of review and revision by the Commissioner of unappealed seizure cases is
not conceded, then in cases where the Collector in his decision commits a blunder prejudicial to the
interest of the Government, or renders a decision through fraud or in collusion with the importer, the
Government cannot protect itself. The argument is not without merit; but we must bear in mind that
the law is promulgated to operate on ordinary, common, routine cases. The rule is and the law
presumes that in seizure cases Collectors of Customs act honestly and correctly and as Government
officials, always with an eye to the protection of the interests of the Government employing them. If
mistakes are committed at all more often than not they are in favor of the Government and not against
it, and that is the reason why when the importer feels aggrieved by their decision, he is given every
chance and facility to protest the decision and appeal to the Commissioner. Cases of erroneous
decisions against the interest of the Government of decisions rendered in collusion and connivance with
importers are the exception. To protect the Government in such exceptional cases, we find that in every
seizure case, section 1378 (now Section 2301, Customs Law) of the Revised Administrative Code requires
the Collector to immediately notify the Commissioner and the Auditor General. It may be that this
requirement has for its main purpose the recording of and accounting for the articles seized so that in
case of confiscation the Commissioner and the Auditor General will know what articles have become
government property. But the notice will also inform the Commissioner and the Auditor General of the
seizure. If the seizure is important or unusual, the Commissioner may, if he so desires, order the
Collector as his subordinate to withhold action on the seizure, or hold in abeyance, within a reasonable
time, the promulgation of his decision until after he had conferred with the Commissioner or the latter
had studied the case and given suggestions. At that stage of the proceedings before definite action is
taken by the Collector, and a decision rendered by him, it would seem that any action by him as a
subordinate is still subject to the supervisory authority and control of the Commissioner as his chief, and
the latter may still influence and direct the Collector’s action if he finds occasion for doing so. (Emphasis
ours)

We believe that for as long as the procedure laid down in Sec. 2302 is observed, there can be no
resulting prejudice to the government in unappealed seizure cases, since the Commissioner in the
exercise of his supervisory authority can ask the Collector to “withhold action on the seizure or hold in
abeyance within a reasonable time the promulgation of a decision, until after he has conferred with the
Collector,” in cases of unusual or important seizure.

As it now stands therefore, there is no law allowing automatic review in seizure cases. For this reason,
CMO No. 20-87, issued supposedly in implementation of Sec. 12 of the Plan/P.D. No. 1, which has since
been amended/modified, is void and of no effect, being inconsistent with law.

Assuming applicability of P.D. No. 1/Plan, CMO No. 20-87 would still not be effective since it was not
published as required by Section 551 of the Revised Administrative Code (the law then in force since the
1987 Revised Administrative Code took effect on September 21, 1988), which in part provides:

Section 551. Authority to prescribe forms and make regulation. — …

Regulations and orders shall become effective only when approved by the Department Head and
published in the Official Gazette or otherwise publicly promulgated. Formal approval or publication shall
not be necessary as regards circulars of information or instructions for the guidance of officers and
employees in the internal administration of the affairs of the Bureau. (Italics ours)
Previous customs administrative orders had complied with this requirement. Thus, Customs
Administrative Order Nos. 225 and 226, issued by then Commissioner of Customs Eleuterio Capapas on
August 15,1957 and December 3,1957, respectively, were duly published in Vol. 54, No. 2, p. 300 of the
Official Gazette.

CAO No. 226 deals, among others, with “protests and appeals,” and implements Section 2313 of the
Code. Thus, Par. VII thereof similarly gives the importer exclusive authority to elevate the case to the
Commissioner, viz:

Customs Administrative Order No. 226

December 3, 1957

PROTEST AND APPEALS: REDEMPTION OF FORFEITED ARTICLES; AND EXECUTION OF DECISIONS.

Xxx xxx xxx

Par. VII. The person aggrieved by the decision or action of a collector of customs in any matter presented
upon protest or by his action in any case of seizure pursuant to section 2312 of the Tariff and Customs
Code of the Philipppines may give a written notice to the Collector of Customs of his desire to have the
matter reviewed by the Commissioner of Customs. (Italics ours).

In contrast, CMO No. 20-87 enlarges the power of the Commissioner of Customs by investing him with
automatic powers in seizure cases, in effect amending COA No. 226. Expectedly, the memorandum must
be published in accordance with Sec. 551 of the Revised Administrative Code not only for effectivity but
also to fully apprise third persons. Absent such publication, the same cannot be upheld for non-
compliance with Sec. 551 of the Revised Administrative Code.

For these reasons, I vote to GRANT the petition.

Fernan, C.J., Gutierrez, Jr., and Regalado, JJ., concur.


Separate Opinions

MEDIALDEA, J., dissenting:

The present case involves two decisions of the Collector of Customs of Tacloban City on a seizure case.
The first decision was rendered on June 7, 1988, ordering the release of 9,000 bags of sugar belonging to
petitioner Jimmy Yaokasin which were seized by the Philippine Coast Guard and turned over to the
custody of customs authorities. The second, rendered on July 15, 1988 reverses the first decision and
orders the forfeiture of the sugar. Petitioner did not appeal the June 7decision and the Collector of
Customs rendered the second decision predicated on the automatic review powers of the Commissioner
in decisions adverse to the government as embodied in Customs Memorandum Order (CMO) No. 20-87.

The memorandum was issued by then Acting Commissioner of Customs Alexander Padilla on May 18,
1987, and provides as follows:

CUSTOMS MEMORANDUM ORDER NO. 20-87

TO: All Collectors of Customs and Others Concerned

Effective immediately, you are hereby directed to implement strictly the following —

Decisions of the Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however, that where a decision of
the Collector Customs in such seizure and protest cases is adverse to the government, it shall
automatically be reviewed by the Commissioner of Customs.’

In view thereof, no releases iii any seizure or like cases may be effected unless and until the decision of
the Collector has been confirmed in writing by the Commissioner of Customs.

For immediate and strict compliance.


(Sgd.) ALEXANDER A. PADILLA

Acting Commissioner of Customs

(p. 436, Rollo) (Italics Ours)

Petitioner disputes the validity of the memorandum, claiming instead that the law applicable to his case
is Sec. 2313 of the Tariff and Customs Code of the Philippines of 1982.

The main issue in this case is whether or not the Commissioner of Customs has the power of automatic
review over decisions of the Collector of Customs in seizure and protest cases.

The majority upholds the automatic review power, based on CMO No. 20-87. I disagree, based on the
provisions of Section 2313 of the Tariff and Customs Code.

The facts of this case are similar to that involved in Sy Man v. Jacinto (93 Phil. 1093), briefly stated
below:

On January 2, 1951, the Manila Port Collector of Customs ordered the seizure of the shipments of textile
and a number of sewing machines, consigned to Sy Man. On June 4, 1951, he ordered the release of the
articles covered by the seizure order, upon payment of the corresponding customs duties, except the
sewing machines which were declared forfeited to be sold, if saleable or otherwise, destroyed.

On June 27, 1951, Sy Man received a copy of the decision. Sy Man’s counsel sought execution of the
decision, based on the facts that the Commissioner of Customs could no longer review the decision after
the lapse of 15 days from notification of said decision to Sy Man.

The issue centered on the power of automatic review of the Commissioner of Customs, based on his
power and supervision and control over the Collector of Customs allegedly implemented by way of the
Memorandum promulgated by the Insular Collector of Customs, dated August 18, 1947, which provides
that as in protest cases, decisions of the Collector of Customs in seizure cases, whether appealed or not,
are subject to review by the Insular Collector (now Commissioner).

We ruled that:
(1) Since the Memorandum Order dated August 18, 1947 was never approved by the department
head and was never published in the Official Gazette, as required by Sec. 551 of the Revised
Administrative Code, the same cannot be given legal effect;

(2) Additionally, the Memorandum is adjudged in consistent with law, since there is no law giving
the Commissioner the power to review and revise unappealed decision of the Collector of
Customs in seizure cases;

(3) Under the law then in force, governing the Bureau of Customs, the decisions of the Collector of
Customs in a seizure case, if not protested and appealed by the importer to the Commissioner of
Customs on time becomes final, not only to him, but also against the Government as well, and
neither the Commissioner nor the Department Head has the power to review, revise or modify
such unappealed decision.

In the present case, it is claimed that CMO No. 20-87 merely implements Section 12 (Part IV, Chp. I, Art.
IV) of the Integrated Reorganization Plan (Plan) of former President Marcos. The Plan was prepared by
the Commission on Reorganization (authorized under RA 5435) and submitted to former President
Marcos for the reorganization of the Executive Branch of the government. It was adopted as law,
pursuant to P.D. No. 1, issued on September 24, 1972.

Section 12 of the Plan provides in part as follows:

Part. IV — Revenue Administration

Chp. I — Department of Finance

Xxx xxx xxx

Art. IV — Bureau of Customs

12. … Decisions of the Collector of Customs in seizure and protest cases are subject to review by the
Commissioner upon appeal as provided under existing laws; provided, however, that where a decision of
a Collector of Customs in such seizure and protest case is adverse to the government, it shall
automatically be reviewed by the Commissioner of Customs which, if affirmed, shall automatically be
elevated for final review by the Secretary of Finance; provided, further, that if within thirty days from
receipt of the records of the case by the Commissioner of Customs or the Secretary of Finance, no
decision is rendered by the Commissioner of Customs or the Secretary of Finance the decision under
review shall become final and executory. (Emphasis ours)

As will be noted, the Plan grants the Commissioner of Customs the power to review automatically,
decisions of the Collector of Customs in seizure and protest cases adverse to the government. Cases not
decided by the Commissioner within 30 days from receipt of the records become final and executory.

There is no question that P. D. No. 1/ the Plan is still a valid law. However, I do not agree that this is legal
authority to uphold the Commissioner’s right to automatically review decisions of the Collector of
Customs in seizure cases, and, in the process, allow a reversal of a decision favorable to the importer.
When the Plan became law pursuant to P.D. No. 1, Section 2313 of RA 1937 (Tariff and Customs Code of
the Philippines) already governed the review powers of the Commissioner of Customs. Thus, while both
Section 12 of the Plan and 2313 of the Tariff and Customs Code deal with the review powers of the
Commissioner of Customs, the Plan is a general law, as it concerns itself with the reorganization of the
executive branch of the government in a martial law regime, whereas the Code is a special law, i.e.,
specifically on tariff and customs duties. Consequently, the Plan is subservient to the Code and the
automatic review power granted therein can not be upheld.

Prior to subsequent amendments, Section 2313 of the Code provided as follows:

SEC. 2313. Review by Commissioner. — The person aggrieved by the decision or action of the
Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen
days after notification in writing by the collector of his action or decision, give written notice to the
Collector of his desire to have the matter reviewed by the Commissioner. Thereupon the Collector shall
forthwith transmit all the records of the proceedings to the Commissioner, who shall approve, modify or
reverse the action or decision of the Collector and take such steps and make such orders as may be
necessary to give effect to his decision. (Emphasis ours)

As will be noted, the foregoing provision does not contain any automatic review powers of the
Commissioner of Customs.

On October 27, 1972, former President Marcos issued P.D. No. 34, amending the Tariff and Customs
Revision Act of 1972 (earlier issued by the former Congress, martial law having been proclaimed)
without any reference to the provisions of Sec. 12 of P.D. No. 1.
As amended by P.D. No. 34, Section 2313 provided as follows:

SEC. 2313. Review by Commissioner. — The person aggieved by the decision or action of the
Collector in any matter presented upon protest or by his action in any case of seizure may, within fifteen
(15) days after notificaton in writing by the Collector of his action or decision, give written notice to the
Collector and one copy furnished to the Commissioner of his desire to have the matter reviewed by the
Commissioner. Thereupon the Collector shall forthwith transmit all the records of the proceedings to
the Commissioner, who shall approve, modify or reverse the action or decision of the Collector and take
such steps and make such orders as may be necessary to give effect to his decision. (Emphasis ours)

One notes that except for the phrase requiring a copy of the notice to be furnished to the Commissioner
of Customs, no other substantial change was introduced by P.D. No. 34. Consequently, the right to
elevate the case to the Commissioner of Customs remained an exclusive authority of the aggrieved
party.

On June 11, 1978, P.D. No. 1464 was issued directing the consolidation and codification of the tariff and
customs laws of the Philippines into a single code, to be known as the Tariff and Customs Code of 1978.
The Code was subsequently codified as the “Tariff and Customs Code of 1982” pursuant to Executive
Order No. 688, dated May 9, 1981, again without any reference to Section 12 of P.D. No. 1.

Throughout the various amendments/modifications of the tariff and customs laws, the review power of
the Commissioner of Customs in seizure cases has remained the same, i.e., it arises only upon appeal of
the aggrieved party. Hence, if no appeal is made, the decision of the Collector of Customs becomes final
and executory, even as against the government.

It is therefore clear that while it was intended by the Plan to invest the Commissioner of Customs with
automatic review powers over decisions of the Collector of Customs in seizure cases, more importantly
in cases adverse to the government, this intention was never carried out.

As a matter of fact, despite the requirement of P.D. No. 1, viz:

Xxx xxx xxx


Implementation of the Integrated Reorganization Plan as herein adopted, approved and decreed shall
be carried out by Letters of Implementation which will be issued by me from time to time or by my duly
elected authorized representative.

. . . (Emphasis ours)

And the Plan itself

I. After this Plan shall have been approved, the President of the Philippines shall, in
consultation with the department or agency head concerned, prepare the implementing
details with the assistance of such technical groups or agencies which he may designate, and
issue the necessary executive order or orders within three months after the approval of this
plan; …. (Emphasis ours.)

No Letter of Implementation as called for, was ever issued.

Private respondents contend that CMO No. 20-87 implements the Plan on the automatic review powers.
I do not agree. Section 12 of the Plan/P.D. No. 1 is no longer good law, as earlier pointed out, since
despite various presidential issuances and amendments on customs laws, the Commissioner of customs
was never granted any automatic review power.

The power of review of the Commissioner of customs found in Sec. 2313 is different from the
supervisory authority of the Commissioner of Customs presently embodied in Sec. 2315 of the Tariff
Customs Code, quoted below, and which gives him the authority of automatic review of the decisions of
the Collector of Customs in assessment of duties adverse to the government.

SEC. 2315. Supervisory Authority of Commissioner and of Secretary of Finance in Certain Cases — If in
any case involving the assessment of duties, the Collector renders a decision adverse to the government,
such decision shall automatically be elevated to and reviewed by, the Commissioner; and if the
Collector’s decision would be affirmed by the Commissioner, such decision shall be automatically
elevated to, and be finally reviewed by, the Secretary of Finance: Provided, however, That if within thirty
(30) days from receipt of the record of the case by the Commissioner or by the Secretary of the Finance:
as the case may be, no decision is rendered by either of them, the decision under review shall become
final and executory: Provided, further, That any party aggrieved by either the decision of the
Commissioner or of the Secretary of Finance may appeal to the Court of Tax Appeal within thirty (30)
days from receipt of a copy of such decision. For to purpose Republic Act Numbered Eleven Hundred
and twenty-five is hereby amended accordingly. ( Emphasis Ours)
Prior to the amendment introduced by P.D. No. 34, Sec. 2315 read as follows:

SEC. 2315. Supervisory Authority of Commissoner and of Department Head in Certain Cases. — If in any
case involving the assessment of duties the importer shall fail to protest the ruling of the Collector, and
the Commissioner shall be of the opinion that the ruling was erroneous and unfavorable to the
Government, the latter may order a reliquidation; and if the ruling of the Commissioner in any
unprotested case should, in the opinion of the department head, be erroneous and unfavorable to the
government, the department head may require the Commissioner to order a reliquidation. (Emphasis
ours)

Xxx xxx xxx

Under the old provision, We note that the Commissioner of Customs had the right to order a
reliquidation in unprotested cases of assesment of duties, where he is “of the opinion that the ruling of
the Collector of Customs was erroneous and unfavorable to the government.”

As amended, Sec. 2315 has been rephrased, giving the Commissioner of Customs the power of
“automatic review” (not reliquidation) over adverse decisions of the Collector of Customs in cases
involving assessment of duties, but must do so within a period of thirty days; otherwise, his decision
becomes final and executory.

The 30-day period appears to be a response to a defect We noted in the Sy Man case found in the old
provision of Sec. 2315 which did not prescribe a period within which a reliquidation may be undertaken.
The absence of a period was “decidedly unsatisfactory and even unjust, if not oppressive” to the
importer, who was willing “to abide by the decision of the Collector, to pay the amounts fixed, including
the fines, and desired to get the goods released so as to be able to dispose of them,” but was unable to
do so because of the prolonged inaction of the Commissioner. (See Sy Man, supra, p.1101)

In the Sy Man case, We noted two defects. The first pertained to the absence of the period found in Sec.
2315, while the second referred to a need for a provision on review and revision by the Commissioner of
Customs on unappealed seizure cases, as governed by Sec. 2313. Thus:

But if the Government deems it necessary to provide for review and revision by the Commissioner or
even by the Department Head of the decision of the Collector of Customs in an unappealed seizure
cases, the Legislature may be requested to insert a section in the Revised Administrative Code similar to
Section 1393 (now Section of the Customs Law) which applies to unprotested cases of assessment
duties. The defect in said section however is that it does not fix the period within which the automatic
review and revision or reliquidation to be ordered by the Commissioner and the Secretary of Finance
must be effected. This defect should be remedied. (p. 1107)

Unfortunately, as can be seen, our legislators merely acted on the defect found in Sec. 2315 by providing
for a period in cases of assessment of duties. Additionally, they invested the Commissioner with
automatic review powers where an assessment was adverse to the government, thus, eliminating any
possible prejudice to the government. They did not, however, provide any authority for automatic
review in unappealed seizure cases, similar to that found in Sec. 2313, thus belying any intent to
implement the Plan with respect to the automatic review powers.

As in the Sy Man case, it is now argued that the lack of automatic review causes prejudice to the
government. We quote from Sy Man:

It is argued that if this power of review and revision by the Commissioner of unappealed seizure cases is
not conceded, then in cases where the Collector in his decision commits a blunder prejudicial to the
interest of the Government, or renders a decision through fraud or in collusion with the importer, the
Government cannot protect itself. The argument is not without merit; but we must bear in mind that
the law is promulgated to operate on ordinary, common, routine cases. The rule is and the law
presumes that in seizure cases Collectors of Customs act honestly and correctly and as Government
officials, always with an eye to the protection of the interests of the Government employing them. If
mistakes are committed at all more often than not they are in favor of the Government and not against
it, and that is the reason why when the importer feels aggrieved by their decision, he is given every
chance and facility to protest the decision and appeal to the Commissioner. Cases of erroneous
decisions against the interest of the Government of decisions rendered in collusion and connivance with
importers are the exception. To protect the Government in such exceptional cases, we find that in every
seizure case, section 1378 (now Section 2301, Customs Law) of the Revised Administrative Code requires
the Collector to immediately notify the Commissioner and the Auditor General. It may be that this
requirement has for its main purpose the recording of and accounting for the articles seized so that in
case of confiscation the Commissioner and the Auditor General will know what articles have become
government property. But the notice will also inform the Commissioner and the Auditor General of the
seizure. If the seizure is important or unusual, the Commissioner may, if he so desires, order the
Collector as his subordinate to withhold action on the seizure, or hold in abeyance, within a reasonable
time, the promulgation of his decision until after he had conferred with the Commissioner or the latter
had studied the case and given suggestions. At that stage of the proceedings before definite action is
taken by the Collector, and a decision rendered by him, it would seem that any action by him as a
subordinate is still subject to the supervisory authority and control of the Commissioner as his chief, and
the latter may still influence and direct the Collector’s action if he finds occasion for doing so. (Emphasis
ours)
We believe that for as long as the procedure laid down in Sec. 2302 is observed, there can be no
resulting prejudice to the government in unappealed seizure cases, since the Commissioner in the
exercise of his supervisory authority can ask the Collector to “withhold action on the seizure or hold in
abeyance within a reasonable time the promulgation of a decision, until after he has conferred with the
Collector,” in cases of unusual or important seizure.

As it now stands therefore, there is no law allowing automatic review in seizure cases. For this reason,
CMO No. 20-87, issued supposedly in implementation of Sec. 12 of the Plan/P.D. No. 1, which has since
been amended/modified, is void and of no effect, being inconsistent with law.

Assuming applicability of P.D. No. 1/Plan, CMO No. 20-87 would still not be effective since it was not
published as required by Section 551 of the Revised Administrative Code (the law then in force since the
1987 Revised Administrative Code took effect on September 21, 1988), which in part provides:

Section 551. Authority to prescribe forms and make regulation. — …

Regulations and orders shall become effective only when approved by the Department Head and
published in the Official Gazette or otherwise publicly promulgated. Formal approval or publication shall
not be necessary as regards circulars of information or instructions for the guidance of officers and
employees in the internal administration of the affairs of the Bureau. (Italics ours)

Previous customs administrative orders had complied with this requirement. Thus, Customs
Administrative Order Nos. 225 and 226, issued by then Commissioner of Customs Eleuterio Capapas on
August 15,1957 and December 3,1957, respectively, were duly published in Vol. 54, No. 2, p. 300 of the
Official Gazette.

CAO No. 226 deals, among others, with “protests and appeals,” and implements Section 2313 of the
Code. Thus, Par. VII thereof similarly gives the importer exclusive authority to elevate the case to the
Commissioner, viz:

Customs Administrative Order No. 226

December 3, 1957
PROTEST AND APPEALS: REDEMPTION OF FORFEITED ARTICLES; AND EXECUTION OF DECISIONS.

Xxx xxx xxx

Par. VII. The person aggrieved by the decision or action of a collector of customs in any matter presented
upon protest or by his action in any case of seizure pursuant to section 2312 of the Tariff and Customs
Code of the Philipppines may give a written notice to the Collector of Customs of his desire to have the
matter reviewed by the Commissioner of Customs. (Italics ours).

In contrast, CMO No. 20-87 enlarges the power of the Commissioner of Customs by investing him with
automatic powers in seizure cases, in effect amending COA No. 226. Expectedly, the memorandum must
be published in accordance with Sec. 551 of the Revised Administrative Code not only for effectivity but
also to fully apprise third persons. Absent such publication, the same cannot be upheld for non-
compliance with Sec. 551 of the Revised Administrative Code.

For these reasons, I vote to GRANT the petition.

Fernan, C.J., Gutierrez, Jr., and Regalado, JJ., concur.

The Lawphil Project – Arellano Law Foundation

Constitution Statutes Executive Issuances Judicial Issuances Other Issuances Jurisprudence


International Legal Resources AUSL Exclusive
FIRST DIVISION

FISHWEALTH CANNING CORPORATION,

Petitioner,

- Versus –

COMMISSIONER OF INTERNAL REVENUE,

Respondent.
G.R. No. 179343

Present:

PUNO, C.J., Chairperson,

CARPIO MORALES,

LEONARDO-DE CASTRO,

BERSAMIN, and

VILLARAMA, JR., JJ.

Promulgated:

January 21, 2010


X--------------------------------------------------x

DECISION

CARPIO MORALES, J.:

The Commissioner of Internal Revenue (respondent), by Letter of Authority dated May 16, 2000,[1]
ordered the examination of the internal revenue taxes for the taxable year 1999 of Fishwealth Canning
Corp. (petitioner). The investigation disclosed that petitioner was liable in the amount of P2,395,826.88
representing income tax, value added tax (VAT), withholding tax deficiencies and other miscellaneous
deficiencies. Petitioner eventually settled these obligations on August 30, 2000.[2]

On August 25, 2000, respondent reinvestigated petitioners books of accounts and other records of
internal revenue taxes covering the same period for the purpose of which it issued a subpoena duces
tecum requiring petitioner to submit its records and books of accounts. Petitioner requested the
cancellation of the subpoena on the ground that the same set of documents had previously been
examined.
As petitioner did not heed the subpoena, respondent thereafter filed a criminal complaint against
petitioner for violation of Sections 5 © and 266 of the 1997 Internal Revenue Code, which complaint
was dismissed for insufficiency of evidence.[3]

Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice of income tax and VAT
deficiencies totaling P67,597,336.75 for the taxable year 1999,[4] which assessment petitioner
contested by letter of September 23, 2003.[5]

Respondent thereafter issued a Final Decision on Disputed Assessment dated August 2, 2005, which
petitioner received on August 4, 2005, denying its letter of protest, apprising it of its income tax and VAT
liabilities in the amounts of P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year
1999,[6] and requesting the immediate payment thereof, inclusive of penalties incident to delinquency.
Respondent added that if petitioner disagreed, it may appeal to the Court of Tax Appeals (CTA) within
thirty (30) days from date of receipt hereof, otherwise our said deficiency income and value-added taxes
assessments shall become final, executory, and demandable.[7]

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a Letter of Reconsideration
dated August 31, 2005.[8]

By a Preliminary Collection Letter dated September 6, 2005, respondent demanded payment of


petitioners tax liabilities,[9] drawing petitioner to file on October 20, 2005 a Petition for Review[10]
before the CTA.
In his Answer,[11] respondent argued, among other things, that the petition was filed out of time which
argument the First Division of the CTA upheld and accordingly dismissed the petition.[12]

Petitioner filed a Motion for Reconsideration[13] which was denied.[14] The Resolution denying its
motion for reconsideration was received by petitioner on October 31, 2006.[15]

On November 21, 2006, petitioner filed a petition for review before the CTA En Banc[16] which, by
Decision[17] of July 5, 2007, held that the petition before the First Division, as well as that before it, was
filed out of time.

Hence, the present petition,[18] petitioner arguing that the CTA En Banc erred in holding that the
petition it filed before the CTA First Division as well as that filed before it (CTA En Banc) was filed out of
time.

The petition is bereft of merit.

Section 228 of the 1997 Tax Code provides that an assessment


X x x may be protested administratively by filing a request for reconsideration or reinvestigation within
thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable. (underscoring supplied)

In the case at bar, petitioners administrative protest was denied by Final Decision on Disputed
Assessment dated August 2, 2005 issued by respondent and which petitioner received on August 4,
2005. Under the above-quoted Section 228 of the 1997 Tax Code, petitioner had 30 days to appeal
respondents denial of its protest to the CTA.

Since petitioner received the denial of its administrative protest on August 4, 2005, it had until
September 3, 2005 to file a petition for review before the CTA Division. It filed one, however, on October
20, 2005, hence, it was filed out of time. For a motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period to appeal to the CTA.

On petitioners final contention that it has a meritorious case in view of the dismissal of the above-
mentioned criminal case filed against it for violation of the 1997 Internal Revenue Code,[19] the same
fails. For the criminal complaint was instituted not to demand payment, but to penalize the taxpayer for
violation of the Tax Code.[20]

WHEREFORE, the petition is DISMISSED.

Costs against petitioner.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:
REYNATO S. PUNO

Chief Justice

Chairperson

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

LUCAS P. BERSAMIN

Associate Justice
MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
decision had been reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.

REYNATO S. PUNO

Chief Justice

[1] CTA En Banc rollo, p. 60.

[2] Id. At 61-68.

[3] Id. At 77-78.

[4] CIR records, pp. 148-155.

[5] Id. At 140-142.


[6] Rollo, p. 15; CTA En Banc rollo, pp. 42-46.

[7] Id. At 46.

[8] Id. At 79-81; CTA 1st Division rollo, pp. 5, 87.

[9] Id. At 47.

[10] CTA 1st Division rollo, pp. 1-12.

[11] Id. At 79-92.

[12] Id. At 229-233.

[13] Id. At 234-239.

[14] Id. At 253-254.

[15] Id. At 252.

[16] CTA En Banc rollo, pp. 3-23.

[17] Penned by CTA Associate Justice Juanito C. Castaeda, Jr. with the concurrence of Presiding Justice
Ernesto D. Acosta and Associate Justices Lovell R. Bautista, Erlinda P. Uy, Caesar A. Casanova, and Olga
Palanca-Enriquez. Id. At 400-416.

[18] Rollo, pp. 9-39.

[19] Id. At 29-34.


[20] Vide Commissioner of Internal Revenue v. Pascor Realty and Development Corporation, 368 Phil.
714, 727 (1994).

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G.R. NO. 175773, June 17, 2013 - MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION
(MMPSEU), Petitioner, v. MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.

G.R. NO. 177103, June 03, 2013 - ORIENTAL SHIPMANAGEMENT CO., INC., ROSENDO C. HERRERA, AND
BENNET SHIPPING SA LIBERIA, Petitioners, v. RAINERIO N. NAZAL, Respondent.

G.R. NO. 177812, June 19, 2013 - CONCRETE SOLUTIONS, INC./PRIMARY STRUCTURES CORPORATION,
REPRESENTED BY ANASTACIO G. ARDIENTE, JR., Petitioners, v. ARTHUR CABUSAS, Respondent.

G.R. NO. 179492, June 05, 2013 - REPUBLIC OF THE PHILIPPINES, REPRESENTED BY ABUSAMA M. ALID,
OFFICER-IN-CHARGE, DEPARTMENT OF AGRICULTURE-REGIONAL-FIELD UNIT XII (DA-RFU XII), Petitioner,
v. ABDULWAHAB A. BAYAO, OSMEÑA I. MONTAÑER, RAKMA B. BUISAN, HELEN M. ALVARES, NEILA P.
LIMBA, ELIZABETH B. PUSTA, ANNA MAE A.. SIDENO, UDTOG B. TABONG, JOHN S. KAMENZA, DELIA R.
SUBALDO, DAYANG W. MACMOD, FLORENCE S. TAYUAN, IN THEIR OWN BEHALF AND IN BEHALF OF THE
OTHER OFFICIALS AND EMPLOYEES OF DA-RFU XII, Respondents.
G.R. NO. 179643, June 03, 2013 - ERNESTO L. NATIVIDAD, Petitioner, v. FERNANDO MARIANO, ANDRES
MARIANO AND DOROTEO GARCIA, Respondents.

G.R. NO. 181195, June 10, 2013 - FREDERICK JAMES C. ORAIS, Petitioner, v. DR. AMELIA C. ALMIRANTE,
Respondent.

G.R. NO. 182963, June 03, 2013 - SPOUSES DEO AGNER AND MARICON AGNER, Petitioners, v. BPI
FAMILY SAVINGS BANK, INC., Respondent.

G.R. NO. 188716, June 10, 2013 - MELINDA L. OCAMPO, Petitioner, v. COMMISSION ON AUDIT,
Respondent.

G.R. NO. 189297, June 03, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. GUILLERMO
LOMAQUE, Accused-Appellant.

G.R. NO. 191730, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MYLENE TORRES Y
CRUZ, Accused-Appellant.

G.R. NO. 191877, June 18, 2013 - PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR),
Petitioner, v. ARIEL R. MARQUEZ, Respondent.; [G.R. NO. 192287] - IRENEO M. VERDILLO, Petitioner, v.
PHILIPPINE AMUSEMENT AND GAMING CORPORATION (PAGCOR), Respondent.

G.R. NO. 192893, June 05, 2013 - MANILA ELECTRIC COMPANY, Petitioner, v. HEIRS OF SPOUSES
DIONISIO DELOY AND PRAXEDES MARTONITO, REPRESENTED BY POLICARPIO DELOY, Respondents.

G.R. NO. 193453, June 05, 2013 - SPOUSES RUBIN AND PORTIA HOJAS, Petitioners, v. PHILIPPINE
AMANAH BANK AND RAMON KUE, Respondents.

G.R. NO. 195523, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Appellee, v. ERNESTO GANI Y TUPAS,
Appellant.
G.R. NO. 195842, June 18, 2013 - ROBERTO B. REBLORA, Petitioner, v. ARMED FORCES OF THE
PHILIPPINES, Respondent.

G.R. NO. 197039, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appelle, v. ARIEL CALARA Y
ABALOS, Accused-Appellant.

G.R. NO. 201675, June 19, 2013 - JUANITO ANG, FOR AND IN BEHALF OF SUNRISE MARKETING
(BACOLOD), INC., Petitioner, v. SPOUSES ROBERTO AND RACHEL ANG, Respondents.

G.R. NO. 198755, June 05, 2013 - ALBERTO PAT-OG, SR., Petitioner, v. CIVIL SERVICE COMMISSION,
Respondent.

G.R. NO. 202079, June 10, 2013 - FIL-ESTATE GOLF AND DEVELOPMENT, INC. AND FIL--ESTATE LAND,
INC., Petitioners, v. VERTEX SALES AND TRADING, INC., Respondent.

G.R. NO. 202247, June 19, 2013 - SIME DARBY PILIPINAS, INC., Petitioner, v. JESUS B. MENDOZA,
Respondent.

G.R. NO. 202690, June 05, 2013 - HENRY L. SY, Petitioner, v. LOCAL GOVERNMENT OF QUEZON CITY,
Respondent.

G.R. NO. 202791, June 10, 2013 - PHILIPPINE TRANSMARINE CARRIERS, INC., Petitioner, v. LEANDRO
LEGASPI, Respondent.

A.M. NO. P-10-2741, June 04, 2013 - JUDGE ANTONIO C. REYES, Complainant, v. EDWIN FANGONIL,
PROCESS SERVER, REGIONAL TRIAL COURT, BRANCH 61 OF BAGUIO CITY, Respondent.

A.M. NO. P-06-2223 [Formerly A.M. NO. 06-7-226-MTC), June 10, 2013 - OFFICE OF THE COURT
ADMINISTRATOR, Complainant, v. LORENZA M. MARTINEZ, CLERK OF COURT, MUNICIPAL TRIAL COURT,
CANDELARIA, QUEZON. Respondent.
A.M. NO. P-10-2879 (Formerly A.M. OCA I.P.I. No. 09-3048-P), June 03, 2013 - AUXENCIO JOSEPH B.
CLEMENTE, CLERK OF COURT, METROPOLITAN TRIAL COURT, BRANCH 48, PASAY CITY, Complainant, v.
ERWIN E. BAUTISTA, CLERK III, METROPOLITAN TRIAL COURT, BRANCH 48, PASAY CITY, Respondent.

A.M. NO. P-12-3048 (formerly A.M. NO. 11-3-29-MCTC), June 05, 2013 - OFFICE OF THE COURT
ADMINISTRATOR, Complainant, v. NELSON P. MAGBANUA, PROCESS SERVER, 3RD MUNICIPAL CIRCUIT
TRIAL COURT, PATNONGON, ANTIQUE, Respondent.

A.M. NO. P-13-3115 (Formerly A.M. NO. 13-3-41-RTC], June 04, 2013 - RE: DROPPING FROM THE ROLLS
OF JOYLYN R. DUPAYA, Court Stenographer III, Regional Trial Court, Branch 10, Aparri, Cagayan.

G.R. No. L-44, September 13, 1945 - LILY RAQUIZA, ET AL. v. J. BRADFORD, ET AL. - 075 Phil 50

G.R. No. 156759, June 05, 2013 - ALLEN A. MACASAET, NICOLAS V. QUIJANO, JR., ISAIAS ALBANO, LILY
REYES, JANET BAY, JESUS R. GALANG, AND RANDY HAGOS, Petitioners, v. FRANCISCO R. CO, JR.,
Respondent.

G.R. No. 159691, June 13, 2013 - HEIRS OF MARCELO SOTTO, REPRESENTED BY: LOLIBETH SOTTO
NOBLE, DANILO C. SOTTO, CRISTINA C. SOTTO, EMMANUEL C. SOTTO AND FILEMON C. SOTTO; AND
SALVACION BARCELONA, AS HEIR OF DECEASED MIGUEL BARCELONA, Petitioners, v. MATILDE S.
PALICTE, Respondent.

G.R. No. 160786, June 17, 2013 - SIMPLICIA O. ABRIGO AND DEMETRIO ABRIGO, Petitioners, v. JIMMY F.
FLORES, EDNA F. FLORES, DANILO FLORES, BELINDA FLORES, HECTOR FLORES, MARITES FLORES, HEIRS
OF MARIA F. FLORES, JACINTO FAYLONA, ELISA FAYLONA MAGPANTAY, MARIETTA FAYLONA
CARTACIANO, AND HEIRS OF TOMASA BANZUELA VDA. DE FAYLONA, Respondents.

G.R. No. 160982, June 26, 2013 - MANILA JOCKEY CLUB, INC., Petitioner,v. AIMEE O. TRAJANO,
Respondent.

G.R. No. 161878, June 05, 2013 - PHILWORTH ASIAS, INC., SPOUSES LUISITO AND ELIZABETH MACTAL,
AND SPOUSES LUIS AND ELOISA REYES, Petitioners, v. PHILIPPINE COMMERCIAL INTERNATIONAL BANK,
Respondent.
G. R. No. 163061, June 26, 2013 - ALFONSO L. FIANZA, Petitioner, v. NATIONAL LABOR RELATIONS
COMMISSION (SECOND DIVISION), BINGA HYDROELECTRIC PLANT, INC., ANTHONY C. ESCOLAR, ROLAND
M. LAUTCHANG, Respondents.

G.R. No. 172334, June 05, 2013 - DR. ZENAIDA P. PIA, Petitioner, v. HON. MARGARITO P. GERVACIO, JR.,
OVERALL DEPUTY OMBUDSMAN, FORMERLY ACTING OMBUDSMAN, OFFICE OF THE OMBUDSMAN, DR.
OFELIA M. CARAGUE, FORMERLY PUP PRESIDENT, DR. ROMAN R. DANNUG, FORMERLY DEAN, COLLEGE
OF ECONOMICS, FINANCE AND POLITICS (CEFP), NOW ASSOCIATE PROFESSOR, CEFP POLYTECHNIC
UNIVERSITY OF THE PHILIPPINES (PUP), STA. MESA, MANILA, Respondents.

G.R. No. 172892, June 13, 2013 - PHILIPPINE DEPOSIT INSURANCE CORPORATION, Petitioner, v. BUREAU
OF INTERNAL REVENUE, Respondent.

G.R. No. 173330, June 17, 2013 - LUCILLE DOMINGO, Petitioner, v. MERLINDA COLINA, Respondent.

G.R. No. 173946, June 19, 2013 - BOSTON EQUITY RESOURCES, INC., Petitioner, v. COURT OF APPEALS
AND LOLITA G. TOLEDO, Respondents.

G.R. No. 174908, June 17, 2013 - DARMA MASLAG, Petitioner, v. AND ELIZABETH MONZON, WILLIAM
GESTON, REGISTRY OF DEEDS OF BENGUET, Respondents.

G.R. Nos. 175279-80, June 05, 2013 - SUSAN LIM-LUA, Petitioner, v. DANILO Y. LUA, Respondent.

G.R. No. 175542 and 183205, June 05, 2013 - GREEN ACRES HOLDINGS, INC., Petitioner, v. VICTORIA P.
CABRAL, SPS. ENRIQUE T. MORAGA and VICTORIA SORIANO, FILCON READY MIXED, INC., DEPARTMENT
OF AGRARIAN REFORM ADJUDICATION BOARD (DARAB), and REGISTRY OF DEEDS OF BULACAN,
MEYCAUAYAN BRANCH, Respondents.; VICTORIA P. CABRAL, Petitioner, v. PROVINCIAL ADJUDICATOR,
JOSEPH NOEL C. LONGBOAN / OFFICE OF THE AGRARIAN REFORM ADJUDICATOR, GREEN ACRES
HOLDINGS, INC., SPOUSES ENRIQUE T. MORAGA and VICTORIA SORIANO and FILCON READY MIXED,
INC., Respondents.

G.R. No. 175900, June 10, 2013 - KAPISANANG PANGKAUNLARAN NG KABABAIHANG POTRERO, INC.
AND MILAGROS H. REYES, Petitioners, v. REMEDIOS BARRENO, LILIBETH AMETIN, DRANREV F. NONAY,
FREDERICK D. DIONISIO AND MARITES CASIO, Respondents.
G.R. No. 176425, June 05, 2013 - HEIRS OF MANUEL UY EK LIONG, REPRESENTED BY BELEN LIM VDA. DE
UY, Petitioners, v. MAURICIA MEER CASTILLO, HEIRS OF BUENAFLOR C. UMALI, REPRESENTED BY NANCY
UMALI, VICTORIA H. CASTILLO, BERTILLA C. RADA, MARIETTA C. CAVANEZ, LEOVINA C. JALBUENA AND
PHILIP M. CASTILLO, Respondents.

G.R. No. 176838, June 13, 2013 - DEPARTMENT OF AGRARIAN REFORM, AS REPRESENTED BY FRITZI C.
PANTOJA, IN HER CAPACITY AS THE PROVINCIAL AGRARIAN REFORM OFFICER, DAR-LAGUNA, Petitioner,
v. PARAMOUNT HOLDINGS EQUITIES, INC., JIMMY CHUA, ROJAS CHUA, BENJAMIN SIM, SANTOS C. TAN,
WILLIAM C. LEE AND STEWART C. LIM, Respondents.

G.R. No. 178947, June 26, 2013 - VIRGINIA DE LOS SANTOS-DIO, AS AUTHORIZED REPRESENTATIVE OF
H.S. EQUITIES, LTD., AND WESTDALE ASSETS, LTD., Petitioner, v. THE HONORABLE COURT OF APPEALS,
JUDGE RAMON S. CAGUIOA, IN HIS CAPACITY AS PRESIDING JUDGE OF BRANCH 74, REGIONAL. TRIAL
COURT, OLONGAPO CITY, AND TIMOTHY J. DESMOND, Respondents. - R E S O L U T I O N; G.R. No.
179079 - June 26, 2013 - PEOPLE OF PHILIPPINES, The Petitioner, v. TIMOTHY J. DESMOND, Respondent.

G.R. No. 179448, June 26, 2013 - CARLOS L. TANENGGEE, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.

G.R. No. 179685, June 19, 2013 - CONRADA O. ALMAGRO, Petitioner, v. SPS. MANUEL AMAYA, SR. AND
LUCILA MERCADO, JESUS MERCADO, SR., AND RICARDO MERCADO, Respondents.

G.R. No. 179736, June 26, 2013 - SPOUSES BILL AND VICTORIA HING, Petitioners, v. ALEXANDER
CHOACHUY, SR. AND ALLAN CHOACHUY, Respondents.

G.R. No. 179267, June 25, 2013 - JESUS C. GARCIA, Petitioner, v. THE HONORABLE RAY ALAN T. DRILON,
PRESIDING JUDGE, REGIONAL TRIAL COURT-BRANCH 41, BACOLOD CITY, AND ROSALIE JAYPE-GARCIA,
FOR HERSELF IN BEHALF OF MINOR CHILDREN, NAMELY: JO-ANN, JOSEPH AND EDUARD, JESSE
ANTHONE, ALL SURNAMED GARCIA, Respondents.

G.R. No. 180476, June 26, 2013 - RAYMUNDO CODERIAS, AS REPRESENTED BY HIS ATTORNEY-IN-FACT,
MARLON M. CODERIAS, Petitioner, v. ESTATE OF JUAN CHIOCO, REPRESENTED BY ITS ADMINISTRATOR,
DR. RAUL R. CARAG, Respondent.
G.R. No. 182072, June 28, 2013 - UNIVAC DEVELOPMENT, INC., Petitioner, v. WILLIAM M. SORIANO,
Respondent.

G.R. No. 182130, June 19, 2013 - IRIS KRISTINE BALOIS ALBERTO AND BENJAMIN D. BALOIS, Petitioners,
v. THE HON. COURT OF APPEALS, ATTY. RODRIGO A. I REYNA, ARTURO S. CALIANGA, GIL ANTHONY M.
CALIANGA, JESSEBEL CALIANGA, AND GRACE. EVANGELISTA, Respondents. - G.R. NO. 182132, June 19,
2013 - THE SECRETARY OF JUSTICE, THE CITY PROSECUTOR OF MUNTINLUPA, THE PRESIDING JUDGE OF
THE REGIONAL TRIAL COURT OF MUNTINLUPA CITY, BENJAMIN D. BALOIS, AND IRIS KRISTINE BALOIS,
ALBERTO, Petitioners, v. ATTY. RODRIGO A. REYNA, ARTURO S. CALIANGA, GIL ANTHONY M. CALIANGA,
JESSEBEL CALIANGA, AND GRACE EVANGELISTA, Respondents.

G.R. No. 182295, June 26, 2013 - 7K CORPORATION, Petitioner, v. EDDIE ALBARICO, Respondent.

G.R. No. 182855, June 05, 2013 - MR. ALEXANDER “LEX” ADONIS, REPRESENTED BY THE CENTER FOR
MEDIA FREEDOM AND RESPONSIBILITY (CMFR), THROUGH ITS EXECUTIVE DIRECTOR, MRS. MELINDA
QUINTOS-DE JESUS; AND THE NATIONAL UNION OF JOURNALISTS OF THE PHILIPPINES (NUJP),
THROUGH ITS CHAIRPERSON, MR. JOSE TORRES, JR., Petitioners, v. SUPERINTENDENT VENANCIO
TESORO, DIRECTOR, DAVAO PRISONS AND PENAL FARM, PANABO CITY, DIGOS, DAVAO DEL NORTE,
Respondent.

G.R. No. 182957, June 13, 2013 - ST. JOSEPH ACADEMY OF VALENZUELA FACULTY ASSOCIATION
(SJAVFA)-FUR CHAPTER-TUCP, Petitioner, v. ST. JOSEPH ACADEMY OF VALENZUELA AND DAMASO D.
LOPEZ, Respondents.

G.R. No. 183091, June 19, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. BERNESTO DE LA
CRUZ @ BERNING, Accused-Appellant.

G.R. No. 184116, June 19, 2013 - CENTURY IRON WORKS, INC. AND BENITO CHUA, Petitioners, v. ELETO
B. BAÑAS, Respondent.

G.R. No. 184589, June 13, 2013 - DEOGENES O. RODRIGUEZ, Petitioner, v. HON. COURT OF APPEALS AND
PHILIPPINE CHINESE CHARITABLE ASSOCIATION, INC., Respondents.

G.R. No. 185129, June 17, 2013 - ABELARDO JANDUSAY, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.
G.R. No. 185604, June 13, 2013 - REPUBLIC OF THE PHILIPPINES, Petitioner, v. EDWARD M. CAMACHO,
Respondent.

G.R. No. 185719, June 17, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MARCELINO
COLLADO Y CUNANAN, MYRA COLLADO Y SENICA, MARK CIPRIANO Y ROCERO, SAMUEL SHERWIN
LATARIO Y ENRIQUE,* AND REYNALDO RANADA Y ALAS,** Accused-Appellants.

G.R. Nos. 185729-32, June 26, 2013 - PEOPLE OF THE PHILIPPINES, Petitioner, v. THE HONORABLE
SANDIGANBAYAN (FOURTH DIVISION), ANTONIO P. BELICENA, ULDARICO P. ANDUTAN, JR., RAUL C. DE
VERA, ROSANNA P. DIALA AND JOSEPH A. CABOTAJE, Respondents.

G.R. No. 185830, June 05, 2013 - ECOLE DE CUISINE MANILLE (CORDON BLEU OF THE PHILIPPINES), INC.,
Petitioner, v. RENAUIL COINTREAU & CIE AND LE CORDON BLEU INT'L., B.V., Respondents.

G.R. No. 185821, June 13, 2013 - LAND BANK OF THE PHILIPPINES, Petitioner, v. ATTY. RICARDO D.
GONZALEZ, Respondent.

G.R. No. 186014, June 26, 2013 - ALI AKANG, Petitioner, v. MUNICIPALITY OF ISULAN, SULTAN KUDARAT
PROVINCE, REPRESENTED BY ITS MUNICIPAL MAYOR AND MUNICIPAL VICE MAYOR AND MUNICIPAL
COUNCILORS/KAGAWADS, Respondent.

G.R. No. 185891, June 26, 2013 - CATHAY PACIFIC AIRWAYS, Petitioner, v. JUANITA REYES, WILFI EDO
REYES, MICHAEL ROY REYES, SIXTA LAPUZ, AND SAMPAGUITA TRAVEL CORP., Respondents.

G.R. No. 186475, June 26, 2013 - POSEIDON INTERNATIONAL MARITIME SERVICES, INC., Petitioner, v.
TITO R. TAMALA, FELIPE S. SAURIN, JR., ARTEMIO A. BO-OC AND JOEL S. FERNANDEZ, Respondents.

G.R. No. 186137, June 26, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. DATU NOT ABDUL,
Defendant-Appellant.

G. R. No. 186732, June 13, 2013 - ALPS TRANSPORTATION AND/OR ALFREDO E. PEREZ, Petitioners, v.
ELPIDIO M. RODRIGUEZ, Respondent.
G. R. No. 187587, June 05, 2013 - NAGKAKAISANG MARALITA NG SITIO MASIGASIG, INC., Petitioner, v.
MILITARY SHRINE SERVICES – PHILIPPINE VETERANS AFFAIRS OFFICE, DEPARTMENT OF NATIONAL
DEFENSE, Respondent.; G. R. NO. 187654, June 05, 2013 - WESTERN BICUTAN LOT OWNERS
ASSOCIATION, INC., REPRESENTED BY ITS BOARD OF DIRECTORS, Petitioner, v. MILITARY SHRINE
SERVICES – PHILIPPINE VETERANS AFFAIRS OFFICE, DEPARTMENT OF NATIONAL DEFENSE, Respondent.

G.R. No.187722, June 10, 2013 - SURIGAO DEL NORTE ELECTRIC COOPERATIVE, INC. AND/OR DANNY Z.
ESCALANTE, Petitioners, v. TEOFILO GONZAGA, Respondent.

G.R. Nos. 187896-97, June 10, 2013 - AMANDO P. CORTES, Petitioner, v. OFFICE OF THE OMBUDSMAN
(VISAYAS), VICTORY M. FERNANDEZ, JULIO E. SUCGANG AND NILO IGTANLOC, Respondents.

G.R. No. 188024, June 05, 2013 - RODRIGO RONTOS Y DELA TORRE, Petitioner, v. PEOPLE OF THE
PHILIPPINES, Respondent.

G.R. No. 188310, June 13, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MERCIDITA T.
RESURRECCION, Accused-Appellant.

G.R. No. 189836, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. ROMEO
BUSTAMANTE Y ALIGANGA, Accused-Appellant.

G.R. No. 189846, June 26, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. RAMIL MORES,
Accused-Appellant.

G.R. No. 190818, June 05, 2013 - METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME
HOLDINGS, INC., STAR APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC.,
HEALTH AND BEAUTY, INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING CORPORATION,
Petitioners, v. MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of Manila, and THE
CITY OF MANILA, Respondents.

G. R. No. 190957, June 05, 2013 - PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner, v.
APAC MARKETING CORPORATION, REPRESENTED BY CESAR M. ONG, JR., Respondents.
G.R. No. 191267, June 26, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MONICA MENDOZA
Y TRINIDAD, Accused-Appellant.

G.R. No. 191391, June 19, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. BENEDICT HOMAKY
LUCIO, Accused-Appellant.

G.R. No. 191752, June 10, 2013 - PEOPLE OF THE PHILIPPINES, Appellee, v. JOSE ARMANDO CERVANTES
CACHUELA AND BENJAMIN JULIAN CRUZ IBAÑEZ, Accused. BENJAMIN JULIAN CRUZ IBAÑEZ, Accused-
Appellant.

G.R. No. 191903, June 19, 2013 - MAGSAYSAY MARITIME CORPORATION AND/OR WESTFAL-LARSEN
AND CO., A/S, Petitioners, v. NATIONAL LABOR RELATIONS COMMISSION, FIRST DIVISION, AND WILSON
G. CAPOY, Respondents.

G.R. No. 192239, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. RICARDO
PAMINTUAN Y SAHAGUN, Accused-Appellant.

G.R. No. 192601, June 03, 2013 - PHILIPPINE JOURNALISTS, INC., Petitioner, v. JOURNAL EMPLOYEES
UNION (JEU), FOR ITS UNION MEMBER, MICHAEL ALFANTE, Respondents.

G.R. No. 192890, June 17, 2013 - LAND BANK OF THE PHILIPPINES, Petitioner, v. VIRGINIA PALMARES,
LERMA P. AVELINO, MELILIA P. VILLA, NINIAN P. CATEQUISTA, LUIS PALMARES, JR., SALVE P.
VALENZUELA, GEORGE P. PALMARES, AND DENCEL P. PALMARES HEREIN REPRESENTED BY THEIR
ATTORNEY-IN-FACT, LERMA P. AVELINO, Respondents.

G.R. No. 193314, June 25, 2013 - SVETLANA P. JALOSJOS, Petitioner, v. COMMISSION ON ELECTIONS,
EDWIN ELIM TUPAG AND RODOLFO Y. ESTRELLADA, Respondents.

G.R. No. 192913, June 13, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. JOEL REBOTAZO Y
ALEJANDRIA, Accused-Appellant.

G.R. No. 193453, June 05, 2013 - SPOUSES RUBIN AND PORTIA HOJAS, Petitioners, v. PHILIPPINE
AMANAH BANK AND RAMON KUE, Respondents.
G.R. No. 193747, June 05, 2013 - JOSELITO C. BORROMEO, Petitioner, v. JUAN T. MINA, Respondent.

G.R. No. 194062, June 17, 2013 - REPUBLIC GAS CORPORATION, ARNEL U. TY, MARI ANTONETTE N. TY,
ORLANDO REYES, FERRER SUAZO AND ALVIN U. TY, Petitioners, v. PETRON CORPORATION, PILIPINAS
SHELL PETROLEUM CORPORATION, AND SHELL INTERNATIONAL PETROLEUM COMPANY LIMITED,
Respondents.

G.R. No. 194247, June 19, 2013 - BASES CONVERSION DEVELOPMENT AUTHORITY, Petitioner, v. ROSA
REYES, CENANDO, REYES AND CARLOS REYES, Respondents.

G.R. No. 194362, June 26, 2013 - PHILIPPINE HAMMONIA SHIP AGENCY, INC. (NOW KNOWN AS BSM
CREW SERVICE CENTRE PHILIPPINES, INC.) AND DORCHESTER MARINE LTD., Petitioners, v. EULOGIO V.
DUMADAG, Respondent.

G.R. No. 194382, June 10, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. GLORIA CALUMBRES
Y AUDITOR, Accused-Appellant.

G. R. No. 194384, June 13, 2013 - JOSELITO RAMOS, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.

G.R. No. 194846, June 28, 2013 - HOSPICIO D. ROSAROSO, ANTONIO D. ROSAROSO, MANUEL D.
ROSAROSO, ALGERICA D. ROSAROSO, AND CLEOFE R. LABINDAO, Petitioners, v. LUCILA LABORTE SORIA,
SPOUSES HAM SOLUTAN AND **LAILA SOLUTAN, AND MERIDIAN REALTY CORPORATION, Respondents.

G.R. No. 195777, June 19, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. FERDINAND CASTRO
Y LAPENA, Accused-Appellant.

G.R. No. 196049, June 26, 2013 - MINORU FUJIKI, Petitioner, v. MARIA PAZ GALELA MARINAY, SHINICHI
MAEKARA, LOCAL CIVIL REGISTRAR OF QUEZON CITY, AND THE ADMINISTRATOR AND CIVIL REGISTRAR
GENERAL OF THE NATIONAL STATISTICS OFFICE, Respondents.

G.R. No. 197363, June 26, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. ROMAN ZAFRA Y
SERRANO, Accused-Appellant.
G.R. No. 197861, June 05, 2013 - SPOUSES FLORENTINO T. MALLARI AND AUREA V. MALLARI,
Petitioners, v. PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE ISLANDS), Respondent.

G.R. No. 197049, June 10, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MARIA JENNY REA Y
GUEVARRA AND ESTRELLITA TENDENILLA, Accused-Appellants.

G.R. No. 198732, June 10, 2013 - CHRISTIAN CABALLO, Petitioner, v. PEOPLE OF THE PHILIPPINES,
Respondent.

G.R. No. 198789, June 03, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. REGGIE BERNARDO,
Accused-Appellant.

G.R. No. 199354, June 26, 2013 - WILSON T. GO, Petitioner, v. BPI FINANCE CORPORATION, Respondent.

G.R. No. 199650, June 26, 2013 - J PLUS ASIA DEVELOPMENT CORPORATION, Petitioner, v. UTILITY
ASSURANCE CORPORATION, Respondent.

G.R. No. 200094, June 10, 2013 - BENIGNO M. VIGILLA, ALFONSO M. BONGOT, ROBERTO CALLESA,
LINDA C. CALLO, NILO B. CAMARA, ADELIA T. CAMARA, ADOLFO G. PINON, JOHN A. FERNANDEZ,
FEDERICO A. CALLO, MAXIMA P. ARELLANO, JULITO B. COSTALES, SAMSON F. BACHAR, EDWIN P. DAMO,
RENATO E. FERNANDEZ, GENARO F. CALLO, JIMMY C. ALETA, AND EUGENIO SALINAS, Petitioners, v.
PHILIPPINE COLLEGE OF CRIMINOLOGY INC. AND/OR GREGORY ALAN F. BAUTISTA, Respondents.

G.R. No. 200329, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. RICARDO PIOSANG,
Accused-Appellant.

G.R. No. 200402, June 13, 2013 - PRIVATIZATION AND MANAGEMENT OFFICE, Petitioner, v. STRATEGIC
ALLIANCE DEVELOPMENT CORPORATION AND/OR PHILIPPINE ESTATE CORPORATION, Respondent.

G.R. No. 200507, June 26, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. PETER LINDA Y
GEROLAGA, Accused-Appellant.
G.R. No. 200837, June 05, 2013 - MAERSK FILIPINAS CREWING INC./MAERSK SERVICES LTD., AND/OR
MR. JEROME DELOS ANGELES, Petitioners, v. NELSON E. MESINA, Respondent.

G.R. No. 200882, June 13, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. ABEL DIAZ, Accused-
Appellant.

G.R. No. 201251, June 26, 2013 - INTER-ORIENT MARITIME, INCORPORATED AND/OR TANKOIL
CARRIERS, LIMITED, Petitioners, v. CRISTINA CANDAVA, Respondent.

G.R. No. 201701, June 03, 2013 - UNILEVER PHILIPPINES, INC., Petitioner, v. MARIA RUBY M. RIVERA,
Respondent.

G.R. No. 201723, June 13, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. PERCIVAL DELA ROSA
Y BAYER, Accused-Appellant.

G.R. No. 203041, June 05, 2013 - PEOPLE OF THE PHILIPPINES, Plaintiff-Appellee, v. MOISES CAOILE,
Accused-Appellant.

G.R. No. 205033, June 18, 2013 - ROMEO G. JALOSJOS, Petitioner, v. THE COMMISSION ON ELECTIONS,
MARIA ISABELLE G. CLIMACO-SALAZAR, ROEL B. NATIVIDAD, ARTURO N. ONRUBIA, AHMAD NARZAD K.
SAMPANG, JOSE L. LOBREGAT, ADELANTE ZAMBOANGA PARTY, AND ELBERT C. ATILANO, Respondents.

G.R. No. 207264, June 25, 2013 - REGINA ONGSIAKO REYES, Petitioner, v. COMMISSION ON ELECTIONS
AND JOSEPH SOCORRO B. TAN, Respondents.

A.M. No. MTJ-11-1778 (Formerly OCA IPI No. 08-1966- MTJ), June 05, 2013 - MARICOR L. GARADO,
Complainant, v. REYES, JJ. JUDGE LIZABETH GUTIERREZ-TORRES, Respondent.

A.M. No. P-01-1448 (FORMERLY OCA IPI NO. 99-664-P), June 23, 2013 - RODOLFO C. SABIDONG,
Complainant, v. NICOLASITO S. SOLAS (CLERK OF COURT IV), Respondent.

A.M. No. P-08-2439 (Formerly OCA IPI No. 08-2733-P), June 25, 2013 - JUDGE MA. MONINA S. MISAJON,
MUNICIPAL TRIAL COURT (MTC), SAN JOSE, ANTIQUE, Complainant, v. JERENCE P. HIPONIA, CLERK II,
ELIZABETH B. ESCANILLAS, STENOGRAPHER I, WILLIAM M. YGLESIAS, PROCESS SERVER, AND CONRADO
A. RAFOLS, JR., UTILITY AIDE, ALL OF THE SAME COURT, Respondents.

A.M. No. P-11-2980 (Formerly OCA I.P.I. No. 08-3016-P), June 10, 2013 - LETICIA A. ARIENDA,
Complainant, v. EVELYN A. MONILLA, COURT STENOGRAPHEIL III, REGIONAL TRIAL COURT, BRANCH 4,
LEGAZPI CITY, Respondent.

A.M. No. RTJ-09-2181 [Formerly A.M. No. 09-4-174-RTJ], June 25, 2013 - OFFICE OF THE COURT
ADMINISTRATOR, Complainant, v. RETIRED JUDGE GUILLERMO R. ANDAYA, Respondent.

A.M. NO. SCC-08-11-P, June 18, 2013 - CIVIL SERVICE COMMISSION, Complainant, v. ISMAEL A. HADJI
ALI, COURT STENOGRAPHER I, SHARI'A CIRCUIT COURT, TUBOD, LANAO DEL NORTE [FORMERLY A.M.
NO. 04-9-03-SCC] (RE: FORMAL CHARGE BY THE CIVIL SERVICE COMMISSION VS. ISMAEL A. HADJI ALI,
COURT STENOGRAPHER I, SHARI'A CIRCUIT COURT, TUBOD, LANAO DEL NORTE), Respondent.

A.M. SB -13-20-P [Formerly A.M. No. 12-29-SB-P], June 26, 2013 - RIA PAMELA B. ABULENCIA AND
BLESSIE M. BURGONIO, COMPLAINANTS, v. REGINO R. HERMOSISIMA, SECURITY GUARD II, SHERIFF AND
SECURITY DIVISION, SANDIGANBAYAN, Respondent.

Adm. Case No. 7332, June 18, 2013 - EDUARDO A. ABELLA, Complainant, v. RICARDO G. BARRIOS, JR.,
Respondent.

Philippine Supreme Court Jurisprudence > Year 2013 > June 2013 Decisions > G.R. No. 190818, June 05,
2013 - METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME HOLDINGS, INC., STAR
APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC., HEALTH AND BEAUTY,
INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING CORPORATION, Petitioners, v. MS. LIBERTY M.
TOLEDO, in her official capacity as the City Treasurer of Manila, and THE CITY OF MANILA, Respondents.:
G.R. No. 190818, June 05, 2013 - METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME
HOLDINGS, INC., STAR APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC.,
HEALTH AND BEAUTY, INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING CORPORATION,
Petitioners, v. MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of Manila, and THE
CITY OF MANILA, Respondents.

G.R. No. 190818, June 05, 2013 - METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC.,
SM PRIME HOLDINGS, INC., STAR APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE
PHILIPPINES, INC., HEALTH AND BEAUTY, INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING
CORPORATION, Petitioners, v. MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of
Manila, and THE CITY OF MANILA, Respondents.

PHILIPPINE SUPREME COURT DECISIONS

SECOND DIVISION

G.R. No. 190818, June 05, 2013

METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME HOLDINGS, INC., STAR
APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC., HEALTH AND BEAUTY,
INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING CORPORATION, Petitioners, v. MS. LIBERTY M.
TOLEDO, in her official capacity as the City Treasurer of Manila, and THE CITY OF MANILA, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 is the September 8, 2009 Decision2 and January 4, 2010
Resolution3 of the Court of Tax Appeals (CTA) En Banc in CTA E.B. No. 480 which affirmed the October
31, 2008 Decision4 of the CTA Second Division (CTA Division), denying petitioners Metro Manila
Shopping Mecca Corp., Shoemart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Super Value,
Inc., Ace Hardware Philippines, Inc., Health and Beauty, Inc., Jollimart Phils. Corp., and Surplus
Marketing Corporation’s claim for refund of local business taxes.

The Facts
Sometime in October 2001, respondent Liberty M. Toledo, as Treasurer of respondent City of Manila
(City), assessed petitioners for their fourth quarter local business taxes pursuant to Section 21 of City
Ordinance No. 7794, as amended by City Ordinance Nos. 7807, 7988, and 8011, otherwise known as the
"Revenue Code of the City of Manila" (Manila Revenue Code).5 Consequently, on October 20, 2001,
petitioners paid the total assessed amount of P5,104,281.26 under protest.6

In a letter7 dated October 19, 2001, petitioners informed the Office of the City Treasurer of Manila of
the nature of the foregoing payment, assailing as well the unconstitutionality of Section 21 of the Manila
Revenue Code. Petitioners’ protest was however denied8 on October 25, 2001.

On October 20, 2003, petitioners filed a case with the Regional Trial Court of Manila (RTC) against
respondents, reiterating their claim that Section 21 of the Manila Revenue Code is null and void.
Accordingly, they sought the refund of the amount of local business taxes they previously paid to the
City, plus interest. On November 14, 2003, petitioners filed an Amended Complaint which in essence,
reprised their previous claims.9

For their part, respondents filed a Motion to Dismiss10 dated November 6, 2003 (Motion to Dismiss). In
an Order11 dated December 10 2003, the RTC did not address the arguments raised in the aforesaid
Motion to Dismiss but merely admitted petitioners’ amended complaint. Consequently, respondents
filed their Answer12 on December 16, 2003 (Answer). Notably, in their Motion to Dismiss and Answer,
respondents averred that petitioners failed to file any written claim for tax refund or credit with the
Office of the City Treasurer of Manila.13

On July 8, 2004, petitioners sent respondents a Request for Admissions & Interrogatories14 dated July 7,
2004 (Request for Admission), which inter alia requested the admission of the fact that the former filed
a written protest with the latter. Respondents did not respond to the said Request for Admission.

During pre-trial, the parties stipulated on the following issues: (1) whether petitioners were invalidly
assessed local business taxes due to the unconstitutionality of Section 21 of the Manila Revenue Code;
and (2) whether petitioners are entitled to a tax refund/credit in the amount of P5,104,281.26.

The Ruling of the RTC


In its Decision15 dated December 7, 2006, the RTC held that respondents’ assessment of local business
tax under Section 21 of the Manila Revenue Code is null and void thereby, warranting the issuance of a
tax refund, or tax credit in the alternative, in the amount of P5,104,281.26 in favor of petitioners.16

In arriving at the same, it noted the case of Coca-Cola Bottlers Philippines, Inc. v. City of Manila (Coca-
Cola Bottlers)17 where the Court declared the nullity of City Ordinance Nos. 7988 and 8011. Incidentally,
these are the amendatory ordinances which made petitioners liable for local business taxes under the
present Manila Revenue Code. Thus, the RTC opined that pursuant to the pronouncement in Coca-Cola
Bottlers, it had no alternative but to declare the assessments made in the present case null and void as
well.18

Respondents filed a Motion for Reconsideration19 dated January 16, 2007 which the RTC, however,
denied in its Order20 dated April 17, 2007. Respondents received a copy of the said order on April 27,
2007. Thereafter, they filed two (2) Motions for Extension to File Petition for Review with the CTA,
effectively requesting for a period of thirty (30) days from May 27, 2007, or until June 26, 2007, to file
their petition for review.21

On June 26, 2007, respondents filed their Petition for Review22 dated June 22, 2007 via registered mail.
On June 28, 2007, respondents likewise filed a Manifestation23 dated June 27, 2007 via personal filing,
alleging that they have previously filed their Petition for Review via registered mail on June 26, 2007 and
that they are attaching another copy of the same in the Manifestation. In its Resolution dated July 6,
2007, the CTA Division granted respondents’ Motions for Extension, noted their Manifestation, and
admitted their Petition for Review.24

The Ruling of the CTA Division

In its Decision dated October 31, 2008, the CTA Division reversed and set aside the RTC’s ruling and in
effect, denied petitioners’ request for tax refund/credit.25

It held that petitioners failed to contest the denial of their protest before a court of competent
jurisdiction within the period provided for under Section 19526 of Republic Act No. 7160, otherwise
known as the "Local Government Code of 1991" (LGC), and thus, the assessment became conclusive and
unappealable. In this regard, petitioners could no longer contest the validity of such assessment when
they filed their Complaint and Amended Complaint on October 20, 2003 and November 14, 2003,
respectively.27
It likewise ruled that petitioners failed to comply with Section 19628 of the LGC, considering that their
letter dated October 19, 2001 to respondents was a mere protest letter and as such, could not be
treated as a written claim for refund.29

On November 19, 2008, petitioners moved for reconsideration, averring that respondents failed to file
their Petition for Review within the reglementary period thus, making the RTC decision already final and
executory. On March 16, 2009, the CTA Division issued a Resolution30 denying petitioners’ motion.
Aggrieved, petitioners elevated the matter to the CTA En Banc.

The Ruling of the CTA En Banc

In its Decision dated September 8, 2009, the CTA En Banc upheld the CTA Division’s ruling and found
that: (1) respondents were able to file their Petition for Review within the reglementary period; (2) the
assessment of local business taxes against petitioners had become conclusive and unappealable; and (3)
petitioners’ claim for refund should be denied for their failure to comply with the requisites provided for
by law.31

On October 1, 2009, petitioners moved for reconsideration but the CTA En Banc denied the same in its
Resolution32 dated January 4, 2010.

Hence, this petition.

The Issues Before the Court

The following issues have been raised for the Court’s resolution: (1) whether the CTA Division correctly
gave due course to respondents’ Petition for Review; and (2) whether petitioners are entitled to a tax
refund/credit.

The Court’s Ruling

The petition is bereft of merit.

A. Respondents’ Petition for


Review with the CTA Division

Petitioners argue that the CTA Division erred in extending the reglementary period within which
respondents may file their Petition for Review, considering that Section 3, Rule 833 of the Revised Rules
of the CTA (RRCTA) is silent on such matter. Further, even if it is assumed that an extension is allowed,
the CTA Division should not have entertained respondents’ Petition for Review for their failure to
comply with the filing requisites set forth in Section 4, Rule 534 and Section 2, Rule 635 of the RRCTA.

Petitioners’ arguments fail to persuade.

Although the RRCTA does not explicitly sanction extensions to file a petition for review with the CTA,
Section 1, Rule 736 thereof reads that in the absence of any express provision in the RRCTA, Rules 42,
43, 44 and 46 of the Rules of Court may be applied in a suppletory manner. In particular, Section 937 of
Republic Act No. 9282 makes reference to the procedure under Rule 42 of the Rules of Court. In this
light, Section 1 of Rule 4238 states that the period for filing a petition for review may be extended upon
motion of the concerned party. Thus, in City of Manila v. Coca-Cola Bottlers Philippines, Inc.,39 the Court
held that the original period for filing the petition for review may be extended for a period of fifteen (15)
days, which for the most compelling reasons, may be extended for another period not exceeding fifteen
(15) days.40 In other words, the reglementary period provided under Section 3, Rule 8 of the RRCTA is
extendible and as such, CTA Division’s grant of respondents’ motion for extension falls squarely within
the law.

Neither did respondents’ failure to comply with Section 4, Rule 5 and Section 2, Rule 6 of the RRCTA
militate against giving due course to their Petition for Review. Respondents’ submission of only one
copy of the said petition and their failure to attach therewith a certified true copy of the RTC’s decision
constitute mere formal defects which may be relaxed in the interest of substantial justice. It is well-
settled that dismissal of appeals based purely on technical grounds is frowned upon as every party
litigant must be afforded the amplest opportunity for the proper and just determination of his cause,
free from the unacceptable plea of technicalities.41 In this regard, the CTA Division did not overstep its
boundaries when it admitted respondents’ Petition for Review despite the aforementioned defects "in
the broader interest of justice."

Having resolved the foregoing procedural matter, the Court proceeds to the main issue in this case.

B. Petitioners’ claim for tax

refund/credit
A perusal of Section 19642of the LGC reveals that in order to be entitled to a refund/credit of local
taxes, the following procedural requirements must concur: first, the taxpayer concerned must file a
written claim for refund/credit with the local treasurer; and second, the case or proceeding for refund
has to be filed within two (2) years from the date of the payment of the tax, fee, or charge or from the
date the taxpayer is entitled to a refund or credit.

Records disclose that while the case or proceeding for refund was filed by petitioners within two (2)
years from the time of payment,43 they, however, failed to prove that they have filed a written claim for
refund with the local treasurer considering that such fact — although subject of their Request for
Admission which respondents did not reply to — had already been controverted by the latter in their
Motion to Dismiss and Answer.

To elucidate, the scope of a request for admission filed pursuant to Rule 26 of the Rules of Court and a
party’s failure to comply with the same are respectively detailed in Sections 1 and 2 thereof, to
wit:cralavvonlinelawlibrary

SEC. 1. Request for admission. — At any time after issues have been joined, a party may file and serve
upon any other party a written request for the admission by the latter of the genuineness of any
material and relevant document described in and exhibited with the request or of the truth of any
material and relevant matter of fact set forth in the request. Copies of the documents shall be delivered
with the request unless copies have already been furnished.

SEC. 2. Implied admission. — Each of the matters of which an admission is requested shall be deemed
admitted unless, within a period designated in the request, which shall not be less than fifteen (15) days
after service thereof, or within such further time as the court may allow on motion, the party to whom
the request is directed files and serves upon the party requesting the admission a sworn statement
either denying specifically the matters of which an admission is requested or setting forth in detail the
reasons why he cannot truthfully either admit or deny those matters.

Objections to any request for admission shall be submitted to the court by the party requested within
the period for and prior to the filing of his sworn statement as contemplated in the preceding paragraph
and his compliance therewith shall be deferred until such objections are resolved, which resolution shall
be made as early as practicable. (Emphasis and underscoring supplied)

Based on the foregoing, once a party serves a request for admission regarding the truth of any material
and relevant matter of fact, the party to whom such request is served is given a period of fifteen (15)
days within which to file a sworn statement answering the same. Should the latter fail to file and serve
such answer, each of the matters of which admission is requested shall be deemed admitted.44
The exception to this rule is when the party to whom such request for admission is served had already
controverted the matters subject of such request in an earlier pleading. Otherwise stated, if the matters
in a request for admission have already been admitted or denied in previous pleadings by the requested
party, the latter cannot be compelled to admit or deny them anew. In turn, the requesting party cannot
reasonably expect a response to the request and thereafter, assume or even demand the application of
the implied admission rule in Section 2, Rule 26.45 The rationale behind this exception had been
discussed in the case of CIR v. Manila Mining Corporation,46 citing Concrete Aggregates Corporation v.
CA,47 where the Court held as follows:cralavvonlinelawlibrary

As Concrete Aggregates Corporation v. Court of Appeals holds, admissions by an adverse party as a


mode of discovery contemplates of interrogatories that would clarify and tend to shed light on the truth
or falsity of the allegations in a pleading, and does not refer to a mere reiteration of what has already
been alleged in the pleadings; otherwise, it constitutes an utter redundancy and will be a useless,
pointless process which petitioner should not be subjected to.

Petitioner controverted in its Answers the matters set forth in respondent’s Petitions for Review before
the CTA — the requests for admission being mere reproductions of the matters already stated in the
petitions. Thus, petitioner should not be required to make a second denial of those matters it already
denied in its Answers. (Emphasis and underscoring supplied; citations omitted)

Likewise, in the case of Limos v. Odones,48 the Court explained:cralavvonlinelawlibrary

A request for admission is not intended to merely reproduce or reiterate the allegations of the
requesting party’s pleading but should set forth relevant evidentiary matters of fact described in the
request, whose purpose is to establish said party’s cause of action or defense. Unless it serves that
purpose, it is pointless, useless and a mere redundancy. (Emphasis and underscoring supplied)

Records show that petitioners filed their Request for Admission with the RTC and also served the same
on respondents, requesting that the fact that they filed a written claim for refund with the City
Treasurer of Manila be admitted.49 Respondents, however, did not — and in fact, need not – reply to
the same considering that they have already stated in their Motion to Dismiss and Answer that
petitioners failed to file any written claim for tax refund or credit.50 In this regard, respondents are not
deemed to have admitted the truth and veracity of petitioners’ requested fact.

Indeed, it is hornbook principle that a claim for a tax refund/credit is in the nature of a claim for an
exemption and the law is construed in strictissimi juris against the one claiming it and in favor of the
taxing authority.51 Consequently, as petitioners have failed to prove that they have complied with the
procedural requisites stated under Section I 96 of the LGC, their claim for local tax refund/credit must be
denied.

WHEREFORE, the petition is DENIED. The September 8, 2009 Decision and January 4, 20 I 0 Resolution of
the Court of Tax Appeals En Banc in CTA E.B. No. 480 are hereby AFFIRMED.

SO ORDERED.

Brion, (Acting Chairperson),* Del Castillo, Perez, and Leonen,** JJ., concur.

Endnotes:

* Designated Acting Chairperson in lieu of Justice Antonio T. Carpio per Special Order No. 1460 dated
May 29, 2013.cralawlibrary

** Designated Acting Member per Special Order No. 1461 dated May 29, 2013.cralawlibrary

1Rollo, pp. 13-110.cralawlibrary

2 Id. at 113-134. Penned by Associate Justice Lovell R. Bautista, with Presiding Justice Ernesto D. Acosta,
and Associate Justices Juanita C. Castaneda, Jr., Caesar A. Casanova, Erlinda P. Uy, and Olga Palanca-
Enriquez, concurring.cralawlibrary

3 Id. at 137-143.cralawlibrary

4 Id. at 214-230. Penned by Associate Justice Juanito C. Castañeda, Jr., with Associate Justices Erlinda

P. Uy and Olga Palanca-Enriquez, concurring.cralawlibrary

5 Id. at 114-115.cralawlibrary
6 Id. at 115.cralawlibrary

7 Id. at 224-225.cralawlibrary

8 Id. at 225-226.cralawlibrary

9 Id. at 115.cralawlibrary

10 Records, Vol. 1, pp. 186-195.cralawlibrary

11 Id. at 220-221.cralawlibrary

12 Id. at 234-243.cralawlibrary

13 Id. at 189, 238.cralawlibrary

14Rollo, pp. 152-158.cralawlibrary

15 Id. at 144-149. Penned by Presiding Judge Augusto T. Gutierrez.cralawlibrary

16 Id. at 149.cralawlibrary

17 526 Phil. 249, 260-261 (2006).cralawlibrary

18Rollo, p. 149.cralawlibrary

19 Id. at 159-165.cralawlibrary
20 Id. at 150-151.cralawlibrary

21 Id. at 117.cralawlibrary

22 Id. at 171-189.cralawlibrary

23 Id. at 190-192.cralawlibrary

24 Id. at 117.cralawlibrary

25 Id. at 229.cralawlibrary

26 Section 195 of the LGC provides:cralavvonlinelawlibrary

SEC. 195. Protest of Assessment. — x x x The taxpayer shall have thirty (30) days from the receipt of the
denial of the protest or from the lapse of the sixty-day period prescribed herein within which to appeal
with the court of competent jurisdiction otherwise the assessment becomes conclusive and
unappealable.cralawlibrary

27Rollo, p. 226.cralawlibrary

28 Section 196 of the LGC provides:cralavvonlinelawlibrary

SEC. 196. Claim for Refund of Tax Credit. — No case or proceeding shall be maintained in any court for
the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund
or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court
after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from
the date the taxpayer is entitled to a refund or credit.cralawlibrary

29Rollo, pp. 227-228.cralawlibrary


30 Id. at 232-238.cralawlibrary

31 Id. at 122-134.cralawlibrary

32 Id. at 137-143.cralawlibrary

33 Section 3, Rule 8 of the RRCTA provides:cralavvonlinelawlibrary

SEC. 3. Who may appeal; period to file petition. — (a) A party adversely affected by a decision, ruling or
the inaction of x x x a Regional Trial Court in the exercise of its original jurisdiction may appeal to the
Court by petition for review filed within thirty days after receipt of a copy of such decision or ruling x x
x.cralawlibrary

34 Section 4, Rule 5 of the RRCTA provides:cralavvonlinelawlibrary

SEC. 4. Number of copies. — The parties shall file eleven signed copies of every paper for cases before
the Court en banc and six signed copies for cases before a Division of the Court in addition to the signed
original copy, except as otherwise directed by the Court. x x x.cralawlibrary

35 Section 2, Rule 6 of the RRCTA provides:cralavvonlinelawlibrary

SEC. 2. Petition for review; contents. — x x x A clearly legible duplicate original or certified true copy of
the decision appealed from shall be attached to the petition.cralawlibrary

36 Section 1, Rule 7 of the RRCTA provides:cralavvonlinelawlibrary

SEC. 1. Applicability of the Rules of the Court of Appeals, exception. — The procedure in the Court en
banc or in Divisions in original and in appealed cases shall be the same as those in petitions for review
and appeals before the Court of Appeals pursuant to the applicable provisions of Rules 42, 43, 44 and 46
of the Rules of Court, except as otherwise provided for in these Rules.cralawlibrary

37 Section 9 of Republic Act No. 9282 provides:cralavvonlinelawlibrary


SEC. 9. Sec. 11 of [Republic Act No. 1125] is hereby amended to read as follows:cralavvonlinelawlibrary

SEC. 11. Who may Appeal; Mode of Appeal; Effect of Appeal. — Any party adversely affected by a
decision, ruling or inaction of the x x x Regional Trial Courts may file an appeal with the CTA within thirty
(30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for
action as referred to in Section

7(a)(2) herein.

Appeal shall be made by filing a petition for review under a procedure analogous to that provided for
under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty (30) days from the receipt
of the decision or ruling or in the case of inaction as herein provided x x x.

38 Section 1, Rule 42 of the Rules of Court provides:cralavvonlinelawlibrary

SEC. 1. How appeal taken; time for filing. — x x x Upon proper motion and the payment of the full
amount of the docket and other lawful fees and the deposit for costs before the expiration of the
reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only
within which to file the petition for review. No further extension shall be granted except for the most
compelling reason and in no case to exceed fifteen (15) days.cralawlibrary

39 G.R. No. 181845, August 4, 2009, 595 SCRA 299.cralawlibrary

40 Id. at 315.cralawlibrary

41 See Go v. Chaves, G.R. No. 182341, April 23, 2010, 619 SCRA 333, 345; citing Aguam v. CA, 388 Phil.
587, 594 (2000).cralawlibrary

42 Section 196 of the LGC provides:cralavvonlinelawlibrary

SEC. 196. Claim for Refund of Tax Credit. — No case or proceeding shall be maintained in any court for
the recovery of any tax, fee, or charge erroneously or illegally collected until a written claim for refund
or credit has been filed with the local treasurer. No case or proceeding shall be entertained in any court
after the expiration of two (2) years from the date of the payment of such tax, fee, or charge, or from
the date the taxpayer is entitled to a refund or credit.cralawlibrary
43 Petitioners paid the local business taxes to the City on October 20, 2001 and thereafter, filed their
judicial claim for refund on October 20, 2003.cralawlibrary

44 See Marcelo v. Sandiganbayan, G.R. No. 156605, August 28, 2007, 531 SCRA 385, 399; Manzano v.

Despabiladeras, G.R. No. 148786, December 16, 2004, 447 SCRA 123, 134; Motor Service Co., Inc. v.
Yellow Taxicab Co., Inc., 96 Phil. 688, 691-692 (1955).cralawlibrary

45Limos v. Odones, G.R. No. 186979, August 11, 2010, 628 SCRA 288, 298.cralawlibrary

46 G.R. No. 153204, August 31, 2005, 468 SCRA 571, 595.cralawlibrary

47 334 Phil. 77 (1997).cralawlibrary

48Limos v. Odones, supra note 45, at 298.cralawlibrary

49 Paragraphs 13 to 14, petitioners’ Request for Admissions & Interrogatories dated July 7, 2004; rollo,
pp. 152-158.cralawlibrary

50 Records, Vol.1, pp. 189 and 238.cralawlibrary

51 See KEPCO Philippines Corporation vs. Commissioner of Internal Revenue, G.R. No. 179961, January
31, 2011, 641 SCRA 70, 86; CIR v. Manila Mining Corporation, supra note 46, at 596.

G.R. No. 190818, June 05, 2013 - METRO MANILA SHOPPING MECCA CORP., SHOEMART, INC., SM PRIME
HOLDINGS, INC., STAR APPLIANCES CENTER, SUPER VALUE, INC., ACE HARDWARE PHILIPPINES, INC.,
HEALTH AND BEAUTY, INC., JOLLIMART PHILS. CORP., and SURPLUS MARKETING CORPORATION,
Petitioners, v. MS. LIBERTY M. TOLEDO, in her official capacity as the City Treasurer of Manila, and THE
CITY OF MANILA, Respondents.

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RED
Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

ALLIED BANKING

G.R. No. 175097

CORPORATION,
Petitioner,

Present:

CARPIO, J., Chairperson,


- Versus –

BRION,

DEL CASTILLO,

ABAD, and

PEREZ, JJ.

COMMISSIONER OF
INTERNAL REVENUE,

Promulgated:

Respondent.

February 5, 2010

X--------------------------------------------------------x

DECISION
DEL CASTILLO, J.:

The key to effective communication is clarity.

The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate
clearly and unequivocally to the taxpayer whether an action constitutes a final determination on a
disputed assessment.[1] Words must be carefully chosen in order to avoid any confusion that could
adversely affect the rights and interest of the taxpayer.

Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic Act (RA) No. 9282,[3] in
relation to Rule 45 of the Rules of Court, are the August 23, 2006 Decision[4] of the Court of Tax Appeals
(CTA) and its October 17, 2006 Resolution[5] denying petitioners Motion for Reconsideration.

Factual Antecedents

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount of
P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for the
taxable year 2001.[6] Petitioner received the PAN on May 18, 2004 and filed a protest against it on May
27, 2004.[7]
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which
partly reads as follows:[8]

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you
may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable.

Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.[9]

Proceedings before the CTA First Division

On September 29, 2004, petitioner filed a Petition for Review[10] with the CTA which was raffled to its
First Division and docketed as CTA Case No. 7062.[11]

On December 7, 2004, respondent CIR filed his Answer.[12] On July 28, 2005, he filed a Motion to
Dismiss[13] on the ground that petitioner failed to file an administrative protest on the Formal Letter of
Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.[14]
On October 12, 2005, the First Division of the CTA rendered a Resolution[15] granting respondents
Motion to Dismiss. It ruled:

Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to this Court. It
is the decision of the Commissioner of Internal Revenue on the disputed assessment that can be
appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out
by respondent, a disputed assessment is one wherein the taxpayer or his duly authorized representative
filed an administrative protest against the formal letter of demand and assessment notice within thirty
(30) days from date [of] receipt thereof. In this case, petitioner failed to file an administrative protest on
the formal letter of demand with the corresponding assessment notices. Hence, the assessments did not
become disputed assessments as subject to the Courts review under Republic Act No. 9282. (See also
Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)

WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is hereby DISMISSED for lack of
jurisdiction.

SO ORDERED.[16]

Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its
Resolution dated February 1, 2006.[17]

Proceedings before the CTA En Banc


On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc.[18] The case was docketed
as CTA EB No. 167.

Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA
First Division, the CTA En Banc denied the Petition for Review[19]as well as petitioners Motion for
Reconsideration.[20]

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative
protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an
integral part of the remedies given to a taxpayer in challenging the legality or validity of an assessment.
According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion of
administrative remedies, the instant case does not fall in any of the exceptions.

Issue

Hence, the present recourse, where petitioner raises the lone issue of whether the Formal Letter of
Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under
RA 9282.
Our Ruling

The petition is meritorious.

Section 7 of RA 9282 expressly provides that the CTA exercises exclusive appellate jurisdiction to review
by appeal decisions of the CIR in cases involving disputed assessments

The CTA, being a court of special jurisdiction, can take cognizance only of

Matters that are clearly within its jurisdiction.[21] Section 7 of RA 9282 provides:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:


(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue;

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed


assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial; (Emphasis supplied)

Xxxx

The word decisions in the above quoted provision of RA 9282 has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments.[22] Corollary thereto,
Section 228 of the National Internal Revenue Code (NIRC) provides for the procedure for protesting an
assessment. It states:

SECTION 228. Protesting of Assessment. When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the following cases:

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of
the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or

© When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a
taxable period was determined to have carried over and automatically applied the same amount
claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable
year; or

(c) When the excise tax due on excisable articles has not been paid; or

€ When an article locally purchased or imported by an exempt person, such as, but not limited to,
vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-
exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made;
otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required
to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing a request for reconsideration or
reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may
be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted; otherwise, the assessment shall become
final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable.

In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR
issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the
proper recourse of petitioner was to dispute the assessments by filing an administrative protest within
30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead,
it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the
Petition for Review by the CTA was proper.

The case is an exception to the

Rule on exhaustion of administrative remedies


However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree
with petitioner that the instant case is an exception to the rule on exhaustion of administrative
remedies, i.e., estoppel on the part of the administrative agency concerned.

In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent contended that before
filing a petition with the court, petitioner should have first exhausted all administrative remedies by
appealing to the Office of the President. However, we ruled that respondent was estopped from
invoking the rule on exhaustion of administrative remedies considering that in its Resolution, it said, The
opinions promulgated by the Secretary of Justice are advisory in nature, which may either be accepted
or ignored by the office seeking the opinion, and any aggrieved party has the court for recourse. The
statement of the respondent in said case led the petitioner to conclude that only a final judicial ruling in
her favor would be accepted by the Commission.

Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review
was premature because petitioner failed to exhaust all administrative remedies.

The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the following:
1. That the said assessment has already prescribed in accordance with the provisions of
Section 203 of the Tax Code.

2. That since the exemption of FCDUs from all taxes found in the Old Tax Code has been
deleted, the wording of Section 28(A)(7)(b) discloses that there are no other taxes imposable
upon FCDUs aside from the 10% Final Income Tax.

Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not
prescribed for [sic] simply because no returns were filed, thus, the three year prescriptive period has not
lapsed.

With the implementation of the CTRP, the phrase exempt from all taxes was deleted. Please refer to
Section 27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for deficiency gross
receipts tax on onshore income from foreign currency transactions in accordance with the rates
provided under Section 121 of the said Tax Code. Likewise, deficiency documentary stamp taxes was
[sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits and related transactions
pursuant to Sections 180 and 181 of NIRC, as amended.

The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A) and
249(b), respectively, of the National Internal Revenue Code, as amended.

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you
may appeal this final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable.[24] (Emphasis supplied)
It appears from the foregoing demand letter that the CIR has already made a final decision on the
matter and that the remedy of petitioner is to appeal the final decision within 30 days.

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we considered the language
used and the tenor of the letter sent to the taxpayer as the final decision of the CIR.

In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with
Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal
Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter
indicate that it is the final decision of the respondent on the matter. We have time and again reminded
the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer concerned to determine when his
or her right to appeal to the tax court accrues.[26] Viewed in the light of the foregoing, respondent is
now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment
Notices to be a final decision.

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices,
respondent used the word appeal instead of protest, reinvestigation, or reconsideration. Although there
was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that
the word appeal under prevailing tax laws refers to the filing of a Petition for Review with the CTA. As
aptly pointed out by petitioner, under Section 228 of the NIRC, the terms protest, reinvestigation and
reconsideration refer to the administrative remedies a taxpayer may take before the CIR, while the term
appeal refers to the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending
Section 11 of RA 1125,[27] likewise uses the term appeal when referring to the action a taxpayer must
take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then, petitioner in
appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue from
respondent. Besides, any doubt in the interpretation or use of the word appeal in the Formal Letter of
Demand with Assessment Notices should be resolved in favor of petitioner, and not the respondent who
caused the confusion.
To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as
implemented by Section 3 of BIR Revenue Regulations No. 12-99.[28] It is the Formal Letter of Demand
and Assessment Notice that must be administratively protested or disputed within 30 days, and not the
PAN. Neither are we deviating from our pronouncement in St. Stephens Chinese Girls School v. Collector
of Internal Revenue,[29] that the counting of the 30 days within which to institute an appeal in the CTA
commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the
date the assessment was issued.

What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices
which was not administratively protested by the petitioner can be considered a final decision of the CIR
appealable to the CTA because the words used, specifically the words final decision and appeal, taken
together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact
the final decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the
same to the CTA.

We note, however, that during the pendency of the instant case, petitioner availed of the provisions of
Revenue Regulations No. 30-2002 and its implementing Revenue Memorandum Order by submitting an
offer of compromise for the settlement of the GRT, DST and VAT for the period 1998-2003, as evidenced
by a Certificate of Availment dated November 21, 2007.[30] Accordingly, there is no reason to reinstate
the Petition for Review in CTA Case No. 7062.

WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the October
17, 2006 Resolution of the Court of Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in
CTA Case No. 7062 is hereby DISMISSED based solely on the Bureau of Internal Revenues acceptance of
petitioners offer of compromise for the settlement of the gross receipts tax, documentary stamp tax and
value added tax, for the years 1998-2003.
SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO

Associate Justice
Chairperson

ARTURO D. BRION

Associate Justice

ROBERTO A. ABAD

Associate Justice

JOSE P. PEREZ

Associate Justice
ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division


CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO

Chief Justice

[1] Surigao Electric Co., Inc. v. Court of Tax Appeals, 156 Phil. 517, 522-523 (1974).
[2] Rollo, pp. 7-21.

[3] An Act Expanding the Jurisdiction of the Court of Tax Appeals (CTA), Elevating its Rank to the Level of
a Collegiate Court with Special Jurisdiction and Enlarging its Membership, Amending for the Purpose
Certain Sections of Republic Act No. 1125, As Amended, otherwise known as the Law Creating the Court
of Tax Appeals, and for Other Purposes.

[4] Rollo, pp. 23-30; penned by Associate Justice Erlinda P. Uy and concurred in by Presiding Justice
Ernesto D. Acosta, and Associate Justices Juanito C. Castaeda, Jr., Lovell R. Bautista, and Caesar A.
Casanova. Associate Justice Olga Palanca-Enriquez inhibited herself and did not take part.

[5] Id. At 32-34.

[6] Id. At 53-54.

[7] Id. At 24.

[8] Id. At 35-36.

[9] Id. At 24.

[10] Id. At 37-61.

[11] Id. At 24.

[12] Id.

[13] Id. At 62-66.

[14] Id. At 25.


[15] Id. At 67-72.

[16] Id. At 71-72.

[17] Id. At 25.

[18] Id. At 23.

[19] Id. At 29.

[20] Id. At 34.

[21] Rizal Commercial Banking Corporation v. Commissioner of Internal Revenue, G.R. No. 168498, April
24, 2007, 522 SCRA 144, 150.

[22] Commissioner of Internal Revenue v. Villa, 130 Phil. 3, 6 (1968).

[23] 105 Phil. 377, 383 (1959).

[24] Rollo, p. 36.

[25] G.R. No. 148380, December 9, 2005, 477 SCRA 205, 211.

[26] Surigao Electric Co., Inc. v. Court of Tax Appeals, supra note 1.

[27] Section 11. Who may Appeal; Mode of Appeal; Effect of Appeal; Any party adversely affected by a
decision, ruling or inaction of the Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the Secretary of Agriculture or the Central
Board of Assessment Appeals or the Regional Trial Courts may file an appeal with the CTA within thirty
(30) days after the receipt of such decision or ruling or after the expiration of the period fixed by law for
action as referred to in Section 7(a) (2) herein.

Xxxx

[28] Section 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment.

Xxxx

3.1.2 Preliminary Assessment Notice (PAN). If after review and evaluation by the Assessment Division or
by the Commissioner or his duly authorized representative, as the case may be, it is determined that
there exists sufficient basis to assess the taxpayer for any deficiency tax or taxes, the said Office shall
issue to the taxpayer, at least by registered mail, a Preliminary Assessment Notice (PAN) for the
proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence
on which the proposed assessment is based. If the taxpayer fails to respond within fifteen (15) days from
date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of demand
and assessment notice shall be caused to be issued by the said Office, calling for payment of the
taxpayer’s deficiency tax liability, inclusive of the applicable penalties.

Xxxx

3.1.4 Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand
and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by
personal delivery. X x x

3.1.5 Disputed Assessment The taxpayer or his duly authorized representative may protest
administratively against the aforesaid formal letter of demand and assessment notice within thirty (30)
days from date of receipt thereof x x x.

The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which
his protest is based, otherwise, his protest shall be considered void and without force and effect x x x.
The taxpayer shall submit the required documents in support of his protest within sixty (60) days from
the date of filing of his letter of protest, otherwise, the assessment shall become final and executory and
demandable x x x

If the taxpayer fails to file a valid protest against the formal letter of demand and assessment notice
within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and
demandable.

If the protest is denied, in whole or in part, by the Commissioner, the taxpayer may appeal to the Court
of Tax Appeals within thirty (30) days from date of receipt of the said decision, otherwise, the
assessment shall become final, executory and demandable.

In general, if the protest is denied, in whole or in part, by the Commissioner or his duly authorized
representative, the taxpayer may appeal to the Court of Tax Appeals, within thirty (30) days from date of
receipt of the said decision, otherwise, the assessment shall become final, executory and demandable:
Provided, however, that if the taxpayer elevates his protest to the Commissioner within thirty (30) days
from date of receipt of the final decision of the Commissioners duly authorized representative, the
latters decision shall not be considered final, executory and demandable, in which case, the protest shall
be decided by the Commissioner.

If the Commissioner or his duly authorized representative fails to act on the taxpayers protest within
one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in
support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the lapse of said 180-day period, otherwise, the assessment shall become final, executory and
demandable.

Xxxx

[29] 104 Phil. 314, 317 (1958).

[30] Annex A of petitioners Memorandum.


EN BANC

[G.R. No. 109976. April 26, 2005]

PHILIPPINE NATIONAL OIL COMPANY, petitioner, vs. THE HON. COURT OF APPEALS, THE
COMMISSIONER OF INTERNAL REVENUE and TIRSO SAVELLANO, respondents.

[G.R. No. 112800. April 26, 2005]

PHILIPPINE NATIONAL BANK, petitioner, vs. THE HON. COURT OF APPEALS, COURT OF TAX APPEALS,
TIRSO B. SAVELLANO and COMMISSIONER OF INTERNAL REVENUE, respondents.

DECISION

CHICO-NAZARIO, J.:

This is a consolidation of two Petitions for Review on Certiorari filed by the Philippine National Oil
Company (PNOC)[1] and the Philippine National Bank (PNB),[2] assailing the decisions of the Court of
Appeals in CA-G.R. SP No. 29583[3] and CA-G.R. SP No. 29526,[4] respectively, which both affirmed the
decision of the Court of Tax Appeals (CTA) in CTA Case No. 4249.[5]

The Petitions before this Court originated from a sworn statement submitted by private respondent
Tirso B. Savellano (Savellano) to the Bureau of Internal Revenue (BIR) on 24 June 1986. Through his
sworn statement, private respondent Savellano informed the BIR that PNB had failed to withhold the
15% final tax on interest earnings and/or yields from the money placements of PNOC with the said bank,
in violation of Presidential Decree (P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984,
withdrew all tax exemptions of government-owned and controlled corporations.

In a letter, dated 08 August 1986, the BIR requested PNOC to settle its liability for taxes on the interests
earned by its money placements with PNB and which PNB did not withhold.[6] PNOC wrote the BIR on
25 September 1986, and made an offer to compromise its tax liability, which it estimated to be in the
sum of P304,419,396.83, excluding interest and surcharges, as of 31 July 1986. PNOC proposed to set-off
its tax liability against a claim for tax refund/credit of the National Power Corporation (NAPOCOR), then
pending with the BIR, in the amount of P335,259,450.21. The amount of the claim for tax refund/credit
was supposedly a receivable account of PNOC from NAPOCOR.[7]

On 08 October 1986, the BIR sent a demand letter to PNB, as withholding agent, for the payment of the
final tax on the interest earnings and/or yields from PNOCs money placements with the bank, from 15
October 1984 to 15 October 1986, in the total amount of P376,301,133.33.[8] On the same date, the BIR
also mailed a letter to PNOC informing it of the demand letter sent to PNB.[9]

PNOC, in another letter, dated 14 October 1986, reiterated its proposal to settle its tax liability through
the set-off of the said tax liability against NAPOCORS pending claim for tax refund/credit.[10] The BIR
replied on 11 November 1986 that the proposal for set-off was premature since NAPOCORs claim was
still under process. Once more, BIR requested PNOC to settle its tax liability in the total amount of
P385,961,580.82, consisting of P303,343,765.32 final tax, plus P82,617,815.50 interest computed until
15 November 1986.[11]

On 09 June 1987, PNOC made another offer to the BIR to settle its tax liability. This time, however, PNOC
proposed a compromise by paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax,
in accordance with the provisions of Executive Order (E.O.) No. 44.[12]

Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987, accepted the compromise.
The BIR received a total tax payment on the interest earnings and/or yields from PNOCs money
placements with PNB in the amount of P93,955,479.12, broken down as follows:

Previous payment made by PNB

P 2,952,349.23

Add: Payment made by PNOC pursuant to the compromise agreement of June 22, 1987

P 91,003,129.89

Total tax payment


P 93,955,479.12[13]

Private respondent Savellano, through four installments, was paid the informers reward in the total
amount of P14,093,321.89, representing 15% of the P93,955,479.12 tax collected by the BIR from PNOC
and PNB. He received the last installment on 01 December 1987.[14]

On 07 January 1988, private respondent Savellano, through his legal counsel, wrote the BIR to demand
payment of the balance of his informers reward, computed as follows:

BIR tax assessment

P 385,961,580.82

Final tax rate

0.15

Informers reward due

(BIR deficiency tax assessment x Final tax rate)

P 57,894,237.12

Less: Payment received by private respondent Savellano

P 14,093,321.89

Outstanding balance

P 43,800,915.25[15]
BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private respondent Savellano
was already fully paid the informers reward equivalent to 15% of the amount of tax actually collected by
the BIR pursuant to its compromise agreement with PNOC. BIR Commissioner Tan further explained that
the compromise was in accordance with the provisions of E.O. No. 44, Revenue Memorandum Order
(RMO) No. 39-86, and RMO No. 4-87.[16]

Private respondent Savellano submitted another letter, dated 24 March 1988, to BIR Commissioner Tan,
seeking reconsideration of his decision to compromise the tax liability of PNOC. In the same letter,
private respondent Savellano questioned the legality of the compromise agreement entered into by the
BIR and PNOC and claimed that the tax liability should have been collected in full.[17]

On 08 April 1988, while the aforesaid Motion for Reconsideration was still pending with the BIR, private
respondent Savellano filed a Petition for Review ad cautelam with the CTA, docketed as CTA Case No.
4249. He claimed therein that BIR Commissioner Tan acted with grave abuse of discretion and/or
whimsical exercise of jurisdiction in entering into a compromise agreement that resulted in a gross and
unconscionable diminution of his reward. Private respondent Savellano prayed for the enforcement and
collection of the total tax assessment against taxpayer PNOC and/or withholding agent PNB; and the
payment to him by the BIR Commissioner of the 15% informers reward on the total tax collected.[18] He
would later amend his Petition to implead PNOC and PNB as necessary and indispensable parties since
they were parties to the compromise agreement.[19]

In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of
action against him, and that private respondent Savellano was already paid the informers reward due
him. Alleging that the Petition was baseless and malicious, BIR Commissioner Tan filed a counterclaim
for exemplary damages against private respondent Savellano.[20]

PNOC and PNB filed separate Motions to Dismiss, both arguing that the CTA lacked jurisdiction to decide
the case.[21] In its Resolution, dated 28 November 1988, the CTA denied the Motions to Dismiss since
the question of lack of jurisdiction and/or cause of action do not appear to be indubitable.[22]

After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed their respective Answers to
the amended Petition. PNOC averred, among other things, that (1) it had no privity with private
respondent Savellano; (2) the BIR Commissioners discretionary act in entering into the compromise
agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had
no jurisdiction to resolve the case against it.[23] On the other hand, PNB asserted that (1) the CTA
lacked jurisdiction over the case; and (2) the BIR Commissioners decision to accept the compromise was
discretionary on his part and, therefore, cannot be reviewed or interfered with by the courts.[24] PNOC
and PNB later filed their amended Answer invoking an opinion of the Commission on Audit (COA)
disallowing the payment by the BIR of informers reward to private respondent Savellano.[25]

The CTA, thereafter, ordered the parties to submit their evidence,[26] to be followed by their respective
Memoranda.[27]

On 23 November 1990, private respondent Savellano, filed a Manifestation with Motion for Suspension
of Proceedings, claiming that his pending Motion for Reconsideration with the BIR Commissioner may
soon be resolved.[28] Both PNOC and PNB opposed the said Motion.[29]

Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB, dated 16 January 1991,
demanded that PNB pay deficiency withholding tax on the interest earnings and/or yields from PNOCs
money placements, in the amount of P294,958,450.73, computed as follows:

Withholding tax, plus interest under the letter of demand dated November 11, 1986

P 385,961,580.82

Less: Amount paid under E.O. No. 44

P 91,003,129.89

Amount still due and collectible

P 294,958,450.73[30]

This BIR letter was received by PNB on 06 February 1991,[31] and was protested by it through a letter,
dated 11 April 1991.[32] The BIR denied PNBs protest on the ground that it was filed out of time and,
thus, the assessment had already become final.[33]

Private respondent Savellano, on 22 February 1991, filed an Omnibus Motion moving to withdraw his
previous Motion for Suspension of Proceeding since BIR Commissioner Ong had finally resolved his
Motion for Reconsideration, and submitting by way of supplemental offer of evidence (1) the letter of
BIR Commissioner Ong, dated 13 February 1991, informing private respondent Savellano of the action
on his Motion for Reconsideration; and (2) the demand-letter of BIR Commissioner Ong to PNB, dated
16 January 1991.[34]

Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated 02 May 1991, resolved to
allow private respondent Savellano to withdraw his previous Motion for Suspension of Proceeding and
to admit the supplementary evidence being offered by the same party.[35]

In its Order, dated 03 June 1991, the CTA considered the case submitted for decision as of the following
day, 04 June 1991.[36]

On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR assessment, dated 16
January 1991, for deficiency withholding tax in the sum of P294,958,450.73. PNB alleged that its appeal
to the DOJ was sanctioned under P.D. No. 242, which provided for the administrative settlement of
disputes between government offices, agencies, and instrumentalities, including government-owned
and controlled corporations.[37]

Three days later, on 14 June 1991, PNB filed a Motion to Suspend Proceedings before the CTA since it
had a pending appeal before the DOJ.[38] On 04 July 1991, PNB filed with the CTA a Motion for
Reconsideration of its Order, dated 03 June 1991, submitting the case for decision as of 04 June 1991,
and prayed that the CTA hold its resolution of the case in view of PNBs appeal pending before the
DOJ.[39]

On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the BIR. It alleged that despite
its request for reconsideration of the deficiency withholding tax assessment, dated 16 January 1991, BIR
Commissioner Ong sent another letter, dated 23 April 1991, demanding payment of the
P294,958,450.73 deficiency withholding tax on the interest earnings and/or yields from PNOCs money
placements. The same letter informed PNB that this was the BIR Commissioners final decision on the
matter and that the BIR Commissioner was set to issue a warrant of distraint and/or levy against PNBs
deposits with the Central Bank of the Philippines. PNB further alleged that the levy and distraint of PNBs
deposits, unless restrained by the CTA, would cause great and irreparable prejudice not only to PNB, a
government-owned and controlled corporation, but also to the Government itself.[40]

Pursuant to the Order of the CTA, during the hearing on 19 July 1991,[41] the parties submitted their
respective Memoranda on PNBs Motion to Suspend Proceedings.[42]
On 20 September 1991, private respondent Savellano filed another Omnibus Motion calling the
attention of the CTA to the fact that the BIR already issued, on 12 August 1991, a warrant of
garnishment addressed to the Central Bank Governor and against PNB. In compliance with the said
warrant, the Central Bank issued, on 23 August 1991, a debit advice against the demand deposit account
of PNB with the Central Bank for the amount of P294,958,450.73, with a corresponding transfer of the
same amount to the demand deposit-in-trust of BIR with the Central Bank. Since the assessment had
already been enforced, PNBs Motion to Suspend Proceedings became moot and academic. Private
respondent Savellano, thus, moved for the denial of PNBs Motion to Suspend Proceedings and for an
order requiring BIR to deposit with the CTA the amount of P44,243,767.00 as his informers reward,
representing 15% of the deficiency withholding tax collected.[43]

Both PNOC and PNB opposed private respondent Savellanos Omnibus Motion, dated 20 September
1991, arguing that the DOJ already ordered the suspension of the collection of the tax deficiency. There
was therefore no basis for private respondent Savellanos Motion as the same was premised on the
erroneous assumption that the tax deficiency had been collected. When the DOJ denied the BIR
Commissioners Motion to Dismiss and required him to file his answer, the DOJ assumed jurisdiction over
PNBs appeal, and the CTA should first suspend its proceedings to give the DOJ the opportunity to decide
the validity and propriety of the tax assessment against PNB.[44]

The CTA, on 28 May 1992, rendered its decision, wherein it upheld its jurisdiction and disposed of the
case as follows:

WHEREFORE, judgment is rendered declaring the COMPROMISE AGREEMENT between the Bureau of
Internal Revenue, on the one hand, and the Philippine National Oil Company and Philippine National
Bank, on the other, as WITHOUT FORCE AND EFFECT;

The Commissioner of Internal Revenue is hereby ordered to ENFORCE the ASSESSMENT of January 16,
1991 against Philippine National Bank which has become final and unappealable by collecting from
Philippine National Bank the deficiency withholding tax, plus interest totalling (sic) P294,958,450.73;

Petitioner may be paid, upon collection of the deficiency withholding tax, the balance of his entitlement
to informers reward based on fifteen percent (15%) of the deficiency withholding total tax collected in
this case or P44,243.767.00 subject to existing rules and regulations governing payment of reward to
informers.[45]

In a Resolution, dated 16 November 1992, the CTA denied the Motions for Reconsideration filed by
PNOC and PNB since they substantially raised the same issues in their previous pleadings and which had
already been passed upon and resolved adversely against them.[46]
PNOC and PNB filed separate appeals with the Court of Appeals seeking the reversal of the CTA decision
in CTA Case No. 4249, dated 28 May 1992, and the CTA Resolution in the same case, dated 16 November
1992. PNOCs appeal was docketed as CA-G.R. SP No. 29583, while PNBs appeal was CA-G.R. SP No.
29526. In both cases, the Court of Appeals affirmed the decision of the CTA.

In the meantime, the Central Bank again issued on 02 September 1992 a debit advice against the
demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73,[47] and on
15 September 1992, credited the same amount to the demand deposit account of the Treasurer of the
Republic of the Philippines.[48] On 04 November 1992, the Treasurer of the Republic issued a journal
voucher transferring P294,958,450.73 to the account of the BIR.[49] PNB, in turn, debited
P294,958,450.73 from the deposit account of PNOC with PNB.[50]

PNOC and PNB then filed separate Petitions for Review on Certiorari with this Court, praying that the
decisions of the Court of Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, respectively, both
affirming the decision of the CTA in CTA Case No. 4249, be reversed and set aside. These two Petitions
were consolidated since they involved identical parties and factual background, and the resolution of
related, if not exactly, the same issues.

In its Petition for Review, PNOC alleged the following errors committed by the Court of Appeals in CA-
G.R. SP No. 29583:

1. The Court of Appeals erred in holding that the deficiency taxes of PNOC could not be the subject of a
compromise under Executive Order No. 44; and

2. The Court of Appeals erred in holding that Savellano is entitled to additional informers reward.[51]

PNB, in its own Petition for Review, assailed the decision of the Court of Appeals in CA-G.R. SP No.
29526, assigning the following errors:

1. Respondent Court erred in not finding that the Court of Tax Appeals lacks jurisdiction on the
controversy involving BIR and PNB (both government instrumentalities) regarding the new assessment
of BIR against PNB;
2. The respondent Court erred in not finding that the Court of Tax Appeals has no jurisdiction to
question the compromise agreement entered into by the Commissioner of Internal Revenue; and

3. The respondent Court erred in not ruling that the Commissioner of Internal Revenue cannot
unilaterally annul tax compromises validly entered into by his predecessor.[52]

The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R. SP No. 29526, affirmed the
decision of the CTA in CTA Case No. 4249. The resolution, therefore, of the assigned errors in the Court
of Appeals decisions essentially requires a review of the CTA decision itself.

In consolidating the present Petitions, this Court finds that PNOC and PNB are basically questioning the
(1) Jurisdiction of the CTA in CTA Case No. 4249; (2) Declaration by the CTA that the compromise
agreement was without force and effect; (3) Finding of the CTA that the deficiency withholding tax
assessment against PNB had already become final and unappealable and, thus, enforceable; and (4)
Order of the CTA directing payment of additional informers reward to private respondent Savellano.

Jurisdiction of the CTA

A. The demand letter, dated 16 January 1991 did not constitute a new assessment against PNB.

The main argument of PNB in assailing the jurisdiction of the CTA in CTA Case No. 4249 is that the BIR
demand letter, dated 16 January 1991,[53] should be considered as a new assessment against PNB. As a
new assessment, it gave rise to a new dispute and controversy solely between the BIR and PNB that
should be administratively settled or adjudicated, as provided in P.D. No. 242.

This argument is without merit. The issuance by the BIR of the demand letter, dated 16 January 1991,
was merely a development in the continuing effort of the BIR to collect the tax assessed against PNOC
and PNB way back in 1986.

BIRs first letter, dated 08 August 1986, was addressed to PNOC, requesting it to settle its tax liability.
The BIR subsequently sent another letter, dated 08 October 1986, to PNB, as withholding agent,
demanding payment of the tax it had failed to withhold on the interest earnings and/or yields from
PNOCs money placements. PNOC wrote the BIR three succeeding letters offering to compromise its tax
liability; PNB, on the other hand, did not act on the demand letter it received, dated 08 October 1986.
The BIR and PNOC eventually reached a compromise agreement on 22 June 1987. Private respondent
Savellano questioned the validity of the compromise agreement because the reduced amount of tax
collected from PNOC, by virtue of the compromise agreement, also proportionately reduced his
informers reward. Private respondent Savellano then requested the BIR Commissioner to review and
reconsider the compromise agreement. Acting on the request of private respondent Savellano, the new
BIR Commissioner declared the compromise agreement to be without basis and issued the demand
letter, dated 16 January 1991, against PNB, as the withholding agent for PNOC.

It is clear from the foregoing that the BIR demand letter, dated 16 January 1991, could not stand alone
as a new assessment. It should always be considered in the factual context summarized above.

In fact, the demand letter, dated 16 January 1991, actually referred to the withholding tax assessment
first issued in 1986 and its eventual settlement through a compromise agreement. In addition, the
computation of the deficiency withholding tax was based on the figures from the 1986 assessments
against PNOC and PNB, and BIR no longer conducted a new audit or investigation of either PNOC and
PNB before it issued the demand letter on 16 January 1991.

These constant references to past events and circumstances demonstrate that the demand letter, dated
16 January 1991, was not a new assessment, but rather, the latest action taken by the BIR to collect on
the tax assessments issued against PNOC and PNB in 1986.

PNB argues that the demand letter, dated 16 January 1991, introduced a new controversy. We see it
differently as the said demand letter presented the resolution by BIR Commissioner Ong of the previous
controversy involving the compromise of the 1986 tax assessments. BIR Commissioner Ong explicitly
declared therein that the compromise agreement was without legal basis, and requested PNB, as the
withholding agent, to pay the amount of withholding tax still due.

B. The CTA correctly retained jurisdiction over CTA Case No. 4249 by virtue of Republic Act No. 1125.

Having established that the BIR demand letter, dated 16 January 1991, did not constitute a new
assessment, then, there could be no basis for PNBs claim that any dispute arising from the new
assessment should only be between BIR and PNB.

Still proceeding from the argument that there was a new dispute between PNB and BIR, PNB sought the
suspension of the proceedings in CTA Case No. 4249, after it contested the deficiency withholding tax
assessment against it and the demand for payment thereof before the DOJ, pursuant to P.D. No. 242.
The CTA, however, correctly sustained its jurisdiction and continued the proceedings in CTA Case No.
4249; and, in effect, rejected DOJs claim of jurisdiction to administratively settle or adjudicate BIRs
assessment against PNB.

The CTA assumed jurisdiction over the Petition for Review filed by private respondent Savellano based
on the following provision of Rep. Act No. 1125, the Act creating the Court of Tax Appeals:

SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review
by appeal, as herein provided -

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue; . . . (Underscoring ours.)

In his Petition before the CTA, private respondent Savellano requested a review of the decisions of then
BIR Commissioner Tan to enter into a compromise agreement with PNOC and to reject his claim for
additional informers reward. He submitted before the CTA questions of law involving the interpretation
and application of (1) E.O. No. 44, and its implementing rules and regulations, which authorized the BIR
Commissioner to compromise delinquent accounts and disputed assessments pending as of 31
December 1985; and (2) Section 316(1) of the National Internal Revenue Code of 1977 (NIRC of 1977), as
amended, which granted to the informer a reward equivalent to 15% of the actual amount recovered or
collected by the BIR.[54] These should undoubtedly be considered as matters arising from the NIRC and
other laws being administered by the BIR, thus, appealable to the CTA under Section 7(1) of Rep. Act No.
1125.

PNB, however, insists on the jurisdiction of the DOJ over its appeal of the deficiency withholding tax
assessment by virtue of P.D. No. 242. Provisions on jurisdiction of P.D. No. 242 read:

SECTION 1. Provisions of law to the contrary notwithstanding, all disputes, claims and controversies
solely between or among the departments, bureaus, offices, agencies, and instrumentalities of the
National Government, including government-owned or controlled corporations, but excluding
constitutional offices or agencies, arising from the interpretation and application of statutes, contracts
or agreements, shall henceforth be administratively settled or adjudicated as provided hereinafter;
Provided, That this shall not apply to cases already pending in court at the time of the effectivity of this
decree.
SECTION 2. In all cases involving only questions of law, the same shall be submitted to and settled or
adjudicated by the Secretary of Justice, as Attorney General and ex officio legal adviser of all
government-owned or controlled corporations and entities, in consonance with Section 83 of the
Revised Administrative Code. His ruling or determination of the question in each case shall be conclusive
and binding upon all the parties concerned.

SECTION 3. Cases involving mixed questions of law and of fact or only factual issues shall be submitted
to and settled or adjudicated by:

(a) The Solicitor General, with respect to disputes or claims controversies between or among the
departments, bureaus, offices and other agencies of the National Government;

(b) The Government Corporate Counsel, with respect to disputes or claims or controversies between or
among government-owned or controlled corporations or entities being served by the Office of the
Government Corporate Counsel; and

(c) The Secretary of Justice, with respect to all other disputes or claims or controversies which do not fall
under the categories mentioned in paragraphs (a) and (b).

The PNB and DOJ are of the same position that P.D. No. 242, the more recent law, repealed Section 7(1)
of Rep. Act No. 1125,[55] based on the pronouncement of this Court in Development Bank of the
Philippines v. Court of Appeals, et al., [56] quoted below:

The Court expresses its entire agreement with the conclusion of the Court of Appeals and the basic
premises thereof that there is an "irreconcilable repugnancybetween Section 7(2) of R.A. No. 1125 and
P.D. No. 242," and hence, that the later enactment (P.D. No. 242), being the latest expression of the
legislative will, should prevail over the earlier.

In the said case, it was expressly declared that P.D. No. 242 repealed Section 7(2) of Rep. Act No. 1125,
which provides for the exclusive appellate jurisdiction of the CTA over decisions of the Commissioner of
Customs. PNB contends that P.D. No. 242 should be deemed to have likewise repealed Section 7(1) of
Rep. Act No. 1125, which provide for the exclusive appellate jurisdiction of the CTA over decisions of the
BIR Commissioner.[57]
After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and P.D. No. 242, this Court finds
itself in disagreement with the pronouncement made in Development Bank of the Philippines v. Court of
Appeals, et al.,[58] and refers to the earlier case of Lichauco & Company, Inc. v. Apostol, et al.,[59] for
the guidelines in determining the relation between the two statutes in question, to wit:

The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of
later date clearly reveals an intention on the part of the law making power to abrogate the prior law,
this intention must be given effect; but there must always be a sufficient revelation of this intention, and
it has become an unbending rule of statutory construction that the intention to repeal a former law will
not be imputed to the Legislature when it appears that the two statutes, or provisions, with reference to
which the question arises bear to each other the relation of general to special. (Underscoring ours.)

When there appears to be an inconsistency or conflict between two statutes and one of the statutes is a
general law, while the other is a special law, then repeal by implication is not the primary rule
applicable. The following rule should principally govern instead:

Specific legislation upon a particular subject is not affected by a general law upon the same subject
unless it clearly appears that the provisions of the two laws are so repugnant that the legislators must
have intended by the later to modify or repeal the earlier legislation. The special act and the general law
must stand together, the one as the law of the particular subject and the other as the general law of the
land. (Ex Parte United States, 226 U. S., 420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed.,
1030; Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep., 970.)

Where there are two acts or provisions, one of which is special and particular, and certainly includes the
matter in question, and the other general, which, if standing alone, would include the same matter and
thus conflict with the special act or provision, the special must be taken as intended to constitute an
exception to the general act or provision, especially when such general and special acts or provisions are
contemporaneous, as the Legislature is not to be presumed to have intended a conflict. (Crane v. Reeder
and Reeder, 22 Mich., 322, 334; University of Utah vs. Richards, 77 Am. St. Rep., 928.)[60]

It has, thus, become an established rule of statutory construction that between a general law and a
special law, the special law prevails Generalia specialibus non derogant.[61]

Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law
that deals with administrative settlement or adjudication of disputes, claims and controversies between
or among government offices, agencies and instrumentalities, including government-owned or
controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and
controversies. It has been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the
Revised Administrative Code of the Philippines.[62] On the other hand, Rep. Act No. 1125 is a special
law[63] dealing with a specific subject matter the creation of the CTA, which shall exercise exclusive
appellate jurisdiction over the tax disputes and controversies enumerated therein.

Following the rule on statutory construction involving a general and a special law previously discussed,
then P.D. No. 242 should not affect Rep. Act No. 1125. Rep. Act No. 1125, specifically Section 7 thereof
on the jurisdiction of the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and
controversies, falling under Section 7 of Rep. Act No. 1125, even though solely among government
offices, agencies, and instrumentalities, including government-owned and controlled corporations,
remain in the exclusive appellate jurisdiction of the CTA. Such a construction resolves the alleged
inconsistency or conflict between the two statutes, and the fact that P.D. No. 242 is the more recent law
is no longer significant.

Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep. Act No. 1125, the present
dispute would still not be covered by P.D. No. 242. Section 1 of P.D. No. 242 explicitly provides that only
disputes, claims and controversies solely between or among departments, bureaus, offices, agencies,
and instrumentalities of the National Government, including constitutional offices or agencies, as well as
government-owned and controlled corporations, shall be administratively settled or adjudicated. While
the BIR is obviously a government bureau, and both PNOC and PNB are government-owned and
controlled corporations, respondent Savellano is a private citizen. His standing in the controversy could
not be lightly brushed aside. It was private respondent Savellano who gave the BIR the information that
resulted in the investigation of PNOC and PNB; who requested the BIR Commissioner to reconsider the
compromise agreement in question; and who initiated CTA Case No. 4249 by filing a Petition for Review.

In Bay View Hotel, Inc. v. Manila Hotel Workers Union-PTGWO, et al.,[64] this Court upheld the
jurisdiction of the Court of Industrial Relations over the ordinary courts and justified its decision in the
following manner:

We are unprepared to break away from the teaching in the cases just adverted to. To draw a tenuous
jurisdictional line is to undermine stability in labor litigations. A piecemeal resort to one court and
another gives rise to multiplicity of suits. To force the employees to shuttle from one court to another to
secure full redress is a situation gravely prejudicial. The time to be lost, effort wasted, anxiety
augmented, additional expense incurred these are considerations which weigh heavily against split
jurisdiction. Indeed, it is more in keeping with orderly administration of justice that all the causes of
action here be cognizable and heard by only one court: the Court of Industrial Relations.

The same justification is used in the present case to reject DOJs jurisdiction over the BIR and PNB, to the
exclusion of the other parties. The rights of all four parties in CTA Case No. 4249, namely the BIR, as the
tax collector; PNOC, the taxpayer; PNB, the withholding agent; and private respondent Savellano, the
informer claiming his reward; arose from the same factual background and were so closely interrelated,
that a pronouncement as to one would definitely have repercussions on the others. The ends of justice
were best served when the CTA continued to exercise its jurisdiction over CTA Case No. 4249. The CTA,
which had assumed jurisdiction over all the parties to the controversy, could render a comprehensive
resolution of the issues raised and grant complete relief to the parties.

II

Validity of the Compromise Agreement

A. PNOC could not apply for a compromise under E.O. No. 44 because its tax liability was not a
delinquent account or a disputed assessment as of 31 December 1985.

PNOC and PNB, on different grounds, dispute the decision of the CTA in CTA Case No. 4249 declaring the
compromise agreement between BIR and PNOC without force and effect.

PNOC asserts that the compromise agreement was in accordance with E.O. No. 44, and its implementing
rules and regulations, and should be binding upon the parties thereto.

E.O. No. 44 granted the BIR Commissioner or his duly authorized representatives the power to
compromise any disputed assessment or delinquent account pending as of 31 December 1985, upon the
payment of an amount equal to 30% of the basic tax assessed; in which case, the corresponding
interests and penalties shall be condoned. E.O. No. 44 took effect on 04 September 1986 and remained
effective until 31 March 1987.

The disputed assessments or delinquent accounts that the BIR Commissioner could compromise under
E.O. No. 44 are defined under Revenue Regulation (RR) No. 17-86, as follows:

a) Delinquent account Refers to the amount of tax due on or before December 31, 1985 from a taxpayer
who failed to pay the same within the time prescribed for its payment arising from (1) a self assessed
tax, whether or not a tax return was filed, or (2) a deficiency assessment issued by the BIR which has
become final and executory.
Where no return was filed, the taxpayer shall be considered delinquent as of the time the tax on such
return was due, and in availing of the compromise, a tax return shall be filed as a basis for computing
the amount of compromise to be paid.

b) Disputed assessment refers to a tax assessment disputed or protested on or before December 31,
1985 under any of the following categories:

1) if the same is administratively protested within thirty (30) days from the date the taxpayer received
the assessment, or

2.) if the decision of the BIR on the taxpayers administrative protest is appealed by the taxpayer before
an appropriate court.

PNOCs tax liability could not be considered a delinquent account since (1) it was not self-assessed,
because the BIR conducted an investigation and assessment of PNOC and PNB after obtaining
information regarding the non-withholding of tax from private respondent Savellano; and (2) the
demand letter, issued against it on 08 August 1986, could not have been a deficiency assessment that
became final and executory by 31 December 1985.

The dissenting opinion contends, however, that the tax liability of PNOC constitutes a self-assessed tax,
and is, therefore, a delinquent account as of 31 December 1985, qualifying for a compromise under E.O.
No. 44. It anchors its argument on the declaration made by this Court in Tupaz v. Ulep,[65] that internal
revenue taxes are self-assessing.

It is not denied herein that the self-assessing system governs Philippine internal revenue taxes. The
dissenting opinion itself defines self-assessed tax as, a tax that the taxpayer himself assesses or
computes and pays to the taxing authority. Clearly, such a system imposes upon the taxpayer the
obligation to conduct an assessment of himself so he could determine and declare the amount to be
used as tax basis, any deductions therefrom, and finally, the tax due.

E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed. The phrase whether or not a
tax return was filed only refers to the compliance by the taxpayer with the obligation to file a return on
the dates specified by law, but it does not do away with the requisite that the tax must be self-assessed
in order for the taxpayer to avail of the compromise. The second paragraph of Section 2(a) of RR No. 17-
86 expressly commands, and still imposes upon the taxpayer, who is availing of the compromise under
E.O. No. 44, and who has not previously filed any return, the duty to conduct self-assessment by filing a
tax return that would be used as the basis for computing the amount of compromise to be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer, after conducting a self-
assessment, discovers or becomes aware that he had failed to pay a tax due on or before 31 December
1985, regardless of whether he had previously filed a return to reflect such tax; voluntarily comes
forward and admits to the BIR his tax liability; and applies for a compromise thereof. In case the
taxpayer has not previously filed any return, he must fill out such a return reflecting therein his own
declaration of the taxable amount and computation of the tax due. The compromise payment shall be
computed based on the amount reflected in the tax return submitted by the taxpayer himself.

Neither PNOC nor PNB, the taxpayer and the withholding agent, respectively, conducted self-
assessment in this case. There is no showing that in the absence of the tax assessment issued by the BIR
against them, that PNOC and/or PNB would have voluntarily admitted their tax liabilities, already
amounting to P385,961,580.82, as of 15 November 1986, and would have offered to compromise the
same. In fact, both PNOC and PNB were conspicuously silent about their tax liabilities until they were
assessed thereon.

Any attempt by PNOC and PNB to assess and declare by themselves their tax liabilities had already been
overtaken by the BIRs conduct of its audit and investigation and subsequent issuance of the
assessments, dated 08 August 1986 and 08 October 1986, against PNOC and PNB, respectively. The said
tax assessments, uncontested and undisputed, presented the results of the BIR audit and investigation
and the computation of the total amount of tax liabilities of PNOC and PNB. They should be controlling
in this case, and should not be so easily and conveniently ignored and set aside. It would be a
contradiction to claim that the tax liabilities of PNOC and PNB are self-assessed and, at the same time,
BIR-assessed; when it is clear and simple that it had been the BIR that conducted the assessment and
determined the tax liabilities of PNOC and PNB.

That the BIR-assessed tax liability should be differentiated from a self-assessed one, is supported by the
provisions of RR No. 17-86 on the basis for computing the amount of compromise payment. Note that
where tax liabilities are self-assessed, the compromise payment shall be computed based on the tax
return filed by the taxpayer.[66] On the other hand, where the BIR already issued an assessment, the
compromise payment shall be computed based on the tax due on the assessment notice.[67]

For instances where the BIR had already issued an assessment against the taxpayer, the tax liability
could still be compromised under E.O. No. 44 only if: (1) the assessment had been final and executory on
or before 31 December 1985 and, therefore, considered a delinquent account as of said date;[68] or (2)
the assessment had been disputed or protested on or before 31 December 1985.[69]
RMO No. 39-86, which provides the guidelines for the implementation of E.O. No. 44, does mention
different types of assessments that may be compromised under said statute (i.e., jeopardy assessments,
arbitrary assessments, and tax assessments of doubtful validity). RMO No. 39-86 may not have expressly
stated any qualification for these particular types of assessments; nonetheless, E.O. No. 44 specifically
refers only to assessments that were delinquent or disputed as of 31 December 1985.

E.O. No. 44 and all BIR issuances to implement said statute should be interpreted so that they are
harmonized and consistent with each other. Accordingly, this Court finds that the different types of
assessments mentioned in RMO No. 39-86 would still have to qualify as delinquent accounts or disputed
assessments as of 31 Dcember 1985, so that they could be compromised under E.O. No. 44.

The BIR had first written to PNOC on 08 August 1986, demanding payment of the income tax on the
interest earnings and/or yields from PNOCs money placements with PNB from 15 October 1984 to 15
October 1986. This demand letter could be regarded as the first assessment notice against PNOC.

Such an assessment, issued only on 08 August 1986, could not have been final and executory as of 31
December 1985 so as to constitute a delinquent account. Neither was the assessment against PNOC an
assessment that could have been disputed or protested on or before 31 December 1985, having been
issued on a later date.

Given that PNOCs tax liability did not constitute a delinquent account or a disputed assessment as of 31
December 1985, then it could not be compromised under E.O. No. 44.

The assessment against PNOC, instead, was more appropriately covered by Revenue Memorandum
Circular (RMC) No. 31-86. RMC No. 31-86 clarifies the scope of availment of the tax amnesty under E.O.
No. 41[70] and compromise payments on delinquent accounts and disputed assessments under E.O. No.
44. The third paragraph of RMC No. 31-86 reads:

[T]axpayers against whom assessments had been issued from January 1 to August 21, 1986 may settle
their tax liabilities by way of compromise under Section 246 of the Tax Code as amended by paying 30%
of the basic assessment excluding surcharge, interest, penalties and other increments thereto.

The above-quoted paragraph supports the position that only assessments that were disputed or that
were final and executory by 31 December 1985 could be the subject of a compromise under E.O. No. 44.
Assessments issued between 01 January to 21 August 1986 could still be compromised by payment of
30% of the basic tax assessed, not anymore pursuant to E.O. No. 44, but pursuant to Section 246 of the
NIRC of 1977, as amended.
Section 246 of the NIRC of 1977, as amended, granted the BIR Commissioner the authority to
compromise the payment of any internal revenue tax under the following circumstances: (1) there exists
a reasonable doubt as to the validity of the claim against the taxpayer; or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the assessed tax.[71]

There are substantial differences in circumstances under which compromises may be granted under
Section 246 of the NIRC of 1977, as amended, and E.O. No. 44. Although PNOC and PNB have extensively
argued their entitlement to compromise under E.O. No. 44, neither of them has alleged, much less, has
presented any evidence to prove that it may compromise its tax liability under Section 246 of the NIRC
of 1977, as amended.

B. The tax liability of PNB as withholding agent also did not qualify for compromise under E.O. No. 44.

Before proceeding any further, this Court reconsiders the conclusion made by BIR Commissioner Ong in
his demand letter, dated 16 January 1991, that the compromise settlement executed between the BIR
and PNOC was without legal basis because withholding taxes were not actually taxes that could be
compromised, but a penalty for PNBs failure to withhold and for which it was made personally liable.

E.O. No. 44 covers disputed or delinquency cases where the person assessed was himself the taxpayer
rather than a mere agent.[72] RMO No. 39-86 expressly allows a withholding agent, who failed to
withhold the required tax because of neglect, ignorance of the law, or his belief that he was not
required by law to withhold tax, to apply for a compromise settlement of his withholding tax liability
under E.O. No. 44. A withholding agent, in such a situation, may compromise the withholding tax
assessment against him precisely because he is being held directly accountable for the tax.[73]

RMO No. 39-86 distinguishes between the withholding agent in the foregoing situation from the
withholding agent who withheld the tax but failed to remit the amount to the Government. A
withholding agent in the latter situation is the one disqualified from applying for a compromise
settlement because he is being made accountable as an agent, who held funds in trust for the
Government.[74]

Both situations, however, involve withholding agents. The right to compromise under these provisions
should have been claimed by PNB, the withholding agent for PNOC. The BIR held PNB personally
accountable for its failure to withhold the tax on the interest earnings and/or yields from PNOCs money
placements with PNB. The BIR sent a demand letter, dated 08 October 1986, addressed directly to PNB,
for payment of the withholding tax assessed against it, but PNB failed to take any action on the said
demand letter. Yet, all the offers to compromise the withholding tax assessment came from PNOC and
PNOC did not claim that it made the offers to compromise on behalf of PNB.

Moreover, the general requirement of E.O. No. 44 still applies to withholding agents that the
withholding tax liability must either be a delinquent account or a disputed assessment as of 31
December 1985 to qualify for compromise settlement. The demand letter against PNB, which also
served as its assessment notice, had been issued on 08 October 1986 or two months later than PNOCs.
PNBs withholding tax liability could not be considered a delinquent account or a disputed assessment, as
defined under RR No. 17-86, for the same reasons that PNOCs tax liability did not constitute as such. The
tax liability of PNB, therefore, was also not eligible for compromise settlement under E.O. No. 44.

C. Even assuming arguendo that PNOC and/or PNB qualified under E.O. No. 44, their application for
compromise was filed beyond the deadline.

Despite already ruling that the tax liabilities of PNOC and PNB could not be compromised under E.O. No.
44, this Court still deems it necessary to discuss the finding of the CTA that the compromise agreement
had been filed beyond the effectivity of E.O. No. 44, since the CTA made a declaration in relation thereto
that paragraph 2 of RMO No. 39-86 was null and void for unduly extending the effectivity of E.O. No. 44.

Paragraph 2 of RMO No. 39-86 provides that:

2. Period for availment. Filing of application for compromise settlement under the said law shall be
effective only until March 31, 1987. Applications filed on or before this date shall be valid even if the
payment or payments of the compromise amount shall be made after the said date, subject, however,
to the provisions of Executive Order No. 44 and its implementing Revenue Regulations No. 17-86.

It is well-settled in this jurisdiction that administrative authorities are vested with the power to make
rules and regulations because it is impracticable for the lawmakers to provide general regulations for
various and varying details of management. The interpretation given to a rule or regulation by those
charged with its execution is entitled to the greatest weight by the court construing such rule or
regulation, and such interpretation will be followed unless it appears to be clearly unreasonable or
arbitrary.[75]

RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be unreasonable or arbitrary. It
does not unduly expand the coverage of E.O. No. 44 by merely providing that applications for
compromise filed until 31 March 1987 are still valid, even if payment of the compromised amount is
made on a later date.
It cannot be expected that the compromise allowed under E.O. No. 44 can be automatically granted
upon mere filing of the application by the taxpayer. Irrefutably, the applications would still have to be
processed by the BIR to determine compliance with the requirements of E.O. No. 44. As it is
uncontested that a taxpayer could still file an application for compromise on 31 March 1987, the very
last day of effectivity of E.O. No. 44, it would be unreasonable to expect the BIR to process and approve
the taxpayers application within the same date considering the volume of applications filed and pending
approval, plus the other matters the BIR personnel would also have to attend to. Thus, RMO No. 39-86
merely assures the taxpayers that their applications would still be processed and could be approved on
a later date. Payment, of course, shall be made by the taxpayer only after his application had been
approved and the compromised amount had been determined.

Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be addressed is
whether PNOC had been able to submit an application for compromise on or before 31 March 1987 in
compliance thereof. Although the compromise agreement was executed only on 22 June 1987, PNOC is
claiming that it had already written a letter to the BIR, as early as 25 September 1986, offering to
compromise its tax liability, and that the said letter should be considered as PNOCs application for
compromise settlement.

A perusal of PNOCs letter, dated 25 September 1986, would reveal, however, that the terms of its
proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did not offer to pay
outright 30% of the basic tax assessed against it as required by E.O. No. 44; and instead, made the
following offer:

(2) That PNOC be permitted to set-off its foregoing mentioned tax liability of P304,419,396.83 against
the tax refund/credit claims of the National Power Corporation (NPC) for specific taxes on fuel oil sold to
NPC totaling P335,259,450.21, which tax refunds/credits are actually receivable accounts of our
Company from NPC.[76]

PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.[77] The BIR, in its letters to
PNOC, dated 8 October 1986[78] and 11 November 1986,[79] consistently denied PNOCs offer because
the claim for tax refund/credit of NAPOCOR was still under process, so that the offer to set-off such
claim against PNOCs tax liability was premature.

Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax liability against
a claim for tax refund/credit. Compromise under E.O. No. 44 may be availed of only in the following
circumstances:
SEC. 3. Who may avail. Any person, natural or juridical, may settle thru a compromise any delinquent
account or disputed assessment which has been due as of December 31, 1985, by paying an amount
equal to thirty percent (30%) of the basic tax assessed.

SEC. 6. Mode of Payment. Upon acceptance of the proposed compromise, the amount offered as
compromise in complete settlement of the delinquent account shall be paid immediately in cash or
managers certified check.

Deferred or staggered payments of compromise amounts over P50,000 may be considered on a case to
case basis in accordance with the extant regulations of the Bureau upon approval of the Commissioner
of Internal Revenue, his Deputy or Assistant as delineated in their respective jurisdictions.

If the Compromise amount is not paid as required herein, the compromise agreement is automatically
nullified and the delinquent account reverted to the original amount plus the statutory increments,
which shall be collected thru the summary and/or judicial processes provided by law.

E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish his tax liability by paying the
compromise amount equivalent to 30% of the basic tax. It also benefits the Government by making
collection of delinquent accounts and disputed assessments simpler, easier, and faster. Payment of the
compromise amount must be made immediately, in cash or in managers check. Although deferred or
staggered payments may be allowed on a case-to-case basis, the mode of payment remains unchanged,
and must still be made either in cash or in managers check.

PNOCs offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated
the purpose of E.O. No. 44 because it would not only delay collection, but more importantly, it would
not guarantee collection. First of all, BIRs collection was contingent on whether the claim for tax
refund/credit of NAPOCOR would be subsequently granted. Second, collection could not be made
immediately and would have to wait until the resolution of the claim for tax refund/credit of NAPOCOR.
Third, there is no proof, other than the bare allegation of PNOC, that NAPOCORs claim for tax
refund/credit is an account receivable of PNOC. A possible dispute between NAPOCOR and PNOC as to
the proceeds of the tax refund/credit would only delay collection by the BIR even further.

It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax liability in
accordance with the terms and circumstances prescribed by E.O. No. 44 and its implementing rules and
regulations, by stating that:
Consequently, we reiterate our previous request for compromise under E.O. No. 44, and convey our
preparedness to settle the subject tax assessment liability by payment of the compromise amount of
P91,003,129.89, representing thirty percent (30%) of the basic tax assessment of P303,343,766.29, in
accordance with E.O. No. 44 and its implementing BIR Revenue Memorandum Order No. 39-86.[80]

PNOC claimed in the same letter that it had previously requested for a compromise under the terms of
E.O. No. 44, but this Court could not find evidence of such previous request. There are stark and
substantial differences in the terms of PNOCs offer to compromise in its earlier letters, dated 25
September 1986 and 14 October 1986 (set-off of the entire amount of its tax liability against the claim
for tax refund/credit of NAPOCOR), to those in its letter, dated 09 June 1987 (payment of the
compromise amount representing 30% of the basic tax assessed against it), making it difficult for this
Court to accept that the letter of 09 June 1987 merely reiterated PNOCs offer to compromise in its
earlier letters.

This Court likewise cannot give credence to PNOCs allegation that beginning 25 September 1986, the
date of its first letter to the BIR, there were continuing negotiations between PNOC and BIR that
culminated in the compromise agreement on 22 June 1987. Aside from the exchange of letters
recounted in the preceding paragraphs, both PNOC and PNB failed to present any other proof of the
supposed negotiations.

After the BIR denied the second offer of PNOC to set-off its tax liability against the claim for tax
refund/credit of NAPOCOR in a letter, dated 11 November 1986, there is no other evidence of
subsequent communication between PNOC and the BIR. It was only after almost seven months, or on 09
June 1987, that PNOC again wrote a letter to the BIR, this time offering to pay the compromise amount
of 30% of the basic tax assessed against. This letter was already filed beyond 31 March 1987, after the
lapse of the effectivity of E.O. No. 44 and the deadline for filing applications for compromise under the
said statute.

Evidence of meetings between PNOC and the BIR, or any other form of communication, wherein the
parties presented their offer and counter-offer to the other, would have been very valuable in
explaining and supporting BIR Commissioner Tans decision to accept PNOCs third offer to compromise
after denying the previous two. The absence of such evidence herein negates PNOCs claim of actual
negotiations with the BIR.

Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB qualify as delinquent
accounts or disputed assessments as of 31 December 1985, the application for compromise filed by
PNOC on 09 June 1987, and accepted by then BIR Commissioner Tan on 22 June 1987, was still filed way
beyond 31 March 1987, the expiration date of the effectivity of E.O. No. 44 and the deadline for filing of
applications for compromise under RMO No. 39-86.
D. The BIR Commissioners discretionary authority to enter into a compromise agreement is not absolute
and the CTA may inquire into allegations of abuse thereof.

The foregoing discussion supports the CTAs conclusion that the compromise agreement between PNOC
and the BIR was indeed without legal basis. Despite this lack of legal support for the execution of the
said compromise agreement, PNB argues that the CTA still had no jurisdiction to review and set aside
the compromise agreement. It contends that the authority to compromise is purely discretionary on the
BIR Commissioner and the courts cannot interfere with his exercise thereof.

It is generally true that purely administrative and discretionary functions may not be interfered with by
the courts; but when the exercise of such functions by the administrative officer is tainted by a failure to
abide by the command of the law, then it is incumbent on the courts to set matters right, with this Court
having the last say on the matter.[81]

The manner by which BIR Commissioner Tan exercised his discretionary power to enter into a
compromise was brought under the scrutiny of the CTA amidst allegations of grave abuse of discretion
and/or whimsical exercise of jurisdiction.[82] The discretionary power of the BIR Commissioner to enter
into compromises cannot be superior over the power of judicial review by the courts.

The discretionary authority to compromise granted to the BIR Commissioner is never meant to be
absolute, uncontrolled and unrestrained. No such unlimited power may be validly granted to any officer
of the government, except perhaps in cases of national emergency.[83] In this case, the BIR
Commissioners authority to compromise, whether under E.O. No. 44 or Section 246 of the NIRC of 1977,
as amended, can only be exercised under certain circumstances specifically identified in said statutes.
The BIR Commissioner would have to exercise his discretion within the parameters set by the law, and in
case he abuses his discretion, the CTA may correct such abuse if the matter is appealed to them.[84]

Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely exercised his authority to
enter into a compromise specially granted by E.O. No. 44. Since this Court has already made a
determination that the compromise agreement did not qualify under E.O. No. 44, BIR Commissioner
Tans decision to agree to the compromise should have been reviewed in the light of the general
authority granted to the BIR Commissioner to compromise taxes under Section 246 of the NIRC of 1977,
as amended. Then again, petitioners PNOC and PNB failed to allege, much less present evidence, that
BIR Commissioner Tan acted in accordance with Section 246 of the NIRC of 1977, as amended, when he
entered into the compromise agreement with PNOC.
E. The CTA may set aside a compromise agreement that is contrary to law and public policy.

PNB also asserts that the CTA had no jurisdiction to set aside a compromise agreement entered into in
good faith. It relies on the decision of this Court in Republic v. Sandiganbayan[85] that a compromise
agreement cannot be set aside merely because it is too one-sided. A compromise agreement should be
respected by the courts as the res judicata between the parties thereto.

This Court, though, finds that there are substantial differences in the factual background of Republic v.
Sandiganbayan and the present case.

The compromise agreement executed between the Presidential Commission on Good Government
(PCGG) and Roberto S. Benedicto in Republic v. Sandiganbayan was judicially approved by the
Sandiganbayan. The Sandiganbayan had ample opportunity to examine the validity of the compromise
agreement since two years elapsed from the time the agreement was executed up to the time it was
judicially approved. This Court even stated in the said case that, We are not dealing with the usual
compromise agreement perfunctorily submitted to a court and approved as a matter of course. The
PCGG-Benedicto agreement was thoroughly and, at times, disputatiously discussed before the
respondent court. There could be no deception or misrepresentation foisted on either the PCGG or the
Sandiganbayan.[86]

In addition, the new PCGG Chairman originally prayed for the re-negotiation of the compromise
agreement so that it could be more just, fair, and equitable, an action considered by this Court as an
implied admission that the agreement was not contrary to law, public policy or morals nor was there
any circumstance which had vitiated consent.[87]

The above-mentioned circumstances strongly supported the validity of the compromise agreement in
Republic v. Sandiganbayan, which was why this Court refused to set it aside. Unfortunately for the
petitioners in the present case, the same cannot be said herein.

The Court of Appeals, in upholding the jurisdiction of the CTA to set aside the compromise agreement,
ruled that:

We are unable to accept petitioners submissions. Its formulation of the issues on CIR and CTAs lack of
jurisdiction to disturb a compromise agreement presupposes a compromise agreement validly entered
into by the CIR and not, when as in this case, it was indubitably shown that the supposed compromise
agreement is without legal support. In case of arbitrary or capricious exercise by the Commissioner or if
the proceedings were fatally defective, the compromise can be attacked and reversed through the
judicial process (Meralco Securities Corporation v. Savellano, 117 SCRA 805, 812 [1982]; Sarah E.
Ramsay, et. al. v. U.S. 21 Ct. C1 443, affd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited
in page 18 of decision) .[88]

Although the general rule is that compromises are to be favored, and that compromises entered into in
good faith cannot be set aside,[89] this rule is not without qualification. A court may still reject a
compromise or settlement when it is repugnant to law, morals, good customs, public order, or public
policy.[90]

The compromise agreement between the BIR and PNOC was contrary to law having been entered into
by BIR Commissioner Tan in excess or in abuse of the authority granted to him by legislation. E.O. No. 44
and the NIRC of 1977, as amended, had identified the situations wherein the BIR Commissioner may
compromise tax liabilities, and none of these situations existed in this case.

The compromise, moreover, was contrary to public policy. The primary duty of the BIR is to collect taxes,
since taxes are the lifeblood of the Government and their prompt and certain availability are imperious
needs.[91] In the present case, however, BIR Commissioner Tan, by entering into the compromise
agreement that was bereft of any legal basis, would have caused the Government to lose almost P300
million in tax revenues and would have deprived the Government of much needed monetary resources.

Allegations of good faith and previous execution of the terms of the compromise agreement on the part
of PNOC would not be enough for this Court to disregard the demands of law and public policy.
Compromise may be the favored method to settle disputes, but when it involves taxes, it may be subject
to closer scrutiny by the courts. A compromise agreement involving taxes would affect not just the
taxpayer and the BIR, but also the whole nation, the ultimate beneficiary of the tax revenues collected.

F. The Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of
its agents.

The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he set aside the
compromise agreement, dated 22 June 1987, after finding that the said compromise agreement was
without legal basis. When he took over from his predecessor, there was still a pending motion for
reconsideration of the said compromise agreement, filed by private respondent Savellano on 24 March
1988. To resolve the said motion, he reviewed the compromise agreement and, thereafter, came upon
the conclusion that it did not comply with E.O. No. 44 and its implementing rules and regulations.
It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al.,[92] that an
administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the acts or
previous rulings of his predecessor in office. The construction of a statute by those administering it is
not binding on their successors if, thereafter, the latter becomes satisfied that a different construction
should be given.

It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and
its implementing rules and regulations differently from that of his predecessor, former Commissioner
Tan, which led to Commissioner Ongs revocation of the BIR approval of the compromise agreement,
dated 22 June 1987. Such a revocation was only proper considering that the former BIR Commissioners
decision to approve the said compromise agreement was based on the erroneous construction of the
law (i.e., E.O. No. 44 and its implementing rules and regulations) and should not give rise to any vested
right on PNOC.[93]

Furthermore, approval of the compromise agreement and acceptance of the compromise payment by
his predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement,
dated 22 June 1987, for lack of legal basis; and from demanding payment of the deficiency withholding
tax from PNB. As a general rule, the Government cannot be estopped from collecting taxes by the
mistake, negligence, or omission of its agents[94] because:

. . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of government officials entrusted with the
collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner
as private persons may be made to suffer individually on account of his own negligence, the
presumption being that they take good care of their personal affairs. This should not hold true to
government officials with respect to matters not of their own personal concern. This is the philosophy
behind the government's exception, as a general rule, from the operation of the principle of estoppel.
(Republic vs. Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila Lodge No. 761, Benevolent
and Protective Order of the Elks, Inc. vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA 162;
Sy vs. Central Bank of the Philippines, L-41480, April 30, 1976, 70 SCRA 571; Balmaceda vs. Corominas &
Co., Inc., 66 SCRA 553; Auyong Hian vs. Court of Tax Appeals, 59 SCRA 110; Republic vs. Philippine Rabbit
Bus Lines, Inc., 66 SCRA 553; Republic vs. Philippine Long Distance Telephone Company, L-18841,
January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax Appeals, L-23272, November 26, 1970, 36 SCRA
77; E. Rodriguez, Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28 SCRA 119).[95]

III

Finality of the Tax Assessment


A. The issue on whether the BIR complied with the notice requirements under RR No. 12-85 is raised for
the first time on appeal and should not be given due course.

PNB, in another effort to block the collection of the deficiency withholding tax, this time raises doubts as
to the validity of the deficiency withholding tax assessment issued against it on 16 January 1991. It
submits that the BIR failed to comply with the notice requirements set forth in RR No. 12-85.[96]

Whether or not the BIR complied with the notice requirements of RR No. 12-85 is a new issue raised by
PNB only before this Court. Such a question has not been ventilated before the lower courts. For an
appellate tribunal to consider a legal question, it should have been raised in the court below.[97] If
raised earlier, the matter would have been seriously delved into by the CTA and the Court of
Appeals.[98]

B. The assessment against PNB had become final and unappealable, and therefore, enforceable.

The CTA and the Court of Appeals declared as final and unappealable, and thus, enforceable, the
assessment against PNB, dated 16 January 1991, since PNB failed to protest said assessment within the
30-day prescribed period. This Court, though, finds that the significant BIR assessment, as far as this case
is concerned, should be the one issued by the BIR against PNB on 08 October 1986.

The BIR issued on 08 October 1986 an assessment against PNB for its withholding tax liability on the
interest earnings and/or yields from PNOCs money placements with the bank. It had 30 days from
receipt to protest the BIRs assessment. [99] PNB, however, did not take any action as to the said
assessment so that upon the lapse of the period to protest, the withholding tax assessment against it,
dated 8 October 1986, became final and unappealable, and could no longer be disputed.[100] The
courts may therefore order the enforcement of this assessment.

It is the enforcement of this BIR assessment against PNB, dated 08 October 1986, that is in issue in the
instant case. If the compromise agreement is valid, it would effectively bar the BIR from enforcing the
assessment and collecting the assessed tax; on the other hand, if the compromise agreement is void,
then the courts can order the BIR to enforce the assessment and collect the assessed tax.

As has been previously discussed by this Court, the BIR demand letter, dated 16 January 1991, is not a
new assessment against PNB. It only demanded from PNB the payment of the balance of the
withholding tax assessed against it on 08 October 1986. The same demand letter also has no substantial
effect or impact on the resolution of the present case. It is already unnecessary and superfluous, having
been issued by the BIR when CTA Case No. 4249 was already pending before the CTA. At best, the
demand letter, dated 16 January 1991, constitute a useful reference for the courts in computing the
balance of PNBs tax liability, after applying as partial payment thereon the amount previously received
by the BIR from PNOC pursuant to the compromise agreement.

IV

Prescription

A. The defense of prescription was never raised by petitioners PNOC and PNB, and should be considered
waived.

The dissenting opinion takes the position that the right of the BIR to assess and collect income tax on
the interest earnings and/or yields from PNOCs money placements with PNB, particularly for taxable
year 1985, had already prescribed, based on Section 268 of the NIRC of 1977, as amended.

Section 268 of the NIRC of 1977, as amended, provides a three-year period of limitation for the
assessment and collection of internal revenue taxes, which begins to run after the last day prescribed
for filing of the return.[101]

The dissenting opinion points out that more than four years have elapsed from 25 January 1986 (the last
day prescribed by law for PNB to file its withholding tax return for the fourth quarter of 1985) to 16
January 1991 (the date when the alleged final assessment of PNBs tax liability was issued).

The issue of prescription, however, was brought up only in the dissenting opinion and was never raised
by PNOC and PNB in the proceedings before the BIR nor in any of their pleadings submitted to the CTA
and the Court of Appeals.

Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on defenses and objections not
pleaded, and reads:

SECTION 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a
motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or
the evidence on record that the court has no jurisdiction over the subject matter, that there is another
action pending between the parties for the same cause, or that the action is barred by prior judgment or
by the statute of limitations, the court shall dismiss the claim.

The general rule enunciated in the above-quoted provision governs the present case, that is, the
defense of prescription, not pleaded in a motion to dismiss or in the answer, is deemed waived. The
exception in same provision cannot be applied herein because the pleadings and the evidence on record
do not sufficiently show that the action is barred by prescription.

It has been consistently held in earlier tax cases that the defense of prescription of the period for the
assessment and collection of tax liabilities shall be deemed waived when such defense was not properly
pleaded and the facts alleged and evidences submitted by the parties were not sufficient to support a
finding by this Court on the matter.[102] In Querol v. Collector of Internal Revenue,[103] this Court
pronounced that prescription, being a matter of defense, imposes the burden on the taxpayer to prove
that the full period of the limitation has expired; and this requires him to positively establish the date
when the period started running and when the same was fully accomplished.

In making its conclusion that the assessment and collection in this case had prescribed, the dissenting
opinion took liberties to assume the following facts even in the absence of allegations and evidences to
the effect that: (1) PNB filed returns for its withholding tax obligations for taxable year 1985; (2) PNB
reported in the said returns the interest earnings of PNOCs money placements with the bank; and (3)
that the returns were filed on or before the prescribed date, which was 25 January 1986.

It is not safe to adopt the first and second assumptions in this case considering that Section 269 of the
NIRC of 1977, as amended, provides for a different period of limitation for assessment and collection of
taxes in case of false or fraudulent return or for failure to file a return. In such cases, the BIR is given 10
years after discovery of the falsity, fraud, or omission within which to make an assessment.[104]

It is also not safe to accept the third assumption since there can be a possibility that PNB filed the
withholding tax return later than the prescribed date, in which case, following the dictates of Section
268 of the NIRC of 1977, as amended, the three-year prescriptive period shall be counted from the date
the return was actually filed.[105]

PNBs withholding tax returns for taxable year 1985, duly received by the BIR, would have been the best
evidence to prove actual filing, the date of filing and the contents thereof. These facts are relevant in
determining which prescriptive period should apply, and when such prescriptive period should begin to
run and when it had lapsed. Yet, the pleadings did not refer to any return, and no return was made part
of the records of the present case.
This Court could not make a proper ruling on the matter of prescription on the mere basis of
assumptions; such an issue should have been properly raised, argued, and supported by evidences
submitted by the parties themselves before the BIR and the courts below.

B. Granting that this Court can take cognizance of the defense of prescription, this Court finds that the
assessment of the withholding tax liability against PNOC and collection of the tax assessed were done
within the prescriptive period.

Assuming, for the sake of argument, that this Court can give due course to the defense of prescription, it
finds that the assessment against PNB for its withholding tax liability for taxable year 1985 and the
collection of the tax assessed therein were accomplished within the prescribed periods for assessment
and collection under the NIRC of 1977, as amended.

If this Court adopts the assumption made by the dissenting opinion that PNB filed its withholding tax
return for the last quarter of 1985 on 25 January 1986, then the BIR had until 24 January 1989 to assess
PNB. The original assessment against PNB was issued as early as 08 October 1986, well-within the three-
year prescriptive period for making the assessment as prescribed by the following provisions of the NIRC
of 1977, as amended:

SEC. 268. Period of limitation upon assessment and collection. Except as provided in the succeeding
section, internal revenue taxes shall be assessed within three years after the last day prescribed by law
for the filing of the return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period

SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes.

(c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed
may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax.

Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read in conjunction with one
another. Section 268 requires that assessment be made within three years from the last day prescribed
by law for the filing of the return. Section 269(c), on the other hand, provides that when an assessment
is issued within the prescribed period provided in Section 268, the BIR has three years, counted from the
date of the assessment, to collect the tax assessed either by distraint, levy or court action. Therefore,
when an assessment is timely issued in accordance with Section 268, the BIR is given another three-year
period, under Section 269(c), within which to collect the tax assessed, reckoned from the date of the
assessment.

In the case of PNB, an assessment was issued against it by the BIR on 08 October 1986, so that the BIR
had until 07 October 1989 to enforce it and to collect the tax assessed. The filing, however, by private
respondent Savellano of his Amended Petition for Review before the CTA on 02 July 1988 already
constituted a judicial action for collection of the tax assessed which stops the running of the three-year
prescriptive period for collection thereof.

A judicial action for the collection of a tax may be initiated by the filing of a complaint with the proper
regular trial court; or where the assessment is appealed to the CTA, by filing an answer to the taxpayers
petition for review wherein payment of the tax is prayed for.[106]

The present case is unique, however, because the Petition for Review was filed by private respondent
Savellano, the informer, against the BIR, PNOC, and PNB. The BIR, the collecting government agency;
PNOC, the taxpayer; and PNB, the withholding agent, initially found themselves on the same side. The
prayer in the Amended Petition for Review of private respondent Savellano reads:

WHEREFORE, in view of the foregoing, petitioner respectfully prays that the compromise agreement of
June 22, 1987 be reviewed and declared null and void, and that this Court directs:

a) respondent Commissioner to enforce and collect and respondents PNB and/or PNOC to pay in a joint
and several capacity, the total tax liability of P387,987,785.73, plus interests from 31 October 1986; and

b) respondent Commissioner to pay unto petitioner, as informers reward, 15% of the tax liability
collected under clause (a) hereof.

Other equitable reliefs under the premises are likewise prayed for.[107] (Underscoring ours.)

Private respondent Savellano, in his Amended Petition for Review in CTA Case No. 4249, prayed for (1)
the CTA to direct the BIR Commissioner to enforce and collect the tax, and (2) PNB and/or PNOC to pay
the tax making CTA Case No. 4249 a collection case. That the Amended Petition for Review was filed by
the informer and not the taxpayer; and that the prayer for the enforcement of the tax assessment and
payment of the tax was also made by the informer, not the BIR, should not affect the nature of the case
as a judicial action for collection. In case the CTA grants the Petition and the prayer therein, as what has
happened in the present case, the ultimate result would be the collection of the tax assessed.
Consequently, upon the filing of the Amended Petition for Review by private respondent Savellano,
judicial action for collection of the tax had been initiated and the running of the prescriptive period for
collection of the said tax was terminated.

Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive
period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the
said prescriptive period. Under Section 271 of the NIRC of 1977, as amended, the running of the
prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR
Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and
for 60 days thereafter.[108] Just as in the cases of Republic v. Ker & Co., Ltd.[109] and Protectors
Services, Inc. v. Court of Appeals,[110] this Court declares herein that the pendency of the present case
before the CTA, the Court of Appeals and this Court, legally prevents the BIR Commissioner from
instituting an action for collection of the same tax liabilities assessed against PNOC and PNB in the CTA
or the regular trial courts. To rule otherwise would be to violate the judicial policy of avoiding
multiplicity of suits and the rule on lis pendens.

Once again, that CTA Case No. 4249 was initiated by private respondent Savellano, the informer, instead
of PNOC, the taxpayer, or PNB, the withholding agent, would not prevent the suspension of the running
of the prescriptive period for collection of the tax. What is controlling herein is the fact that the BIR
Commissioner cannot file a judicial action in any other court for the collection of the tax because such a
case would necessarily involve the same parties and involve the same issues already being litigated
before the CTA in CTA Case No. 4249. The three-year prescriptive period for collection of the tax shall
commence to run only after the promulgation of the decision of this Court in which the issues of the
present case are resolved with finality.

Whether the filing of the Amended Petition for Review by private respondent Savellano entirely stops or
merely suspends the running of the prescriptive period for collection of the tax, it had been premature
for the BIR Commissioner to issue a writ of garnishment against PNB on 12 August 1991 and for the
Central Bank of the Philippines to debit the account of PNB on 02 September 1992 pursuant to the said
writ, because the case was by then, pending review by the Court of Appeals. However, since this Court
already finds that the compromise agreement is without force and effect and hereby orders the
enforcement of the assessment against PNB, then, any issue or controversy arising from the premature
garnishment of PNBs account and collection of the tax by the BIR has become moot and academic at this
point.

V
Additional Informers Reward

Private respondent Savellano is entitled to additional informers reward since the BIR had already
collected the full amount of the tax assessment against PNB.

PNOC insists that private respondent Savellano is not entitled to additional informers reward because
there was no voluntary payment of the withholding tax liability. PNOC, however, fails to state any legal
basis for its argument.

Section 316(1) of the NIRC of 1977, as amended, granted a reward to an informer equivalent to 15% of
the revenues, surcharges, or fees recovered, plus, any fine or penalty imposed and collected.[111] The
provision was clear and uncomplicated an informer was entitled to a reward of 15% of the total amount
actually recovered or collected by the BIR based on his information. The provision did not make any
distinction as to the manner the tax liability was collected whether it was through voluntary payment by
the taxpayer or through garnishment of the taxpayers property. Applicable herein is another well-known
maxim in statutory construction Ubi lex non distinguit nec nos distinguere debemos when the law does
not distinguish, we should not distinguish.[112]

Pursuant to the writ of garnishment issued by the BIR, the Central Bank issued a debit advice against the
demand deposit account of PNB with the Central Bank for the amount of P294,958,450.73, and credited
the same amount to the demand deposit account of the Treasurer of the Republic of the Philippines.
The Treasurer of the Republic, in turn, already issued a journal voucher transferring P294,958,450.73 to
the account of the BIR.

Since the BIR had already collected P294,958,450.73 from PNB through the execution of the writ of
garnishment over PNBs deposit with the Central Bank, then private respondent Savellano should be
awarded 15% thereof as reward since the said collection could still be traced to the information he had
given.

WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R. No. 109976 and G.R. No.
112800, respectively, are hereby DENIED. This Court AFFIRMS the assailed Decisions of the Court of
Appeals in CA-G.R. SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the CTA in
CTA Case No. 4249, with modifications, to wit:

(1) The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void for
being contrary to law and public policy, and is without force and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;

(3)The withholding tax assessment against PNB, dated 08 October 1986, had become final and
unappealable. The BIR Commissioner is ordered to enforce the said assessment and collect the amount
of P294,958,450.73, the balance of tax assessed after crediting the previous payment made by PNOC
pursuant to the compromise agreement, dated 22 June 1987; and

(4) Private respondent Savellano shall be paid the remainder of his informers reward, equivalent to 15%
of the deficiency withholding tax ordered collected herein, or P 44,243,767.61.

SO ORDERED.

Quisumbing, Sandoval-Gutierrez, Austria-Martinez, Callejo, Sr., and Garcia, JJ., concur.

Davide, Jr., C.J., Corona, and Carpio-Morales, joins J. Carpio in his dissenting opinion.

Puno, and Panganiban, J., concurs with the majority and the separate opinion of J. Tinga.

Ynares-Santiago, J., no part.

Carpio, J., see dissenting opinion.

Azcuna, J., no partwas PNB Chairman in 1991.

Tinga, J., see separate concurring opinion.

[1] Rollo (G.R. No. 109976), pp. 7-29.


[2] Rollo (G.R. No. 112800), pp. 7-27.

[3] Penned by Associate Justice Regina G. Ordonez-Benitez, with Associate Justices Arturo B. Buena and
Eduardo G. Montenegro, concurring, on 23 April 1993.

[4] Penned by Associate Justice Oscar M. Herrera, with Associate Justices Consuelo Y. Santiago (now
Supreme Court Associate Justice) and Corona I. Somera, concurring, on 23 November 1993.

[5] Penned by Associate Judge Constante C. Roaquin, with Presiding Judge Ernesto D. Acosta and Acting
Associate Judge Stella Dadivas-Farrales, concurring, on 28 May 1992.

[6] CTA Rollo, p. 643.

[7] Ibid., pp. 199-200.

[8] Ibid., pp. 17-18.

[9] Ibid., p. 644.

[10] Id.

[11] Ibid., pp. 19-20.

[12] Ibid., pp. 196-198.

[13] Ibid., p. 645.

[14] Id.

[15] Ibid. p. 21.


[16] Ibid., p. 22.

[17] Ibid., pp. 202-208.

[18] Ibid., pp. 1-16.

[19] Ibid., pp. 50-66.

[20] Ibid., pp. 32-40.

[21] Ibid., pp. 99-103, 106-112.

[22] Penned by Presiding Judge Amante Filler, with Associate Judges Alex Z. Reyes and Constante C.
Roaquin, concurring; Ibid., p. 141.

[23] Ibid., pp. 158-164.

[24] Ibid., pp. 168-172.

[25] This Court, in the case of Commissioner of Internal Revenue v. Commission on Audit (G.R. No.
101976, 29 January 1993, 218 SCRA 203, 214), set aside the disallowance in audit by the Commission on
Audit (COA) and affirmed the payment by the BIR Commissioner of informers reward to Savellano,
private respondent in the present case, ruling thus:

That the informers reward was sought and given to tax delinquencies of government agencies provides
no reason for disallowance. The law on the matter makes no distinction whatsoever between delinqent
taxpayers in this regard, whether private persons or corporation, or public or quasi-public agencies, it
being sufficient for its operation that the person or entity concerned is subject to, and violated, revenue
laws, and the informers report thereof resulted in the recovery of revenues.
[26] Resolution, dated 28 December 1989, penned by Presiding Judge Amante Filler, with Associate
Judges Alex Z. Reyes and Constante C. Roaquin, concurring; CTA Rollo, pp. 233-234.

[27] Resolution, dated 17 May 1990, penned by Presiding Judge Amante Filler, with Associate Judge Alex
Z. Reyes and Constante C. Roaquin, concurring; Ibid., pp. 281-282.

[28] Ibid., pp. 398-399.

[29] Ibid., pp. 433-435, 439-442.

[30] Ibid., pp. 447-448.

[31] Rollo (G.R. No. 112800), p. 21.

[32] CA Rollo (CA-G.R. SP No. 29526), p. 11.

[33] CTA Rollo, pp. 538-541.

[34] Ibid., pp. 449-458.

[35] Penned by Presiding Judge Alex Z. Reyes, with Associate Judges Ernesto D. Acosta and Constante C.
Roaquin, concurring; Ibid., pp. 484-485.

[36] Penned by Presiding Judge Alex Z. Reyes; CTA Rollo, p. 489.

[37] Ibid, p. 490.

[38] Ibid., pp. 490-493.

[39] Ibid., pp. 523-527.


[40] Ibid., pp. 528-543.

[41] Ibid., p. 565.

[42] Ibid., pp. 566-571, 572-580.

[43] Ibid., pp. 598-603.

[44] Ibid., pp. 605-607, 608-610.

[45] Ibid., p. 800.

[46] Penned by Presiding Judge Ernesto D. Acosta, with Associate Judges Ramon O. De Veyra and
Manuel K. Gruba, concurring; Ibid., pp. 834-841.

[47] CA Rollo (CA-G.R. SP No. 29583), p. 83.

[48] Ibid., p. 84.

[49] Ibid., p. 124.

[50] Ibid., p. 122.

[51] Rollo (G.R. No. 109976), pp. 7-29.

[52] Rollo (G.R. No. 112800), pp. 7-27.

[53] The full text of the BIR demand letter reads as follows:
Lungsod ng Quezon

January 16, 1991

PHILIPPINE NATIONAL BANK

Escolta, Manila

G e n t l e m e n:

This is in connection with the withholding taxes assessed against you in the amount of P303,343,765.32,
plus interest of P82,617,815.50 or a total of P385,961,580.82 on the interest earnings on the money
market placements of Philippine National Oil Company (PNOC) subject matter of our letter dated
November 11, 1986, copy attached.

It appears that the aforesaid withholding taxes have been compromised in the amount of
P91,003,129.83 representing 30% of P303,343,765.32 (basic tax) pursuant to E.O. 44.

After a circumspect study of the case, this Office has arrived at the conclusion that the compromise
settlement is without legal basis considering that E.O. 44 contemplates disputed or delinquent taxes.
The withholding taxes are actually not tax but penalty for your failure to withhold the same from PNOC
(National Development Corp. vs. Comm. Of Int. Rev., G.R. No. 539611, June 30, 1987.) Moreover, the
obligation to withhold the tax is your personal liability as withholding agent (Comm. Of Int. Rev. vs.
Malayan Insurance Co., G.R. No. L-21913, November 18, 1967.) Such liability is imposed under Section
51(e) of the NIRC.

Accordingly, there is still due from you the amount of P294,958,450.93 arrived at as follows:

Withholding tax, plus interest under letter of demand dated November 11, 1986
P 385,961,580.82

Less: Amount paid under E.O. 44

P 91,003,129.89

Amount still due and collectible

P 294,958,450.73

IN VIEW THEREOF, it is requested that you cause to be paid to the Chief, Receivable Accounts/Billing
Division, thru the Chief, Litigation Division, Room 703, BIR National Office Building, Diliman, Quezon City,
within thirty (30) days from receipt hereof in order that this case may be considered closed and
terminated.

Very truly yours,

(SGD) JOSE U. ONG

Commissioner

(CTA Rollo, pp. 447-448).

[54] Section 282(A) of the National Internal Revenue Code of 1997 still provide for informers reward to
persons instrumental in the discovery of violations of the Code, equivalent to ten percent (10%) of the
revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or P1,000,000.00
per case, whichever is lower.
[55] Rep. Act No. 1125 became effective on 16 June 1954, while P.D. No. 242 was promulgated on 09
July 1973.

[56] G.R. No. 86625, 22 December 1989, 180 SCRA 609, 617.

[57] Section 7 of Rep. Act No. 1125 provides that:

SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review
by appeal, as herein provided -

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other law or part of law administered by the
Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges; seizure, detention or release of property affected; fines, forfeitures or other penalties
imposed in relation thereto; or other or other matters arising under the Customs Law or other law or
part of law administered by the Bureau of Customs; and

(3) Decisions of provincial or city Boards of Assessment Appeals in cases involving the assessment and
taxation of real property or other matters arising under the Assessment Law, including rules and
regulations relative thereto.

[58] Supra, note 56.

[59] 44 Phil 138, 149 (1922).

[60] Lichauco & Company, Inc. v. Apostol, et al., 44 Phil 138, 146-147 (1922).

[61] Manila Railroad Co. v. Rafferty, 40 Phil 224 (1919).


[62] National Power Corporation v. Hon. Presiding Judge, RTC, Br. XXV, G.R. No. 72477, 16 October 1990,
190 SCRA 477.

[63] Mison v. Natividad, G.R. No. 82586, 11 September 1992, 213 SCRA 734; Marubeni Corporation v.
Commissioner of Internal Revenue, G.R. No. 76573, 14 September 1989, 177 SCRA 500; Papa, et al. v.
Mago, et al., 130 Phil 886 (1968).

[64] G.R. No. L-21803, 17 December 1966, 18 SCRA 946, 953.

[65] G.R. No. 127777, 01 October 1999, 316 SCRA 118, citing Vitug and Acosta, Tax Law and
Jurisprudence, 1st Edition, 1997, p. 267.

[66] Revenue Regulations No. 17-86, Section 2(a), paragraph 2.

[67] Revenue Regulations No. 17-86, Section 2(c)(4).

[68] Revenue Regulations No. 17-86, Section 2(a)(2) defines delinquent accounts as:

a) Delinquent Account refers to the amount of tax due on or before December 31, 1985 from a taxpayer
who failed to pay the same within the time prescribed for its payment, arising from (2) a deficiency
assessment issued by the BIR which has become final and executory.

[68] Revenue Regulations No. 17-86, Section 2(b) provides:

b) Disputed Assessment refers to a tax assessment disputed or protested on or before December 31,
1985 under any of the following categories:

1) if the same is administratively protested within thirty (30) days from the date the taxpayer received
the assessment; or

2) if the decision of the BIR on the taxpayers administrative protest is appealed by the taxpayer before
an appropriate Court.
[70] E.O. No. 41 offers tax amnesty to taxpayers who failed to declare the correct amount of taxes from
01 January 1981 to 31 December 1985. To avail of said tax amnesty, the taxpayer must filed a return and
pay a tax equivalent to 10% of the increase in his/its net worth from 31 December 1980 to 31 December
1985, provided that in no case shall the tax be less than P5,000 for individuals and P10,000 for juridical
persons.

[71] The exact text of Section 246(1) of the National Internal Revenue Code of 1977, as amended, is
reproduced below:

SEC. 246. Authority of the Commissioner to compromise, abate, and refund/credit taxes. The
Commissioner may

(1) Compromise the payment of any internal revenue tax when

(a) A reasonable doubt as to the validity of the claim against the taxpayer exists; or

(b) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Now Section 204(A) of the National Internal Revenue Code of 1997.

[72] Revenue Memorandum Order No. 39-86, par. 3.1.

[73] Revenue Memorandum Order No. 39-86, par. 3.2.

[74] Supra, note 72.

[75] Geukeko v. Araneta, 102 Phil 706 (1957).

[76] Supra., note 7.


[77] There is no copy in the records of PNOCs letter to the BIR, dated 14 October 1986. The second
paragraph of BIRs letter to PNOC, dated 11 November 1986 (Supra., note 11), however, made reference
to PNOCs letter stating therein that:

In your letter to us dated October 14, 1986, you submitted a proposal to settle this tax liability by off-
setting the outstanding claim for refund/credit of the National Power Corporation with this Bureau, in
the total sum of P335,259,450.21. which you claim will ultimately be assigned to Petrophil Corporation,
your subsidiary, against the unpaid basic withholding final tax liability; and you further requested this
Office to reconsider the waiver of the deficiency interests due for the same reason that the 25%
surcharge was waived by this Office.

[78] Supra., note 8.

[79] Supra., note 11.

[80] Supra., note 12.

[81] Leongson, et al. v. Court of Appeals, 151 Phil 314 (1973).

[82] CTA Rollo, pp. 56-57.

[83] Primicias v. Fugoso, 80 Phil 71 (1948).

[84] Antiquera v. Baluyot, 91 Phil 213 (1952); Gatmaitan v. Pascual, 76 Phil. 315 (1946).

[85] G.R. No. 108292, 10 September 1993, 226 SCRA 314.

[86] Ibid., p. 328.

[87] Id.
[88] Rollo (G.R. No. 112800), p. 58.

[89] Mayuga, et al. v. Court of Appeals, et al., G.R. No. L-46953, 28 September 1987, 154 SCRA 309.

[90] Republic of the Philippines v. Sandiganbayan, supra, note 85; First Philippine Holdings Corp. v.
Sandiganbayan, G.R. No. 95197, 30 September 1991, 202 SCRA 212.

[91] Commissioner of Internal Revenue v. Pineda, G.R. No. L-22734, 15 September 1967, 21 SCRA 105.

[92] 100 Phil 288 (1956).

[93] Id.

[94] Atlas Consolidated Mining and Development Corp. v. Commissioner of Internal Revenue, G.R. No. L-
26911, 27 January 1981, 102 SCRA 246; Philippine Guaranty Company, Inc. v. Commissioner of Internal
Revenue, et al., 121 Phil 755 (1965).

[95] Vera, et al. v. Fernandez, et al., G.R. No. L-31364, 30 March 1979, 89 SCRA 199, 204.

[96] Revenue Regulations No. 12-85 provides the procedure for the issuance of an assessment by the
BIR, as well as, the procedure for protesting an assessment. According to Revenue Regulations No. 12-
85, when the BIR Commissioner or his duly authorized representative had found that taxes should be
assessed, he should notify the taxpayer of the findings. The pre-assessment notice should be in writing
and sent to the taxpayers address as indicated in his returns or at his last known address. The BIR could
proceed to issuing an assessment notice only in the event that the taxpayer failed to respond to the pre-
assessment notice within the prescribed period, or when the taxpayers response was unmeritorious.

[97] Aguinaldo Industries Corporation v. Commissioner of Internal Revenue, G.R. No. L-29790, 25
February 1982, 112 SCRA 136.

[98] Atlas Consolidated Mining and Development Corp. v. Commissioner of Internal Revenue, supra,
note 94.
[99] Revenue Regulations No. 12-85, Section 7.

[100] Revenue Regulations No. 12-85, Section 9.

[101] Section 268 of the National Internal Revenue Code of 1977, as amended, reads in full as:

SEC. 268. Period of limitation upon assessment and collection. Except as provided in the succeeding
section, internal revenue taxes shall be assessed within three years after the last day prescribed by law
for the filing of the return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period; Provided, that in a case where a return is filed
beyond the period prescribed by law, the three-year period shall be counted from the day the return
was filed. For purposes of this section, a return filed before the last day prescribed by law for the filing
thereof shall be considered filed on such last day.

Now Section 203 of the National Internal Revenue Code of 1997.

[102] Navare v. Court of Appeals, G.R. No. 56838, 26 April 1990, 184 SCRA 584; Commissioner of Internal
Revenue v. Yusay, 124 Phil 1395 (1966); Bollozos v. Court of Tax Appeals, 121 Phil 440 (1965); Hodges v.
Salas, 63 Phil 567 (1936).

[103] 116 Phil 615 (1962).

[104] Section 269 (a) of the National Internal Revenue Code of 1977, as amended, reads:

SEC. 269. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a
false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed,
or a proceeding in court for the collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the falsity, fraud, or omission; Provided, That in a fraud
assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance
of in the civil or criminal action for the collection thereof.

Now Section 222(a) of the National Internal Revenue Code of 1997.


[105] Supra., note 101.

[106] Palanca, et al. v. Commissioner of Internal Revenue, 114 Phil 203, citing the unreported case of
Alhambra Cigar and Cigarette Mfg. Co. v. Collector of Internal Revenue, G.R. No. L-12026 and L-12131,
29 May 1959.

[107] CTA Rollo, p. 65.

[108] Section 271 of the National Internal Revenue Code of 1977, as amended, is reproduced in full
below:

SEC. 271. Suspension of running of statute. The running of the statute of limitations provided in Sections
268 and 269 on the making of assessment and the beginning of distraint or levy or a proceeding in court
for collection, in respect of any deficiency, shall be suspended for the period during which the
Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in
court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by
the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected; Provided, That, if the taxpayer informs the
Commissioner of any change in address, the running of the statute of limitations will not be suspended;
when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative,
or a member of his household with sufficient discretion, and no property could be located; and when
the taxpayer is out of the Philippines.

Now Section 223 of the National Internal Revenue Code of 1997.

[109] G.R. No. L-21609, 29 September 1966, 18 SCRA 207.

[110] 386 Phil 611 (2000).

[111] Section 316(1) of the National Internal Revenue Code of 1977, as amended, reads:

SEC. 316. Informers reward to persons instrumental in the discovery of violations of the National
Internal Revenue Code and in the discovery and seizure of smuggled goods.
(1) For violations of the National Internal Revenue Code. Any person, except an internal revenue official
or employee, or other public official, or his relative within the sixth degree of consanguinity, who
voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal
Revenue, leading to the discovery of frauds upon the internal revenue laws or violations of any of the
provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the
conviction of the guilty party and/or the imposition of any fine or penalty shall be rewarded in a sum
equivalent to fifteen per centum of the revenues, surcharges or fees recovered and/or fine or penalty
imposed and collected. The same amount of reward shall also be given to an informer where the
offender has offered to compromise the violation of law committed by him and his offer has been
accepted by the Commissioner and in such a case, the fifteen per centum reward fixed herein shall be
based on the amount agreed upon in the compromise and collected from the offender; Provided, That
should no revenue, surcharges or fees be actually recovered or collected, such person shall not be
entitled to a reward; Provided, further, That the information mentioned herein shall not refer to a case
already pending or previously investigated or examined by the Commissioner or any of his deputies,
agents or examiners, or the Minister of Finance or any of his deputies or agents; Provided, finally, That
the reward provided herein shall be paid under regulations issued by the Commissioner of Internal
Revenue with the approval of the Minister of Finance.

Now Section 282(A) of the National Internal Revenue Code of 1997, with modifications, supra., note 54.

[112] Philippine British Assurance Co., Inc. v. Intermediate Appellate Court, G.R. No. 72005, 29 May
1987, 150 SCRA 520; Loc Cham v. Ocampo, 77 Phil. 636 (1946).
SECOND DIVISION

COMMISSIONER OF CUSTOMS,

Petitioner,

- Versus –
MARINA SALES, INC.,

Respondent.

G.R. No. 183868

Present:

CARPIO, J., Chairperson,

DE CASTRO,*

PERALTA,

ABAD, and

MENDOZA, JJ.
Promulgated:

November 22, 2010

X -------------------------------------------------------------------------------------- X

DECISION

MENDOZA, J.:

In this petition for review on certiorari[1] under Rule 45, the Commissioner of Customs (Commissioner),
represented by the Office of the Solicitor General (OSG), assails the April 11, 2008 Resolution[2] of the
Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. E.B. No. 333, dismissing his petition for review for
his failure to file a motion for reconsideration before the Court of Tax Appeals Division (CTA-Division).

Respondent Marina Sales, Inc. (Marina) is engaged in the manufacture of Sunquick juice concentrates. It
was appointed by CO-RO Food A/S of Denmark, maker of Sunquick Juice Concentrates, to be its
manufacturing arm in the Philippines. As such, Marina usually imports raw materials into the country for
the purpose. In the past, the Bureau of Customs (BOC) assessed said type of importations under Tariff
Heading H.S. 2106.90 10 with a 1% import duty rate.[3]

On March 6, 2003, Marinas importation, labeled as Import Entry No. C-33771-03, arrived at the Manila
International Container Port (MICP) on board the vessel APL Iris V-111. Said Import Entry No. C-33771-
03 consisted of a 1 x 20 container STC with a total of 80 drums: (a) 56 drums of 225 kilograms Sunquick
Orange Concentrate; and (b) 24 drums of 225 kilograms of Sunquick Lemon Concentrate.[4] It was
supported by the following documents: (a) Bill of Lading No. APLU 800452452 dated February 2,
2003;[5] and (b) CO-RO Food A/S of Denmark Invoice No. 1619409 dated January 27, 2003.[6]

Marina computed and paid the duties under Tariff Harmonized System Heading H.S. 2106.90 10 at 1%
import duty rate.

This time, however, the BOC examiners contested the tariff classification of Marinas Import Entry No. C-
33771-03 under Tariff Heading H.S. 2106.90 10. The BOC examiners recommended to the Collector of
Customs, acting as Chairman of the Valuation and Classification Review Committee (VCRC) of the BOC,
to reclassify Marinas importation as Tariff Heading H.S. 2106.90 50 (covering composite concentrates for
simple dilution with water to make beverages) with a corresponding 7% import duty rate.

The withheld importation being necessary to its business operations, Marina requested the District
Collector of the BOC to release Import Entry No. C-33771-03 under its Tentative Release System.[7]
Marina undertook to pay the reclassified rate of duty should it be finally determined that such
reclassification was correct. The District Collector granted the request.
On April 15, 2003, the VCRC directed Marina to appear in a deliberation on May 15, 2003 and to explain
why its shipment under Import Entry No. C-33771-03 should not be classified under Tariff Heading H.S.
2106.90 50 with import duty rate of 7%.[8]

On May 15, 2003, Marina, through its Product Manager Rowena T. Solidum and Customs Broker Juvenal
A. Llaneza, attended the VCRC deliberation and submitted its explanation,[9] dated May 13, 2003, along
with samples of the importation under Import Entry No. C-33771-03.

On May 21, 2003, another importation of Marina arrived at the MICP designated as Import Entry No. C-
67560-03. It consisted of another 1 x 20 container STC with a total of 80 drums: (a) 55 drums of 225
kilograms of Sunquick Orange Concentrate; (b) 1 drum of 225 kilograms of Sunquick Tropical Fruit
Concentrate; (c) 17 drums of 225 kilograms of Sunquick Lemon Concentrate; (d) 3 drums of 225
kilograms of Sunquick Ice Lemon Concentrate; and € 4 drums of 225 kilograms Sunquick Peach Orange
Concentrate. The said importation was accompanied by the following documents: (a) Bill of Lading No.
KKLUCPH060291 dated April 17, 2003;[10] and (b) CO-RO Foods A/S Denmark Invoice No. 1619746
dated April 15, 2003.[11]

Again, the BOC examiners disputed the tariff classification of Import Entry No. C-67560-03 and
recommended to the VCRC that the importation be classified at Tariff Heading H.S. 2106.90 50 with the
corresponding 7% duty rate.

In order for Import Entry No. C-67560-03 to be released, Marina once again signed an undertaking under
the Tentative Release System.[12]
In a letter dated July 7, 2003, the VCRC scheduled another deliberation requiring Marina to explain why
Import Entry No. C-67560-03 should not be classified under Tariff Heading H.S. 2106.90 50 at the import
duty rate of 7%.[13]

On July 17, 2003, Marina again attended the VCRC deliberation and submitted its explanation[14] dated
July 17, 2003 together with samples in support of its claim that the imported goods under Import Entry
No. C-67560-03 should not be reclassified under Tariff Heading H.S. 2106.90 50.

Thereafter, the classification cases for Import Entry No. C-33771-03 and Import Entry No. C-67560-03
were consolidated.

On September 11, 2003, as reflected in its 1st Indorsement, the VCRC reclassified Import Entry No. C-
33771-03 and Import Entry No. C-67560-03 under Tariff Heading H.S. 2106.90 50 at 7% import duty
rate.[15]

On October 7, 2003, Marina appealed before the Commissioner challenging VCRCs reclassification.[16]

In its 1st Indorsement of November 13, 2003,[17] the VCRC modified its earlier ruling and classified
Marinas Import Entry No. C-33771-03 and Import Entry No. C-67560-03 under Tariff Heading H.S. 2009
19 00 at 7% duty rate, H.S. 2009.80 00 at 7% duty rate and H.S. 2009.90 00 at 10% duty rate.
Apparently not in conformity, Marina interposed a petition for review before the CTA on February 3,
2004, which was docketed as CTA Case No. 6859.

On October 31, 2007, the CTA Second Division ruled in favor of Marina[18] holding that its classification
under Tariff Heading H.S. 2106.90 10 was the most appropriate and descriptive of the disputed
importations.[19] It opined that Marinas importations were raw materials used for the manufacture of
its Sunquick products, not ready-to-drink juice concentrates as argued by the Commissioner.[20] Thus,
the decretal portion of the CTA – Second Division reads:

WHEREFORE, finding merit in petitioners Petition for Review, the same is hereby GRANTED. Accordingly,
the Resolution/Decision dated November 13, 2003 of the Valuation and Classification Review
Committee of the Bureau of Customs is hereby SET ASIDE and petitioners importation covered by
Import Entry Nos. C-33771-03 and C-67560-03 are reclassified under Tariff Harmonized System Heading
H.S. 2106.90 10 with an import duty rate of 1%.

SO ORDERED.

The Commissioner disagreed and elevated the case to the CTA-En Banc via a petition for review.[21]
In its Resolution of April 11, 2008, the CTA En Banc dismissed the petition. The pertinent portions of the
decision including the fallo read:

A careful scrutiny of the record of this case showed that petitioner failed to file before the Second
Division the required Motion for Reconsideration before elevating his case to the CTA En Banc.

Section 1, Rule 8 of the Revised Rules of the Court of Tax Appeals provided for the following rule, to wit:

RULE 8

PROCEDURE IN CIVIL CASES

SECTION 1. Review of Cases in the Court en banc.- In cases falling under the exclusive appellate
jurisdiction of the Court en banc, the petition for review of a decision or resolution of the Court in
Division must be preceded by the filing of a timely motion for reconsideration or new trial with the
Division.

In statutory construction, the use of the word must indicates that the requirement is mandatory.
Furthermore, the word must connote an imperative act or operates to simply impose a duty which may
be enforced. It is true the word must is sometimes construed as may permissive but this is only when
the context requires it. Where the context plainly shows the provision to be mandatory, the word must
is a command and cannot be construed as permissive, but must be given the signification which it
imparts.
It is worthy to note that the Supreme Court ruled that a Motion for Reconsideration is mandatory as a
precondition to the filing of a Petition for Review under Rule 43 of the Rules of Court.

WHEREFORE, applying by analogy the above ruling of the Supreme Court and taking into consideration
the mandatory provision provided by Section 1 of Rule 8 of the Revised Rules of the Court of Tax
Appeals and considering further that petitioner did not file a Motion for Reconsideration with the
Second Division before elevating the case to the Court En Banc, which eventually deprived the Second
Division of an opportunity to amend, modify, reverse or correct its mistake or error, if there be,
petitioners Petition for Review is hereby DISMISSED.

SO ORDERED.[22]

The Commissioner sought reconsideration of the disputed decision, but the CTA En Banc issued a denial
in its July 14, 2008 Resolution.[23]

Hence, this petition.


In his Memorandum,[24] the Commissioner submits the following issues for resolution:

A.

WHETHER THE DISMISSAL BY THE COURT OF TAX APPEALS EN BANC OF PETITIONERS PETITION BASED
ON MERE TECHNICALITY WILL RESULT IN INJUSTICE AND UNFAIRNESS TO PETITIONER.

B.

WHETHER THE CHALLENGED DECISION OF THE COURT OF TAX APPEALS SECOND DIVISION HOLDING
THAT RESPONDENTS IMPORTATION ARE COVERED BY IMPORT ENTRY NOS. C-33771-03 AND C-67560-03
ARE CLASSIFIED UNDER TARIFF HARMONIZED SYSTEM HEADING H.S. 2106.90 10 WITH AN IMPORT DUTY
RATE OF ONE PERCENT (1%) IS NOT CORRECT.[25]

The Commissioner argues that the dismissal of his petition before the CTA-En Banc is inconsistent with
the principle of the liberal application of the rules of procedure.[26] He points out that due to the
dismissal of the petition, the government would only be collecting 1% import duty rate from Marina
instead of 7%.[27] This, if sanctioned, would result in grave injustice and unfairness to the
government.[28]
The Commissioner also contends that the testimony of Marinas expert witness, Aurora Kimura,
pertaining to Sunquick Lemon compound shows that it could be classified as heavy syrup[29] falling
under the category of H.S. 2190.90 50 with a 7% import duty rate.[30]

The Court finds no merit in the petition.

On the procedure, the Court agrees with the CTA En Banc that the Commissioner failed to comply with
the mandatory provisions of Rule 8, Section 1 of the Revised Rules of the Court of Tax Appeals[31]
requiring that the petition for review of a decision or resolution of the Court in Division must be
preceded by the filing of a timely motion for reconsideration or new trial with the Division. The word
“must” clearly indicates the mandatory – not merely directory – nature of a requirement.[32]

The rules are clear. Before the CTA En Banc could take cognizance of the petition for review concerning
a case falling under its exclusive appellate jurisdiction, the litigant must sufficiently show that it sought
prior reconsideration or moved for a new trial with the concerned CTA division. Procedural rules are not
to be trifled with or be excused simply because their non-compliance may have resulted in prejudicing a
partys substantive rights.[33] Rules are meant to be followed. They may be relaxed only for very exigent
and persuasive reasons to relieve a litigant of an injustice not commensurate to his careless non-
observance of the prescribed rules.[34]

At any rate, even if the Court accords liberality, the position of the Commissioner has no merit. After
examining the records of the case, the Court is of the view that the import duty rate of 1%, as
determined by the CTA Second Division, is correct.
The table shows the different classification of Tariff import duties relevant to the case at bar:

TARIFF HEADING

IMPORT DUTY RATE

COVERAGE

H.S. 2106.90 10

1%

Covers flavouring materials, nes., of kind used in food and drink industries; other food preparations to
be used as raw material in preparing composite concentrates for making beverages

H.S. 2106.90 50

7%

Covers composite concentrate for simple dilution with water to make beverages

H.S. 2009. 19 00

7%

Covers orange juice, not frozen


H.S. 2009.80 00

7%

Covers juice of any other single fruit or vegetable

H.S. 2009.90 00

10%

Covers mixtures of juices

The Commissioner insists that Marinas two importations should be classified under Tariff Heading H.S.
2106.90 50 with an import duty rate of 7% because the concentrates are ready for consumption by mere
dilution with water.

The Court is not persuaded.

As extensively discussed by the CTA Second Division, to fit into the category listed under the Tariff
Harmonized System Headings calling for a higher import duty rate of 7%, the imported articles must not
lose its original character. In this case, however, the laboratory analysis of Marinas samples yielded a
different result.[35] The report supported Marinas position that the subject importations are not yet
ready for human consumption. Moreover, Marinas plant manager, Rebecca Maronilla, testified that the
juice compounds could not be taken in their raw form because they are highly concentrated and must
be mixed with other additives before they could be marketed as Sunquick juice products. If taken in
their unprocessed form, the concentrates without the mixed additives would produce a sour taste.[36]
In other words, the concentrates, to be consumable, must have to lose their original character. To quote
the CTA Second Division:

Verily, to fall under the assailed Tariff Harmonized System Headings, petitioners (herein respondent)
articles of importation, as fruit juices/mixtures, should not have lost its original character, in spite of the
addition of certain standardizing agents/constituents. Contrary thereto, We find the subject
importations categorized as non-alcoholic composite concentrates to have apparently lost their original
character due to the addition of ingredients in such quantity that the concentrated fruit juice mixture
only comprises a small percentage of the entire compound.

This was clearly explained by the VCRC in its subsequent Resolution/Decision (1st Indorsement) issued on
February 17, 2005 pertaining to subsequent similar importations of petitioner, effectively correcting its
findings in the assailed Resolution/Decision dated November 13, 2003 concerning the same party-
importer, issues and articles of importation,[37] to wit:

SUB-GROUP OBSERVATIONS/FINDINGS:

The classification issue was divided into two regimes. The era under the old Harmonized Commodity
Description and Coding System, while the other is the latest revised edition, the Asean Harmonized
Tariff Nomenclature.

The previous committee resolution was promulgated technically not on the merit of the case but failure
on the part of the importer to submit their position paper/arguments within the prescriptive period
given by the committee.
Importer submitted samples of subject shipment for laboratory analysis to Philippine Customs
laboratory to validate the veracity of product information given by the supplier and to determine the
correct tariff classification.

Xxx xxx xxx

Based on the report of the Laboratory Analysis, compound is made up to water 57.9%, Invert Sugar
34.34%, Citric Acid 2.94%, Vitamin C (Ascorbic Acid) 105 mg.

Since the item is compound which is composed of water, sugar, concentrated juice, flavourings, citric
acid, stabilizer, preservatives, vitamins C and colouring to produce beverage ready to drink.
Consequently the concentrated citrus juice has lost its original character due to the fact that it
comprises only 12% of the total compound.[38]

Items (fruit juices) classifiable under HS 2009 are fruit juices generally obtained by pressing fresh,
healthy and ripe fruit. Per item 4 of the Explanatory Notes to the Harmonized Commodity Description
and Coding System apparently subject article has lost its original character as concentrated fruit juice
drink to the compounding ingredients which reduces the fruit juices to 12% of the total compound.
In view of the foregoing subject article is classifiable under Tariff Heading H.S. 2106.90 10 at 1% for
entries filed under the old regime. For those filed under the new regime tariff heading AHTN 2106.90 51
at 1% where the item are specifically provided.

RESOLUTION: To apply sub-group recommendation which is to adopt H.S. 2106.90 10 at 1% for entries
filed under the old regime and for those filed under the new regime, AHTN 2106.90 51 at 1% where the
item are specifically provided.[39]

To manufacture is to make or fabricate raw materials by hand, art or machinery, and work into forms
convenient for use.[40] Stated differently, it is to transform by any process into another form suitable
for its intended use. Marina, as the manufacturing arm of CO-RO Food A/S of Denmark, transforms said
juice compounds, being raw materials, into a substance suitable for human consumption. This is evident
from the Commissioners Report[41] of Executive Clerk of Court II, CTA, Jesus P. Inocando, Jr., who
conducted an ocular inspection of Marinas manufacturing plant in Taguig City. Pertinent excerpts of the
Commissioners Report are herein reproduced:

On our ocular inspection of the manufacturing plant of petitioner, Ms. Solidum and Mr. Domingo
showed us the sample of the imported compounds (raw materials), showed to us the step by step
manufacturing process of petitioner and even showed us the bottling and packaging of the finished
product.
Per observation of the undersigned, the imported compounds (raw materials) are very sticky, the plant
is clean and that the personnel of petitioner in the plant strictly following the manufacturing process as
presented in Annex A and Annex B of this report.

Upon questioning by the counsel for respondent, Mr. Domingo said that while the imported compounds
(raw materials) can be mixed with water and may be drinkable, he is not sure if the same is suitable for
human consumption. None of us dared to taste the sample of imported compounds (raw materials)
diluted in water. The imported compounds (raw materials) mixed with water produces bubbles on top
of the mixture, not like the one that has gone through the manufacturing process. Counsel for
respondent requested for the marking of Label of Sunquick Lemon (840 ml.), [Annex C], as Exhibit 1 for
the respondent.[42]

Contrary to the Commissioners assertions, empirical evidence shows that the subject importations
would have to undergo a laborious method, as shown by its manufacturing flowchart[43] and
manufacturing process,[44] to achieve their marketable juice consistency. Accordingly, the 1% tariff
import duty rate under Tariff Heading H.S. 2106.90 10 was correctly applied to the subject importations.

In any case, the VCRC in its 1st Indorsement[45] of February 17, 2005 (a subsequent proceeding involving
the same type of importation) rectified the disputed tariff reclassification rate. Thus, in Marinas
succeeding importations, the VCRC already adopted the 1% import duty rate as paid by Marina in the
past.

WHEREFORE, the petition is DENIED.


SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:
ANTONIO T. CARPIO

Associate Justice

Chairperson

TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA

Associate Justice Associate Justice


ROBERTO A. ABAD

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

ANTONIO T. CARPIO

Associate Justice

Chairperson, Second Division


CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA

Chief Justice

 Designated as additional member in lieu of Associate Justice Antonio Eduardo B. Nachura per
Raffle dated November 22, 2010.

[1] Rollo, pp. 112-145.


[2] Id. At 146-148. Penned by Associate Justice Caesar A. Casanova with Presiding Justice Ernesto D.
Acosta and Associate Justices Juanito C. Castaeda, Jr., Lovell R. Bautista, Erlinda P. Uy, and Olga Palanca-
Enriquez, concurring.

[3] Id. At 766-767.

[4] Id. At 345.

[5] Id. At 436.

[6] Id. At 437.

[7] Id. At 439.

[8] Id. At 348.

[9] Id. At 349-350.

[10] Id. At 358.

[11] Id. At 451.

[12] Id. At 452.

[13] Id. At 361.

[14] Id. At 362-363.

[15] Id. At 364.


[16] Id. At 365-366.

[17] Id. At 337-339.

[18] Id. At 673-701.

[19] Id. At 688.

[20] Id. At 696.

[21] Id. At 184-211.

[22] Id. At 147-148.

[23] Id. At 149-152.

[24] Id. At 734-763.

[25] Id. At 746.

[26] Id. At 747-748.

[27] Id. At 749.

[28] Id. At 750.

[29] Id. At 753.


[30] Id. At 756.

[31] A.M. No. 05-11-07-CTA.

[32] Dangan-Corral v. Commission on Elections, G.R. No. 190156, February 12, 2010.

[33] Systra Philippines, Inc. v. Commissioner of Internal Revenue, G.R. No. 176290, September 21, 2007,
533 SCRA 776, 780, citing Galang v. Court of Appeals, G.R. No. 76221, July 29, 1991, 199 SCRA 683, 689.

[34] Galang v. Court of Appeals, G.R. No. 76221, July 29, 1991, 199 SCRA 683, 689, citing Limpot v. Court
of Appeals, 252 Phil. 377, 387 (1989).

[35] Rollo, pp. 468-470.

[36] Id. At 643. TSN, February 7, 2005, p. 23.

[37] Emphasis supplied.

[38] Emphasis supplied.

[39] Rollo, pp. 691-692. Emphasis and underscoring supplied.

[40] Bouviers Law Dictionary, Vol. II, p. 2086

[41] Rollo, pp. 411-412.

[42] Id. At 412.

[43] Id. At 351.


[44] Id. At 414-415.

[45] Id. At 472-474.

Today is Tuesday, December 04, 2018 home

Custom Search

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 175723 February 4, 2014

THE CITY OF MANILA, represented by MAYOR JOSE L. ATIENZA, JR., and MS. LIBERTY M. TOLEDO, in her
capacity as the City Treasurer of Manila, Petitioners,
Vs.

HON. CARIDAD H. GRECIA-CUERDO, in her capacity as Presiding Judge of the Regional Trial Court, Branch
112, Pasay City; SM MART, INC.; SM PRIME HOLDINGS, INC.; STAR APPLIANCES CENTER; SUPERVALUE,
INC.; ACE HARDWARE PHILIPPINES, INC.; WATSON PERSONAL CARE STORES, PHILS., INC.; JOLLIMART
PHILS., CORP.; SURPLUS MARKETING CORPORATION and SIGNATURE LINES, Respondents.

DECISION

PERALTA, J.:

Before the Court is a special civil action for certiorari under Rule 65 of the Rules of Court seeking to
reverse and set aside the Resolutions1 dated April 6, 2006 and November 29, 2006 of the Court of
Appeals (CA) in CA-G.R. SP No. 87948.

The antecedents of the case, as summarized by the CA, are as follows:

The record shows that petitioner City of Manila, through its treasurer, petitioner Liberty Toledo,
assessed taxes for the taxable period from January to December 2002 against private respondents SM
Mart, Inc., SM Prime Holdings, Inc., Star Appliances Center, Supervalue, Inc., Ace Hardware Philippines,
Inc., Watsons Personal Care Stores Phils., Inc., Jollimart Philippines Corp., Surplus Marketing Corp. and
Signature Lines. In addition to the taxes purportedly due from private respondents pursuant to Section
14, 15, 16, 17 of the Revised Revenue Code of Manila (RRCM), said assessment covered the local
business taxes petitioners were authorized to collect under Section 21 of the same Code. Because
payment of the taxes assessed was a precondition for the issuance of their business permits, private
respondents were constrained to pay the ₱19,316,458.77 assessment under protest.

On January 24, 2004, private respondents filed [with the Regional Trial Court of Pasay City] the
complaint denominated as one for “Refund or Recovery of Illegally and/or Erroneously-Collected Local
Business Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction”

Which was docketed as Civil Case No. 04-0019-CFM before public respondent’s sala [at Branch 112]. In
the amended complaint they filed on February 16, 2004, private respondents alleged that, in relation to
Section 21 thereof, Sections 14, 15, 16, 17, 18, 19 and 20 of the RRCM were violative of the limitations
and guidelines under Section 143 (h) of Republic Act. No. 7160 [Local Government Code] on double
taxation. They further averred that petitioner city’s Ordinance No. 8011 which amended pertinent
portions of the RRCM had already been declared to be illegal and unconstitutional by the Department of
Justice.2

In its Order3 dated July 9, 2004, the RTC granted private respondents’ application for a writ of
preliminary injunction.

Petitioners filed a Motion for Reconsideration4 but the RTC denied it in its Order5 dated October 15,
2004.

Petitioners then filed a special civil action for certiorari with the CA assailing the July 9, 2004 and
October 15, 2004 Orders of the RTC.6

In its Resolution promulgated on April 6, 2006, the CA dismissed petitioners’ petition for certiorari
holding that it has no jurisdiction over the said petition. The CA ruled that since appellate jurisdiction
over private respondents’ complaint for tax refund, which was filed with the RTC, is vested in the Court
of Tax Appeals (CTA), pursuant to its expanded jurisdiction under Republic Act No. 9282 (RA 9282), it
follows that a petition for certiorari seeking nullification of an interlocutory order issued in the said case
should, likewise, be filed with the CTA.

Petitioners filed a Motion for Reconsideration,7 but the CA denied it in its Resolution dated November
29, 2006.

Hence, the present petition raising the following issues:

I- Whether or not the Honorable Court of Appeals gravely erred in dismissing the case for lack
of jurisdiction.

II- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
amounting to lack or excess of jurisdiction in enjoining by issuing a Writ of Injunction the
petitioners, their agents and/or authorized representatives from implementing Section 21 of
the Revised Revenue Code of Manila, as amended, against private respondents.
III- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
amounting to lack or excess of jurisdiction in issuing the Writ of Injunction despite failure of
private respondents to make a written claim for tax credit or refund with the City Treasurer
of Manila.

IV- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
amounting to lack or excess of jurisdiction considering that under Section 21 of the Manila
Revenue Code, as amended, they are mere collecting agents of the City Government.

V- Whether or not the Honorable Regional Trial Court gravely abuse[d] its discretion
amounting to lack or excess of jurisdiction in issuing the Writ of Injunction because
petitioner City of Manila and its constituents would result to greater damage and prejudice
thereof. (sic)8

Without first resolving the above issues, this Court finds that the instant petition should be denied for
being moot and academic.

Upon perusal of the original records of the instant case, this Court discovered that a Decision9 in the
main case had already been rendered by the RTC on August 13, 2007, the dispositive portion of which
reads as follows:

WHEREFORE, in view of the foregoing, this Court hereby renders JUDGMENT in favor of the plaintiff and
against the defendant to grant a tax refund or credit for taxes paid pursuant to Section 21 of the
Revenue Code of the City of Manila as amended for the year 2002 in the following amounts:

To plaintiff SM Mart, Inc. - P 11,462,525.02

To plaintiff SM Prime Holdings, Inc. - 3,118,104.63

To plaintiff Star Appliances Center - 2,152,316.54

To plaintiff Supervalue, Inc. - 1,362,750.34

To plaintiff Ace Hardware Phils., Inc. - 419,689.04

To plaintiff Watsons Personal Care Health - 231,453.62

Stores Phils., Inc.

To plaintiff Jollimart Phils., Corp. - 140,908.54


To plaintiff Surplus Marketing Corp. - 220,204.70

To plaintiff Signature Mktg. Corp. - 94,906.34

TOTAL: - P 19,316,458.77

Defendants are further enjoined from collecting taxes under Section 21, Revenue Code of Manila from
herein plaintiff.

SO ORDERED.10

The parties did not inform the Court but based on the records, the above Decision had already become
final and executory per the Certificate of Finality11 issued by the same trial court on October 20, 2008.
In fact, a Writ of Execution12 was issued by the RTC on November 25, 2009. In view of the foregoing, it
clearly appears that the issues raised in the present petition, which merely involve the incident on the
preliminary injunction issued by the RTC, have already become moot and academic considering that the
trial court, in its decision on the merits in the main case, has already ruled in favor of respondents and
that the same decision is now final and executory. Well entrenched is the rule that where the issues
have become moot and academic, there is no justiciable controversy, thereby rendering the resolution
of the same of no practical use or value.13

In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners owing to
its significance and for future guidance of both bench and bar. It is a settled principle that courts will
decide a question otherwise moot and academic if it is capable of repetition, yet evading review.14

However, before proceeding, to resolve the question on jurisdiction, the Court deems it proper to
likewise address a procedural error which petitioners committed.

Petitioners availed of the wrong remedy when they filed the instant special civil action for certiorari
under Rule 65 of the Rules of Court in assailing the Resolutions of the CA which dismissed their petition
filed with the said court and their motion for reconsideration of such dismissal. There is no dispute that
the assailed Resolutions of the CA are in the nature of a final order as they disposed of the petition
completely. It is settled that in cases where an assailed judgment or order is considered final, the
remedy of the aggrieved party is appeal. Hence, in the instant case, petitioner should have filed a
petition for review on certiorari under Rule 45, which is a continuation of the appellate process over the
original case.15

Petitioners should be reminded of the equally-settled rule that a special civil action for certiorari under
Rule 65 is an original or independent action based on grave abuse of discretion amounting to lack or
excess of jurisdiction and it will lie only if there is no appeal or any other plain, speedy, and adequate
remedy in the ordinary course of law.16 As such, it cannot be a substitute for a lost appeal.17

Nonetheless, in accordance with the liberal spirit pervading the Rules of Court and in the interest of
substantial justice, this Court has, before, treated a petition for certiorari as a petition for review on
certiorari, particularly (1) if the petition for certiorari was filed within the reglementary period within
which to file a petition for review on certiorari; (2) when errors of judgment are averred; and (3) when
there is sufficient reason to justify the relaxation of the rules.18 Considering that the present petition
was filed within the 15-day reglementary period for filing a petition for review on certiorari under Rule
45, that an error of judgment is averred, and because of the significance of the issue on jurisdiction, the
Court deems it proper and justified to relax the rules and, thus, treat the instant petition for certiorari as
a petition for review on certiorari.

Having disposed of the procedural aspect, we now turn to the central issue in this case. The basic
question posed before this Court is whether or not the CTA has jurisdiction over a special civil action for
certiorari assailing an interlocutory order issued by the RTC in a local tax case.

This Court rules in the affirmative.

On June 16, 1954, Congress enacted Republic Act No. 1125 (RA 1125) creating the CTA and giving to the
said court jurisdiction over the following:

(1) Decisions of the Collector of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue;

(2) Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or
other money charges; seizure, detention or release of property affected fines, forfeitures or
other penalties imposed in relation thereto; or other matters arising under the Customs Law or
other law or part of law administered by the Bureau of Customs; and

(3) Decisions of provincial or City Boards of Assessment Appeals in cases involving the assessment
and taxation of real property or other matters arising under the Assessment Law, including rules
and regulations relative thereto.
On March 30, 2004, the Legislature passed into law Republic Act No. 9282 (RA 9282) amending RA 1125
by expanding the jurisdiction of the CTA, enlarging its membership and elevating its rank to the level of a
collegiate court with special jurisdiction. Pertinent portions of the amendatory act provides thus:

Sec. 7. Jurisdiction. – The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal, as herein provided:

1. Decisions of the Commissioner of Internal Revenue in cases involving disputed


assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue or other
laws administered by the Bureau of Internal Revenue;

2. Inaction by the Commissioner of Internal Revenue in cases involving disputed


assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relations thereto, or other matters arising under the National Internal Revenue Code or
other laws administered by the Bureau of Internal Revenue, where the National Internal
Revenue Code provides a specific period of action, in which case the inaction shall be
deemed a denial;

3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction;

4. Decisions of the Commissioner of Customs in cases involving liability for customs duties,
fees or other money charges, seizure, detention or release of property affected, fines,
forfeitures or other penalties in relation thereto, or other matters arising under the
Customs Law or other laws administered by the Bureau of Customs;

5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally
decided by the provincial or city board of assessment appeals;
6. Decisions of the Secretary of Finance on customs cases elevated to him automatically
for review from decisions of the Commissioner of Customs which are adverse to the
Government under Section 2315 of the Tariff and Customs Code;

7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Agriculture in the case of agricultural
product, commodity or article, involving dumping and countervailing duties under
Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard
measures under Republic Act No. 8800, where either party may appeal the decision to
impose or not to impose said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

1. Exclusive original jurisdiction over all criminal offenses arising from violations of the
National Internal Revenue Code or Tariff and Customs Code and other laws
administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided,
however, That offenses or felonies mentioned in this paragraph where the principal
amount of taxes and fees, exclusive of charges and penalties, claimed is less than One
million pesos (₱1,000,000.00) or where there is no specified amount claimed shall be
tried by the regular Courts and the jurisdiction of the CTA shall be appellate. Any
provision of law or the Rules of Court to the contrary notwithstanding, the criminal
action and the corresponding civil action for the recovery of civil liability for taxes and
penalties shall at all times be simultaneously instituted with, and jointly determined in
the same proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to reserve the filing of
such civil action separately from the criminal action will be recognized.

2. Exclusive appellate jurisdiction in criminal offenses:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective
jurisdiction.
c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provides, however, that collection
cases where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than One million pesos (₱1,000,000.00) shall be tried by the proper
Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
collection cases originally decided by them, in their respective territorial jurisdiction.

b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in
the Exercise of their appellate jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction.19

A perusal of the above provisions would show that, while it is clearly stated that the CTA has exclusive
appellate jurisdiction over decisions, orders or resolutions of the RTCs in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction, there is no
categorical statement under RA 1125 as well as the amendatory RA 9282, which provides that th e CTA
has jurisdiction over petitions for certiorari assailing interlocutory orders issued by the RTC in local tax
cases filed before it.

The prevailing doctrine is that the authority to issue writs of certiorari involves the exercise of original
jurisdiction which must be expressly conferred by the Constitution or by law and cannot be implied from
the mere existence of appellate jurisdiction.20 Thus, in the cases of Pimentel v. COMELEC,21 Garcia v.
De Jesus,22 Veloria v. COMELEC,23 Department of Agrarian Reform Adjudication Board v. Lubrica,24
and Garcia v. Sandiganbayan,25 this Court has ruled against the jurisdiction of courts or tribunals over
petitions for certiorari on the ground that there is no law which expressly gives these tribunals such
power.26 It must be observed, however, that with the exception of Garcia v. Sandiganbayan,27 these
rulings pertain not to regular courts but to tribunals exercising quasi-judicial powers. With respect to the
Sandiganbayan, Republic Act No. 824928 now provides that the special criminal court has exclusive
original jurisdiction over petitions for the issuance of the writs of mandamus, prohibition, certiorari,
habeas corpus, injunctions, and other ancillary writs and processes in aid of its appellate jurisdiction.

In the same manner, Section 5 (1), Article VIII of the 1987 Constitution grants power to the Supreme
Court, in the exercise of its original jurisdiction, to issue writs of certiorari, prohibition and mandamus.
With respect to the Court of Appeals, Section 9 (1) of Batas Pambansa Blg. 129 (BP 129) gives the
appellate court, also in the exercise of its original jurisdiction, the power to issue, among others, a writ
of certiorari,whether or not in aid of its appellate jurisdiction. As to Regional Trial Courts, the power to
issue a writ of certiorari, in the exercise of their original jurisdiction, is provided under Section 21 of BP
129.

The foregoing notwithstanding, while there is no express grant of such power, with respect to the CTA,
Section 1, Article VIII of the 1987 Constitution provides, nonetheless, that judicial power shall be vested
in one Supreme Court and in such lower courts as may be established by law and that judicial power
includes the duty of the courts of justice to settle actual controversies involving rights which are legally
demandable and enforceable, and to determine whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government.

On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the
CTA includes that of determining whether or not there has been grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the RTC in issuing an interlocutory order in cases falling
within the exclusive appellate jurisdiction of the tax court. It, thus, follows that the CTA, by
constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.

Indeed, in order for any appellate court to effectively exercise its appellate jurisdiction, it must have the
authority to issue, among others, a writ of certiorari. In transferring exclusive jurisdiction over appealed
tax cases to the CTA, it can reasonably be assumed that the law intended to transfer also such power as
is deemed necessary, if not indispensable, in aid of such appellate jurisdiction. There is no perceivable
reason why the transfer should only be considered as partial, not total.

Consistent with the above pronouncement, this Court has held as early as the case of J.M. Tuason & Co.,
Inc. v. Jaramillo, et al.29 that “if a case may be appealed to a particular court or judicial tribunal or body,
then said court or judicial tribunal or body has jurisdiction to issue the extraordinary writ of certiorari, in
aid of its appellate jurisdiction.”30 This principle was affirmed in De Jesus v. Court of Appeals,31 where
the Court stated that “a court may issue a writ of certiorari in aid of its appellate jurisdiction if said court
has jurisdiction to review, by appeal or writ of error, the final orders or decisions of the lower court.”32
The rulings in J.M. Tuason and De Jesus were reiterated in the more recent cases of Galang, Jr. v.
Geronimo33 and Bulilis v. Nuez.34

Furthermore, Section 6, Rule 135 of the present Rules of Court provides that when by law, jurisdiction is
conferred on a court or judicial officer, all auxiliary writs, processes and other means necessary to carry
it into effect may be employed by such court or officer.

If this Court were to sustain petitioners’ contention that jurisdiction over their certiorari petition lies
with the CA, this Court would be confirming the exercise by two judicial bodies, the CA and the CTA, of
jurisdiction over basically the same subject matter – precisely the split-jurisdiction situation which is
anathema to the orderly administration of justice.35 The Court cannot accept that such was the
legislative motive, especially considering that the law expressly confers on the CTA, the tribunal with the
specialized competence over tax and tariff matters, the role of judicial review over local tax cases
without mention of any other court that may exercise such power. Thus, the Court agrees with the
ruling of the CA that since appellate jurisdiction over private respondents’ complaint for tax refund is
vested in the CTA, it follows that a petition for certiorari seeking nullification of an interlocutory order
issued in the said case should, likewise, be filed with the same court. To rule otherwise would lead to an
absurd situation where one court decides an appeal in the main case while another court rules on an
incident in the very same case.

Stated differently, it would be somewhat incongruent with the pronounced judicial abhorrence to split
jurisdiction to conclude that the intention of the law is to divide the authority over a local tax case filed
with the RTC by giving to the CA or this Court jurisdiction to issue a writ of certiorari against
interlocutory orders of the RTC but giving to the CTA the jurisdiction over the appeal from the decision
of the trial court in the same case. It is more in consonance with logic and legal soundness to conclude
that the grant of appellate jurisdiction to the CTA over tax cases filed in and decided by the RTC carries
with it the power to issue a writ of certiorari when necessary in aid of such appellate jurisdiction. The
supervisory power or jurisdiction of the CTA to issue a writ of certiorari in aid of its appellate jurisdiction
should co-exist with, and be a complement to, its appellate jurisdiction to review, by appeal, the final
orders and decisions of the RTC, in order to have complete supervision over the acts of the latter.36

A grant of appellate jurisdiction implies that there is included in it the power necessary to exercise it
effectively, to make all orders that will preserve the subject of the action, and to give effect to the final
determination of the appeal. It carries with it the power to protect that jurisdiction and to make the
decisions of the court thereunder effective. The court, in aid of its appellate jurisdiction, has authority to
control all auxiliary and incidental matters necessary to the efficient and proper exercise of that
jurisdiction.1âwphi1 For this purpose, it may, when necessary, prohibit or restrain the performance of
any act which might interfere with the proper exercise of its rightful jurisdiction in cases pending before
it.37
Lastly, it would not be amiss to point out that a court which is endowed with a particular jurisdiction
should have powers which are necessary to enable it to act effectively within such jurisdiction. These
should be regarded as powers which are inherent in its jurisdiction and the court must possess them in
order to enforce its rules of practice and to suppress any abuses of its process and to defeat any
attempted thwarting of such process.

In this regard, Section 1 of RA 9282 states that the CTA shall be of the same level as the CA and shall
possess all the inherent powers of a court of justice.

Indeed, courts possess certain inherent powers which may be said to be implied from a general grant of
jurisdiction, in addition to those expressly conferred on them. These inherent powers are such powers
as are necessary for the ordinary and efficient exercise of jurisdiction; or are essential to the existence,
dignity and functions of the courts, as well as to the due administration of justice; or are directly
appropriate, convenient and suitable to the execution of their granted powers; and include the power to
maintain the court’s jurisdiction and render it effective in behalf of the litigants.38

Thus, this Court has held that “while a court may be expressly granted the incidental powers necessary
to effectuate its jurisdiction, a grant of jurisdiction, in the absence of prohibitive legislation, implies the
necessary and usual incidental powers essential to effectuate it, and, subject to existing laws and
constitutional provisions, every regularly constituted court has power to do all things that are
reasonably necessary for the administration of justice within the scope of its jurisdiction and for the
enforcement of its judgments and mandates.”39 Hence, demands, matters or questions ancillary or
incidental to, or growing out of, the main action, and coming within the above principles, may be taken
cognizance of by the court and determined, since such jurisdiction is in aid of its authority over the
principal matter, even though the court may thus be called on to consider and decide matters which, as
original causes of action, would not be within its cognizance.40

Based on the foregoing disquisitions, it can be reasonably concluded that the authority of the CTA to
take cognizance of petitions for certiorari questioning interlocutory orders issued by the RTC in a local
tax case is included in the powers granted by the Constitution as well as inherent in the exercise of its
appellate jurisdiction.

Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasi-judicial
tribunals are concerned, the authority to issue writs of certiorari must still be expressly conferred by the
Constitution or by law and cannot be implied from the mere existence of their appellate jurisdiction.
This doctrine remains as it applies only to quasi-judicial bodies.
WHEREFORE, the petition is DENIED.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

MARIA LOURDES P. A. SERENO

Chief Justice

ANTONIO T. CARPIO

Associate Justice PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice ARTURO D. BRION

Associate Justice

LUCAS P. BERSAMIN

Associate Justice No part

MARIANO C. DEL CASTILLO*

Associate Justice

ROBERTO A. ABAD

Associate Justice MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice JOSE CATRAL MENDOZA

Associate Justice

BIENVENIDO L. REYES
Associate Justice ESTELA M. PERLAS-BERNABE

Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer of the opinion of the
Court.

MARIA LOURDES P.A. SERENO

Chief Justice

Footnotes

 No part.

1 Penned by Associate Justice Rebecca de Guia-Salvador, with Associate Justices Ruben T. Reyes (now a
retired member of this Court) and Aurora Santiago-Lagman, concurring; Annexes “A” and “B,” rollo, pp.
43-48; 49-51.

2 Rollo, p. 44. (Italics and emphasis in the original; citations omitted)

3 Records, vol. II, pp. 476-480.

4 Id. At 481-490.

5 Id. At 513.
6 CA rollo, pp. 2-31.

7 Id. At 321-326.

8 Rollo, p. 20. (Emphasis in the original)

9 Records, vol. II, pp. 761-762.

10 Id. At 762. (Emphasis in the original)

11 Id. At 822.

12 Id. At 837.

13 Garcia v. COMELEC, 328 Phil. 288, 292 (1996).

14 Caneland Sugar Corporation v. Alon, G.R. No. 142896, September 12, 2007, 533 SCRA 28, 33.

15 Republic of the Philippines, represented by Abusama M. Alid, Officer-in-Charge, Department of


Agriculture-Regional Field Unit XII (DA-RFU-XII) v. Abdulwahab A. Bayao, et al., G. R . No. 179492, June 5,
2013.

16 Mendez v. Court of Appeals, G.R. No. 174937, June 13, 2012, 672 SCRA 200, 207.

17 Id.

18 Tagle v. Equitable PCI Bank, G.R. No. 172299, April 22, 2008, 552 SCRA 424, 444, citing Oaminal v.
Castillo, 459 Phil. 542, 556 (2003); Republic v. Court of Appeals, 379 Phil. 92, 98 (2000); Delsan Transport
Lines, Inc. v. Court of Appeals, 335 Phil. 1066, 1075 (1997); Banco Filipino Savings and Mortgage Bank v.
Court of Appeals, 389 Phil. 644, 655 (2000).

19 Emphasis supplied.

20 Department of Agrarian Reform Adjudication Board v. Lubrica, 497 Phil. 313, 322 (2005); Veloria v.
COMELEC, G.R. No. 94771, July 29, 1992, 211 SCRA 907, 915.

21 189 Phil. 581 (1980).

22 G.R. Nos. 88158 and 97108-09, March 4, 1992, 206 SCRA 779.

23 Supra note 20.

24 Supra note 20.

25 G..R. No. 114135, October 7, 1994, 237 SCRA 552.

26 Department of Agrarian Reform Adjudication Board v. Lubrica, supra note 20; Veloria v. COMELEC,
supra note 20; Garcia v. Sandiganbayan, id. At 563-564; Garcia v. De Jesus, supra note 22, at 787-788;
Pimentel v. COMELEC, supra note 21, at 587.

27 Supra note 25.

28 An Act Further Defining the Jurisdiction of the Sandiganbayan, Amending for the Purpose Presidential
Decree No. 1606, As Amended, Providing Funds Therefor, And for Other Purposes.

29 118 Phil. 1022 (1963).

30 J. M. Tuason & Co., Inc. v. Jaramillo, et al., supra, at 1026.


31 G.R. No. 101630, August 24, 1992, 212 SCRA 823.

32 De Jesus v. Court of Appeals, supra, at 827-828.

33 G.R. No. 192793, February 22, 2011, 643 SCRA 631, 635-636.

34 G.R. No. 195953, August 9, 2011, 655 SCRA 241, 246-247.

35 Southern Cross Cement Corporation v. Philippine Cement Manufacturers Corp., 478 Phil. 85, 125
(2004).

36 Breslin v. Luzon Stevedoring Company, 84 Phil. 618, 623 (1949).

37 4 Am Jur 2d, Appeal and Error, §5, p. 536; 2 Am Jur, Appeal and Error, §9, 850.

38 Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633, 648.

39 Treasurer-Assessor v. University of the Philippines, 148 Phil. 526, 539 (1971); Amalgamated Laborers’
Association v. Court of Industrial Relations, 131 Phil. 374, 380 (1968); Philippine Airlines Employees’
Association v. Philippine Airlines, Inc. 120 Phil. 383, 390 (1964). (Citations omitted).

40 Id.

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