G.R. No.
115103 April 11, 2002
BUREAU OF INTERNAL REVENUE, represented by the COMMISSIONER OF INTERNAL
REVENUE, petitioner,
vs.
OFFICE OF THE OMBUDSMAN, respondent.
DE LEON, JR., J.:
Graft Investigation Officer II Christopher S. Soquilon of the Office of the Ombudsman
(OMBUDSMAN, for brevity) received information from an "informer-for-reward" regarding
allegedly anomalous grant of tax refunds to Distillera Limtuaco & Co., Inc. (Limtuaco, for
brevity) and La Tondeña Distilleries, Inc. Upon receipt of the information, Soquilon
recommended1 to then Ombudsman Conrado M. Vasquez that the "case" be docketed and
subsequently assigned to him for investigation.2
On November 29, 1993, the Ombudsman issued a subpoena duces tecum3 addressed to Atty.
Millard Mansequiao of the Legal Department of the Bureau of Internal Revenue (BIR)
ordering him to appear before the Ombudsman and to bring the complete original case
dockets of the refunds granted to Limtuaco and La Tondeña.
The BIR, through Assistant Commissioner for Legal Service Jaime M. Maza, asked that it be
excused from complying with the subpoena duces tecum because (a) the Limtuaco case was
pending investigation by Graft Investigation Officer II Napoleon S. Baldrias; and (b) the
investigation thereof and that of La Tondeña was mooted when the Sandiganbayan ruled
in People v. Larin4 that "the legal issue was no longer in question since the BIR had ruled that
the ad valorem taxes were erroneously paid and could therefore be the proper subject of a
claim for tax credit."5
Without resolving the issues raised by the BIR, the Ombudsman issued another
subpoena duces tecum, dated December 9, 1993, addressed to BIR Commissioner Liwayway
Vinzons-Chato ordering her to appear before the Ombudsman and to bring the complete
original case dockets of the refunds granted to Limtuaco and La Tondeña.6
The BIR moved to vacate the subpoena duces tecum arguing that (a) the second
subpoena duces tecum was issued without first resolving the issues raised in its
Manifestation and Motion dated December 8, 1993; (b) the documents required to be
produced were already submitted to Graft Investigation Officer II Baldrias; (c) the issue of the
tax credit of ad valorem taxes has already been resolved as proper by the Sandiganbayan; (d)
the subpoena duces tecum partook of the nature of an omnibus subpoena because it did not
specifically described the particular documents to be produced; (e) there was no clear
showing that the tax case dockets sought to be produced contained evidence material to the
inquiry; (f) compliance with the subpoena duces tecum would violate Sec. 2697 of the
National Internal Revenue Code (NLRC) on unlawful divulgence of trade secrets and Sec.
2778 on procuring unlawful divulgence of trade secrets; and (g) Limtuaco and La Tondeña had
the right to rely on the correctness and conclusiveness of the decisions of the Commissioner
of Internal Revenue.9
The Ombudsman denied10 the Motion to Vacate the Subpoena Duces Tecum, pointing out
that the Limtuaco tax refund case then assigned to Baldrias was already referred to the Fact-
Finding and Investigation Bureau of the Ombudsman for consolidation with Case No. OMB-0-
93-3248. The Ombudsman also claimed that the documents submitted by the BIR to Baldrias
were incomplete and not certified. It insisted that the issuance of the subpoena duces
tecum was not a "fishing expedition" considering that the documents required for production
were clearly and particularly specified.1âwphi1.nêt
The BIR moved to reconsider11 the respondent's Order dated February 15, 1994 alleging that
(a) the matter subject of the investigation was beyond the scope of the jurisdiction of the
Ombudsman; (b) the subpoena duces tecum was not properly issued in accordance with law;
and (c) non-compliance thereto was justifiable. The BIR averred it had the exclusive authority
whether to grant a tax credit and that the jurisdiction to review the same was lodged with
the Court of Tax Appeals and not with the Ombudsman.
According to the BIR, for a subpoena duces tecum to be properly issued in accordance with
law, there must first be a pending action because the power to issue a subpoena duces
tecum is not an independent proceeding. The BIR noted that the Ombudsman issued the
assailed subpoena duces tecum based only on the information obtained from an "informer-
for-reward" and the report of Asst. Comm. Imelda L. Reyes. The BIR added that the
subpoena duces tecum suffered from a legal infirmity for not specifically describing the
documents sought to be produced.
Finding no valid reason to reverse its Order dated February 15, 1994, the Ombudsman denied
the motion for reconsideration and reiterated its directive to the BIR to produce the
documents.12 Instead of complying, the BIR manifested its intention to elevate the case on
certiorari to this Court.13 The Ombudsman thus ordered Asst. Comm. Maza to show cause
why he should not be cited for contempt for contumacious refusal to comply with the
subpoena duces tecum.14
However, before the expiration of the period within which Asst. Comm. Maza was required
to file a reply to the show cause order of the Ombudsman, the BIR filed before this Court the
instant Petition for Certiorari, Prohibition and Preliminary Injunction and Temporary
Restraining Order.15
Petitioner BIR insists that the investigative power of the Ombudsman is not unbridled.
Particularly on the issue of tax refunds, the BIR maintains that the Ombudsman could validly
exercise its power to investigate only when there exists an appropriate case and subject to
the limitations provided by law.16 Petitioner opines that the fact-finding investigation by the
Ombudsman is not the proper case as it is only a step preliminary to the filing of recovery
actions on the tax refunds granted to Limtuaco and La Tondeña.
Page 1 of 44
This Court is not persuaded. No less than the 1987 Constitution enjoins that the
"Ombudsman and his Deputies, as protectors of the people, shall act promptly on complaints
filed in any form or manner against public officials or employees of the government, or any
subdivision, agency or instrumentality thereof, including government-owned or controlled
corporations, and shall, in appropriate case, notify the complainants of the action taken and
the result thereof."17
Clearly, there is no requirement of a pending action before the Ombudsman could wield its
investigative power. The Ombudsman could resort to its investigative prerogative on its
own18 or upon a complaint filed in any form or manner. Even when the complaint is verbal or
written, unsigned or unverified, the Ombudsman could, on its own, initiate the
investigation.19 Thus –
There can be no objection to this procedure in the Office of the Ombudsman where
anonymous letters suffice to start an investigation because it is provided in the
Constitution itself. In the second place, it is apparent that in permitting the filing of
complaints "in any form and manner," the framers of the Constitution took into
account the well-known reticence of the people which keep them from
complaining against official wrongdoings. As this Court had occasion to point out,
the Office of the Ombudsman is different from other investigatory and prosecutory
agencies of the government because those subject to its jurisdiction are public
officials who, through official pressure and influence, can quash, delay or dismiss
investigations held against them. On the other hand complainants are more often
than not poor and simple folk who cannot afford to hire lawyers.20
The term "in an appropriate case" has already been clarified by this Court in Almonte v.
Vasquez,21 thus –
Rather than referring to the form of complaints, therefore, the phrase "in an
appropriate case" in Art. XI, §12 means any case concerning official act or omission
which is alleged to be "illegal, unjust, improper, or inefficient," The phrase "subject
to such limitations as may be provided by law" refers to such limitations as may be
provided by Congress or, in the absence thereof, to such limitations as may be
imposed by courts.
Plainly, the pendency of an action is not a prerequisite before the Ombudsman can start its
own investigation.
Petitioner next avers that the determination of granting tax refunds falls within its exclusive
expertise and jurisdiction and that its findings could no longer be disturbed by the
Ombudsman purportedly through its investigative power as it was a valid exercise of
discretion. Petitioner suggests that what respondent should have done was to appeal its
decision of granting tax credits to Limtuaco and La Tondeña to the Court of Tax Appeals since
it is the proper forum to review the decisions of the Commissioner of Internal Revenue.
Page 2 of 44
This contention of the BIR is baseless. The power to investigate and to prosecute which was
granted by law to the Ombudsman is plenary and unqualified.22 The Ombudsman Act makes
it perfectly clear that the jurisdiction of the Ombudsman encompasses "all kinds of
malfeasance, misfeasance and nonfeasance that have been committed by any officer or
employee xxx during his tenure of office.23
Concededly, the determination of whether to grant a tax refund falls within the exclusive
expertise of the BIR. Nonetheless, when there is a suspicion of even just a tinge of
impropriety in the grant of the same, the Ombudsman could rightfully ascertain whether the
determination was done in accordance with law and identify the persons who may be held
responsible thereto. In that sense, the Ombudsman could not be accused of unlawfully
intruding into and intervening with the BIR's exercise of discretion.
As correctly posited by the Office of the Solicitor General –
xxx (T)he Ombudsman undertook the investigation "not as an appellate body
exercising the power to review decisions or rulings rendered by a subordinate
body, with the end view of affirming or reversing the same, but as an investigative
agency tasked to discharge the role as 'protector of the people'24 pursuant to his
authority 'to investigate xxx any act or omission of any public official, employee,
office or agency, when such act or omission appears to be illegal, unjust, improper
or inefficient."25 The OSG insists that the "mere finality of petitioner's ruling on the
subject of tax refund cases is not a legal impediment to the exercise of
respondent's investigative authority under the Constitution and its Charter (RA
6770) which xxx is so encompassing as to include 'all kinds of malfeasance,
misfeasance and nonfeasance that have been committed by any officer or
employee during his tenure of office.'"26
Indeed, the clause "any [illegal] act or omission of any public official" is broad enough to
embrace any crime committed by a public official. The law does not qualify the nature of the
illegal act or omission of the public official or employee that the Ombudsman may
investigate. It does not require that the act or omission be related to or be connected with or
arise from the performance of official duty.27
Petitioner fears that the fact-finding investigation being conducted by respondent would only
amount to "a general inquisitorial examination on the 'case dockets' with a view to search
through them to gather evidence"28 considering that the subpoena duces tecum did not
describe with particularity the documents sought to be produced.
This Court is unimpressed. We agree with the view taken by the Solicitor General that the
assailed subpoena duces tecum indeed particularly and sufficiently described the records to
be produced. There is every indication that petitioner knew precisely what records were
being referred to as it even suggested that the tax dockets sought to be produced may not
contain evidence material to the inquiry and that it has already submitted the same to
Baldrias.
The records do not show how the production of the subpoenaed documents would
necessarily contravene Sec. 26929 of the National Internal Revenue Code (NIRC) on unlawful
divulgence of trade secrets and Sec. 27730 of the same Code on procuring unlawful
divulgence of trade secrets. The documents sought to be produced were only the case
dockets of the tax refunds granted to Limtuaco and La Tondeña which are public records, and
the subpoena duces tecum were directed to the public officials who have the official custody
of the said records. We find no valid reason why the trade secrets of Limtuaco and La
Tondeña would be unnecessarily disclosed if such official records, subject of the
subpoena duces tecum, were to be produced by the petitioner BIR to respondent Office of
the Ombudsman.
Assuming, for the sake of argument, that the case dockets of the tax refunds which were
granted to Limtuaco and La Tondeña contain trade secrets, that fact, however, would not
justify their non-production before the Ombudsman. As this Court has underscored in Almote
v. Vasquez31 -
At common law a governmental privilege against disclosure is recognized with
respect to state secrets bearing on military, diplomatic and similar matters. This
privilege is based upon public interest of such paramount importance as in and of
itself transcending the individual interests of a private citizen, even though, as a
consequence thereof, the plaintiff cannot enforce his legal rights xxx
In the case at bar, there is no claim that military or diplomatic secrets will be
disclosed by the production of records pertaining to the personnel of EIB. Indeed,
EIIB's function is the gathering and evaluation of intelligence reports and
information regarding "illegal activities affecting the national economy, such as, but
not limited to economic sabotage, smuggling, tax evasion, dollar salting.
Consequently, while in cases which involve state secrets it may be sufficient to
determine from the circumstances of the case that there is reasonable danger that
compulsion of the evidence will expose military maters without compelling
production, no similar excuse can be made for a privilege resting on other
consideration.1âwphi1.nêt
Above all, even if the subpoenaed documents are treated as presumptively
privileged, this decision would only justify ordering their inspection in camera but
not their nonproduction xxx
Besides, under the facts of this case, petitioner should not have concerned itself with
possibly violating the pertinent provisions of the NLRC on unlawful divulgence or unlawful
procurement of trade secrets considering Rule V of the Rules of Procedure of the Office of
the Ombudsman32 which provides that –
(a) Any person whose testimony or production of documents or other evidence is
necessary to determine the truth in any inquiry, hearing, or proceeding being
conducted by the Office of the Ombudsman or under its authority in the
Page 3 of 44
performance or furtherance or its constitutional functions and statutory objectives,
including preliminary investigation, may be granted immunity from criminal
prosecution by the Ombudsman, upon such terms and conditions as the
Ombudsman may determine, taking into account the pertinent provisions of the
Rules of Court xxx
With regard to the manner in which the investigation was conducted, petitioner asserts that
the investigation conducted by the Office of the Ombudsman violated due process, inasmuch
as it commenced its investigation by issuing the subpoena duces tecum without first
furnishing petitioner with a summary of the complaint and requiring it to submit a written
answer.33 The Ombudsman labels this assertion of the BIR as premature maintaining that it is
only when the Ombudsman finds reasonable ground to investigate further that it is required
to furnish respondent with the summary of the complaint. The Ombudsman insists that in
the instant case, it has yet to make that determination.
On this score, we rule in favor of petitioner BIR. Records show that immediately upon receipt
of the information from an "informer-for-reward", Graft Investigator Soquilon, in a
Memorandum dated November 26, 1993 addressed to then Ombudsman Conrado M.
Vasquez, requested that the "case" be docketed and assigned to him for a "full-blown fact-
finding investigation."34 In his Memorandum, Soquilon averred that he is "certain that these
refunds can be recovered by reason of the Tanduay precedent xxx and using the power of
this Office, we will not only bring back to the government multi-million illegal refunds but,
like the Tanduay case, we will be establishing graft and corruption against key BIR
officials."35 In a marginal note dated November 26, 1993,36 Ombudsman Vasquez approved
the docketing of the case and its assignment to Soquilon. Likewise, in the Preliminary
Evaluation Sheet37 of the Office of the Ombudsman, the Fact Finding Investigation Bureau of
the Ombudsman was named as complainant against Concerned High Ranking and Key
Officials of the Bureau of Internal Revenue who granted multi-million tax refunds to Limtuaco
and La Tondeña Distilleries for alleged violation of RA 3019. On November 29, 1993 and
December 9, 1993 Soquilon issued the assailed subpoena duces tecum requiring the
concerned BIR officials to appear before the Ombudsman and to bring with them the
complete case dockets of the tax refunds granted to Limtuaco and La Tondeña.
It is our view and we hold that the procedure taken by the respondent did not comply with
the safeguards enumerated in Sec. 26, §(2) of RA 6770 or the Ombudsman Act of 1989, which
clearly provides that –
(2) The Office of the Ombudsman shall receive complaints from any source in
whatever form concerning an official act or omission. It shall act on the complaint
immediately and if it finds the same entirely baseless, it shall dismiss the same and
inform the complainant of such dismissal citing the reasons therefore. If it finds a
reasonable, ground to investigate further, it shall first furnish the respondent public
officer or employee with a summary of the complaint and require him to submit a
written answer within seventy-two hours from receipt hereof. If the answer is
found satisfactory, it shall dismiss the case.
The procedure which was followed by the respondent likewise contravened the Rules of
Procedure of the Office of the Ombudsman,38 Sec. 4, Rule 11 of which provides that –
(a) If the complaint is not under oath or is based only on official reports, the
investigating officer shall require the complaint or supporting witnesses to execute
affidavits to substantiate the complaints.
(b) After such affidavits have been secured, the investigating officer shall issue an
order, attaching thereto a copy of the affidavits and other supporting documents,
directing the respondent to submit, within ten (10) days from receipt thereof, his
counter-affidavits and controverting evidence with proof of service thereof on the
complainant. The complainant may file reply affidavits within ten (10) days after
service of the counter-affidavits xxx
It is clear from the initial comments of Soquilon in his Memorandum to Ombudsman Vasquez
that he undoubtedly found reasonable grounds to investigate further. In fact, he
recommended that the "case" be docketed immediately and assigned to him for a "full-
blown fact-finding investigation." Even during that initial stage, Soquilon was convinced that
the granting of the tax refunds was so anomalous that he assured Ombudsman Vasquez of
the eventual recovery of the tax refunds and the prosecution and conviction of key BIR
officials for graft and corruption.
We commend the graft investigators of the Office of the Ombudsman in their efforts to
cleanse our bureaucracy of scalawags. Sometimes, however, in their zeal and haste to pin
down the culprits they tend to circumvent some procedures. In this case, Graft Investigation
Officer Soquilon forgot that there are always two (2) sides to an issue and that each party
must be given every opportunity to air his grievance or explain his side as the case may be.
This is the essence of due process.
The law clearly provides that if there is a reasonable ground to investigate further, the
investigator of the Office of the Ombudsman shall first furnish the respondent public officer
or employee with a summary of the complaint and require him to submit a written answer
within seventy-two (72) hours from receipt thereof. In the instant case, the BIR officials
concerned were never furnished by the respondent with a summary of the complaint and
were not given the opportunity to submit their counter-affidavits and controverting
evidence. Instead, they were summarily ordered to appear before the Ombudsman and to
produce the case dockets of the tax refunds granted to Limtuaco and La Tondeña. They are
aggrieved in that, from the point of view of the respondent, they were already deemed
probably guilty of granting anomalous tax refunds. Plainly, respondent Office of the
Ombudsman failed to afford petitioner with the basics of due process in conducting its
investigation.
WHEREFORE, the petition is GRANTED. The respondent Office of the Ombudsman is
prohibited and ordered to desist from proceeding with Case No. OMB-0-93-3248; and its
Page 4 of 44
Orders dated November 29, 1993, December 9, 1993 and February 15, 1994 are
hereby ANNULLED and SET ASIDE.SO ORDERED
G.R. No. 136975 March 31, 2005
COMMISSION OF INTERNAL REVENUE, Petitioner,
vs.
HANTEX TRADING CO., INC., respondent.
DECISION
CALLEJO, SR., J.:
Before us is a petition for review of the Decision1 of the Court of Appeals (CA) which reversed
the Decision2 of the Court of Tax Appeals (CTA) in CTA Case No. 5126, upholding the
deficiency income and sales tax assessments against respondent Hantex Trading Co., Inc.
The Antecedents
The respondent is a corporation duly organized and existing under the laws of the
Philippines. Being engaged in the sale of plastic products, it imports synthetic resin and other
chemicals for the manufacture of its products. For this purpose, it is required to file an
Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of
Customs under Section 1301 of the Tariff and Customs Code.
Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division
of the Economic Intelligence and Investigation Bureau (EIIB), received confidential
information that the respondent had imported synthetic resin amounting to P115,599,018.00
but only declared P45,538,694.57.3 According to the informer, based on photocopies of 77
Consumption Entries furnished by another informer, the 1987 importations of the
respondent were understated in its accounting records.4 Amoto submitted a report to the
EIIB Commissioner recommending that an inventory audit of the respondent be conducted
by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB.5
Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission
Order No. 398-896 dated November 14, 1989 for the audit and investigation of the
importations of Hantex for 1987. The IIPO issued subpoena duces tecum and ad
testificandum for the president and general manager of the respondent to appear in a
hearing and bring the following:
1. Books of Accounts for the year 1987;
 2. Record of Importations of Synthetic Resin and Calcium Carbonate for the year 26483-87 7/23/87 46467-87 11/18/87
1987;
29950-87 8/11/87 48091-87 11-27-8711

3. Income tax returns & attachments for 1987; and

Acting Chief of the Collection Division of the Bureau of Customs Augusto S. Danganan could
4. Record of tax payments.7 not authenticate the machine copies of the import entries as well, since the original copies of
the said entries filed with the Bureau of Customs had apparently been eaten by termites.
However, he issued a certification that the following enumerated entries were filed by the
However, the respondent’s president and general manager refused to comply with the respondent which were processed and released from the Port of Manila after payment of
subpoena, contending that its books of accounts and records of importation of synthetic duties and taxes, to wit:
resin and calcium bicarbonate had been investigated repeatedly by the Bureau of Internal
Revenue (BIR) on prior occasions.8 The IIPO explained that despite such previous
investigations, the EIIB was still authorized to conduct an investigation pursuant to Section Hantex Trading Co., Inc.
26-A of Executive Order No. 127. Still, the respondent refused to comply with the subpoena Entry No. Date Released Entry No. Date Released
issued by the IIPO. The latter forthwith secured certified copies of the Profit and Loss
Statements for 1987 filed by the respondent with the Securities and Exchange Commission 3903 1/29/87 22869 4/8/87
(SEC).9 However, the IIPO failed to secure certified copies of the respondent’s 1987 4414 1/20/87 19441 3/31/87
Consumption Entries from the Bureau of Customs since, according to the custodian thereof,
10683 2/17/87 24189 4/21/87
the original copies had been eaten by termites.10
12611 2/24/87 26431 4/20/87
In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection Division, 12989 2/26/87 45478 7/3/87
Manila International Container Port, and the Acting Chief of the Collection Division, Port of
17050 3/13/87 26796 4/23/87
Manila, to authenticate the machine copies of the import entries supplied by the informer.
However, Chief of the Collection Division Merlita D. Tomas could not do so because the 17169 3/13/87 28827 4/30/87
Collection Division did not have the original copies of the entries. Instead, she wrote the IIPO 18089 3/16/87 31617 5/14/87
that, as gleaned from the records, the following entries had been duly processed and
released after the payment of duties and taxes: 19439 4/1/87 39068 6/5/87
21189 4/3/87 42581 6/21/87
IMPORTER – HANTEX TRADING CO., INC. – SERIES OF 1987 43451 6/29/87 42793 6/23/87
ENTRY NO. DATE RELEASED ENTRY NO. DATE RELEASED 42795 6/23/87 45477 7/3/87
03058-87 1/30/87 50265-87 12/9/87 35582 not received 85830 11/13/87
09120-87 3/20/87 46427-87 11/27/87 45691 7/3/87 86650 not received
18089-87 5/21/87 30764-87 8/21/87 46187 7/8/87 87647 11/18/87
19439-87 6/2/87 30833-87 8/20/87 46427 7/3/87 88829 11/23/87
19441-87 6/3/87 34690-87 9/16/87 57669 8/12/87 92293 12/3/87
11667-87 4/15/87 34722-87 9/11/87 62471 8/28/87 93292 12/7/87
23294-87 7/7/87 43234-87 11/2/87 63187 9/2/87 96357 12/16/87
45478-87 11/16/87 44850-87 11/16/87 66859 9/15/87 96822 12/15/87
45691-87 12/2/87 44851-87 11/16/87 67890 9/17/87 98823 not received
25464-87 7/16/87 46461-87 11/19/87 68115 9/15/87 99428 12/28/87

Page 5 of 44
 69974 9/24/87 99429 12/28/87 evidence to refute the same.16 Appended to the letter was a computation of the deficiency
income and sales tax due from the respondent, inclusive of increments:
72213 10/2/87 99441 12/28/87
77688 10/16/87 101406 1/5/87 B. Computations:
84253 11/10/87 101407 1/8/87 1. Cost of Sales Ratio A2/A1 85.492923%
85534 11/11/87 3118 1-19-8712 2. Undeclared Sales – Imported A3/B1 110,079,491.61
3. Undeclared Gross Profit B2-A3 15,969,316.61
Bienvenido G. Flores, Chief of the Investigation Division, and Lt. Leo Dionela, Lt. Vicente C. Deficiency Taxes Due:
Amoto and Lt. Rolando Gatmaitan conducted an investigation. They relied on the certified 1. Deficiency Income Tax B3 x 35% 5,589,261.00
copies of the respondent’s Profit and Loss Statement for 1987 and 1988 on file with the SEC,
the machine copies of the Consumption Entries, Series of 1987, submitted by the informer, 50% Surcharge C1 x 50% 2,794,630.50
as well as excerpts from the entries certified by Tomas and Danganan. Interest to 2/28/91 C1 x 57.5% 3,213,825.08
Total 11,597,825.58
Based on the documents/records on hand, inclusive of the machine copies of the 2. Deficiency Sales Tax
Consumption Entries, the EIIB found that for 1987, the respondent had importations
at 10% 7,290,082.72
totaling P105,716,527.00 (inclusive of advance sales tax). Compared with the declared sales
based on the Profit and Loss Statements filed with the SEC, the respondent had unreported at 20% 10,493,312.31
sales in the amount of P63,032,989.17, and its corresponding income tax liability Total Due 17,783,395.03
was P41,916,937.78, inclusive of penalty charge and interests. Less: Advanced Sales Taxes Paid 11,636,352.00
Deficiency Sales Tax 6,147,043.03
EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and
50% Surcharge C2 x 50% 3,073,521.52
recommended the collection of the total tax assessment from the respondent. 13
Interest to 2/28/91 5,532,338.73
On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the BIR Total 14,752,903.2817
Assistant Commissioner for Special Operations Service, directing the latter to prepare a
conference letter advising the respondent of its deficiency taxes.14 The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March 15,
1991, Mariano O. Chua, the President and General Manager of the respondent, requested
Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino D. that the report of Torres and Filamor be set aside on the following claim:
Torres and Wilson Filamor conducted an investigation on the 1987 importations of the
respondent, in the light of the records elevated by the EIIB to the BIR, inclusive of the … [W]e had already been investigated by RDO No. 23 under Letters of Authority
photocopies of the Consumption Entries. They were to ascertain the respondent’s liability for Nos. 0322988 RR dated Oct. 1, 1987, 0393561 RR dated Aug. 17, 1988 and 0347838
deficiency sales and income taxes for 1987, if any. Per Torres’ and Filamor’s Report dated RR dated March 2, 1988, and re-investigated by the Special Investigation Team on
March 6, 1991 which was based on the report of the EIIB and the documents/records Aug. 17, 1988 under Letter of Authority No. 0357464 RR, and the Intelligence and
appended thereto, there was a prima facie case of fraud against the respondent in filing its Investigation Office on Sept. 27, 1988 under Letter of Authority No. 0020188 NA, all
1987 Consumption Entry reports with the Bureau of Customs. They found that the for income and business tax liabilities for 1987. The Economic Intelligence and
respondent had unrecorded importation in the total amount of P70,661,694.00, and that the Investigation Bureau on Nov. 20, 1989, likewise, confronted us on the same
amount was not declared in its income tax return for 1987. The District Revenue Officer and information for the same year.
the Regional Director of the BIR concurred with the report.15
In all of these investigations, save your request for an informal conference, we
Based on the said report, the Acting Chief of the Special Investigation Branch wrote the welcomed them and proved the contrary of the allegation. Now, with your new
respondent and invited its representative to a conference at 10:00 a.m. of March 14, 1991 to inquiry, we think that there will be no end to the problem.
discuss its deficiency internal revenue taxes and to present whatever documentary and other

Page 6 of 44
 Madam, we had been subjected to so many investigations and re-investigations for
1987 and nothing came out except the payment of deficiency taxes as a result of
oversight. Tax evasion through underdeclaration of income had never been
proven.18
Invoking Section 23519 of the 1977 National Internal Revenue Code (NIRC), as amended, Chua
requested that the inquiry be set aside.
The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner for
Collection Jaime M. Maza, sent a Letter dated April 15, 1991 to the respondent demanding
payment of its deficiency income tax of P13,414,226.40 and deficiency sales tax
of P14,752,903.25, inclusive of surcharge and interest.20 Appended thereto were the
Assessment Notices of Tax Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91-001655.21
On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR sent a
letter to the respondent demanding payment of its tax liability due for 1987 within ten (10)
days from notice, on pain of the collection tax due via a warrant of distraint and levy and/or
judicial action.22 The Warrant of Distraint and/or Levy23 was actually served on the
respondent on January 21, 1992. On September 7, 1992, it wrote the Commissioner of
Internal Revenue protesting the assessment on the following grounds:
I. THAT THE ASSESSMENT HAS NO FACTUAL AS WELL AS LEGAL BASIS, THE FACT
THAT NO INVESTIGATION OF OUR RECORDS WAS EVER MADE BY THE EIIB WHICH
RECOMMENDED ITS ISSUANCE.24
II. THAT GRANTING BUT WITHOUT ADMITTING THAT OUR PURCHASES FOR 1987
AMOUNTED TO P105,716,527.00 AS CLAIMED BY THE EIIB, THE ASSESSMENT OF A
DEFICIENCY INCOME TAX IS STILL DEFECTIVE FOR IT FAILED TO CONSIDER OUR
REAL PURCHASES OF P45,538,694.57.25
III. THAT THE ASSESSMENT OF A DEFICIENCY SALES TAX IS ALSO BASELESS AND
UNFOUNDED CONSIDERING THAT WE HAVE DUTIFULLY PAID THE SALES TAX DUE
FROM OUR BUSINESS.26
In view of the impasse, administrative hearings were conducted on the respondent’s protest
to the assessment. During the hearing of August 20, 1993, the IIPO representative presented
the photocopies of the Consumption and Import Entries and the Certifications issued by
Tomas and Danganan of the Bureau of Customs. The IIPO representative testified that the
Bureau of Customs failed to furnish the EIIB with certified copies of the Consumption and
Import Entries; hence, the EIIB relied on the machine copies from their informer.27
The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment on
the ground that the EIIB representative failed to present the original, or authenticated, or
duly certified copies of the Consumption and Import Entry Accounts, or excerpts thereof if
Page 7 of 44
the original copies were not readily available; or, if the originals were in the official custody
of a public officer, certified copies thereof as provided for in Section 12, Chapter 3, Book VII,
Administrative Procedure, Administrative Order of 1987. It stated that the only copies of the
Consumption Entries submitted to the Hearing Officer were mere machine copies furnished
by an informer of the EIIB. It asserted that the letters of Tomas and Danganan were
unreliable because of the following:
In the said letters, the two collection officers merely submitted a listing of alleged
import entry numbers and dates released of alleged importations by Hantex
Trading Co., Inc. of merchandise in 1987, for which they certified that the
corresponding duties and taxes were paid after being processed in their offices. In
said letters, no amounts of the landed costs and advance sales tax and duties were
stated, and no particulars of the duties and taxes paid per import entry document
was presented.
The contents of the two letters failed to indicate the particulars of the importations
per entry number, and the said letters do not constitute as evidence of the
amounts of importations of Hantex Trading Co., Inc. in 1987.28
The respondent cited the following findings of the Hearing Officer:
… [T]hat the import entry documents do not constitute evidence only indicate that
the tax assessments in question have no factual basis, and must, at this point in
time, be withdrawn and cancelled. Any new findings by the IIPO representative
who attended the hearing could not be used as evidence in this hearing, because
all the issues on the tax assessments in question have already been raised by the
herein taxpayer.29
The respondent requested anew that the income tax deficiency assessment and the sales tax
deficiency assessment be set aside for lack of factual and legal basis.
The BIR Commissioner30 wrote the respondent on December 10, 1993, denying its letter-
request for the dismissal of the assessments.31 The BIR Commissioner admitted, in the said
letter, the possibility that the figures appearing in the photocopies of the Consumption
Entries had been tampered with. She averred, however, that she was not proscribed from
relying on other admissible evidence, namely, the Letters of Torres and Filamor dated August
7 and 22, 1990 on their investigation of the respondent’s tax liability. The Commissioner
emphasized that her decision was final.32
The respondent forthwith filed a petition for review in the CTA of the Commissioner’s Final
Assessment Letter dated December 10, 1993 on the following grounds:
First. The alleged 1987 deficiency income tax assessment (including increments) and the
alleged 1987 deficiency sales tax assessment (including increments) are void ab initio, since
under Sections 16(a) and 49(b) of the Tax Code, the Commissioner shall examine a return
after it is filed and, thereafter, assess the correct amount of tax. The following facts obtaining
in this case, however, are indicative of the incorrectness of the tax assessments in question:
the deficiency interests imposed in the income and percentage tax deficiency assessment
notices were computed in violation of the provisions of Section 249(b) of the NIRC of 1977,
as amended; the percentage tax deficiency was computed on an annual basis for the year
1987 in accordance with the provision of Section 193, which should have been computed in
accordance with Section 162 of the 1977 NIRC, as amended by Pres. Decree No. 1994 on a
quarterly basis; and the BIR official who signed the deficiency tax assessments was the
Assistant Commissioner for Collection, who had no authority to sign the same under the
NIRC.
Second. Even granting arguendo that the deficiency taxes and increments for 1987 against
the respondent were correctly computed in accordance with the provisions of the Tax Code,
the facts indicate that the above-stated assessments were based on alleged documents
which are inadmissible in either administrative or judicial proceedings. Moreover, the alleged
bases of the tax computations were anchored on mere presumptions and not on actual facts.
The alleged undeclared purchases for 1987 were based on mere photocopies of alleged
import entry documents, not the original ones, and which had never been duly certified by
the public officer charged with the custody of such records in the Bureau of Customs.
According to the respondent, the alleged undeclared sales were computed based on mere
presumptions as to the alleged gross profit contained in its 1987 financial statement.
Moreover, even the alleged financial statement of the respondent was a mere machine copy
and not an official copy of the 1987 income and business tax returns. Finally, the respondent
was following the accrual method of accounting in 1987, yet, the BIR investigator who
computed the 1987 income tax deficiency failed to allow as a deductible item the alleged
sales tax deficiency for 1987 as provided for under Section 30(c) of the NIRC of 1986.33
The Commissioner did not adduce in evidence the original or certified true copies of the 1987
Consumption Entries on file with the Commission on Audit. Instead, she offered in evidence
as proof of the contents thereof, the photocopies of the Consumption Entries which the
respondent objected to for being inadmissible in evidence.34 She also failed to present any
witness to prove the correct amount of tax due from it. Nevertheless, the CTA provisionally
admitted the said documents in evidence, subject to its final evaluation of their relevancy
and probative weight to the issues involved.35
On December 11, 1997, the CTA rendered a decision, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, judgment is hereby rendered DENYING the
herein petition. Petitioner is hereby ORDERED TO PAY the respondent
Commissioner of Internal Revenue its deficiency income and sales taxes for the
year 1987 in the amounts of P11,182,350.26 and P12,660,382.46, respectively, plus
20% delinquency interest per annum on both deficiency taxes from April 15, 1991
until fully paid pursuant to Section 283(c)(3) of the 1987 Tax Code, with costs
against the petitioner.
Page 8 of 44
SO ORDERED.36
The CTA ruled that the respondent was burdened to prove not only that the assessment was
erroneous, but also to adduce the correct taxes to be paid by it. The CTA declared that the
respondent failed to prove the correct amount of taxes due to the BIR. It also ruled that the
respondent was burdened to adduce in evidence a certification from the Bureau of Customs
that the Consumption Entries in question did not belong to it.
On appeal, the CA granted the petition and reversed the decision of the CTA. The dispositive
portion of the decision reads:
FOREGOING PREMISES CONSIDERED, the Petition for Review is GRANTED and the
December 11, 1997 decision of the CTA in CTA Case No. 5162 affirming the 1987
deficiency income and sales tax assessments and the increments thereof, issued by
the BIR is hereby REVERSED. No costs.37
The Ruling of the Court of Appeals
The CA held that the income and sales tax deficiency assessments issued by the petitioner
were unlawful and baseless since the copies of the import entries relied upon in computing
the deficiency tax of the respondent were not duly authenticated by the public officer
charged with their custody, nor verified under oath by the EIIB and the BIR
investigators.38 The CA also noted that the public officer charged with the custody of the
import entries was never presented in court to lend credence to the alleged loss of the
originals.39 The CA pointed out that an import entry is a public document which falls within
the provisions of Section 19, Rule 132 of the Rules of Court, and to be admissible for any legal
purpose, Section 24, Rule 132 of the Rules of Court should apply.40 Citing the ruling of this
Court in Collector of Internal Revenue v. Benipayo,41 the CA ruled that the assessments were
unlawful because they were based on hearsay evidence. The CA also ruled that the
respondent was deprived of its right to due process of law.
The CA added that the CTA should not have just brushed aside the legal requisites provided
for under the pertinent provisions of the Rules of Court in the matter of the admissibility of
public documents, considering that substantive rules of evidence should not be disregarded.
It also ruled that the certifications made by the two Customs Collection Chiefs under the
guise of supporting the respondent’s alleged tax deficiency assessments invoking the best
evidence obtainable rule under the Tax Code should not be permitted to supplant the best
evidence rule under Section 7, Rule 130 of the Rules of Court.
Finally, the CA noted that the tax deficiency assessments were computed without the tax
returns. The CA opined that the use of the tax returns is indispensable in the computation of
a tax deficiency; hence, this essential requirement must be complied with in the preparation
and issuance of valid tax deficiency assessments.42
 The Present Petition
The Commissioner of Internal Revenue, the petitioner herein, filed the present petition for
review under Rule 45 of the Rules of Court for the reversal of the decision of the CA and for
the reinstatement of the ruling of the CTA.
As gleaned from the pleadings of the parties, the threshold issues for resolution are the
following: (a) whether the petition at bench is proper and complies with Sections 4 and 5,
Rule 7 of the Rules of Court; (b) whether the December 10, 1991 final assessment of the
petitioner against the respondent for deficiency income tax and sales tax for the latter’s 1987
importation of resins and calcium bicarbonate is based on competent evidence and the law;
and (c) the total amount of deficiency taxes due from the respondent for 1987, if any.
On the first issue, the respondent points out that the petition raises both questions of facts
and law which cannot be the subject of an appeal by certiorari under Rule 45 of the Rules of
Court. The respondent notes that the petition is defective because the verification and the
certification against forum shopping were not signed by the petitioner herself, but only by
the Regional Director of the BIR. The respondent submits that the petitioner should have
filed a motion for reconsideration with the CA before filing the instant petition for review.43
We find and so rule that the petition is sufficient in form. A verification and certification
against forum shopping signed by the Regional Director constitutes sufficient compliance
with the requirements of Sections 4 and 5, Rule 7 of the Rules of Court. Under Section 10 of
the NIRC of 1997,44 the Regional Director has the power to administer and enforce internal
revenue laws, rules and regulations, including the assessment and collection of all internal
revenue taxes, charges and fees. Such power is broad enough to vest the Revenue Regional
Director with the authority to sign the verification and certification against forum shopping in
behalf of the Commissioner of Internal Revenue. There is no other person in a better position
to know the collection cases filed under his jurisdiction than the Revenue Regional Director.
Moreover, under Revenue Administrative Order No. 5-83,45 the Regional Director is
authorized to sign all pleadings filed in connection with cases referred to the Revenue
Regions by the National Office which, otherwise, require the signature of the petitioner.
We do not agree with the contention of the respondent that a motion for reconsideration
ought to have been filed before the filing of the instant petition. A motion for
reconsideration of the decision of the CA is not a condition sine qua non for the filing of a
petition for review under Rule 45. As we held in Almora v. Court of Appeals:46
Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that:
A party may appeal by certiorari from a judgment of the Court of
Appeals, by filing with the Supreme Court a petition for certiorari within
Page 9 of 44
fifteen (15) days from notice of judgment, or of the denial of his motion
for reconsideration filed in due time. (Emphasis supplied)
The conjunctive "or" clearly indicates that the 15-day reglementary period for the
filing of a petition for certiorari under Rule 45 commences either from notice of the
questioned judgment or from notice of denial of the appellant’s motion for
reconsideration. A prior motion for reconsideration is not indispensable for a
petition for review on certiorari under Rule 45 to prosper. …47
While Rule 45 of the Rules of Court provides that only questions of law may be raised by the
petitioner and resolved by the Court, under exceptional circumstances, the Court may take
cognizance thereof and resolve questions of fact. In this case, the findings and conclusion of
the CA are inconsistent with those of the CTA, not to mention those of the Commissioner of
Internal Revenue. The issues raised in this case relate to the propriety and the correctness of
the tax assessments made by the petitioner against the respondent, as well as the propriety
of the application of Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres. Decree
Nos. 1705, 1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 of the
Rules of Evidence. There is also an imperative need for the Court to resolve the threshold
factual issues to give justice to the parties, and to determine whether the CA capriciously
ignored, misunderstood or misinterpreted cogent facts and circumstances which, if
considered, would change the outcome of the case.
On the second issue, the petitioner asserts that since the respondent refused to cooperate
and show its 1987 books of account and other accounting records, it was proper for her to
resort to the best evidence obtainable – the photocopies of the import entries in the Bureau
of Customs and the respondent’s financial statement filed with the SEC.48 The petitioner
maintains that these import entries were admissible as secondary evidence under the best
evidence obtainable rule, since they were duly authenticated by the Bureau of Customs
officials who processed the documents and released the cargoes after payment of the duties
and taxes due.49 Further, the petitioner points out that under the best evidence obtainable
rule, the tax return is not important in computing the tax deficiency.50
The petitioner avers that the best evidence obtainable rule under Section 16 of the 1977
NIRC, as amended, legally cannot be equated to the best evidence rule under the Rules of
Court; nor can the best evidence rule, being procedural law, be made strictly operative in the
interpretation of the best evidence obtainable rule which is substantive in character.51 The
petitioner posits that the CTA is not strictly bound by technical rules of evidence, the reason
being that the quantum of evidence required in the said court is merely substantial
evidence.52
Finally, the petitioner avers that the respondent has the burden of proof to show the correct
assessments; otherwise, the presumption in favor of the correctness of the assessments
made by it stands.53 Since the respondent was allowed to explain its side, there was no
violation of due process.54
The respondent, for its part, maintains that the resort to the best evidence obtainable
method was illegal. In the first place, the respondent argues, the EIIB agents are not duly
authorized to undertake examination of the taxpayer’s accounting records for internal
revenue tax purposes. Hence, the respondent’s failure to accede to their demands to show
its books of accounts and other accounting records cannot justify resort to the use of the
best evidence obtainable method.55 Secondly, when a taxpayer fails to submit its tax records
upon demand by the BIR officer, the remedy is not to assess him and resort to the best
evidence obtainable rule, but to punish the taxpayer according to the provisions of the Tax
Code.56
In any case, the respondent argues that the photocopies of import entries cannot be used in
making the assessment because they were not properly authenticated, pursuant to the
provisions of Sections 2457 and 2558 of Rule 132 of the Rules of Court. It avers that while the
CTA is not bound by the technical rules of evidence, it is bound by substantial rules.59 The
respondent points out that the petitioner did not even secure a certification of the fact of
loss of the original documents from the custodian of the import entries. It simply relied on
the report of the EIIB agents that the import entry documents were no longer available
because they were eaten by termites. The respondent posits that the two collectors of the
Bureau of Customs never authenticated the xerox copies of the import entries; instead, they
only issued certifications stating therein the import entry numbers which were processed by
their office and the date the same were released.60
The respondent argues that it was not necessary for it to show the correct assessment,
considering that it is questioning the assessments not only because they are erroneous, but
because they were issued without factual basis and in patent violation of the assessment
procedures laid down in the NIRC of 1977, as amended.61 It is also pointed out that the
petitioner failed to use the tax returns filed by the respondent in computing the deficiency
taxes which is contrary to law;62 as such, the deficiency assessments constituted deprivation
of property without due process of law.63
Central to the second issue is Section 16 of the NIRC of 1977, as amended,64 which provides
that the Commissioner of Internal Revenue has the power to make assessments and
prescribe additional requirements for tax administration and enforcement. Among such
powers are those provided in paragraph (b) thereof, which we quote:
(b) Failure to submit required returns, statements, reports and other documents. –
When 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 Commissioner shall assess the proper tax on the best
evidence obtainable.
In case a person fails to file a required return or other document at the time
prescribed by law, or willfully or otherwise files a false or fraudulent return or other
document, the Commissioner shall make or amend the return from his own
Page 10 of 44
knowledge and from such information as he can obtain through testimony or
otherwise, which shall be prima facie correct and sufficient for all legal purposes.65
This provision applies when the Commissioner of Internal Revenue undertakes to perform
her administrative duty of assessing the proper tax against a taxpayer, to make a return in
case of a taxpayer’s failure to file one, or to amend a return already filed in the BIR.
The petitioner may avail herself of the best evidence or other information or testimony by
exercising her power or authority under paragraphs (1) to (4) of Section 7 of the NIRC:
(1) To examine any book, paper, record or other data which may be relevant or
material to such inquiry;
(2) To obtain information from any office or officer of the national and local
governments, government agencies or its instrumentalities, including the Central
Bank of the Philippines and government owned or controlled corporations;
(3) To summon the person liable for tax or required to file a return, or any officer or
employee of such person, or any person having possession, custody, or care of the
books of accounts and other accounting records containing entries relating to the
business of the person liable for tax, or any other person, to appear before the
Commissioner or his duly authorized representative at a time and place specified in
the summons and to produce such books, papers, records, or other data, and to
give testimony;
(4) To take such testimony of the person concerned, under oath, as may be
relevant or material to such inquiry; …66
The "best evidence" envisaged in Section 16 of the 1977 NIRC, as amended, includes the
corporate and accounting records of the taxpayer who is the subject of the assessment
process, the accounting records of other taxpayers engaged in the same line of business,
including their gross profit and net profit sales.67 Such evidence also includes data, record,
paper, document or any evidence gathered by internal revenue officers from other taxpayers
who had personal transactions or from whom the subject taxpayer received any income; and
record, data, document and information secured from government offices or agencies, such
as the SEC, the Central Bank of the Philippines, the Bureau of Customs, and the Tariff and
Customs Commission.
The law allows the BIR access to all relevant or material records and data in the person of the
taxpayer. It places no limit or condition on the type or form of the medium by which the
record subject to the order of the BIR is kept. The purpose of the law is to enable the BIR to
get at the taxpayer’s records in whatever form they may be kept. Such records include
computer tapes of the said records prepared by the taxpayer in the course of business.68 In
this era of developing information-storage technology, there is no valid reason to immunize
companies with computer-based, record-keeping capabilities from BIR scrutiny. The standard
is not the form of the record but where it might shed light on the accuracy of the taxpayer’s
return.
In Campbell, Jr. v. Guetersloh,69 the United States (U.S.) Court of Appeals (5th Circuit)
declared that it is the duty of the Commissioner of Internal Revenue to investigate any
circumstance which led him to believe that the taxpayer had taxable income larger than
reported. Necessarily, this inquiry would have to be outside of the books because they
supported the return as filed. He may take the sworn testimony of the taxpayer; he may take
the testimony of third parties; he may examine and subpoena, if necessary, traders’ and
brokers’ accounts and books and the taxpayer’s book accounts. The Commissioner is not
bound to follow any set of patterns. The existence of unreported income may be shown by
any practicable proof that is available in the circumstances of the particular situation. Citing
its ruling in Kenney v. Commissioner,70 the U.S. appellate court declared that where the
records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may
look to other sources of information to establish income made by the taxpayer during the
years in question.71
We agree with the contention of the petitioner that the best evidence obtainable may
consist of hearsay evidence, such as the testimony of third parties or accounts or other
records of other taxpayers similarly circumstanced as the taxpayer subject of the
investigation, hence, inadmissible in a regular proceeding in the regular courts.72 Moreover,
the general rule is that administrative agencies such as the BIR are not bound by the
technical rules of evidence. It can accept documents which cannot be admitted in a judicial
proceeding where the Rules of Court are strictly observed. It can choose to give weight or
disregard such evidence, depending on its trustworthiness.
However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does
not include mere photocopies of records/documents. The petitioner, in making a preliminary
and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on
mere machine copies of records/documents. Mere photocopies of the Consumption Entries
have no probative weight if offered as proof of the contents thereof. The reason for this is
that such copies are mere scraps of paper and are of no probative value as basis for any
deficiency income or business taxes against a taxpayer. Indeed, in United States v.
Davey,73 the U.S. Court of Appeals (2nd Circuit) ruled that where the accuracy of a taxpayer’s
return is being checked, the government is entitled to use the original records rather than be
forced to accept purported copies which present the risk of error or tampering.74
In Collector of Internal Revenue v. Benipayo,75 the Court ruled that the assessment must be
based on actual facts. The rule assumes more importance in this case since the xerox copies
of the Consumption Entries furnished by the informer of the EIIB were furnished by yet
another informer. While the EIIB tried to secure certified copies of the said entries from the
Bureau of Customs, it was unable to do so because the said entries were allegedly eaten by
termites. The Court can only surmise why the EIIB or the BIR, for that matter, failed to secure
certified copies of the said entries from the Tariff and Customs Commission or from the
Page 11 of 44
National Statistics Office which also had copies thereof. It bears stressing that under Section
1306 of the Tariff and Customs Code, the Consumption Entries shall be the required number
of copies as prescribed by regulations.76 The Consumption Entry is accomplished in
sextuplicate copies and quadruplicate copies in other places. In Manila, the six copies are
distributed to the Bureau of Customs, the Tariff and Customs Commission, the Declarant
(Importer), the Terminal Operator, and the Bureau of Internal Revenue. Inexplicably, the
Commissioner and the BIR personnel ignored the copy of the Consumption Entries filed with
the BIR and relied on the photocopies supplied by the informer of the EIIB who secured the
same from another informer. The BIR, in preparing and issuing its preliminary and final
assessments against the respondent, even ignored the records on the investigation made by
the District Revenue officers on the respondent’s importations for 1987.
The original copies of the Consumption Entries were of prime importance to the BIR. This is
so because such entries are under oath and are presumed to be true and correct under
penalty of falsification or perjury. Admissions in the said entries of the importers’ documents
are admissions against interest and presumptively correct.77
In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight
to the machine copies of the Consumption Entries in fixing the tax deficiency assessments
against the respondent.
The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be
determined by estimation. The petitioner is not required to compute such tax liabilities with
mathematical exactness. Approximation in the calculation of the taxes due is justified. To
hold otherwise would be tantamount to holding that skillful concealment is an invincible
barrier to proof.78 However, the rule does not apply where the estimation is arrived at
arbitrarily and capriciously.79
We agree with the contention of the petitioner that, as a general rule, tax assessments by tax
examiners are presumed correct and made in good faith. All presumptions are in favor of the
correctness of a tax assessment. It is to be presumed, however, that such assessment was
based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima
facie case of liability on the part of the taxpayer is made.80 If a taxpayer files a petition for
review in the CTA and assails the assessment, the prima facie presumption is that the
assessment made by the BIR is correct, and that in preparing the same, the BIR personnel
regularly performed their duties. This rule for tax initiated suits is premised on several factors
other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer:
the presumption of administrative regularity; the likelihood that the taxpayer will have
access to the relevant information; and the desirability of bolstering the record-keeping
requirements of the NIRC.81
However, the prima facie correctness of a tax assessment does not apply upon proof that an
assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the
BIR has come out with a "naked assessment," i.e., without any foundation character, the
determination of the tax due is without rational basis.82 In such a situation, the U.S. Court of
Appeals ruled83 that the determination of the Commissioner contained in a deficiency notice
disappears. Hence, the determination by the CTA must rest on all the evidence introduced and
its ultimate determination must find support in credible evidence.
The issue that now comes to fore is whether the tax deficiency assessment against the
respondent based on the certified copies of the Profit and Loss Statement submitted by the
respondent to the SEC in 1987 and 1988, as well as certifications of Tomas and Danganan, is
arbitrary, capricious and illegal. The CTA ruled that the respondent failed to overcome the
prima facie correctness of the tax deficiency assessment issued by the petitioner, to wit:
The issue should be ruled in the affirmative as petitioner has failed to rebut the
validity or correctness of the aforementioned tax assessments. It is incongruous for
petitioner to prove its cause by simply drawing an inference unfavorable to the
respondent by attacking the source documents (Consumption Entries) which were
the bases of the assessment and which were certified by the Chiefs of the
Collection Division, Manila International Container Port and the Port of Manila, as
having been processed and released in the name of the petitioner after payment of
duties and taxes and the duly certified copies of Financial Statements secured from
the Securities and Exchange Commission. Any such inference cannot operate to
relieve petitioner from bearing its burden of proof and this Court has no warrant of
absolution. The Court should have been persuaded to grant the reliefs sought by
the petitioner should it have presented any evidence of relevance and competence
required, like that of a certification from the Bureau of Customs or from any other
agencies, attesting to the fact that those consumption entries did not really belong
to them.
The burden of proof is on the taxpayer contesting the validity or correctness of an
assessment to prove not only that the Commissioner of Internal Revenue is wrong
but the taxpayer is right (Tan Guan v. CTA, 19 SCRA 903), otherwise, the
presumption in favor of the correctness of tax assessment stands (Sy Po v. CTA, 164
SCRA 524). The burden of proving the illegality of the assessment lies upon the
petitioner alleging it to be so. In the case at bar, petitioner miserably failed to
discharge this duty.84
We are not in full accord with the findings and ratiocination of the CTA. Based on the letter of
the petitioner to the respondent dated December 10, 1993, the tax deficiency assessment in
question was based on (a) the findings of the agents of the EIIB which was based, in turn, on
the photocopies of the Consumption Entries; (b) the Profit and Loss Statements of the
respondent for 1987 and 1988; and (c) the certifications of Tomas and Danganan dated
August 7, 1990 and August 22, 1990:
In reply, please be informed that after a thorough evaluation of the attending facts,
as well as the laws and jurisprudence involved, this Office holds that you are liable
to the assessed deficiency taxes. The conclusion was arrived at based on the
findings of agents of the Economic Intelligence & Investigation Bureau (EIIB) and of
Page 12 of 44
our own examiners who have painstakingly examined the records furnished by the
Bureau of Customs and the Securities & Exchange Commission (SEC). The
examination conducted disclosed that while your actual sales for 1987 amounted
to P110,731,559.00, you declared for taxation purposes, as shown in the Profit and
Loss Statements, the sum of P47,698,569.83 only. The difference, therefore,
of P63,032,989.17 constitutes as undeclared or unrecorded sales which must be
subjected to the income and sales taxes.
You also argued that our assessment has no basis since the alleged amount of
underdeclared importations were lifted from uncertified or unauthenticated xerox
copies of consumption entries which are not admissible in evidence. On this issue,
it must be considered that in letters dated August 7 and 22, 1990, the Chief and
Acting Chief of the Collection Division of the Manila International Container Port
and Port of Manila, respectively, certified that the enumerated consumption
entries were filed, processed and released from the port after payment of duties
and taxes. It is noted that the certification does not touch on the genuineness,
authenticity and correctness of the consumption entries which are all xerox copies,
wherein the figures therein appearing may have been tampered which may render
said documents inadmissible in evidence, but for tax purposes, it has been held
that the Commissioner is not required to make his determination (assessment) on
the basis of evidence legally admissible in a formal proceeding in Court (Mertens,
Vol. 9, p. 214, citing Cohen v. Commissioner). A statutory notice may be based in
whole or in part upon admissible evidence (Llorente v. Commissioner, 74 TC 260
(1980); Weimerskirch v. Commissioner, 67 TC 672 (1977); and Rosano v.
Commissioner, 46 TC 681 (1966). In the case also of Weimerskirch v.
Commissioner (1977), the assessment was given due course in the presence of
admissible evidence as to how the Commissioner arrived at his determination,
although there was no admissible evidence with respect to the substantial issue of
whether the taxpayer had unreported or undeclared income from narcotics sale.
…85
Based on a Memorandum dated October 23, 1990 of the IIPO, the source documents for the
actual cost of importation of the respondent are the machine copies of the Consumption
Entries from the informer which the IIPO claimed to have been certified by Tomas and
Danganan:
The source documents for the total actual cost of importations, abovementioned,
were the different copies of Consumption Entries, Series of 1987, filed by subject
with the Bureau of Customs, marked Annexes "F-1" to "F-68." The total cost of
importations is the sum of the Landed Costs and the Advance Sales Tax as shown in
the annexed entries. These entries were duly authenticated as having been
processed and released, after payment of the duties and taxes due thereon, by the
Chief, Collection Division, Manila International Container Port, dated August 7,
1990, "Annex-G," and the Port of Manila, dated August 22, 1990, "Annex-H." So, it
 was established that subject-importations, mostly resins, really belong to HANTEX
TRADING CO., INC.86
It also appears on the worksheet of the IIPO, as culled from the photocopies of the
Consumption Entries from its informer, that the total cost of the respondent’s importation
for 1987 was P105,761,527.00. Per the report of Torres and Filamor, they also relied on the
photocopies of the said Consumption Entries:
The importations made by taxpayer verified by us from the records of the Bureau
of Customs and xerox copies of which are hereto attached shows the big volume of
importations made and not declared in the income tax return filed by taxpayer.
Based on the above findings, it clearly shows that a prima facie case of fraud exists
in the herein transaction of the taxpayer, as a consequence of which, said
transaction has not been possibly entered into the books of accounts of the subject
taxpayer.87
In fine, the petitioner based her finding that the 1987 importation of the respondent was
underdeclared in the amount of P105,761,527.00 on the worthless machine copies of the
Consumption Entries. Aside from such copies, the petitioner has no other evidence to prove
that the respondent imported goods costing P105,761,527.00. The petitioner cannot find
solace on the certifications of Tomas and Danganan because they did not authenticate the
machine copies of the Consumption Entries, and merely indicated therein the entry numbers
of Consumption Entries and the dates when the Bureau of Customs released the same. The
certifications of Tomas and Danganan do not even contain the landed costs and the advance
sales taxes paid by the importer, if any. Comparing the certifications of Tomas and Danganan
and the machine copies of the Consumption Entries, only 36 of the entry numbers of such
copies are included in the said certifications; the entry numbers of the rest of the machine
copies of the Consumption Entries are not found therein.
Even if the Court would concede to the petitioner’s contention that the certification of
Tomas and Danganan authenticated the machine copies of the Consumption Entries referred
to in the certification, it appears that the total cost of importations inclusive of advance sales
tax is only P64,324,953.00 – far from the amount of P105,716,527.00 arrived at by the EIIB
and the BIR,88 or even the amount of P110,079,491.61 arrived at by Deputy Commissioner
Deoferio, Jr.89 As gleaned from the certifications of Tomas and Danganan, the goods covered
by the Consumption Entries were released by the Bureau of Customs, from which it can be
presumed that the respondent must have paid the taxes due on the said importation. The
petitioner did not adduce any documentary evidence to prove otherwise.
Thus, the computations of the EIIB and the BIR on the quantity and costs of the importations
of the respondent in the amount of P105,761,527.00 for 1987 have no factual basis, hence,
arbitrary and capricious. The petitioner cannot rely on the presumption that she and the
other employees of the BIR had regularly performed their duties. As the Court held
in Collector of Internal Revenue v. Benipayo,90 in order to stand judicial scrutiny, the
Page 13 of 44
assessment must be based on facts. The presumption of the correctness of an assessment,
being a mere presumption, cannot be made to rest on another presumption.
Moreover, the uncontroverted fact is that the BIR District Revenue Office had repeatedly
examined the 1987 books of accounts of the respondent showing its importations, and found
that the latter had minimal business tax liability. In this case, the presumption that the
District Revenue officers performed their duties in accordance with law shall apply. There is
no evidence on record that the said officers neglected to perform their duties as mandated
by law; neither is there evidence aliunde that the contents of the 1987 and 1988 Profit and
Loss Statements submitted by the respondent with the SEC are incorrect.
Admittedly, the respondent did not adduce evidence to prove its correct tax liability.
However, considering that it has been established that the petitioner’s assessment is barren
of factual basis, arbitrary and illegal, such failure on the part of the respondent cannot serve
as a basis for a finding by the Court that it is liable for the amount contained in the said
assessment; otherwise, the Court would thereby be committing a travesty.
On the disposition of the case, the Court has two options, namely, to deny the petition for
lack of merit and affirm the decision of the CA, without prejudice to the petitioner’s issuance
of a new assessment against the respondent based on credible evidence; or, to remand the
case to the CTA for further proceedings, to enable the petitioner to adduce in evidence
certified true copies or duplicate original copies of the Consumption Entries for the
respondent’s 1987 importations, if there be any, and the correct tax deficiency assessment
thereon, without prejudice to the right of the respondent to adduce controverting evidence,
so that the matter may be resolved once and for all by the CTA. In the higher interest of
justice to both the parties, the Court has chosen the latter option. After all, as the Tax Court
of the United States emphasized in Harbin v. Commissioner of Internal Revenue,91 taxation is
not only practical; it is vital. The obligation of good faith and fair dealing in carrying out its
provision is reciprocal and, as the government should never be over-reaching or tyrannical,
neither should a taxpayer be permitted to escape payment by the concealment of material
facts.
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the Court of
Appeals is SET ASIDE. The records are REMANDED to the Court of Tax Appeals for further
proceedings, conformably with the decision of this Court. No costs.
SO ORDERED.
G.R. No. 96262 March 22, 1999COMMISSIONER OF INTERNAL
REVENUE, petitioner,vs.EMBROIDERY AND GARMENTS INDUSTRIES (PHIL.),
INC., respondent.PARDO, J.:
The case is an appeal via certiorari from a decision of the Court of Appeals 1 affirming that of
the Court of Tax Appeals 2 absolving respondent from liability for deficiency income tax and
advance sales tax in the amounts of P2,756,241.68, and P3,500,798.47, respectively, for the
years 1959 to 1961.
The facts may be related as follows:
On September 21, 1964, on the basis of a sworn report of an informer, the Courts of First
Instance of Manila and Bulacan issued search warrants for the seizure of certain documents
from the offices of respondent Embroidery and Garments Industries (Phil.), Inc. in Manila and
Valenzuela, Bulacan. Armed with the warrants, agents of the Anti-Technical Smuggling Unit,
Bureau of Internal Revenue, seized various business records and documents from
respondent's offices.
On January 4, 1966, petitioner assessed respondent the sum of P436,846.44, inclusive of 75%
surcharge and penalty as advance sales tax for the years 1959 to 1961 and, on March 23,
1966, assessed deficiency income tax in the sum of P4,799,641.95, inclusive of 50% surcharge
and 1/2% monthly interest for the years 1960 and 1961.
Respondent protested the assessments, and on December 9,1970, petitioner issued to
respondent a revised assessment requiring the latter to pay the amount of P2,756,241.68,
inclusive of 50% surcharge and 1/2% monthly interest as deficiency income tax for the years
1959 to 1961. On December 22, 1970, petitioner required respondent to pay P3,500,798.47,
as advance sales tax and 75% surcharge corresponding to the same years.
On January 7, 1971, respondent filed with the Bureau of Internal Revenue a protest disputing
the revised assessments and requesting further investigation. On the same date, petitioner
denied the protest.
On January 20, 1971, respondent requested petitioner to reconsider the denial of its protest.
On January 29, 1971, petitioner granted the request upon respondent's execution of a waiver
of the statute of limitations.
On September 14, 1971, petitioner denied respondent's protest on the disputed
assessments.
On October 14, 1971 , respondent filed with the Court of Tax Appeals a petition for review of
the disputed tax assessments.
On March 29, 1972, respondent filed its answer to the petition praying for its dismissal.
On January 15, 1990, the Court of Tax Appeals rendered decision finding respondent not
liable for deficiency income tax and advance sales tax assessed against it, and accordingly,
reversed the BIR decision. In its decision, the Court of Tax Appeals held that the assessments
were doubtful validity as they were based on the incompetent evidence consisting of an
Page 14 of 44
informant's report and the sworn statement of the disgruntled former general manager of
respondent that in the years in question respondent sold all its dollar quotas to local Chinese
textile traders at an overprice or premium on the dollar value of textile importation of 80%
for suiting materials and 70.% for women's clothing materials and faked its invoices to reduce
its costs of importation. On the other hand, respondent adduced evidence consisting of
official records of the Bureau of Customs that its tax-free importation's had been re-exported
to their suppliers in accordance with the Embroidery Law and cleared by the Bureau of
Customs. The tax court ruled that the assessments must be based on actual facts and proved
by competent evidence, not imposed based on unverified information supplied by an
informant, or disputed presumptions.
On June 13, 1990, petitioner filed with the Court of Appeals a petition for review of the
decision of the Court of Tax Appeals. 3
On November 9, 1990, the Court of Appeals promulgated its decision affirming the appealed
decision of the tax court. 4
On December 4, 1990, petitioner filed a motion for reconsideration of the Court of Appeals'
decision.
On February 7, 1991, the Court of Appeals denied the motion. 5
On March 18, 1991, within, the extended time granted, petitioner filed with the Supreme
Court a petition for review on certiorari of the decision of the Court of Appeals.6
In the petition, the Commissioner of Internal Revenue submits that the Court of Appeals
erred:
(1) in not holding that respondent is liable for deficiency income tax and advance sales tax in
view of its failure to declare its income realized for the years 1959 to 1961 from the sales of
its dollar quota to local Chinese textile dealers at a premium of 70% to 80% of the dollar
value, which dollar quota rights were allocated by the Central Bank of the Philippines to
enable respondent to import tax-free textile raw materials to be manufactured into finished
products for re-export pursuant to the provisions of the Embroidery Law (R. A. No. 3137),
and
(2) in not holding that the imposition of 50% surcharge for fraud was legal and justified.7
The issues raised are clearly factual and must be resolved on the basis of the evidence
adduced before the tax court. The case tarried too long in the tax court. In the meantime, the
star witness had died, and the needed originals of documentary evidence could no longer be
located.
What is more, it is a, fundamental rule that on appeal via certiorari from a decision of the
Court of Appeals to the Supreme Court may raise only questions of law, which must be
distinctly set forth. 8 Findings of fact of the Court of Appeals and even of the tax court are
final, binding or conclusive on the parties 9 and upon this Court, 10 which will not be
reviewed 11 or disturbed on appeal unless these findings are not supported by
evidence, 12 with certain well recognized exceptions, such as (1) when the conclusion is
grounded entirely on speculations 13, surmises or conjectures; (2) when the inference made
is manifestly mistaken, absurd or impossible; (3) where there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial courts; 14 (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based;
(9) when the Court of Appeals overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) when the findings
of fact of the Court of Appeals are premised on the absence of evidence and are contradicted
by the evidence on record. 15 This case does not come within any of the exceptions.
WHEREFORE, the Court hereby AFFIRMS the appealed decision of the Court of Appeals in CA-
G.R. SP No. 20813.No costs.SO ORDERED.
G.R. No. 170389 October 20, 2010 COMMISSION OF INTERNAL REVENUE, Petitioner,
vs. AQUAFRESH SEAFOODS, INC., Respondent.
PERALTA, J.:
Before this Court is a petition for review on certiorari,1 under Rule 45 of the Rules of Court,
seeking to set aside the November 9, 2005 Decision2 of the Court of Tax Appeals (CTA) En
Banc in CTA-E.B. No. 77. The CTA En Banc affirmed the December 22, 2004 Decision of the
CTA First Division.
The facts of the case are as follows:
On June 7, 1999, respondent Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two
parcels of land, including improvements thereon, located at Barrio Banica, Roxas City, for the
consideration of Three Million One Hundred Thousand Pesos (Php 3,100, 000.00). Said
properties were covered under Transfer Certificate of Titles Nos. T-21799 and T-21804.
Respondent then filed a Capital Gains Tax Return/Application for Certification Authorizing
Registration and paid the amount of Php186,000.00, representing the Capital Gains Tax (CGT)
and the amount of Php46,500.00, representing the Documentary Stamp Tax (DST) due from
the said sale. Subsequently, Revenue District Officer Gil G. Tabanda issued Certificate
Authorizing Registration No. 1071477.
Page 15 of 44
The Bureau of Internal Revenue (BIR), however, received a report that the lots sold were
undervalued for taxation purposes. This prompted the Special Investigation Division (SID) of
the BIR to conduct an occular inspection over the properties. After the investigation, the SID
concluded that the subject properties were commercial with a zonal value of Php2,000.00
per square meter.
On September 15, 2000, Regional Director Leonardo Q. Sacamos (Director Sacamos) of the
Revenue Region Iloilo City sent two Assessment Notices apprising respondent of CGT and DST
defencies in the sum of Php1,372,171.46 and Php356,267.62, respectively. Director Sacamos
relied on the findings of the SID that the subject properties were commercial with a zonal
valuation of Php2,000.00 per square meter.
On October 1, 2000, respondent sent a letter protesting the assessments made by Director
Sacamos. On December 1, 2000, Director Sacamos denied respondent's protest for lack of
legal basis. Respondent appealed, but the same was denied with finality on February 13,
2002.
On March 19, 2002, respondent filed a petition for review3 before the CTA seeking the
reversal of the denial of its protest. The main thrust of respondent's petition was that the
subject properties were located in Barrio Banica, Roxas, where the pre-defined zonal value
was Php650.00 per square meter based on the "Revised Zonal Values of Real Properties in
the City of Roxas under Revenue District Office No. 72 – Roxas City" (1995 Revised Zonal
Values of Real Properties). Respondent asserted that the subject properties were classified as
"RR" or residential and not commercial. Respondent argued that since there was already a
pre-defined zonal value for properties located in Barrio Banica, the BIR officials had no
business re-classifying the subject properties to commercial.
On December 22, 2004, the CTA promulgated a Decision4 ruling in favor of respondent, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, respondent's assessments for deficiency capital against tax and
documentary stamp taxes are hereby CANCELLED and SET ASIDE. x x x
SO ORDERED.5
Ruling in favor of respondent, the CTA opined that that the existing Revised Zonal Values in
the City of Roxas should prevail for purposes of determining respondent's tax liabilities, thus:
While respondent is given the authority to determine the fair market value of the subject
properties for the purpose of computing internal revenue taxes, such authority is not without
restriction or limitation. The first sentence of Section 6(E) sets the limitation or condition in
the exercise of such power by requiring respondent to consult with competent appraisers
both from private and public sectors. As there was no re-evaluation and no revision of the
zonal values of the subject properties in Roxas City at the time of the sale, respondent cannot
unilaterally determine the zonal values of the subject properties by invoking his powers of
obtaining information and making assessments under Sections 5 and 6 of the NIRC. The
existing Revised Zonal Values of Real Properties in the City of Roxas shall prevail for the
purpose of determining the proper tax liabilities of petitioner.6
Petitioner Commissioner of Internal Revenue filed a Motion for Reconsideration, which was,
however, denied by the CTA in a Resolution7 dated April 4, 2005.
Petitioner then appealed to the CTA En Banc.
In a Decision dated November 9, 2005, the CTA En Banc dismissed petitioner's appeal, the
dispositive portion of which reads:
WHEREFORE, premises considered, the Petition for Review is DISMISSED for lack of merit.
SO ORDERED.8
The CTA En Banc ruled that the 1995 Revised Zonal Values of Real Properties should prevail.
Said court relied on Section 6 (E) of the National Internal Revenue Code (NIRC) which
requires consultation from appraisers, from both the public and private sectors, in fixing the
zonal valuation of properties. The CTA En Banc held that petitioner failed to prove any
amendment effected on the 1995 Revised Zonal Values of Real Properties at the time of the
sale of the subject properties.
Hence, herein petition, with petitioner raising the following issues for this Court's resolution,
to wit:
I.
WHETHER OR NOT THE REQUIREMENT OF CONSULTATION WITH COMPETENT APPRAISERS
BOTH FROM THE PRIVATE AND PUBLIC SECTORS IN DETERMINING THE FAIR MARKET VALUE
OF THE SUBJECT LOTS IS APPLICABLE IN THE CASE AT BAR.
II.
WHETHER OR NOT THE COURT OF TAX APPEALS EN BANC COMMITTED GRAVE ERROR IN
APPLYING THE FAIR MARKET VALUE BASED ON THE ZONAL VALUATION OF A RESIDENTIAL
LAND AS TAX BASE IN THE COMPUTATION OF CAPITAL GAINS TAX AND DOCUMENTARY
STAMP TAX DEFICIENCIES OF RESPONDENT.9
The petition is not meritorious. The issues being interrelated, this Court shall discuss the
same in seriatim.
Page 16 of 44
Under Section 27(D)(5) of the NIRC of 1997, a CGT of six (6%) percent is imposed on the gains
presumed to have been realized in the sale, exchange or disposition of lands and/or buildings
which are not actively used in the business of a corporation and which are treated as capital
assets based on the gross selling price or fair market value as determined in accordance with
Section 6(E) of the NIRC, whichever is higher.
On the other hand, under Section 196 of the NIRC, DST is based on the consideration
contracted to be paid or on its fair market value determined in accordance with Section 6(E)
of the NIRC, whichever is higher.
Thus, in determining the value of CGT and DST arising from the sale of a property, the power
of the CIR to assess is subject to Section 6(E) of the NIRC, which provides:
Section 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement. -
xxxx
(E) Authority of the Commissioner to Prescribe Real Property Values – The Commissioner is
hereby authorized to divide the Philippines into different zones or area and shall,
upon consultation with competent appraisers both from the private and public sectors,
determine the fair market value of real properties located in each zone or area. For purposes
of computing internal revenue tax, the value of the property shall be, whichever is higher of:
(1) the fair market value as determined by the Commissioner; or
(2) the fair market value as shown in the schedule of values of the Provincial and
City Assessors.
While the CIR has the authority to prescribe real property values and divide the Philippines
into zones, the law is clear that the same has to be done upon consultation with competent
appraisers both from the public and private sectors. It is undisputed that at the time of the
sale of the subject properties found in Barrio Banica, Roxas City, the same were classified as
"RR," or residential, based on the 1995 Revised Zonal Value of Real Properties. Petitioner,
thus, cannot unilaterally change the zonal valuation of such properties to "commercial"
without first conducting a re-evaluation of the zonal values as mandated under Section 6(E)
of the NIRC.
Petitioner argues, however, that the requirement of consultation with competent appraisers
is mandatory only when it is prescribing real property values – that is when a formulation or
change is made in the schedule of zonal values. Petitioner also contends that what it did in
the instant case was not to prescribe the zonal value, but merely classify the same as
commercial and apply the corresponding zonal value for such classification based on the
existing schedule of zonal values in Roxas City.10
We disagree.
To this Court's mind, petitioner's act of re-classifying the subject properties from residential
to commercial cannot be done without first complying with the procedures prescribed by
law. It bears to stress that ALL the properties in Barrio Banica were classified as residential,
under the 1995 Revised Zonal Values of Real Properties. Thus, petitioner's act of classifying
the subject properties involves a re-classification and revision of the prescribed zonal values.
In addition, Revenue Memorandum No. 58-69 provides for the procedures on the
establishment of the zonal values of real properties, viz.:
(1) The submission or review by the Revenue District Offices Sub-Technical
Committee of the schedule of recommended zonal values to the TCRPV;
(2) The evaluation by TCRPV of the submitted schedule of recommended zonal
values of real properties;
(3) Except in cases of correction or adjustment, the TCRPV finalizes the schedule
and submits the same to the Executive Committee on Real Property Valuation
(ECRPV);
(3) Upon approval of the schedule of zonal values by the ECRPV, the same is
embodied in a Department Order for implementation and signed by the Secretary
of Finance. Thereafter, the schedule takes effect (15) days after its publication in
the Official Gazette or in any newspaper of general circulation.
Petitioner failed to prove that it had complied with Revenue Memorandum No. 58-69 and
that a revision of the 1995 Revised Zonal Values of Real Properties was made prior to the sale
of the subject properties. Thus, notwithstanding petitioner's disagreement to the
classification of the subject properties, the same must be followed for purposes of computing
the CGT and DST. It bears stressing, and as observed by the CTA En Banc, that the 1995
Revised Zonal Values of Real Properties was drafted by petitioner, BIR personnel,
representatives from the Department of Finance, National Tax Research Center, Institute of
Philippine Real Estate Appraisers and Philippine Association of Realtors Board, which duly
satisfied the requirement of consultation with public and private appraisers. 11
Petitioner contends, nevertheless, that its act of classifying the subject properties based on
actual use was in accordance with guidelines number 1-b and 2 as set forth in "Certain
Guidelines in the Implementation of Zonal Valuation of Real Properties for RDO 72 Roxas
City" (Zonal Valuation Guidelines).12
Section 1 (b) of the Zonal Valuation Guidelines reads:
Page 17 of 44
1. No zonal value has been prescribed for a particular classification of real property.
Where in the approved schedule of zonal values for a particular barangay -
xxxx
b) No zonal value has been prescribed for a particular classification of real property in one
barangay, the zonal value prescribed for the same classification of real property located in an
adjacent barangay of similar conditions shall be used.
Section 1 (b) does not apply to the case at bar for the simple reason that said proviso
operates only when "no zonal valuation has been prescribed." The properties located
in Barrio Banica, Roxas City were already subject to a zonal valuation, a fact which even
petitioner has admitted in its petition, thus:
It must be noted that under the schedule of zonal values, Barangay Banica, where the subject
lots are situated, has a single classification only – that of a residential area. Accordingly, it has
a prescribed zonal value of Php650.00 per square meter.13
Petitioner, however, also relies on Section 2 (a) of the Zonal Valuation Guidelines, to justify
its action. Said section states:
2. Predominant Use of Property.
a) All real properties, regardless of actual use, located in a street/barangay zone, the use of
which are predominantly commercial shall be classified as "Commercial" for purposes of
zonal valuation.
In BIR Ruling No. 041-2001, issued on September 18, 2001, the BIR tackled the application of
a provision which is identical to Section 2 (a) of the Zonal Valuation Guidelines. BIR Ruling No.
041-2001 involved a request by the Iglesia Ni Cristo that the re-computation of CGT and DST
based on the predominant use of the real properties located at Mindanao Avenue, Quezon
City, be set aside. In said case, the Iglesia ni Cristo paid the CGT and DST based on the zonal
value of residential lots in Quezon City. The Revenue District Officer, however, ordered a re-
computation of the CGT and DST based on the ground that the real property is located in a
predominantly commercial area and must be classified as commercial for purposes of zonal
valuation. The BIR ruled in favor of Iglesia ni Cristo stating that "Certain Guidelines in the
Implementation of Zonal Valuation of Real Properties for RDO No. 38, applying the
predominant use of property as the basis for the computation of the Capital Gains and
Documentary Stamp Taxes, shall apply only when the real property is located in an area or
zone where the properties are not yet classified and their respective zonal valuation are
not yet determined." The pertinent portion of BIR Ruling No. 041-2001 reads:
In reply, please be informed that this Office finds your request meritorious. The number 2
guideline laid down in Certain Guidelines in the implementation of Zonal valuation of Real
Properties for RDO No. 38- North Quezon City xxx does not apply to this case.
Number 2 of the CERTAIN GUIDELINES IN THE IMPLEMENTATION OF ZONAL VALUATION OF
REAL PROPERTIES FOR RD NO. 38 – NORTH QUEZON CITY" provides:
"2. PREDOMINANT USE OF PROPERTY:
ALL REAL PROPERTIES REGARDLESS OF ACTUAL USE, LOCATED IN A STREET/BARANGAY
ZONE, THE USE OF WHICH ARE PREDOMINANTLY COMMERCIAL SHALL BE CLASSIFIED AS
'COMMERICIAL'FOR PURPOSES OF ZONAL VALUATION."
It is the considered opinion of this Office that the guideline applies when the real property
is located in an area or zone where the properties are not yet classified and their respective
zonal valuation are not yet determined.
In the instant case, however, the classification and valuation of the properties located in
Mindanao Avenue, Bagong Bantay, have already been determined. Under Department of
Finance Order No. 6-2000, the properties along Mindanao Avenue had already been
classified as residential and commercial. The zonal valuation thereof had already been
determined. x x x Therefore, the Revenue District Officer of RDO No. 38 has no discretion to
determine the classification or valuation of the properties located in the pertinent
area. The computation of the capital gains and documentary stamp taxes shall be based on
the zonal of residential properties located at Mindanao Avenue, Bago Bantay, Quezon
City.141avvphil
Based on the foregoing, this Court need not belabour on the applicability of Section 2 (a), as
the BIR itself has already ruled that the same shall apply only when the real property is
located in an area or zone where the properties are not yet classified and their respective
zonal valuation are not yet determined. As mentioned earlier, the subject properties were
already part of the 1995 Revised Zonal Value of Real Properties which classified the same as
residential with a zonal value of Php650.00 per square meter; thus, Section 2 (a) clearly has
no application.
This Court agrees with the observation of the CTA that "zonal valuation was established with
the objective of having an ‘efficient tax administration by minimizing the use of discretion in
the determination of the tax based on the part of the administrator on one hand and the
taxpayer on the other hand.’"15 Zonal value is determined for the purpose of establishing a
more realistic basis for real property valuation. Since internal revenue taxes, such as CGT and
DST, are assessed on the basis of valuation, the zonal valuation existing at the time of the
sale should be taken into account.16
Page 18 of 44
If petitioner feels that the properties in Barrio Banica should also be classified as commercial,
then petitioner should work for its revision in accordance with Revenue Memorandum Order
No. 58-69. The burden was on petitioner to prove that the classification and zonal valuation
in Barrio Banica have been revised in accordance with the prevailing memorandum. In the
absence of proof to the contrary, the 1995 Revised Zonal Values of Real Properties must be
followed.
Lastly, this Court takes note of the wording of Section 2 (b) of the Zonal Valuation Guidelines,
to wit:
2. Predominant Use of Property.
b) The predominant use of other classification of properties located in a street/barangay
zone, regardless of actual use shall be considered for purposes of zonal valuation.
Based thereon, this Court rules that even assuming arguendo that the subject properties
were used for commercial purposes, the same remains to be residential for zonal value
purposes. It appears that actual use is not considered for zonal valuation, but the
predominant use of other classification of properties located in the zone. Again, it is
undisputed that the entire Barrio Banica has been classified as residential.
WHEREFORE, premises considered, the petition is denied. The November 9, 2005 Decision of
the Court of Tax Appeals En Banc, in CTA-E.B. No. 77, is hereby AFFIRMED. SO ORDERED.
G.R. No. 211072, November 07, 2016
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. DEUTSCHE KNOWLEDGE SERVICES,
PTE. LTD., Respondent.
DECISION
CAGUIOA, J.:
Before the Court is a Petition for Review1 on Certiorari under Rule 45 of the Rules of Court
filed by petitioner Commissioner of Internal Revenue (CIR), assailing the Amended
Decision2 dated July 29, 2013 and Resolution3 dated January 7, 2014 of the Court of Tax
Appeals (CTA) En Banc in CTA EB No. 815. The CTA En Banc reversed and set aside its earlier
decision dated January 31, 2013, which affirmed the CTA First Division's dismissal of the claim
for refund or issuance of tax credit filed by respondent Deutsche Knowledge Services, Pte.
Ltd. (DKS) in CTA Case No. 7940 on the ground of prematurity, and remanded the case to the
court of origin for further proceedings.
Facts
DKS is the Philippine branch of a multinational company organized and existing under and by
the virtue of the laws of Singapore. It is licensed to do business as a regional operating
headquarters in the Philippines.
On July 25, 2007, DKS filed its original Quarterly Value Added Tax (VAT) Return for the
2nd quarter of CY 2007 with the Bureau of Internal Revenue (BIR).
On June 18, 2009, DKS filed with the BIR-Revenue District Office No. 47 an Application for Tax
Credits/Refunds (BIR Form No. 1914) of its excess and unutilized input VAT for the
2nd quarter of CY 2007 in the amount of P8,767,719.30. Subsequently, on June 30, 2009, or
even before any action by the CIR on its administrative claim, DKS filed a Petition for Review
with the CTA, docketed as CTA Case No. 7940.
Trial commenced and DKS filed its Formal Offer of Evidence on September 22, 2010, which
was admitted by the CTA First Division in a Resolution dated December 1, 2010.
Meanwhile, on October 6, 2010, while DKS's claim for refund or tax credit was pending
before the CTA First Division, this Court promulgated Commissioner of Internal Revenue v.
Aichi Forging Company of Asia, Inc.4 (Aichi). In that case, the Court held that compliance with
the 120-day period granted to the CIR, within which to act on an administrative claim for
refund or credit of unutilized input VAT, as provided under Section 112(C) of the National
Internal Revenue Code (NIRC) of 1997, as amended, is mandatory and jurisdictional in filing
an appeal with the CTA.
On February 21, 2011, the CIR filed a Motion to Dismiss,5 stating that the CTA First Division
lacked jurisdiction because respondent's Petition for Review was prematurely filed.
In a Resolution dated April 26, 2011,6 the CTA First Division dismissed respondent's judicial
claim, the decretal portion of which reads:
WHEREFORE, premises considered, the Motion to Dismiss dated February 21, 2011, filed by
respondent [CIR], is hereby GRANTED. Consequently, the Petition for Review dated June 30,
2009, filed by petitioner Deutsche Knowledge Services Pte. Ltd. is hereby DISMISSED.
SO ORDERED.7
The CTA First Division ruled that the petition for review filed by DKS on June 30, 2009, or
barely twelve (12) days after the filing of its administrative claim for refund, was clearly
premature justifying its dismissal. The CTA First Division explained that pursuant to Section
112(C) of the NIRC and the jurisprudence laid down in Aichi, it is a mandatory requirement to
wait for the lapse of the 120-day period granted to petitioner to act on the application for
refund or issuance of tax credit, before a judicial claim may be filed with the CTA.
Page 19 of 44
DKS moved for reconsideration, but the same was denied by the CTA First Division in its
Resolution8dated August 2, 2011.
Aggrieved, DKS elevated the matter to the CTA En Banc, raising the following arguments: (1)
the CTA First Division validly acquired jurisdiction of its judicial claim for refund;
(2) Aichi should not be applied indiscriminately to all claims for VAT refund; (3) the
prospective application of the Aichi interpretation on the observance of the 120-day rule is
legally and equitably imperative; and (4) DKS is entitled to a refund of its claimed input VAT
for the 2nd quarter of CY 2007.
On January 31, 2013, the CTA En Banc rendered a Decision9 affirming the April 26, 2011 and
August 2, 2011 Resolutions of the CTA First Division. It agreed with the CTA First Division in
applying the ruling in Aichi which warranted the dismissal of DKS's judicial claim for refund on
the ground of prematurity.
In the meantime, on February 12, 2013, this Court decided the consolidated cases
of Commissioner of Internal Revenue v. San Roque Power Corporation, Taganito Mining
Corporation v. Commissioner of Internal Revenue, and Philex Mining Corporation v.
Commissioner of Internal Revenue 10 (San Roque), wherein the Court recognized BIR Ruling
No. DA-489-03 as an exception to the 120-day period.
Invoking this Court's pronouncements in San Roque, DKS moved for reconsideration. The
CTA En Banc found merit in said motion and rendered the assailed Amended Decision, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant Motion for Reconsideration (Re: Decision
dated January 31, 2013) is hereby GRANTED. The Decision dated January 31, 2013, which
affirmed the CTA First Division's dismissal of the Petition for Review docketed as CTA Case
No. 7940 on the ground of prematurity, is hereby REVERSED AND SET ASIDE.
Accordingly, CTA Case No. 7940 is hereby REMANDED to the court of origin for further
proceedings.
SO ORDERED.11
The CIR filed a Motion for Reconsideration but the motion was denied for lack of merit by the
CTA En Banc in its Resolution12 dated January 7, 2014.
Hence, this petition.
Issue
The singular issue submitted by the Petition for this Court's resolution is whether the CTA En
Banc erred in taking cognizance of the case and holding that DKS's petition for review was
not prematurely filed with the CTA First Division.
The Court's Ruling
The Petition lacks merit.
Exception to the mandatory and
jurisdictional nature of the 120-day period
under Section 112(C) of the NIRC
Section 112 of the NIRC provides for the rules on claiming refunds or tax credits of unutilized
input VAT, the pertinent portions of which read as follows:
Sec. 112. Refunds or Tax Credits of Input Tax.-
(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT- registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or refund
of creditable input tax due or paid attributable to such sales, except transitional input tax, to
the extent that such input tax has not been applied against output tax: x x x
xxxx
(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases,
the Commissioner shall grant a refund or issue the tax credit certificate for creditable input
taxes within one hundred twenty (120) days from the date of submission of complete
documents in support of the application filed in accordance with Subsection (A) hereof.
In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty-day period, appeal the decision or
the unacted claim with the Court of Tax Appeals. (Emphasis supplied)
Based on the plain language of the foregoing provision, a VAT registered taxpayer claiming
for a refund or tax credit of its excess and unutilized input VAT must file an administrative
claim within two (2) years from the close of the taxable quarter when the sales are made.
After that, the CIR is given 120 days, from the submission of complete documents in support
of said administrative claim, within which to grant or deny said claim. Upon receipt of CIR's
decision, denying the claim in full or partially, or upon the expiration of the 120-day period
Page 20 of 44
without action from the CIR, the taxpayer has 30 days within which to file a petition for
review with the CTA.
As earlier stated, this Court in Aichi clarified that the 120-day period granted to the CIR is
mandatory and jurisdictional, the non-observance of which is fatal to the filing of a judicial
claim with the CTA. The Court further explained that the two (2)-year prescriptive period
under Section 112(A) of the NIRC pertains only to the filing of the administrative claim with
the BIR; while the judicial claim may be filed with the CTA within 30 days from the receipt of
the decision of the CIR or expiration of 120-day period of the CIR to act on the claim. Thus:
Section 112 (D) of the NIRC clearly provides that the CIR has "120 days, from the date of
the submission of the complete documents in support of the application [for tax
refund/credit]," within which to grant or deny the claim. In case of full or partial denial by
the CIR, the taxpayer's recourse is to file an appeal before the CTA within 30 days from
receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on
the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction
of the CIR to CTA within 30 days.
In this case, the administrative and the judicial claims were simultaneously filed on
September 30, 2004. Obviously, respondent did not wait for the decision of the CIR or the
lapse of the 120-day period. For this reason, we find the filing of the judicial claim with the
CTA premature.
Respondent's assertion that the non-observance of the 120-day period is not fatal to the
filing of a judicial claim as long as both the administrative and the judicial claims are filed
within the two-year prescriptive period has no legal basis.
There is nothing in Section 112 of the NIRC to support respondent's view. Subsection (A) of
the said provision states that "any VAT-registered person, whose sales are zero-rated or
effectively zero-rated may, within two years after the close of the taxable quarter when the
sales were made, apply for the issuance of a tax credit certificate or refund of creditable
input tax due or paid attributable to such sales." The phrase "within two (2) years x x x apply
for the issuance of a tax credit certificate or refund" refers to applications for refund/credit
filed with the CIR and not to appeals made to the CTA. This is apparent in the first paragraph
of subsection (D) of the same provision, which states that the CIR has "120 days from the
submission of complete documents in support of the application filed in accordance with
Subsections (A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D)
of the NIRC, which already provides for a specific period within which a taxpayer should
appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) of the
NIRC envisions two scenarios: (1) when a decision is issued by the CIR before the lapse of the
120-day period; and (2) when no decision is made after the 120-day period. In both
instances, the taxpayer has 30 days within which to file an appeal with the CTA. As we see it
then, the 120-day period is crucial in filing an appeal with the CTA.
xxxx
In fine, the premature filing of respondent's claim for refund/credit of input VAT before the
CTA warrants a dismissal inasmuch as no jurisdiction was acquired by the CTA.13 (Emphasis
supplied)
Subsequently, in San Roque, while the Court reiterated the mandatory and jurisdictional
nature of the 120+30 day periods, it recognized as an exception BIR Ruling No. DA-489-03,
issued prior to the promulgation of Aichi, where the BIR expressly allowed the filing of
judicial claims with the CTA even before the lapse of the 120-day period. The Court held that
BIR Ruling No. DA-489-03 furnishes a valid basis to hold the CIR in estoppel because the CIR
had misled taxpayers into filing judicial claims before the CTA even before the lapse of the
120-day period:
There is no dispute that the 120-day period is mandatory and jurisdictional, and that the CTA
does not acquire jurisdiction over a judicial claim that is filed before the expiration of the
120-day period. There are, however, two exceptions to this rule. The first exception is if the
Commissioner, through a specific ruling, misleads a particular taxpayer to prematurely file a
judicial claim with the CTA. Such specific ruling is applicable only to such particular taxpayer.
The second exception is where the Commissioner, through a general interpretative
rule issued under Section 4 of the Tax Code, misleads all taxpayers into filing prematurely
judicial claims with the CTA. In these cases, the Commissioner cannot be allowed to later on
question the CTA's assumption of jurisdiction over such claim since equitable estoppel has
set in as expressly authorized under Section 246 of the Tax Code.
xxxx
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a response to a query
made, not by a particular taxpayer, but by a government agency tasked with processing tax
refunds and credits, that is, the One Stop Shop Inter-Agency Tax Credit and Drawback
Center of the Department of Finance. This government agency is also the addressee, or the
entity responded to, in BIR Ruling No. DA-489-03. Thus, while this government agency
mentions in its query to the Commissioner the administrative claim of Lazi Bay Resources
Development, Inc., the agency was in fact asking the Commissioner what to do in cases like
the tax claim of Lazi Bay Resources Development, Inc., where the taxpayer did not wait for
the lapse of the 120-day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all taxpayers can
rely on BIR Ruling No. DA-489-03 from the time of its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on 6 October 2010, where this Court held that the 120+30
day periods are mandatory and jurisdictional.14 (Emphasis supplied)
Following San Roque, the Court, in a catena of cases,15 has consistently adopted the rule that
the 120-day waiting period does not apply to claims for refund that were prematurely filed
Page 21 of 44
during the period from the issuance of BIR Ruling No. DA-489-03 on December 10, 2003, until
October 6, 2010, when the Aichi was promulgated; but before and after said period, the
observance of the 120-day period is mandatory and jurisdictional.16
In this case, records show that DKS filed its administrative and judicial claim for refund on
June 18, 2009 and June 30, 2009, respectively, or after the issuance of BIR Ruling No. DA-489-
03, but before the date when Aichi was promulgated. Thus, even though DKS filed its judicial
claim without waiting for the expiration of the 120-day mandatory period, the CTA may still
take cognizance of the case because the claim was filed within the excepted period stated
in San Roque. Verily, the CTA En Banc did not err in reversing the dismissal of DKS's judicial
claim and remanding the case to the CTA First Division for the resolution of the case on the
merits.
Application and validity of BIR Ruling No.
DA-489-03
The CIR now claims that BIR Ruling No. DA-489-03 is invalid because it was merely issued by a
Deputy Commissioner and not by the CIR, who is exclusively authorized by law to interpret
the provisions of the NIRC.
The Court is not persuaded. The Court En Banc's Resolution in San Roque dated October 8,
201317 is instructive:
In asking this Court to disallow Taganito's claim for tax refund or credit, the CIR repudiates
the validity of the issuance of its own BIR Ruling No. DA-489-03. "Taganito cannot rely on the
pronouncements in BIR Ruling No. DA-489-03, being a mere issuance of a Deputy
Commissioner.
Although Section 4 of the 1997 Tax Code provides that the "power to interpret the provisions
of this Code and other tax laws shall be under the exclusive and original jurisdiction of the
Commissioner, subject to review by the Secretary of Finance," Section 7 of the same Code
does not prohibit the delegation of such power. Thus, "[t]he Commissioner may delegate
the powers vested in him under the pertinent provisions of this Code to any or such
subordinate officials with the rank equivalent to a division chief or higher, subject to such
limitations and restrictions as may be imposed under rules and regulations to be
promulgated by the Secretary of Finance, upon recommendation of the Commissioner."18
Finally, the CIR contends that even assuming that BIR Ruling No. DA-489-03 should be
considered as an exception to the 120-day period; it was already repealed and superseded
on November 1, 2005 by Revenue Regulations No. 16-2005 (RR 16-2005), which echoed the
mandatory and jurisdictional nature of the 120-day waiting period under Section 112 of the
NIRC. Thus, DKS cannot rely on BIR Ruling No. DA-489-03 because its claim was filed in June
2009 or almost four (4) years since RR 16-2005 took effect.
In other words, the CIR posits that compliance with the 120-day period should only be
considered permissible from December 10, 2003, when BIR Ruling No. DA-489-03 was issued,
until October 31, 2005, prior to the effectivity of RR 16-2005.
The Court disagrees.
Again, it has already been settled in San Roque that BIR Ruling No. DA-489-03 is a general
interpretative rule which all taxpayers may rely upon from the time of its issuance on
December 10, 2003 until its effective reversal by the Court in Aichi. While RR 16-2005 may
have re-established the necessity of the 120-day period, taxpayers cannot be faulted for still
relying on BIR Ruling DA-489-03 even after the issuance of RR 16-2005 because the issue on
the mandatory compliance of the 120-day period was only brought before the Court and
resolved with finality in Aichi.
All told, the Court maintains that the 120-day period is permissible from December 10, 2003,
when BIR Ruling No. DA-489-03 was issued, until October 6, 2010, when Aichi was
promulgated; but before and after said period, the observance of the 120-day period is
mandatory and jurisdictional.
WHEREFORE, premises considered, the instant petition for review is hereby DENIED. The
Amended Decision dated July 29, 2013 and the Resolution dated January 7, 2014 of the
CTA En Banc in CTA EB No. 815 are hereby AFFIRMED. Let this case be REMANDED to the
CTA First Division for the proper determination of the refundable amount due to respondent,
if any. SO ORDERED.
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.
x--------------------x
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
Page 22 of 44
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. 295833 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 PNOC's 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 NAPOCOR'S pending claim for tax
refund/credit.10 The BIR replied on 11 November 1986 that the proposal for set-off was
premature since NAPOCOR's 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 PNOC's money placements with PNB in the amount of P93,955,479.12, broken down as
follows:
Previous payment made by PNB
Add: Payment made by PNOC pursuant to the compromise
agreement of June 22, 1987
Total tax payment P 93,955,479.12 13
Private respondent Savellano, through four installments, was paid the informer's 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 informer's reward, computed as follows:
BIR tax assessment
Final tax rate
Informer's reward due (BIR deficiency tax assessment x Final
tax rate)
Less: Payment received by private respondent Savellano
Outstanding balance
BIR Commissioner Tan replied through a letter, dated 08 March 1988, that private
respondent Savellano was already fully paid the informer's 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
Page 23 of 44
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% informer's 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
P 2,952,349.23
In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no
P 91,003,129.89
cause of action against him, and that private respondent Savellano was already paid the
informer's 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
P 385,961,580.82
privity with private respondent Savellano; (2) the BIR Commissioner's discretionary act in
0.15into the compromise agreement had legal basis under E.O. No. 44 and RMO No. 39-
entering
P 86 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against it.23 On
57,894,237.12
the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2) the
P BIR Commissioner's decision to accept the compromise was discretionary on his part and,
14,093,321.89
therefore, cannot be reviewed or interfered with by the courts.24 PNOC and PNB later filed
P 43,800,915.2515
their amended Answer invoking an opinion of the Commission on Audit (COA) disallowing the
payment by the BIR of informer's 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 PNOC's money placements, in the amount of P294,958,450.73, computed as
follows:
Withholding tax, plus interest under the letter of demand P 385,961,580.82
dated November 11, 1986
Less: Amount paid under E.O. No. 44 P 91,003,129.89
 Amount still due and collectible P 294,958,450.7330
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 PNB's 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 PNB's
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 PNOC's money placements. The same letter informed PNB that
this was the BIR Commissioner's final decision on the matter and that the BIR Commissioner
was set to issue a warrant of distraint and/or levy against PNB's deposits with the Central
Bank of the Philippines. PNB further alleged that the levy and distraint of PNB's 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
Page 24 of 44
Pursuant to the Order of the CTA, during the hearing on 19 July 1991,41 the parties submitted
their respective Memoranda on PNB's 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, PNB's Motion to
Suspend Proceedings became moot and academic. Private respondent Savellano, thus,
moved for the denial of PNB's Motion to Suspend Proceedings and for an order requiring BIR
to deposit with the CTA the amount of P44,243,767.00 as his informer's reward, representing
15% of the deficiency withholding tax collected.43
Both PNOC and PNB opposed private respondent Savellano's 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 Savellano's Motion
as the same was premised on the erroneous assumption that the tax deficiency had been
collected. When the DOJ denied the BIR Commissioner's Motion to Dismiss and required him
to file his answer, the DOJ assumed jurisdiction over PNB's 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 informer's 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. PNOC's appeal was docketed as CA-G.R. SP No. 29583, while
PNB's 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
informer's 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
Page 25 of 44
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 informer's reward to private respondent Savellano.
I
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.
BIR's 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 PNOC's 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 informer's 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 PNB's 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 DOJ's claim of
jurisdiction to administratively settle or adjudicate BIR's 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:
Page 26 of 44
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 informer's 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
repugnancy…between 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.)
Page 27 of 44
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 DOJ's 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.
Page 28 of 44
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 taxpayer's administrative protest is appealed
by the taxpayer before an appropriate court.
PNOC's 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 BIR's 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
Page 29 of 44
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 PNOC's 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 PNOC's 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. 4170 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 PNB's 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
Page 30 of 44
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 PNOC's 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 PNOC's. PNB's 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 PNOC's 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 taxpayer's 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.
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 manager's 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.

Given that paragraph 2 of RMO No. 39-86 is valid, the next question that needs to be
If the Compromise amount is not paid as required herein, the compromise
addressed is whether PNOC had been able to submit an application for compromise on or
agreement is automatically nullified and the delinquent account reverted to the
before 31 March 1987 in compliance thereof. Although the compromise agreement was
original amount plus the statutory increments, which shall be collected thru the
executed only on 22 June 1987, PNOC is claiming that it had already written a letter to the
summary and/or judicial processes provided by law.
BIR, as early as 25 September 1986, offering to compromise its tax liability, and that the said
letter should be considered as PNOC's application for compromise settlement.
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
A perusal of PNOC's letter, dated 25 September 1986, would reveal, however, that the terms
Government by making collection of delinquent accounts and disputed assessments simpler,
of its proposed compromise did not conform to those authorized by E.O. No. 44. PNOC did
easier, and faster. Payment of the compromise amount must be made immediately, in cash
not offer to pay outright 30% of the basic tax assessed against it as required by E.O. No. 44;
or in manager's check. Although deferred or staggered payments may be allowed on a case-
and instead, made the following offer:
to-case basis, the mode of payment remains unchanged, and must still be made either in
cash or in manager's check.
(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
PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. The
Corporation (NPC) for specific taxes on fuel oil sold to NPC
offer defeated the purpose of E.O. No. 44 because it would not only delay collection, but
totaling P335,259,450.21, which tax refunds/credits are actually receivable
more importantly, it would not guarantee collection. First of all, BIR's collection was
accounts of our Company from NPC.76
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
PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.77 The BIR, in its resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no proof, other
letters to PNOC, dated 8 October 198678 and 11 November 1986,79 consistently denied than the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is an account
PNOC's offer because the claim for tax refund/credit of NAPOCOR was still under process, so receivable of PNOC. A possible dispute between NAPOCOR and PNOC as to the proceeds of
that the offer to set-off such claim against PNOC's tax liability was premature. the tax refund/credit would only delay collection by the BIR even further.

Page 31 of 44
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 PNOC's 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 PNOC's offer to compromise in its earlier letters.
This Court likewise cannot give credence to PNOC's 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 Tan's decision to accept PNOC's
third offer to compromise after denying the previous two. The absence of such evidence
herein negates PNOC's 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.
Page 32 of 44
D. The BIR Commissioner's 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 CTA's 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 Commissioner's 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 Tan's 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.
Sandiganbayan85 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 petitioner's submissions. Its formulation of the issues on
CIR and CTA's 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, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v. U.S., 39 F. Supp. 135 cited in page 18
of decision) ….88
Page 33 of 44
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 Ong's revocation of the BIR approval
of the compromise agreement, dated 22 June 1987. Such a revocation was only proper
considering that the former BIR Commissioner's 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
agents94 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
Page 34 of 44
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 PNOC's money placements with the bank. It had
30 days from receipt to protest the BIR's 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 PNB's 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 PNOC's 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 PNB's 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
Page 35 of 44
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 PNOC's 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
PNB's 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. –
… Other equitable reliefs under the premises are likewise prayed for.107 (Underscoring
(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 taxpayer's 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:
Page 36 of 44
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 informer's
reward, 15% of the tax liability collected under clause (a) hereof.
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 Protector's 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 PNB's
account and collection of the tax by the BIR has become moot and academic at this point.
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;

V
Additional Informer's Reward
Private respondent Savellano is entitled to additional informer's 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 informer's 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 taxpayer's 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.
(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 informer's
reward, equivalent to 15% of the deficiency withholding tax ordered collected
herein, or P 44,243,767.61.SO ORDERED.
G.R. No. 152532. August 16, 2005 PEOPLE OF THE PHILIPPINES, Petitioners, vs.
SANDIGANBAYAN (Fourth Division) and BIENVENIDO A. TAN JR., Respondent.
DECISION
PANGANIBAN, J.:
A judgment of acquittal made by a competent court on a valid information after the accused
has entered a plea bars an appeal by the prosecution. Only a clear showing of grave abuse of
discretion or denial of due process to the State can justify a review (through a petition
for certiorari) of such decision by this Court. In acquitting private respondent in the present
case, the Sandiganbayan has not been shown to have acted arbitrarily or whimsically. Equally
important, the herein accused, Commissioner Bienvenido A. Tan Jr., has not been proven to
have exceeded his discretion in the exercise of his functions. Taking into account the relevant
facts and applicable laws in this very perplexing subject of taxation, this Court cannot fault
him for abating an excessive and erroneous tax assessment. Quite the contrary, he has acted
fairly and sensibly under the circumstances.

Since the BIR had already collected P294,958,450.73 from PNB through the execution of the
The Case
writ of garnishment over PNB's 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. Before us is a Petition for Certiorari1 under Rule 65 of the Rules of Court, seeking to nullify
and set aside the January 23, 2002 Resolution2 of the Sandiganbayan (SB) in Criminal Case
No. 20685. The dispositive part of the Resolution reads as follows:
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

Page 37 of 44
"WHEREFORE, premises considered, the Decision dated 02 March 2001 is hereby
RECONSIDERED and SET ASIDE, and the accused is hereby ACQUITTED of the charge in the
instant case.
"The bailbond of the accused is hereby cancelled and the Hold Departure order previously
issued by the court is hereby lifted and set aside."3
The Facts
The facts are narrated by the SB in its original Decision dated March 2, 2001, as follows:
"Pursuant to Letter of Authority No. ATD-035-STO dated January 2, 1986 and Memorandum
of Authority dated March 3, 1986, an investigation was conducted by [Bureau of Internal
Revenue (BIR)] examiners on the ad valorem and specific tax liabilities of [San Miguel Corp.
(SMC)] covering the period from January 1, 1985 to March 31, 1986. The result of the
investigation showed that [SMC] has a deficiency on specific and ad valorem taxes totaling
₱342,616,217.88 broken down as follows:
‘Specific Tax ₱ 33,817,613.21
Ad Valorem Tax ₱308,798,604.67’
"On the basis of these findings, the BIR sent a letter dated July 13, 1987 to SMC demanding
the payment of its deficiency tax in the amount of ₱342,616,217.88. Apparently, the letter
was received by the SMC, as it protested the assessment in its letter dated August 10, 1987
with the information: 1) that the alleged specific tax deficiency was already paid when the
BIR approved SMC’s request that its excess ad valorem payments be applied to its specific tax
balance; 2) that the computation of the ad valorem tax deficiency was erroneous since the
BIR examiners disallowed the deduction of the price differential (cost of freight from brewery
to warehouse) and ad valorem tax.
"The protest was denied by the BIR thru a letter dated October [8], 1987 signed by accused
Commissioner Bienvenido Tan, Jr., but the original assessment of ₱342,616,217.88 was
reduced to ₱302,[0]51,048.93 due to the crediting of the taxpayer’s excess ad valorem tax
deposit of ₱21,805,409.10 with a reiteration of the payment of the x x x assessed specific and
ad valorem tax as reduced.
"On October 27, 1987, herein accused referred the matter to Jaime M. Maza, Assistant BIR
Commissioner, Legal Service Division and thereafter different BIR officials also reviewed the
case of SMC and rendered varying legal opinions on the issue x x x
"On the part of Alicia P. Clemeno, Chief, Legislative Ruling and Research Division, she
recommended the reduction of SMC’s tax liability, first to ₱21,856,985.29, and later to
Page 38 of 44
₱22,000,000.00. Balbino E. Gatdula, Jr., Assistant Revenue Service Chief, Legal Service,
supported the demand for ad valorem tax deficiency from SMC. In a letter dated August 31,
1988, SMC, thru a certain Avendano offered the amount of ₱10,000,000.00 for the
settlement of the assessment. This was concurred in by Juanito Urbi, Chief, Prosecutor
Division, BIR in a Memorandum dated December 20, 1988. Jaime Maza, Assistant
Commissioner, Legal Service, BIR, also gave his concurrence to the recommendation that the
offer of SMC for ₱10,000,000.00 in compromise settlement be accepted. The
recommendation was approved by accused Bienvenido Tan; and accordingly, in a letter
dated December 20, 1988, SMC was informed that its offer to compromise was accepted."4
Subsequently, the SB reversed its original March 2, 2001 Decision with its now assailed
January 23, 2002 Resolution. The antecedents leading to the Petition before this Court are
narrated by the SB in this manner:
"In our Decision of March 2, 2001, herein accused Bienvenido A. Tan, former Commissioner
of the [BIR], was convicted for violation of Section 3(e) of Republic Act [(RA)] No. 3019 as
amended, otherwise known as the Anti-Graft and Corrupt Practices Act, the dispositive
portion of which states as follows:
‘WHEREFORE, premises considered, judgment is hereby rendered convicting the accused for
Violation of Section 3(e) of [(RA)] 3019 as amended, and appreciating in his favor the
presence of the mitigating circumstance of age, accused being over seventy (70) years old,
and in the absence of aggravating circumstances to offset the same, applying the
Indeterminate Sentence Law, he is hereby sentenced to suffer imprisonment of six (6) years
and one (1) month as minimum to fifteen (15) years as maximum. He is further disqualified
perpetually from holding public office.
‘As the Court finds the compromise agreement to have been entered into illegally, the [BIR]
is hereby ordered to collect from [SMC] the amount of ₱292,951,048.93 representing its tax
liabilities covering the period from January 1, 1985 to March 31, 1986.
‘SO ORDERED.’
"In his Motion for Reconsideration filed on March 12, 2001, accused seeks to reconsider
aforesaid Decision and posits the following grounds: (1) the Court erred in holding that the
assessment contained in the letter of accused dated 08 October 1987 was final and
executory; (2) corollarily, the Court erred in holding that the referral of the 08 October 1987
assessment to the Assistant Commissioner for further study was uncalled for, given that
there was no request for a reconsideration of the 08 October 1987 assessment; (3) the Court
erred in not holding that the specific tax assessment of [₱]33,817,613.21 had been paid
through the application of SMC’s excess ad valorem tax deposits to its unpaid specific tax; (4)
the Court erred in not holding that the abatement of SMC’s ad valorem tax was proper on
the ground that there exists a reasonable doubt as to the correctness of said assessment;
[(5)] the Court erred in holding that accused exercise of his authority under Section 204 of
the [National Internal Revenue Code (NIRC)] to abate the assessment of ad valorem tax was
improper; and [(6)] the Court erred in holding that there was a compromise of the SMC tax is impeccable, since the parties to it must perforce give up something in exchange for
case which resulted in undue injury to the government. something else. No basis existed to hold him liable for violation of Section 3(e) of RA 3019.

"In its Comment, the prosecution asserts that (1) the assessment contained in the letter of Hence, this Petition.6
SMC dated October 8, 1987 was final and executory; (2) the referral of the 08 October 1987
assessment to the Assistant Commissioner for further study was uncalled for given that there The Issues
was no request for a reconsideration from SMC; (3) SMC’s total tax due and collectible as
Specific Tax of [₱]33,817,613.21 has not been settled; (4) the Court correctly held that the
Petitioner raises the following issues for our consideration:
abatement of SMC’s ad valorem taxes is improper; and (5) the Court is correct in ruling that
there was a compromise of SMC’s tax which resulted in undue injury to the government.
"A.
"Thereafter, the accused and the prosecution made a further exchange of pleadings
elaborating on their respective positions on the matter. "The respondent court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when, in upholding private respondent’s act in ruling upon SMC’s Motion for
Reconsideration, it disregarded Section 228 (previously Section 246) of the NIRC.
"The Motion is impressed with merit. After a careful and exhaustive review of the pleadings,
the records and the evidence, we reconsider our Decision dated March 2, 2001 and hereby
acquit the accused of the charge in the instant case."5 "B.

Ruling of the Sandiganbayan "The respondent court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when, in upholding private respondent’s act in accepting SMC’s offer of
compromise of ₱10,000,000.00 for its tax liability of ₱302,051,048.93, it disregarded Sections
In acquitting herein private respondent, the SB adduced several reasons.
124 and 228 of the NIRC.

First, the SB failed to give weight to the October 27, 1987 meeting between Commissioner
"C.
Tan and SMC’s representatives -- a meeting which resulted in the referral of the assessment
to Tan’s subordinates for further review and study. The referral showed that the disputed
assessment had not yet become final and executory. "The respondent court acted with grave abuse of discretion amounting to lack or excess of
jurisdiction when it declared the validity of private respondent’s act of approving SMC’s
application of the excess ad valorem to its specific tax deficiency despite its being contrary to
Second, notwithstanding the prosecution’s observation that the BIR rejected SMC’s protest
law.
against the inclusion of the water component of beer, private respondent unequivocally
approved SMC’s application of its excess ad valorem deposit to complete the payment of its
specific tax deficiency. "D.

Third, the abatement of SMC’s ad valorem taxes is proper. The tax base for computing them "The respondent court acted with grave abuse of discretion amounting to lack or excess of
should not include the ad valorem tax itself and the price differential. Reliance upon jurisdiction when it acquitted private respondent for violation of Sec. 3(e) of RA 3019 despite
Executive Order (EO) No. 273 is not misplaced, because that law simply affirms general the overwhelming evidence proving his guilt beyond reasonable doubt."7
principles of taxation as well as BIR’s long-standing practice and policy not to impose a tax on
a tax. Moreover, nothing precludes private respondent from applying EO 273 on an We shall tackle the foregoing issues seriatim, with the exception of the third issue that will be
assessment made prior to its effectivity, because that law was merely intended to formalize discussed ahead of the second.
such long-standing practice and policy.
The Court’s Ruling
Fourth, after inquiring into the discretionary prerogative of private respondent to
compromise, the SB found no reason to conclude that he had acted contrary to law or been The Petition has no merit.
impelled by any motive other than honest good faith. The compromise he had entered into
regarding SMC’s tax did not result in any injury to the government. No genuine compromise
Page 39 of 44
First Issue:
Viability of SMC’s Motion for Reconsideration
Section 229 of the NIRC8 provides thus:
"Sec. 229. Protesting of assessment. -- When the Commissioner of Internal Revenue or his
duly authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner shall issue an assessment based on his findings.
"Such assessment may be protested administratively by filing a request for reconsideration
or reinvestigation in such form and manner as may be prescribed by implementing regulation
within thirty (30) days from receipt of the assessment; otherwise, the assessment shall
become final and unappealable.
"If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court of Tax Appeals
within thirty (30) days from receipt of the said decision; otherwise, the decision shall become
final, executory and demandable."9
Petitioner argues that "on October 8, 1987, a final decision was rendered by private
respondent as to SMC’s tax liability totaling ₱302,051,048.93 x x x." Since SMC did not appeal
to the CTA, this decision became final and could no longer be compromised by private
respondent. We disagree.
A careful reading of the quoted tax provision readily shows that the "Motion for
Reconsideration" filed by SMC was aptly ruled upon by private respondent. Despite the use
of the phrase "finally decided," his October 8, 1987 letter to SMC did not constitute a final
assessment.
First, the phrase "finally decided" referred not to the total amount of
deficiency specific and ad valorem taxes, but to the reduction of such assessment. The
reduction was the result of SMC’s protest, by way of two requests for reconsideration dated
June 9, 1987 and August 10, 1987. Contrary to petitioner’s assertion, the rules on statutory
construction did not apply; the October 8, 1987 letter was not even a law. Grantia
argumenti that the letter partook of the nature of a final assessment, its finality was
suspended by private respondent’s handwritten note on the bottom left of the second page,
extending the tender of payment for another 15 days from October 27, 1987, because of a
referral of the assessment to the BIR’s Legal Service.10
Second, SMC filed on November 2, 1987 a timely request for reinvestigation -- technically not
a motion for reconsideration. Under Section 229 of the NIRC, this request was a proper
Page 40 of 44
administrative protest11 done within 30 days from receipt of the assessment and
substantiated by facts and law.12 The assessment was received by SMC only on October 26,
1987. Its request for reinvestigation was in turn received by the BIR on November 10, 1987,
well within the 30-day period allowed by Section 229; thus, the assessment had not yet
become final.
Moreover, a day after SMC’s receipt of the assessment, the SB found that a meeting had
indeed been held between private respondent and the representatives of SMC, resulting in
the suspension of the alleged finality of the assessment. The meeting partook of the nature
of an oral, in advance of the written, request for reinvestigation. In both instances, the
taxpayer’s request was not merely pro forma; it had the effect of suspending -- not
interrupting -- the 30-day period for appeal.13
We do not agree with petitioner’s contention that, contrary to the finding of the SB in its
March 2, 2001 Decision, no conference had been held on that date. A careful perusal of the
Decision would, however, reveal that the date of the supposed conference was not indicated
with certainty.14 And even if it were, the conference was supposed to have been held
between SMC’s representatives and BIR officials, other than private respondent, on the
computation (not the assessment) that was followed by SMC and that bore the alleged
approval by the BIR.
Third, after SMC’s request for reinvestigation, no other issuance emanated from the BIR that
could be considered a decision. Therefore, no appeal to the Tax Court15 could have been
made under Section 229 of the NIRC, since the protest filed with the BIR had not been acted
upon. Appealable to the Tax Court is a decision that refers not to the assessment itself, but to
one made on the protest against such assessment.16 The commissioner of internal revenue’s
action in response to a taxpayer’s request for reconsideration or reinvestigation of the
assessment constitutes the decision, the receipt of which will start the 30-day period for
appeal.17
Section 229 does not prevent a taxpayer from exhausting administrative remedies by filing a
request for reconsideration, then a request for reinvestigation.18 Furthermore, under Section
7(1) of RA 112519 as amended,20 the Tax Court exercised exclusive appellate jurisdiction to
review not the assessments themselves, but the decisions involving disputed ones arising
under the NIRC.21
Fourth, quite obviously, no decision could as yet be made by the BIR, because the protest
filed by SMC had been referred by private respondent to several top BIR officials for further
review. In fact, various intra-office Memoranda were issued in 1988 involving the chiefs of
the (1) Legislative Ruling and Research and (2) Prosecution Divisions of the BIR, as well as its
assistant commissioners for legal service and excise tax. Had the assessment already become
final in 1987, there would then be no more reason to reinvestigate and study the merits of
SMC’s protest in 1988.
Fifth, totally misplaced is petitioner’s reference to the 180-day period from the submission of
documents, within which time the BIR should act upon the protest, followed by a 30-day
period of appeal to the Tax Court. This provision did not exist in either 1987 or 1988. It
appeared only in a much later law, RA 8424, as Section 228 -- again erroneously referred to
by petitioner as the basis for the present controversy.
Consequently, there was no legal impediment either to the referral of the protest by private
respondent to his subordinates or to the action taken by them -- a process that lasted for
more than 180 days. Neither was there a need to make a 30-day appeal to the Tax Court due
to the BIR’s inaction on the protest within the 180-day period.
The assessment was clearly not yet final, executory or demandable. While it is pending with
the commissioner of internal revenue, it cannot yet serve as the basis of collection by
distraint or levy or by judicial action.22 No grave abuse of discretion can be attributed to the
SB for upholding private respondent’s act of reinvestigation upon SMC’s request.
Second Issue:
Application of the Ad Valorem Tax
to the Specific Tax Deficiency
In like manner, no grave abuse of discretion was committed when the SB upheld private
respondent’s approval of SMC’s application of its excess ad valorem tax deposits to
its specific tax deficiency.
First, the approval given by private respondent was correct. Ad valorem taxes23 and specific
taxes24 are both excise taxes25 on alcohol products.26 The payment by installment of a portion
of the total specific tax deficiency of SMC, in addition to the application of its excess and
unused ad valorem tax deposits to the remaining portion, fully covered the total net specific
tax shortfall. BIR committed an oversight in failing to credit the amount of deposits to
the specific tax deficiency, as well as an error in crediting the same amount to a
subsequent ad valorem tax liability. A confusion was thus created when it issued a later
assessment for the same specific tax deficiency, this time inclusive of increments.27 Proper
was the BIR officials’ abatement or cancellation of the specific taxes of SMC, after the
amount of its ad valorem tax deposits had already been credited to it.
To state that the balances of accounts pertaining to different tax deposits could only be
applied to cover certain tax liabilities upon the approval of a request for tax credit is to
validate the proposition that the acceptance of payment by installment of a portion of
the specific tax deficiency was indeed tantamount to the approval of the request. No law or
regulation prevented such approval.
Page 41 of 44
Private respondent’s letter states a condition: should the final computation of specific and ad
valorem taxes yield a different result, the difference plus penalties would be paid in addition
to them. Obviously, this condition referred solely to the discrepancy, not to the application,
and had nothing to do with the approval that was given.
Second, such approval had the concurrence of top tax officials within the Bureau. Not only
was there a presumption of regularity in the performance of official functions; 28 also, their
collective conclusion was controlling. Besides, the disclosure of the change in beer
formulation was timely and voluntary; no attribution of bad faith or fraud could be made. A
change in technology that would result in a change in the manner of computing taxes was
well within the realm of tax administration,29 on which private respondent had reasonable
discretion to rule.
Third, the law and revenue regulations30 allowed pre-payment schemes,31 whereby excise
taxes on alcohol products could be paid in advance of the dates they were due. Since the
equivalent value of specific taxes by way of advance ad valorem tax deposits had already
been paid, the government lost nothing. It was a simple request properly granted for
applying the advance deposits made on one type of excise tax to another type. Granting such
request was well within private respondent’s authority to administer tax laws and
regulations.32 Again, the assessment was not final, demandable or executory at the time.
Fourth, in a letter to the Blue Ribbon Committee of the Senate, no less than the succeeding
commissioner of internal revenue declared that the abatement of the specific tax deficiency
through the proposed application was proper. Even if the new commissioner had admittedly
been advised by private respondent, there remained the unrebutted presumptions of good
faith and regularity in the performance of official functions.
Third Issue:
Acceptance of the ₱10 Million Alleged Compromise
The SB did not gravely abuse its discretion when it upheld private respondent’s acceptance of
SMC’s compromise offer of ₱10 million.
In computing its ad valorem tax liabilities for the taxable period involved in the present case,
SMC deducted from its brewer’s gross selling price the specific tax, price differential, and ad
valorem tax. The BIR allowed the deduction of the specific tax, but not the deduction of the
price differential and ad valorem tax, thus increasing the tax base and consequently the ad
valorem tax liabilities of SMC for the said period.
Prior to and during the taxable period involved in the present case, several changes were
made in the NIRC of 1977, particularly its provisions pertaining to fermented liquor. We must
therefore trace the NIRC’s pertinent history to be able to rule properly on the validity of
SMC’s deduction of both the price differential and the ad valorem tax from the brewer’s
gross selling price.
Section 147(A) of the NIRC, as amended by PD 195933 in 1984, provides for the collection of
a specific tax on each liter of the volume capacity of fermented liquor. In addition to the
provision on the specific tax, the first paragraph of its Section 147(B) provides for the levying,
assessment and collection of an ad valorem tax. The latter tax is equivalent to a certain
percentage of the brewer’s gross selling price, net of the specific tax, of the product to be
removed from the brewery or other place of manufacture. The ad valorem tax shall be paid
by the brewer at the same time as the specific tax.
Added in 1984 were provisions of Section 186-A34 governing the determination of the gross
selling price of cigarettes, as well as the administrative requirements and penalties
imposable. Such provisions shall apply to the determination of the gross selling price of
fermented liquor.35 Basically, this means that the amount of tax due on the fermented liquor
shall be determined by the price at which it is sold either wholesale in the factory of SMC or
directly to the public through its sales agents. If the fermented liquor is sold or allowed to be
sold wholesale by SMC in another establishment which it owns, the wholesale price in that
establishment shall determine the tax applicable to the fermented liquor sold there. When
the price is less than the cost of manufacture plus all expenses incurred, until the fermented
liquor is finally sold by SMC, such cost plus expenses shall be the basis for determining the
amount of tax to be collected.
In 1986, PD 1994 amended the NIRC of 1977 by renumbering, among others, Section 147 as
Section 124.36 In the new Section 124, the provisions on the specific and ad valorem
taxes imposed on fermented liquors remained substantially the same, except for the tax
rates.
On July 1, 1986, Section 4 of EO 22 amended said Section 124 by essentially providing that
an ad valorem tax equivalent to a certain percentage of the brewer’s wholesale selling price -
- this time excluding the ad valorem tax -- shall be levied, assessed and collected on
fermented liquors. It was only in 1988 that EO 273 renumbered Section 124 as Section 140,
and thereby amended it further to exclude also from such wholesale price the value-added
tax already imposed at the time upon the same articles.37
Price Differential Deduction
Section 110 of the NIRC of 1977, as amended in 1986 by PD 1994, explicitly provides that the
excise taxes on domestic products shall be paid by the manufacturer or producer before the
removal of those products from the place of production.38 "It does not matter to what use
the article[s] subject to tax is put";39 the excise taxes are still due, even though the articles
are removed merely for storage in some other place and are not actually sold or
consumed.40 The intent of the law is reiterated in several implementing regulations.41 This
means, therefore, that the price that should be used as the tax base for computing the ad
Page 42 of 44
valorem tax on fermented liquor is the price at the brewery. After all, excise taxes are taxes
on property,42 not on the sale of the property.
Verily, the price differential cannot be ascertained at the time the fermented liquor is
removed from the brewery, because such ascertainment will involve amounts that cannot be
determined with certainty in advance, and that vary from one commercial outlet to another.
The price differential, according to SMC, represents the cost of discounts, promotions,
rebates, and transportation. To require the inclusion of the price differential in, not its
deduction from, the tax base for purposes of computing the ad valorem tax would certainly
lead to the impossible situation of computing for such tax, because the price differential itself
cannot be determined unless the fermented liquor is actually sold.
Hence, no ad valorem tax can ever be paid before the removal of the fermented liquor from
the place of production. This outcome cannot be countenanced, for it would be contrary to
what the law mandates -- payment before removal. It follows that the tax base to be used
should be net of the price differential. In other words, the gross selling price should be that
which is charged at the brewery prior to the removal of the fermented liquor.
Ad Valorem Tax Deduction
The taxable period covered in this case is January 1, 1985 to March 31, 1986. Prior to the
amendment of the NIRC of 1977 by EO 22 on July 1, 1986, the ad valorem tax was not
excluded from the brewer’s wholesale price. Does this mean that such tax cannot be
deducted? The answer is no.
A tax should not be imposed upon another tax. This is tax pyramiding, which has no basis
either in fact or in law.
Private respondent has shown by mathematical analysis that the inclusion of the ad valorem
tax in the tax base would only yield a circuitous manner of computation that will never end in
just one ad valorem tax figure properly chargeable against a taxpayer. Quoted verbatim, his
presentation is as follows:
"If [SMC] wants to make ₱42.7269 on a case of beer and because of price differential and
specific taxes has to fix a price of ₱51.2722 ex brewery, what would the ad valorem tax be?
"The prosecution’s method is to charge the 20% ad valorem on the selling price ex brewery
of P51.2722 and to tack that on the SMC price as follows:
‘₱51.2722 - price ex brewery
x .20
₱10.2544 - ad valorem tax = ₱42.726[8] - SMC warehouse price.’"43

and 42.7269 - SMC price Expectedly, though, petitioner is unable to negate the mathematics proffered by private
respondent.
₱52.9813 - this should be the new selling price ex
Equally important, tax pyramiding has since 1922 been rejected by this Court, the legislature,
brewery but SMC only charged ₱51.2722’ and our tax authorities. The intent behind the law is clearly to obviate a tax imposed upon
another tax. Ratio legis est anima legis. The reason for the law is its spirit.
"Following the prosecution’s theory, since there is a new selling price ex brewery, i.e.,
₱52.9813, the ad valorem tax should be adjusted to the new selling price or tax base or 20% For instance, Regulations No. 27,44 promulgated March 1, 1923, already excludes the specific
of ₱52.9813, resulting in: tax on cigars and cigarettes from the tax base upon which such tax is computed. 45 This is
reiterated in the more recent amendments to our tax law, among which are EOs 22 and
273,46 and their implementing rules. In fact, Commissioner of Internal Revenue v. American
‘₱42.7269 - SMC price
Rubber Co. held that a taxpayer cannot be "compelled to pay a x x x tax on the tax itself." 47

10.5962 - new ad valorem tax P53.3231

Having shown the appropriateness of deducting the ad valorem tax from the tax base upon
which it is computed, private respondent has shown prudence in exercising his power under
₱53.3231 - another new selling price ex brewery’ Section 204(2)48 of the NIRC of 1977 to abate an unjust, excessively assessed, and
unreasonable tax; and to accept the offer of ₱10 million,49 if only to avoid protracted and
"Then following the prosecution’s theory, the 20% ad valorem tax is again charged on the costly litigation.
new selling price ex brewery.
Abatement,
‘20% of ₱53.3231 the new tax base or
Not Compromise
₱10.6646 - the new ad valorem tax
Although referred to in the pleadings as a compromise, the matter at hand is actually an
Resulting in ₱42.7269 - SMC price abatement or a cancellation. Abatement is the "diminution or decrease in the amount of tax
imposed;"50 it refers to "the act of eliminating or nullifying; x x x of lessening or moderating x
10.6646 - new ad valorem tax x x."51 To abate is "to nullify or reduce in value or amount";52 while to cancel is "to obliterate,
cross out, or invalidate";53 and "to strike out; x x x delete; x x x erase; x x x make void or
invalid; x x x annul; x x x destroy; x x x revoke or recall."54
₱53.3915 - new selling price ex warehouse
The BIR may therefore abate or cancel the whole or any unpaid portion of a tax liability,
"Therefore, the ad valorem tax is not ₱10.2544 or ₱10.5962 but ₱10.6646 ad infinitum. inclusive of increments, if its assessment is excessive or erroneous;55 or if the administration
costs involved do not justify the collection of the amount due.56 No mutual concessions need
"The obvious untenability of the above situation is a clear enough argument to prove that ad be made,57 because an excessive or erroneous tax is not compromised; it is abated or
valorem tax should be excluded from the tax base. canceled. Only correct taxes should be paid.58 Besides, as we have discussed earlier, there
was no finality in the assessment that could be settled.
"The correct method is that used by the BIR and that is:
Moreover, petitioner did not prove the alleged bad faith attributed to private respondent,
‘₱51.2722 - original price to public who simply relied upon his subordinates. Mere assertion will not suffice. Even reference to
the approval by the Evaluation Board was misleading, for such approval was inexistent at the
time and was merely a product of RA 8424 as amended.59 Actual, not presumed, fraud should
[1.20]
be the bench mark of liability.
Page 43 of 44
Fourth Issue:
Violation of Section 3(e) of RA 3019
Clearly, the court a quo did not commit grave abuse of discretion in upholding private
respondent in his act of ruling upon the request of SMC for reinvestigation, leading, first, to
his approval of its application of the excess tax deposit to its tax deficiency; and, second, to
his acceptance of its offer to pay for its tax liability, which was a little over the assessed
amount, inclusive of increments. It necessarily follows that his acquittal is proper and
inevitable.
Basic is the rule that no person shall be twice put in jeopardy of punishment for the same
offense.60 It is a constitutional guarantee repeated in Section 7 of Rule 117 of the Rules of
Court. A judgment of acquittal cannot be reopened, absent a grave abuse of discretion or a
denial of due process to the State.61 In this light, pertinent is the following excerpt, showing
how a similar attempt was made by the prosecution to overturn an acquittal through a
Petition for Certiorari in this Court:
"The rule against double jeopardy proscribes an appeal from a judgment of acquittal. If said
judgment is assailed in a petition for certiorari under Rule 65 of the Rules of Court, x x x the
petitioner must prove that the lower court, in acquitting the accused, committed not merely
reversible errors, but grave abuse of discretion amounting to lack or excess of jurisdiction. A
judgment rendered with grave abuse of discretion or without due process is void, does not
exist in legal contemplation and, thus, cannot be the source of an acquittal. However, where
the petition demonstrate[s] mere errors in judgment not amounting to grave abuse of
discretion or deprivation of due process, the writ of certiorari cannot issue. A review of the
alleged errors of judgment cannot be made without trampling upon the right of the accused
against double jeopardy."62
As aptly put by private respondent, error in the exercise of jurisdiction is not the same as
error in judgment. The latter is not reviewable by certiorari,63 since evidence has been duly
considered and passed upon by the SB.
Epilogue
Former BIR Commissioner Bienvenido A. Tan Jr. was charged with "having willfully, unlawfully
and criminally cause[d] undue injury to the government by effecting a compromise of the tax
liabilities" of SMC amounting to ₱302,051,048.93 for only ₱10,000,000, a "compromise [that]
is grossly disadvantageous to the government." In no uncertain terms, the assailed
Resolution of the Sandiganbayan acquitted him of violating Section 3(e) of Republic Act No.
3019 (the Anti-Graft Law).
Under the Constitution, no person shall be twice put in jeopardy of punishment for the same
offense. To implement this constitutional mandate, the Rules of Court64 bars an appeal by the
Page 44 of 44
State from a judgment of acquittal, provided the following requisites are present: (1) a valid
complaint or information was filed; (2) before a competent court; (3) the defendant pleaded
to the charge; and (4) the accused was acquitted.
Petitioner alleges, however, that in acquitting the accused, the Sandiganbayan acted in a
"capricious, whimsical, arbitrary or despotic manner" equivalent to lack or excess of
jurisdiction.
Indeed, the double jeopardy principle will not protect the accused, if the prosecution can
show that the court gravely abused its discretion in rendering the judgment of acquittal. The
prosecution’s burden is heavy: to show grave -- not just ordinary -- abuse of discretion
equivalent to lack or excess of jurisdiction.
This Court notes the tenacity of the Ombudsman and the Office the Special Prosecutor in
doggedly pursuing what they believe is the public weal. But after a careful review of the
assailed judgment and the relevant facts and laws, this Court cannot ascribe capricious or
whimsical conduct on the part of the Sandiganbayan. The SB Resolution assessed the facts
and applied the governing laws and jurisprudence. It analyzed the arguments of both the
prosecution and the defense. It then concluded that the elements of the crime charged had
not been sufficiently proven. Hence, it acquitted the accused.
Because of the importance of this case and the need to assist the government in collecting
the correct amount of taxes, this Court even went further by inquiring whether private
respondent (not just the Sandiganbayan) acted within the confines of his duties and
prerogatives.
As can be seen from the foregoing discussions, Commissioner Bienvenido A. Tan Jr. acted
fairly, honestly and in good faith in discharging his functions. To compromise a tax liability of
more than ₱300 million for only ₱10 million may appear to be an arbitrary action grossly
disadvantageous to the government. The fact remains, however, that the initial tax
assessment of ₱300 million was correctly found by the SB to be overly excessive and
erroneous. Under the circumstances, the abatement of the excessive and erroneous taxes
was not only within the discretion of respondent; it was just and fair to all concerned. After
all, the purpose of tax assessment is to collect only what is legally and justly due the
government; not to overburden, much less harass, the taxpayers.
WHEREFORE, the Petition is DENIED, and the assailed Resolution AFFIRMED. No
pronouncement as to costs.
SO ORDERED.