CIR V CA (Fortune Tobacco) G.R. No.

119322, June 4, 1996

Facts:

A task force was created on June 1, 1993 to investigate tax liabilities of manufacturers engaged in tax evasion schemes. On
July 1, 1993, the CIR issued Rev. Memo Circ. No. 37-93 which reclassified certain cigarette brands manufactured by private
respondent Fortune Tobacco Corp. (Fortune) as foreign brands subject to a higher tax rate. On August 3, 1993, Fortune questioned the
validity of said reclassification as being violative of the right to due process and equal protection of laws. The CTA, on September 8, 1993
resolved that said reclassification was of doubtful legality and enjoined its enforcement.

In the meantime, on August 3, 1993, Fortune was assessed deficiency income, ad valorem and VAT for 1992 with payment due
within 30 days from receipt. On September 12, 1993, private respondent moved for reconsideration of said assessment. Meanwhile on
September 7, 1993, the Commissioner filed a complaint with the DOJ against private respondent Fortune, its corporate officers and 9
other corporations and their respective corporate officers for alleged fraudulent tax evasion for non-payment of the correct income, ad
valorem and VAT for 1992. The complaint was referred to the DOJ Task Force on revenue cases which found sufficient basis to further
investigate the charges against Fortune.

A subpoena was issued on September 8, 1993 directing private respondent to submit their counter-affidavits. But it filed a
verified motion to dismiss or alternatively, a motion to suspend but was denied and thus treated as their counter-affidavit. All motions
filed thereafter were denied.

January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for preliminary injunction praying
the CIR’s complaint and prosecutor’s orders be dismissed/set aside or alternatively, that the preliminary investigation be suspended
pending determination by CIR of Fortune’s motion for reconsideration/reinvestigation of the August 13, 1993 assessment of taxes due.

The trial court granted the petition for a writ of preliminary injunction to enjoin the preliminary investigation on the complaint
for tax evasion pending before the DOJ, ruling that the tax liability of private respondents first be settled before any complaint
for fraudulent tax evasion can be initiated.

Issue: Whether the basis of private respondent’s tax liability first be settled before any complaint for fraudulent tax evasion can be
initiated.

Held:

Fraud cannot be presumed. If there was fraud on willful attempt to evade payment of ad valorem taxes by private respondent
through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance of cooperation of
certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes
were paid. But there is no allegation, much less evidence, of BIR personnel’s malfeasance at the very least, there is the presumption
that BIR personnel performed their duties in the regular course in ensuring that the correct taxes were paid by Fortune.

Before the tax liabilities of Fortune are finally determined, it cannot be correctly asserted that private respondents have
willfully attempted to evade or defeat any tax under Secs. 254 and 256, 1997 NIRC, the fact that a tax is due must first be proved.

CAÑERO NOTES SAYS:

Here, charge private respondents were charged with fraudulent concealment of the actual price of products sold through
declaration of registered wholesale prices lower than the actual wholesale prices, resulting in underpayment of taxes. However, the
registered wholesale price of the goods approved by the BIR, is presumed to be the actual price, therefore, not fraudulent and unless and
until the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in a crucible
of criminal prosecution.