FIRST DIVISION

[G.R. No. 127777. October 1, 1999]

PETRONILA C. TUPAZ, petitioner, vs. HONORABLE BENEDICTO B. ULEP Presiding Judge of RTC Quezon City, Branch 105, and PEOPLE OF THE PHILIPPINES, respondents.

D E C I S I O N

PARDO, J.:

The case before us is a special civil action for certiorari with application for temporary restraining order seeking to enjoin respondent Judge Benedicto B. Ulep of the Regional Trial Court, Quezon City, Branch 105, from trying Criminal Case No. Q-91-17321, and to nullify respondent judges order reviving the information therein against petitioner, for violation of the Tax Code, as the offense charged has prescribed or would expose petitioner to double jeopardy.

The facts are as follows:

On June 8, 1990, State Prosecutor (SP) Esteban A. Molon, Jr. filed with the Metropolitan Trial Court (MeTC), Quezon City, Branch 33, an information against accused Petronila C. Tupaz and her late husband Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corporation, for nonpayment of deficiency corporate income tax for the year 1979, amounting to P2,369,085.46, in violation of Section 51 (b) in relation to Section 73 of the Tax Code of 1977.[1] On September 11, 1990, the MeTC dismissed the information for lack of jurisdiction. On November 16, 1990, the trial court denied the prosecutions motion for reconsideration.

On January 10, 1991, SP Molon filed with the Regional Trial Court, Quezon City, two (2) informations, docketed as Criminal Case Nos. Q-91-17321[2] and Q-91-17322,[3] against accused and her late husband, for the same alleged nonpayment of deficiency corporate income tax for the year 1979. Criminal Case No. Q-91-17321 was raffled to Branch 105,[4] presided over by respondent Judge Benedicto B. Ulep; Q-91-17322 was raffled to Branch 86, then presided over by Judge Antonio P. Solano. The identical informations read as follows:

That in Quezon City, Metro Manila and within the jurisdiction of this Honorable Court and upon verification and audit conducted by the Bureau of Internal Revenue on the 1979 corporate annual income tax return and financial statements of El Oro Engravers Corp., with office address at 809 Epifanio delos Santos Avenue, Quezon City, Metro Manila, it was ascertained that said corporation was found liable to pay the amount of P2,369,085.46, as deficiency corporate income tax for the year 1979 and that, despite demand of the payment of the aforesaid deficiency tax by the Bureau of Internal Revenue and received by said corporation, which demand has already become final, said El Oro Engravers Corp., through above-named accused, the responsible corporate-officers of said corporation, failed and refused, despite repeated demands, and still fail and refuse to pay said tax liability.

CONTRARY TO LAW.[5]

On September 25, 1991, both accused posted bail bond in the sum of P1,000.00 each, for their provisional liberty.

On November 6, 1991, accused filed with the Regional Trial Court, Quezon City, Branch 86, a motion to dismiss/quash[6] information (Q-91-17322) for the reason that it was exactly the same as the information against the accused pending before RTC, Quezon City, Branch 105 (Q-91-17321). However, on November 11, 1991, Judge Solano denied the motion.[7]

In the meantime, on July 25, 1993, Jose J. Tupaz, Jr. died in Quezon City.

Subsequently, accused Petronila C. Tupaz filed with the Regional Trial Court, Quezon City, Branch 105, a petition for reinvestigation, which Judge Ulep granted in an order dated August 30, 1994.[8]

On September 5, 1994, Senior State Prosecutor Bernelito R. Fernandez stated that no new issues were raised in the request for reinvestigation, and no cogent reasons existed to alter, modify or reverse the findings of the investigating prosecutor. He considered the reinvestigation as terminated, and recommended the prompt arraignment and trial of the accused.[9]

On September 20, 1994, the trial court (Branch No. 105) arraigned accused Petronila C. Tupaz in Criminal Case No. Q-91-17321, and she pleaded not guilty to the information therein.

On October 17, 1994, the prosecution filed with the Regional Trial Court, Quezon City, Branch 105, a motion for leave to file amended information in Criminal Case No. Q91-17321 to allege expressly the date of the commission of the offense, to wit: on or about August 1984 or subsequently thereafter. Despite opposition of the accused, on March 2, 1995, the trial court granted the motion and admitted the amended information.[10] Petitioner was not re-arraigned on the

amended information. However, the amendment was only on a matter of form.[11] Hence, there was no need to re-arraign the accused.[12]

On December 5, 1995, accused filed with the Regional Trial Court, Quezon City, Branch 105, a motion for leave to file and admit motion for reinvestigation. The trial court granted the motion in its order dated December 13, 1995.

Prior to this, on October 18, 1995, Judge Ulep issued an order directing the prosecution to withdraw the information in Criminal Case No. Q-91-17322, pending before Regional Trial Court, Quezon City, Branch 86, after discovering that said information was identical to the one filed with Regional Trial Court, Quezon City, Branch 105. On April 16, 1996, State Prosecutor Alfredo P. Agcaoili filed with the trial court a motion to withdraw information in Criminal Case No. Q-91-17321. Prosecutor Agcaoili thought that accused was charged in Criminal Case No. Q-91-17321, for nonpayment of deficiency contractors tax, but found that accused was exempted from paying said tax.

On May 15, 1996, Prosecutor Agcaoili filed with the Regional Trial Court, Quezon City, Branch 86, a motion for consolidation of Criminal Case No. Q-91-17322 with Criminal Case No. Q-91-17321 pending before the Regional Trial Court, Quezon City, Branch 105. On the same date, the court[13] granted the motion for consolidation.

On May 20, 1996, Judge Ulep of Regional Trial Court, Quezon City, Branch 105, granted the motion for withdrawal of the information in Criminal Case No. Q-91-17321 and dismissed the case, as prayed for by the prosecution.

On May 28, 1996, Prosecutor Agcaoili filed with the Regional Trial Court, Quezon City, Branch 105, a motion to reinstate information in Criminal Case Q-91-17321,[14] stating that the motion to withdraw information was made through palpable mistake, and was the result of excusable neglect. He thought that Criminal Case No. Q-91-17321 was identical to Criminal Case No Q-90-12896, wherein accused was charged with nonpayment of deficiency contractors tax, amounting to P346,879.29.

Over the objections of accused, on August 6, 1996, the Regional Trial Court, Quezon City, Branch 105, granted the motion and ordered the information in Criminal Case No. Q-91-17321 reinstated.[15]On September 24, 1996, accused filed with the trial court a motion for reconsideration. On December 4, 1996, the trial court denied the motion.

Hence, this petition.

On July 9, 1997, we required respondents to comment on the petition within ten (10) days from notice. On October 10, 1997, the Solicitor General filed his comment.[16]

On October 26, 1998, the Court resolved to give due course to the petition and required the parties to file their respective memoranda within twenty (20) days from notice. The parties have complied.

Petitioner submits that respondent judge committed a grave abuse of discretion in reinstating the information in Criminal Case No. Q-91-17321 because (a) the offense has prescribed; or (b) it exposes her to double jeopardy.

As regards the issue of prescription, petitioner contends that: (a) the period of assessment has prescribed, applying the three (3) year period provided under Batas Pambansa No. 700; (b) the offense has prescribed since the complaint for preliminary investigation was filed with the Department of Justice only on June 8, 1989, and the offense was committed in April 1980 when she filed the income tax return covering taxable year 1979.

Petitioner was charged with nonpayment of deficiency corporate income tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of assessment. Petitioner contends that the July 16, 1984 assessment was made out of time.

Petitioner avers that while Sections 318 and 319 of the NIRC of 1977 provide a five (5) year period of limitation for the assessment and collection of internal revenue taxes, Batas Pambansa Blg. 700, enacted on February 22, 1984, amended the two sections and reduced the period to three (3) years. As provided under B.P. Blg. 700, the BIR has three (3) years to assess the tax liability, counted from the last day of filing the return, or from the date the return is filed, whichever comes later. Since the tax return was filed in April 1980, the assessment made on July 16, 1984 was beyond the three (3) year prescriptive period.

Petitioner submits that B.P. Blg. 700 must be given retroactive effect since it is favorable to the accused. Petitioner argues that Article 22 of the Revised Penal Code, regarding the allowance of retroactive application of penal laws when favorable to the accused shall apply in this case.

The Solicitor General, in his comment, maintains that the prescriptive period for assessment and collection of petitioners deficiency corporate income tax was five (5) years. The Solicitor General asserts that the shortened period of three (3) years provided under B.P. Blg. 700 applies to assessments and collections of internal revenue taxes beginning taxable year 1984. Since the deficiency corporate income tax was for taxable year 1979, then petitioner was still covered by the five (5) year period. Thus, the July 16, 1984 tax assessment was made within the prescribed period.

At the outset, it must be stressed that internal revenue taxes are self-assessing and no further assessment by the government is required to create the tax liability. An assessment, however, is not altogether inconsequential; it is relevant in the proper pursuit of judicial and extra judicial remedies to enforce taxpayer

liabilities and certain matters that relate to it, such as the imposition of surcharges and interest, and in the application of statues of limitations and in the establishment of tax liens.[17]

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay.[18] An assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.[19] Assessments made beyond the prescribed period would not be binding on the taxpayer.[20]

We agree with the Solicitor General that the shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700, effective April 5, 1984, specifically states that the shortened period of three years shall apply to assessments and collections of internal revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the five-year period if the taxes assessed cover taxable years prior to January 1, 1984.[21] The deficiency income tax under consideration is for taxable year 1979. Thus, the period of assessment is still five (5) years, under the old law. The income tax return was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the prescribed period of five (5) years, from the last day of filing the return, or from the date the return is filed, whichever comes later.

Article 22 of the Revised Penal Code finds no application in this case for the simple reason that the provisions on the period of assessment can not be considered as penal in nature.

Petitioner also asserts that the offense has prescribed. Petitioner invokes Section 340 (now 281 of 1997 NIRC) of the Tax Code which provides that violations of any provision of the Code prescribe in five (5) years.  Petitioner asserts that in this case, it began to run in 1979, when she failed to pay the correct corporate tax due during that taxable year. Hence, when the BIR instituted criminal proceedings on June 8, 1989, by filing a complaint for violation of the Tax Code with the Department of Justice for preliminary investigation it was beyond the prescriptive period of five (5) years. At most, the BIR had until 1984 to institute criminal proceedings.

On the other hand, the Solicitor General avers that the information for violation of the Tax Code was filed within the prescriptive period of five (5) years provided in Section 340 (now 281 in 1997 NIRC) of the Code. It is only when the assessment has become final and unappealable that the five (5) year period commences to run. A notice of assessment was issued on July 16, 1984. When petitioner failed to question or protest the deficiency assessment thirty (30) days therefrom, or on August 16, 1984, it became final and unappealable. Consequently, it was from this period that the prescriptive period of five (5) years

commenced. Thus, the complaint filed with the Department of Justice on June 8, 1989 was within the prescribed period.

We agree with the Solicitor General that the offense has not prescribed. Petitioner was charged with failure to pay deficiency income tax after repeated demands by the taxing authority. In Lim, Sr. v. Court of Appeals,[22] we stated that by its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has not committed any violation for nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayers willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984, the taxpayer still had thirty (30) days from receipt thereof to protest or question the assessment.  Otherwise, the assessment would become final and unappealable.[23] As he did not protest, the assessment became final and unappealable on August 16, 1984. Consequently, when the complaint for preliminary investigation was filed with the Department of Justice on June 8, 1989, the criminal action was instituted within the five (5) year prescriptive period.

Petitioner contends that by reinstating the information, the trial court exposed her to double jeopardy. Neither the prosecution nor the trial court obtained her permission before the case was dismissed. She was placed in jeopardy for the first time after she pleaded to a valid complaint filed before a competent court and the case was dismissed without her express consent. When the trial court reinstated the information charging the same offense, it placed her in double jeopardy.

Petitioner also asserts that the trial court gravely erred when, over her objections, it admitted the amended information. She submits that the amendment is substantial in nature, and would place her in double jeopardy.

On the other hand, the Solicitor General contends that reinstating the information does not violate petitioners right against double jeopardy. He asserts that petitioner induced the dismissal of the complaint when she sought the reinvestigation of her tax liabilities. By such inducement, petitioner waived or was estopped from claiming her right against double jeopardy.

The Solicitor General further contends that, assuming arguendo that the case was dismissed without petitioners consent, there was no valid dismissal of the case since Prosecutor Agcaoili was under a mistaken assumption that it was a charge of nonpayment of contractors tax.

We sustain petitioners contention. The reinstatement of the information would expose her to double jeopardy. An accused is placed in double jeopardy if he is again tried for an offense for which he has been convicted, acquitted or in another manner in which the indictment against him was dismissed without his consent. In

the instant case, there was a valid complaint filed against petitioner to which she pleaded not guilty. The court dismissed the case at the instance of the prosecution, without asking for accused-petitioners consent. This consent cannot be implied or presumed.[24] Such consent must be expressed as to have no doubt as to the accuseds conformity.[25] As petitioners consent was not expressly given, the dismissal of the case must be regarded as final and with prejudice to the re-filing of the case.[26] Consequently, the trial court committed grave abuse of discretion in reinstating the information against petitioner in violation of her constitutionally protected right against double jeopardy.

WHEREFORE, we GRANT the petition. We enjoin the lower court, the Regional Trial Court of Quezon City, Branch 105, from trying Criminal Case No. Q-91-17321 and order its dismissal. Costs de oficio.

SO ORDERED.

Puno, Kapunan, and Ynares-Santiago, JJ., concur.Davide, Jr., C.J., (Chairman), see dissenting opinion.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 185371               December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.METRO STAR SUPERAMA, INC., Respondent.

D E C I S I O N

MENDOZA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court filed by the petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16, 2008 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution2 denying petitioner’s motion for reconsideration.

The CTA-En Banc affirmed in toto the decision of its Second Division (CTA-Second Division) in CTA Case No. 7169 reversing the February 8, 2005 Decision of the CIR which assessed respondent Metro Star Superama, Inc.(Metro Star) of deficiency value-added tax and withholding tax for the taxable year 1999.

Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA Second Division summarized the factual and procedural antecedents of the case, the pertinent portions of which read:

Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines, x x x.

On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine petitioner’s books of accounts and other accounting records for income tax and other internal revenue taxes for the taxable year 1999. Said Letter of Authority was revalidated on August 10, 2001 by Regional Director Leonardo Sacamos.

For petitioner’s failure to comply with several requests for the presentation of records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement dated September 26, 2001 informing Revenue District Officer of Revenue Region No. 67, Legazpi City to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice.

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary 15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post audit review was held and it was ascertained that there was deficiency value-added and withholding taxes due from petitioner in the amount of P 292,874.16.

On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos (P292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999, computed as follows:

ASSESSMENT NOTICE NO. 067-99-003-579-072

VALUE ADDED TAX

Gross Sales P 1,697,718.90

Output Tax P 154,338.08

Less: Input Tax _____________

VAT Payable P 154,338.08

Add: 25% Surcharge P 38,584.54

20% Interest 79,746.49

Compromise Penalty

Late Payment P16,000.00

Failure to File VAT returns 2,400.00 18,400.00 136,731.01

TOTAL P   291,069.09

WITHHOLDING TAX

Compensation 2,772.91

Expanded 110,103.92

Total Tax Due P 112,876.83

Less: Tax Withheld 111,848.27

Deficiency Withholding Tax P 1,028.56

Add: 20% Interest p.a. 576.51

Compromise Penalty 200.00

TOTAL P   1,805.07

*Expanded Withholding Tax P1,949,334.25 x 5% 97,466.71

Film Rental 10,000.25 x 10% 1,000.00

Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73

Security Service 156,142.01 x 1% 1,561.42

Service Contractor P   110,103.92

Total

SUMMARIES OF DEFICIENCIES

VALUE ADDED TAX P 291,069.09

WITHHOLDING TAX 1,805.07

TOTAL P   292,874.16

Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure dated May 12, 2003, which petitioner received on May 15, 2003, giving the latter last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise respondent BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection.

On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax and withholding tax payment in the amount of P292,874.16.

On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.

On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioner’s Motion for Reconsideration. Petitioner, through counsel received said Decision on February 18, 2005.

x x x.

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a petition for review4 with the CTA. The parties then stipulated on the following issues to be decided by the tax court:

1. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the issuance of a deficiency tax assessment;

1.1 Whether petitioner is liable for the respective amounts of P291,069.09 and P1,805.07 as deficiency VAT and withholding tax for the year 1999;

1.2. Whether the assessment has become final and executory and demandable for failure of petitioner to protest the same within 30 days from its receipt thereof on April 11, 2002, pursuant to Section 228 of the National Internal Revenue Code;

2. Whether the deficiency assessments issued by the respondent are void for failure to state the law and/or facts upon which they are based.

2.2 Whether petitioner was informed of the law and facts on which the assessment is made in compliance with Section 228 of the National Internal Revenue Code;

3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT on sales of services under Section 108(A) of the National Internal Revenue Code;

4. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal Revenue Code.

The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered a decision, the decretal portion of which reads:

WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against petitioner.

The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter [is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of mail shifts the

burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee."5 It also found that there was no clear showing that Metro Star actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process.6

The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was denied in the latter’s July 24, 2007 Resolution.8

Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed after a determination that no new matters were raised. The CTA-En Banc disposed:

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.

The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its November 18, 2008 Resolution.11

The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process was served nonetheless because the latter received the Final Assessment Notice (FAN), comes now before this Court with the sole issue of whether or not Metro Star was denied due process.

The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions, has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue,13 the Court wrote:

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of

its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.

On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive, viz:

Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965:

"The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)."

x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. And if said documents cannot be located, Respondent at the very least, should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts. This Court does not put much credence to the self serving

documentations made by the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. Thus:

"While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice or control, without adequate supporting evidence cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense." (Nava vs. CIR, 13 SCRA 104, January 30, 1965).

x x x.

The failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was issued. Consequently, the government’s right to issue an assessment for the said period has already prescribed. (Industrial Textile Manufacturing Co. of the Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)

The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening its tax liability.

This now leads to the question: Is the failure to strictly comply with notice requirements prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the requirements of due process satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the prescribed period was sent to the taxpayer?

The answer to these questions require an examination of Section 228 of the Tax Code which reads:

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

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

(b) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

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

(d) When the excise tax due on exciseable articles has not been paid; or

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

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

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

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

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

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence.14

This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax Assessment. —

3.1 Mode of procedures in the issuance of a deficiency tax assessment:

3.1.1 Notice for informal conference. — The Revenue Officer who audited the taxpayer's records shall, among others, state in his report whether or not the taxpayer agrees with his findings that the taxpayer is liable for deficiency tax or taxes. If the taxpayer is not amenable, based on the said Officer's submitted report of investigation, the taxpayer shall be informed, in writing, by the Revenue District Office or by the Special Investigation Division, as the case may be (in the case Revenue Regional Offices) or by the Chief of Division concerned (in the case of the BIR National Office) of the discrepancy or discrepancies in the taxpayer's payment of his internal revenue taxes, for the purpose of "Informal Conference," in order to afford the taxpayer with an opportunity to present his side of the case. If the taxpayer fails to respond within fifteen (15) days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue District Officer or the Chief of the Special Investigation Division of the Revenue Regional Office, or the Chief of Division in the National Office, as the case may be, shall endorse the case with the least possible

delay to the Assessment Division of the Revenue Regional Office or to the Commissioner or his duly authorized representative, as the case may be, for appropriate review and issuance of a deficiency tax assessment, if warranted.

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

3.1.3 Exceptions to Prior Notice of the Assessment. — The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall be sufficient:

(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax appearing on the face of the tax return filed by the taxpayer; or

(ii) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; or

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

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

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

3.1.4 Formal Letter of Demand and Assessment Notice. — The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayer's deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void (see illustration in ANNEX B hereof).

The same shall be sent to the taxpayer only by registered mail or by personal delivery.

If sent by personal delivery, the taxpayer or his duly authorized representative shall acknowledge receipt thereof in the duplicate copy of the letter of demand, showing the following: (a) His name; (b) signature; (c) designation and authority to act for and in behalf of the taxpayer, if acknowledged received by a person other than the taxpayer himself; and (d) date of receipt thereof.

x x x.

From the provision quoted above, it is clear that the sending of a PAN to taxpayer to inform him of the assessment made is but part of the "due process requirement in the issuance of a deficiency tax assessment," the absence of which renders nugatory any assessment made by the tax authorities. The use of the word "shall" in subsection 3.1.2 describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process.15 Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void.

The case of CIR v. Menguito16 cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merelynotifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made. Otherwise, the assessment itself would be invalid.17The regulation then, on the other hand, simply provided that a notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form.1avvphi1

The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is well-settled that a void assessment bears no fruit.18

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property without due process of law.19 In balancing the scales between the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and the equal protection of the laws on the other, the scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the Constitution. Thus, while "taxes are the lifeblood of the government," the power to tax has its limits, in spite of all its plenitude. Hence in Commissioner of Internal Revenue v. Algue, Inc.,20 it was said –

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

x x x           x x x          x x x

It is said that taxes are what we pay for civilized society. Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part is expected to respond in the form of tangible and intangible

benefits intended to improve the lives of the people and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can demonstrate x x x that the law has not been observed.21 (Emphasis supplied).

WHEREFORE, the petition is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZAAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 159694             January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.AZUCENA T. REYES, Respondent.

x -- -- -- -- -- -- -- -- -- -- -- -- -- x

G.R. No. 163581             January 27, 2006

AZUCENA T. REYES, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

PANGANIBAN, CJ.:

Under the present provisions of the Tax Code and pursuant to elementary due process, taxpayers must be informed in writing of the law and the facts upon which a tax assessment is based; otherwise, the assessment is void. Being invalid, the assessment cannot in turn be used as a basis for the perfection of a tax compromise.

The Case

Before us are two consolidated1 Petitions for Review2 filed under Rule 45 of the Rules of Court, assailing the August 8, 2003 Decision3 of the Court of Appeals (CA) in CA-GR SP No. 71392. The dispositive portion of the assailed Decision reads as follows:

"WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Tax Appeals is ANNULLED and SET ASIDE without prejudice to the action of the National Evaluation Board on the proposed compromise settlement of the Maria C. Tancinco estate’s tax liability."4

The Facts

The CA narrated the facts as follows:

"On July 8, 1993, Maria C. Tancinco (or ‘decedent’) died, leaving a 1,292 square-meter residential lot and an old house thereon (or ‘subject property’) located at 4931 Pasay Road, Dasmariñas Village, Makati City.

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedent’s estate (or ‘estate’). Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T.

Reyes (or ‘[Reyes]’), one of the decedent’s heirs, received the Letter of Authority on March 14, 1997.

"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or ‘BIR’), issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or ‘heirs’) received a final estate tax assessment notice and a demand letter, both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.

"On June 1, 1998, a certain Felix M. Sumbillo (or ‘Sumbillo’) protested the assessment [o]n behalf of the heirs on the ground that the subject property had already been sold by the decedent sometime in 1990.

"On November 12, 1998, the Commissioner of Internal Revenue (or ‘[CIR]’) issued a preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.

"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.

"On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.

"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs’ inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyes’s] offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latter’s financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property would be published.

"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000.

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6,

2000 that the subject property would be sold at public auction on August 8, 2000.

"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest.

"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.

"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety bond in the amount ofP27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued.

"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIR’s] motion.

"During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or ‘RR’) No. 6-2000 and Revenue Memorandum Order (or ‘RMO’) No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability.

"On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or ‘compromise’) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000.

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on January 9, 2001, citing her

pending application for compromise with the BIR. The motion was granted and the hearing was reset to February 6, 2001.

"On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or ‘NEB’). The CTA granted the motion and reset the hearing to February 27, 2001.

"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said documents does not vitiate the perfected compromise.

"Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyes’s] application for compromise with the BIR cannot be considered a perfected or consummated compromise.

"On March 9, 2001, the CTA denied [Reyes’s] motion, prompting her to file a Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10, 2001, the CTA denied the [M]otion for [R]econsideration with the suggestion that[,] for an orderly presentation of her case and to prevent piecemeal resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition for [R]eview[,] setting forth the new issue of whether there was already a perfected compromise.

"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the CTA, followed on June 4, 2001 by its Amplificatory Arguments (for the Supplemental Petition for Review), raising the following issues:

‘1. Whether or not an offer to compromise by the [CIR], with the acquiescence by the Secretary of Finance, of a tax liability pending in court, that was accepted and paid by the taxpayer, is a perfected and consummated compromise.

‘2. Whether this compromise is covered by the provisions of Section 204 of the Tax Code (CTRP) that requires approval by the BIR [NEB].’

"Answering the Supplemental Petition, [the CIR] averred that an application for compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000 requires the evaluation and approval of either the NEB or the Regional Evaluation Board (or ‘REB’), as the case may be.

"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings; the motion was granted on July 11, 2001. After submission of memoranda, the case was submitted for [D]ecision.

"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of which pertinently reads:

‘WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview is hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed as follows:

x x x x x x x x x

‘[Reyes] is likewise ORDERED to PAY 20% delinquency interest on deficiency estate tax due of P17,934,382.13 from January 11, 2001 until full payment thereof pursuant to Section 249(c) of the Tax Code, as amended.’

"In arriving at its decision, the CTA ratiocinated that there can only be a perfected and consummated compromise of the estate’s tax liability[,] if the NEB has approved [Reyes’s] application for compromise in accordance with RR No. 6-2000, as implemented by RMO No. 42-2000.

"Anent the validity of the assessment notice and letter of demand against the estate, the CTA stated that ‘at the time the questioned assessment notice and letter of demand were issued, the heirs knew very well the law and the facts on which the same were based.’ It also observed that the petition was not filed within the 30-day reglementary period provided under Sec. 11 of Rep. Act No. 1125 and Sec. 228 of the Tax Code."5

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were mandatory and unequivocal in their requirement. The assessment notice and the demand letter should have stated the facts and the law on which they were based; otherwise, they were deemed void.6 The

appellate court held that while administrative agencies, like the BIR, were not bound by procedural requirements, they were still required by law and equity to observe substantive due process. The reason behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and could effectively protest -- the basis of tax assessments against them.7 Since the assessment and the demand were void, the proceedings emanating from them were likewise void, and any order emanating from them could never attain finality.

The appellate court added, however, that it was premature to declare as perfected and consummated the compromise of the estate’s tax liability. It explained that, where the basic tax assessed exceeded P1 million, or where the settlement offer was less than the prescribed minimum rates, the National Evaluation Board’s (NEB) prior evaluation and approval were the conditio sine qua non to the perfection and consummation of any compromise.8 Besides, the CA pointed out, Section 204(A) of the Tax Code applied to all compromises, whether government-initiated or not.9 Where the law did not distinguish, courts too should not distinguish.

Hence, this Petition.10

The Issues

In GR No. 159694, petitioner raises the following issues for the Court’s consideration:

"I.

Whether petitioner’s assessment against the estate is valid.

"II.

Whether respondent can validly argue that she, as well as the other heirs, was not aware of the facts and the law on which the assessment in question is based, after she had opted to propose several compromises on the estate tax due, and even prematurely acting on such proposal by paying 20% of the basic estate tax due."11

The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second, whether the compromise entered into is also valid.

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as follows:

"Sec. 228. Protesting of Assessment. --

x x x x x x x x x

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

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 22913 prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIR’s findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law.

To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not at all conform

to the compulsory requirement under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the law.

The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes.

The general rule is that statutes are prospective. However, statutes that are remedial, or that do not create new or take away vested rights, do not fall under the general rule against the retroactive operation of statutes.14Clearly, Section 228 provides for the procedure in case an assessment is protested. The provision does not create new or take away vested rights. In both instances, it can surely be applied retroactively. Moreover, RA 8424 does not state, either expressly or by necessary implication, that pending actions are excepted from the operation of Section 228, or that applying it to pending proceedings would impair vested rights.

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment, considering that it merely implements the law.

A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax Code.15 While it is desirable for the government authority or administrative agency to have one immediately issued after a law is passed, the absence of the regulation does not automatically mean that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that the taxpayer must be informed of both the law and facts on which the assessment was based. Thus, the CIR should have required the assessment officers of the Bureau of Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation governing the issuance of estate tax assessment notices ran afoul of the rule that tax regulations -- old as they were -- should be in harmony with, and not supplant or modify, the law.16

It may be argued that the Tax Code provisions are not self-executory. It would be too wide a stretch of the imagination, though, to still issue a regulation that would simply require tax officials to inform the taxpayer, in any manner, of the law and the facts on which an assessment was based. That requirement is neither difficult to make nor its desired results hard to achieve.

Moreover, an administrative rule interpretive of a statute, and not declarative of certain rights and corresponding obligations, is given retroactive effect as of the date of the effectivity of the statute.17 RR 12-99 is one such rule. Being interpretive of the provisions of the Tax Code, even if it was issued only on September 6, 1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of the preliminary assessment notice and demand letter.

Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the Tax Code.

No doubt, Section 228 has replaced Section 229. The provision on protesting an assessment has been amended. Furthermore, in case of discrepancy between the law as amended and its implementing but old regulation, the former necessarily prevails.18 Thus, between Section 228 of the Tax Code and the pertinent provisions of RR 12-85, the latter cannot stand because it cannot go beyond the provision of the law. The law must still be followed, even though the existing tax regulation at that time provided for a different procedure. The regulation then simply provided that notice be sent to the respondent in the form prescribed, and that no consequence would ensue for failure to comply with that form.

Fourth, petitioner violated the cardinal rule in administrative law that the taxpayer be accorded due process. Not only was the law here disregarded, but no valid notice was sent, either. A void assessment bears no valid fruit.

The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations: that taxpayers should be able to present their case and adduce supporting evidence.19 In the instant case, respondent has not been informed of the basis of the estate tax liability. Without complying with the unequivocal mandate of first informing the taxpayer of the government’s claim, there can be no deprivation of property, because no effective protest can be made.20 The haphazard shot at slapping an assessment, supposedly based on estate taxation’s general provisions that are expected to be known by the taxpayer, is utter chicanery.

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized deductions indicated in the notice and the letter. This Court cannot countenance an assessment based on estimates that appear to have been arbitrarily or

capriciously arrived at. Although taxes are the lifeblood of the government, their assessment and collection "should be made in accordance with law as any arbitrariness will negate the very reason for government itself."21

Fifth, the rule against estoppel does not apply. Although the government cannot be estopped by the negligence or omission of its agents, the obligatory provision on protesting a tax assessment cannot be rendered nugatory by a mere act of the CIR .

Tax laws are civil in nature.22 Under our Civil Code, acts executed against the mandatory provisions of law are void, except when the law itself authorizes the validity of those acts.23 Failure to comply with Section 228 does not only render the assessment void, but also finds no validation in any provision in the Tax Code. We cannot condone errant or enterprising tax officials, as they are expected to be vigilant and law-abiding.

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the

earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the

settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the

petitioner and four deputy commissioners.

Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not distinguish.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. No pronouncement as to costs.

SO ORDERED.

ARTEMIO V. PANGANIBAN Chief JusticeChairperson, First Division

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-18993             April 30, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.CAPITOL SUBDIVISION, INC., respondent.

Office of the Solicitor General for petitioner.San Juan, Africa and Benedicto for respondent.

BARRERA, J.:

This is an appeal from the decision of the Court of Tax Appeals (in CTA Case No. 711) reversing the decision of petitioner Commissioner of Internal Revenue which held respondent Capitol Subdivision, Inc. liable for deficiency income taxes for 1948, 1949, 1950, and 1951 in the amounts of P2,927.69, P3,952.19, P5,927.00, and P14,406.00, respectively, or a total of P27,212.88.

The case was submitted for decision to the Court of Tax Appeals, on the following stipulation of facts:

1. That petitioner is a corporation, engaged in the business of purchase, sale, barter and exchange of urban estates, and their improvement and subdivision into residential lots for resale to the public, ....

2. That petitioner filed its income tax returns for the years 1948, 1949, 1950, and 1951, on February 28, 1949, March 31, 1950, March 31, 1951, and March 1, 1952, respectively, and the amounts assessed thereon as per return, were promptly paid.

3. That in an investigation conducted by an examiner of the respondent, it was recommended in the memorandum report dated

June 30, 1952 of the examiner, that petitioner should pay the following deficiency income tax, as follows:

For the year ended Dec. 31, 1948 ................................... P2,927.69

For the year ended Dec. 31, 1948 ................................... 3,952.19

For the year ended Dec. 31, 1948 ................................... 5,927.00

For the year ended Dec. 31, 1948 ................................... 14,406.00

4. That respondent sent income tax assessment notices dated April 8, 1953, requesting payment of the aforesaid amounts due and collectible, the said taxes being based on disallowed deductions, and over-claimed depreciations, as shown on pages 12, 19, 39, and 45, BIR records.

5. That petitioner, upon receipt of the said Income Tax Assessment Notices, on May 30, 1953, requested for the breakdown of the amounts reflected under the heading General Expenses in the said notices, ....

6. That on June 21, 1955, respondent sent petitioner circular letters making inquiry as to whether payment was already made on Assessment No. 35-5-125329-48-2, No. 35-5-125371-49-2, No. 35-5-125346-50-2, No. 35-5-52-51-2 for the years 1948, 1949, 1950 and 1951; ....

7. That on July 1, 1955, petitioner in reply to above circular letters of respondent, reiterated its request of May 30 1953 ....

8. That on September 20, 1955, respondent replied to petitioner's letter dated July 1, 1955, and at the same time reiterated his demand for payment of the income tax assessment for the years 1948, 1949, 1950 and, 1951, plus a surcharge of 5%, 1% monthly interest and compromise fees of P20.00 each for the years 1948, 1949, 1950, and P40.00 for 1951 ....

9. That petitioner in the letter dated October 15, 1955 to respondent, explained the disallowed items and requested for re-investigation ....

10. That after reinvestigation, the examiner in a memorandum report dated October 26, 1955 submitted to the Acting Provincial Revenue Officer reiterating his findings and recommended that the previous assessments be affirmed.1äwphï1.ñët

11. That in a letter dated September 2, 1959, respondent demanded of petitioner the payment of the said deficiency income taxes for the years 1948, 1949, 1950 and 1951, respectively ....

12. That in its letter dated September 16, 1959, ... petitioner invoked the defense of prescription, and on that ground, denied liability for the deficiency income taxes for the aforesaid years.

13. That in the respondent's letter dated October 13, 1959, the original of which was received by petitioner on October 21, 1959, respondent denied the request for cancellation, alleging that the 5-year period was suspended by the various requests for re-investigation filed with respondent and demanded the payment of the deficiency income tax assessments from 1948 to 1951 ....

x x x           x x x           x x x

On the basis of the foregoing stipulation of facts, the Court of Tax Appeals rendered the decision above adverted to, in part stating:

It appearing that deficiency assessments in question were made on April 8, 1953 and the respondent's answer to the instant petition for review, which is tantamount to a judicial action for collection (Collector v. Solano, et al., supra; Collector v. Clement, et al., L-12194, Jan. 24, 1959; Collector v. Pineda, supra), was filed on December 29, 1959, or 6 years, 8 months and 21 days thereafter, it follows that the right of respondent Commissioner to collect said deficiencies has already prescribed.

The only question to be determined in this appeal is whether petitioner's right to collect respondent's deficiency income tax assessments in question has already prescribed under Section 332 (c) of the National Internal Revenue Code, which reads:

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. — ....

(c) Where the assessment of any internal revenue tax has been made within the period of limitation above prescribed, such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1)within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon. (Emphasis supplied)

It is not disputed that on April 8, 1953, petitioner demanded from respondent payment of deficiency income taxes for 1948-1951. On May 30, 1953 respondent requested for a breakdown of the amounts reflected under the heading "General Expenses" in a letter reading as follows:

This will acknowledge receipt of the Income Tax Assessment Notices for the years 1948, 1949, 1950 and 1951.

In going over the items disallowed, we noted under the heading General Expenses, the following:

1948 — P695.00 — 35-AACR-1253329-52/48

1949 — 1,615.00 — 35-ACR-125371-52/49

1950 — 2,075.30 — 35-ACR-125346-52/50

1951 — 4,219.50 — 35-ACR-52-52/51

We have no way of determining the items composing above and we kindly request that we be furnished with an itemized information of the same for our study with the assurance that should we find them satisfactory, we will be much obliged to make initial payments, otherwise, we will give you our own explanation on the subject matter.

On June 21, 1955 petitioner sent respondent circular letters inquiring whether it has already paid said assessments. In reply to said letters, respondent, on July 1, 1955, reiterated its request of May 30, 1953. Petitioner replied to said letter on September 20, 1955 reiterating the demand for payment from respondent. Respondent, in its letter of October 15, 1955, explained the disallowed items in detail, and stated in closing:

In view of the foregoing circumstances and reasons, we beg you to reconsider your stand and consider the above items as proper and ordinary expenses of the business. If necessary, we request re-investigation of the item under General Expenses to convince you of its reasonableness as expenses of the business. (Emphasis supplied.)

Whether a formal investigation pursuant to respondent's request was actually made by petitioner, is not shown by the records. It appears, however, that on October 26, 1955, BIR Examiner 103 submitted to the Acting Provincial Revenue Examiner, Bacolod City, a Memorandum, which in part states:

The undersigned is submitted hereunder his comments on the disallowances he made on the income tax case of the Capitol Subdivision Incorporated which is herein being contested.

1. General Expenses disallowed consist of contributions and gifts to various persons, are not ordinary and necessary expenses of the company in carrying out their real estate business.

x x x           x x x           x x x

On September 2, 1959, petitioner made another demand on respondent for payment of the deficiency income tax assessment, with the warning that should the aforesaid obligation remain unsettled in 10 days, judicial action for collection thereof will be instituted immediately without further notice.

On September 16, 1959, respondent taxpayer tasked the Commissioner of Internal Revenue for the cancellation of the assessment in a letter in part reading as follows:

Please be informed that from the time we received your deficiency assessments all dated April 8, 1953, we have contested the correctness of same, insisting all the time that the items being

disallowed are ordinary, necessary, and legitimate expenses of the business. This stand of ours have been reiterated to various men from your office who called on us to collect. No action was taken by your office to dispute our contention, thus making us believe you subscribe to our stand.

From April 8, 1953 to date, more than six year have already lapsed, and we therefore submit that under Sections 331 and 332 C of the Internal Revenue Code your right to collect has already prescribed. This is in line with the decisions rendered in the cases of Santiago Gancayco vs. Collector of Internal Revenue, CTA Case No. 287, November 14, 1957; Manuel Pineda vs. The Collector of Internal Revenue, CTA Case No. 364, August 30, 1958; and Collector of Internal Revenue vs. Florencio Solano, G.R. No. L-11475, July 31, 1958 to mention a few.

In view of the above, we respectfully request that your assessment be cancelled. (Emphasis supplied.)

Upon its denial, said respondent initiated the instant proceeding in the Court of Tax Appeals.

The right to enforce collection of the disputed assessment has not yet been lost. There is no question that the period commenced to run on April 8, 1953 when the assessment was made. The same, however, was interrupted when the respondent taxpayer, by letter of May 30, 1953, requested for an itemized information on the disallowed items. While it is true that the said letter did not specifically use the words "review" or "reconsideration," the request itself for an explanation of the disallowances made in the assessment in effect was an exception to the correctness thereof. That the taxpayer actually assailed the correctness of such assessment "from the start" was specifically admitted in the aforequoted letter of September 16, 1959. This request for reconsideration or review of the assessment was denied when petitioner demanded for payment of the alleged deficiency tax on June 21, 1955. The period for collection then started to run again, but it was tolled when the taxpayer reiterated its request for explanation of the disallowances on July 1, 1955 or after 10 days. This request was denied on September 20, 1955, and a span of 25 days elapsed until October 15, 1955 when the taxpayer explained the disallowed items and requested for a reinvestigation of the same. On September 2, 1959, petitioner denied the request for reinvestigation when it reiterated its demand for collection of the alleged deficiency tax. From this date until December 28, 1959, when the answer to the taxpayer's petition wish filed in the Court of Tax Appeals, only

3 months and 26 days had passed. Clearly, although the assessment was sent on April 8, 1953, by respondent taxpayer's own requests for review or reconsideration of the disputed assessment, the period for collection thereof had been interrupted. Therefore, deducting from the total period from April 8, 1953 (date of the deficiency assessment) to December 29, 1959 (date of answer which is tantamount to a judicial action), or a total of 6 years, 8 months and 21 days, the period of interruption from May 30, 1953 (when respondent filed its petition for clarification amounting to reconsideration or review of the assessment) to June 21, 1955 (when the petitioner in effect denied the petition by reiterating its demand for payment), or a total of 2 years and 21 days, there is left a period of 4 years and 8 months within which judicial collection may be effected. Since the law allows 5 years for thus purpose, the collection herein sought by the petitioner is still timely.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision of the Court of Tax Appeals is hereby set aside and the taxpayer's petition to declare null and void the deficiency income tax assessments for 1948, 1949, and 1950, is dismissed. Without costs. So ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Paredes, Dizon and Makalintal, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-45277 August 5, 1985

AUGUSTO BASA, petitioner, vs.REPUBLIC OF THE PHILIPPINES, represented by the Solicitor General, and Judge GUILLERMO F. VILLASOR, Branch XV, Court of First Instance of Manila, respondent.

Angel R. Gonzales for petitioner.

The Solicitor General for respondents.

 

AQUINO, J.:

The issue in this case is whether the decision of the Court of First Instance of Manila (not the Tax Court) in an income tax case is reviewable by the Appellate Court or by this Court.

In a demand letter dated August 31, 1967, the Commissioner of Internal Revenue assessed against Augusto Basa deficiency income taxes for 1957 to 1960 totalling P16,353.12.*

As may be noted, the deficiencies were based on the taxpayer's failure to report in full his capital gains on the sales of land. This omission or underdeclaration of income justified the imposition of 50% surcharge.

The taxpayer did not contest the assessments in the Tax Court. The Commissioner's letter-decision on the case was dated December 6, 1974. On the assumption that the assessments had become final and incontestable, the Commissioner on September 3, 1975 sued the taxpayer in the Manila Court of First Instance for the collection of said amount.

The trial court in a decision dated April 20, 1976 affirmed the assessments and ordered Basa to pay P16,353.12 plus 5% surcharge and one percent monthly interest from August 31, 1967 to August 31, 1970.

Instead of appealing to this Court directly under Republic Act No. 5440, in relation to Rules 41 and 45 of the Rules of Court, since no factual issues are involved, Basa tried to appeal to the Court of Appeals. He did not perfect his appeal within the reglementary period. The trial court dismissed it in its order dated October 1, 1976.

On December 23, 1976 Basa filed the instant special civil action of certiorari wherein he assailed the trial court's decision.

We hold that the petition is devoid of merit. The trial court acted within its jurisdiction in rendering its decision and dismissing Basa's appeal. He should have appealed to this Court. His failure to do so rendered the decision final and executory. He has no cause of action for certiorari.

The decision is correct. If he wanted to contest the assessments, he should have appealed to the Tax Court. Not having done so, he could not contest the same in the Court of First Instance.

The issue of prescription raised by him is baseless. The assessments were predicated on the fact that his income tax returns, if not fraudulent, were false because he underdeclared his income. In such a case, the deficiency assessments may be made within ten years after the discovery of the falsity or omission. The court action should be instituted within five years after the assessment but this period is suspended during the time that the Commission is prohibited from instituting a court action.**

As explained in the Solicitor General's memorandum, Basa's requests for reinvestigation tolled the prescriptive period of five years within which court action may be brought (Commissioner of Internal Revenue vs. Capitol Subdivision, Inc., 119 Phil. 1051; Collector of Internal Revenue vs. Suyoc Consolidated Mining Company, 104 Phil. 819). Moreover, the issue of prescription should have been raised in the Tax Court.

WHEREFORE, the trial court's judgment is affirmed. No costs.

SO ORDERED.

Makasiar, C.J., Concepcion, Jr., Escolin and Cuevas, JJ., concur.

Abad Santos, J., took no part

FIRST DIVISION 

FISHWEALTH CANNING CORPORATION,Petitioner,

- versus -

G.R. No. 179343

Present:

PUNO, C.J., Chairperson,CARPIO MORALES,LEONARDO-DE CASTRO,BERSAMIN, andVILLARAMA, JR., JJ.

COMMISSIONER OF INTERNAL REVENUE,Respondent.

Promulgated:January 21, 2010

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x  

 D E C I S I O N

  

CARPIO MORALES, J.:

The Commissioner of Internal Revenue (respondent), by Letter of

Authority dated May 16, 2000,[1] ordered the examination of the internal revenue

taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The

investigation disclosed that petitioner was liable in the amount of P2,395,826.88

representing income tax, value added tax (VAT), withholding tax deficiencies and

other miscellaneous deficiencies. Petitioner eventually settled these obligations

on August 30, 2000.[2]

 

On August 25, 2000, respondent reinvestigated petitioners books of accounts and

other records of internal revenue taxes covering the same period for the purpose of

which it issued a subpoena duces tecum requiring petitioner to submit its records and

books of accounts. Petitioner requested the cancellation of the subpoena on the

ground that the same set of documents had previously been examined.

 

As petitioner did not heed the subpoena, respondent thereafter filed a

criminal complaint against petitioner for violation of Sections 5 (c) and 266 of the

1997 Internal Revenue Code, which complaint was dismissed for insufficiency of

evidence.[3]

 

Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice

of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year

1999,[4] which assessment petitioner contested by letter of September 23, 2003.[5]

 

Respondent thereafter issued a Final Decision on Disputed Assessment

dated August 2, 2005, which petitioner received on August 4, 2005, denying its letter

of protest, apprising it of its income tax and VAT liabilities in the amounts

of P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year 1999,[6] and requesting the immediate payment thereof, inclusive of penalties incident to

delinquency. Respondent added that if petitioner disagreed, it may appeal to the

Court of Tax Appeals (CTA) within thirty (30) days from date of receipt hereof,

otherwise our said deficiency income and value-added taxes assessments shall

become final, executory, and demandable.[7]

 

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a

Letter of Reconsideration dated August 31, 2005.[8]

 

By a Preliminary Collection Letter dated September 6, 2005, respondent

demanded payment of petitioners tax liabilities, [9] drawing petitioner to file

on October 20, 2005   a Petition for Review[10] before the CTA.

 

In his Answer,[11] respondent argued, among other things, that the petition

was filed out of time which argument the First Division of the CTA upheld and

accordingly dismissed the petition.[12]

 

Petitioner filed a Motion for Reconsideration [13]   which was denied .[14] The

Resolution denying its motion for reconsideration was received by petitioner

on October 31, 2006.[15]

 

On November 21, 2006, petitioner filed a petition for review before the

CTA En Banc[16] which, by Decision[17] of July 5, 2007, held that the petition before

the First Division, as well as that before it, was filed out of time.

 

Hence, the present petition,[18] petitioner arguing that the CTA En Banc

erred in holding that the petition it filed before the CTA First Division as well as that

filed before it (CTA En Banc) was filed out of time.

 

The petition is bereft of merit.

 

Section 228 of the 1997 Tax Code provides that an assessment x x x may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

 If the protest is denied in whole or in part, or is not

acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. (underscoring supplied)

  

In the case at bar, petitioners administrative protest was denied by Final

Decision on Disputed Assessment dated August 2, 2005 issued by respondent and

which petitioner received on   August 4, 2005 . Under the above-quoted Section 228 of

the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its protest

to the CTA.

 

Since petitioner received the denial of its administrative protest on August

4, 2005, it had until September 3, 2005 to file a petition for review before the CTA

Division. It filed one, however, on October 20, 2005, hence, it was filed out of

time. For a motion for reconsideration of the denial of the administrative protest   does

not toll the 30-day period to appeal to the CTA.

 

On petitioners final contention that it has a meritorious case in view of the

dismissal of the above-mentioned criminal case filed against it for violation of the

1997 Internal Revenue Code,[19] the same fails. For the criminal complaint was

instituted not to demand payment, but to penalize the taxpayer for violation of the

Tax Code.[20]

WHEREFORE, the petition is DISMISSED. 

Costs against petitioner. 

SO ORDERED.

 CONCHITA CARPIO MORALES

THIRD DIVISION

 RIZAL COMMERCIAL BANKING CORPORATION,

Petitioner,

- versus -

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

G.R. No. 170257

Present:

VELASCO, JR., J., Chairperson,

PERALTA,

ABAD,

VILLARAMA, JR.,* and

MENDOZA, JJ.

Promulgated:

September 7, 2011

 

x --------------------------------------------------------------------------------------- x

 

D E C I S I O N

 

MENDOZA, J.:

 

This is a petition for review on certiorari under Rule 45 seeking to set

aside the July 27, 2005 Decision[1] and October 26, 2005 Resolution[2] of the Court of

Tax AppealsEn Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled Rizal

Commercial Banking Corporation v. Commissioner of Internal Revenue.

THE FACTS

 

Petitioner Rizal Commercial Banking Corporation (RCBC) is a

corporation engaged in general banking operations. It seasonably filed its

Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the

calendar years 1994 and 1995.[3]

 

On August 15, 1996, RCBC received Letter of Authority No. 133959

issued by then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato,

authorizing a special audit team to examine the books of accounts and other

accounting records for all internal revenue taxes from January 1, 1994 to December

31, 1995.[4]

 

On January 23, 1997, RCBC executed two Waivers of the Defense of

Prescription Under the Statute of Limitations of the National Internal Revenue Code

covering the internal revenue taxes due for the years 1994 and 1995, effectively

extending the period of the Bureau of Internal Revenue (BIR) to assess up to

December 31, 2000.[5]

 

Subsequently, on January 27, 2000, RCBC received a Formal Letter of

Demand together with Assessment Notices from the BIR for the following

deficiency tax assessments:[6]

 

Particulars Basic Tax InterestCompromise Penalties Total

Deficiency Income Tax

1995 (ST-INC-95-0199-2000)

₱ 252,150,988.01

₱ 191,496,585.96

₱ 25,000.00 ₱ 443,672,573.97

1994 (ST-INC-94-0200-2000)

216,478,397.90 207,819,261.99 25,000.00 424,322,659.89

Deficiency Gross Receipts Tax

1995 (ST-GRT-95-0201-2000)

13,697,083.68 12,428,696.21 2,819,745.52

28,945,525.41

1994 (ST-GRT-94-0202-2000)

2,488,462.38 2,755,716.42 25,000.00 5,269,178.80

Deficiency Final Withholding Tax

1995 (ST-EWT-95-0203-

64,365,610.12 58,757,866.78 25,000.00 123,148,477.15

2000)1994 (ST-EWT-94-0204-2000)

53,058,075.25 59,047,096.34 25,000.00 112,130,171.59

Deficiency Final Tax on FCDU Onshore Income

1995 (ST-OT-95-0205-2000)

81,508,718.20 61,901,963,.52 25,000.00 143,435,681.72

1994 (ST-OT-94-0206-2000)

34,429,503.10 33,052,322.98 25,000.00 67,506,826.08

Deficiency Expanded Withholding Tax

1995 (ST-EWT-95-0207-2000)

5,051,415.22 4,583,640.33 113,000.00 9,748,055.55

1994 (ST-EWT-94-0208-2000)

4,482,740.35 4,067,626.31 78,200.00 8,628,566.66

Deficiency Documentary Stamp Tax

1995 (ST-DST1-95-

351,900,539.39 315,804,946.26 250,000.00 667,955,485.65

0209-2000)1995 (ST-DST2-95-0210-2000)

367,207,105.29 331,535,844.68 300,000.00 699,042,949.97

1994 (ST-DST3-94-0211-2000)

460,370,640.05 512,193,460.02 300,000.00 972,864,100.07

1994 (ST-DST4-94-0212-2000)

223,037,675.89 240,050,706.09 300,000.00 463,388,381.98

TOTALS ₱ 2,130,226,954.

83

₱ 2,035,495,733.

89

₱ 4,335,945.5

2

₱ 4,170,058,634.

49

 

Disagreeing with the said deficiency tax assessment, RCBC filed a protest

on February 24, 2000 and later submitted the relevant documentary evidence to

support it. Much later on November 20, 2000, it filed a petition for review before the

CTA, pursuant to Section 228 of the 1997 Tax Code.[7]

 

On December 6, 2000, RCBC received another Formal Letter of Demand

with Assessment Notices dated October 20, 2000, following the reinvestigation it

requested, which drastically reduced the original amount of deficiency taxes to the

following:[8]

 

Particulars Basic Tax InterestSurcharge &/ Compromise Total

Deficiency Income Tax

1995 (INC- ₱ 374,348.45 ₱ 346,656.92 ₱ 721,005.37

95-000003)1994 (INC-94-000002)

1,392,366.28 1,568,605.52 2,960,971.80

Deficiency Gross Receipts Tax

1995 (GRT-95-000004)

2,000,926.96 3,322,589.63 ₱ 1,367,222.04

6,690,738.63

1994 (GRT-94-000003)

138,368.61 161,872.32 300,240.93

Deficiency Final Withholding Tax

1995 (FT-95-000005)

362,203.47 351,287.75 713,491.22

1994 (FT-94-000004)

188,746.43 220,807.47 409,553.90

Deficiency Final Tax on FCDU Onshore Income

1995 (OT-95-000006)

81,508,718.20 79,052,291.08 160,561,009.28

1994 (OT-94-000005)

34,429,503.10 40,277,802.26 74,707,305.36

Deficiency Expanded Withholding Tax

1995 (EWT-95-000004)

520,869.72 505,171.80 25,000.00 1,051,041.03

1994 (EWT-94-000003)

297,949.95 348,560.63 25,000.00 671,510.58

Deficiency Documentary Stamp Tax

1995 (DST-95-000006)

599,890.72 149,972.68 749,863.40

1995 (DST2-95-000002)

24,953,842.46 6,238,460.62 31,192,303.08

1994 (DST-94-000005)

905,064.74 226,266.18 1,131,330.92

1994 (DST2-94-000001)

17,040,104.84 4,260,026.21 21,300,131.05

TOTALS ₱ 164,712,903.4

4

₱ 126,155,645.3

8

₱ 12,291,947.7

3

₱ 303,160,496.5

5

 

On the same day, RCBC paid the following deficiency taxes as assessed

by the BIR:[9]

 Particulars 1994 1995 Total

Deficiency Income Tax

₱ 2,965,549.44

₱ 722,236.11 ₱ 3,687,785.55

Deficiency Gross Receipts Tax

300,695.84 6,701,893.17 7,002,589.01

Deficiency Final Withholding Tax

410,174.44 714,682.02 1,124,856.46

Deficiency Expanded Withholding Tax

672,490.14 1,052,753.48 1,725,243.62

Deficiency Documentary Stamp Tax

1,131,330.92 749,863.40 1,881,194.32

TOTALS ₱ 5,480,240.78

₱ 9,941,428.18

₱ 15,421,668.96

 

RCBC, however, refused to pay the following assessments for deficiency onshore

tax and documentary stamp tax which remained to be the subjects of its petition for

review:[10]

 Particulars 1994 1995 Total

Deficiency Final Tax on FCDU Onshore Income

Basic ₱ 34,429,503.10

₱ 81,508,718.20

₱ 115,938,221.30

Interest 40,277,802.26 79,052,291.08 119,330,093.34Sub Total ₱

74,707,305.36₱

160,561,009.28₱

235,268,314.64Deficiency Documentary Stamp Tax

Basic ₱ 17,040,104.84

₱ 24,953,842.46

₱ 41,993,947.30

Surcharge 4,260,026.21 6,238,460.62 10,498,486.83Sub Total ₱

21,300,131.05₱

31,192,303.08₱

52,492,434.13TOTALS ₱

96,007,436.41₱

191,753,312.36₱

287,760,748.77

 

RCBC argued that the waivers of the Statute of Limitations which it

executed on January 23, 1997 were not valid because the same were not signed or

conformed to by the respondent CIR as required under Section 222(b) of the Tax

Code.[11] As regards the deficiency FCDU onshore tax, RCBC contended that

because the onshore tax was collected in the form of a final withholding tax, it was

the borrower, constituted by law as the withholding agent, that was primarily liable

for the remittance of the said tax.[12]

 

On December 15, 2004, the First Division of the Court of Tax

Appeals (CTA-First Division) promulgated its Decision[13] which partially granted

the petition for review. It considered as closed and terminated the assessments for

deficiency income tax, deficiency gross receipts tax, deficiency final withholding

tax, deficiency expanded withholding tax, and deficiency documentary stamp tax

(not an industry issue) for 1994 and 1995. [14] It, however, upheld the assessment for

deficiency final tax on FCDU onshore income and deficiency documentary stamp

tax for 1994 and 1995 and ordered RCBC to pay the following amounts plus 20%

delinquency tax:[15]

 Particulars 1994 1995 Total

Deficiency Final Tax on FCDU Onshore Income

Basic ₱ 22,356,324.43 ₱ 16,067,952.86 ₱ 115,938, 221.30Interest 26,153,837.08 15,583,713.19 119,330,093.34Sub Total 48,510,161.51 31,651,666.05 119,330,093.34

Deficiency Documentary Stamp Tax (Industry Issue)

Basic ₱ 17,040,104.84 ₱ 24,953,842.46 ₱ 41,993,947.30Surcharge 4,260,026.21 6,238,460.62 10,498,486.83Sub Total 21,300,131.05 31,192,303.08 52,492,434.13

TOTALS ₱69,810,292.56 ₱62,843,969.13 ₱171,822,527.47

 

Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005,

arguing that: (1) the CTA erred in its addition of the total amount of deficiency taxes

and the correct amount should only be ₱132,654,261.69 and not ₱171,822,527.47;

(2) the CTA erred in holding that RCBC was estopped from questioning the validity

of the waivers; (3) it was the payor-borrower as withholding tax agent, and not

RCBC, who was liable to pay the final tax on FCDU, and (4) RCBCs special

savings account was not subject to documentary stamp tax.[16]

 

In its Resolution[17] dated April 11, 2005, the CTA-First Division substantially

upheld its earlier ruling, except for its inadvertence in the addition of the total

amount of deficiency taxes. As such, it modified its earlier decision and ordered

RCBC to pay the amount of ₱132,654,261.69 plus 20% delinquency tax.[18]

RCBC elevated the case to the CTA-En Banc where it raised the following

issues: 

I. 

Whether or not the right of the respondent to assess deficiency onshore tax and documentary stamp tax for taxable year 1994 and 1995 had already prescribed when it issued the formal letter of demand and assessment notices for the said taxable years. 

 II. 

Whether or not petitioner is liable for deficiency onshore tax for taxable year 1994 and 1995. 

III. 

Whether or not petitioners special savings account is subject to documentary stamp tax under then Section 180 of the 1993 Tax Code.[19]

 

The CTA-En Banc, in its assailed Decision, denied the petition for lack of

merit. It ruled that by receiving, accepting and paying portions of the reduced

assessment, RCBC bound itself to the new assessment, implying that it recognized

the validity of the waivers.[20] RCBC could not assail the validity of the waivers after

it had received and accepted certain benefits as a result of the execution of the said

waivers.[21] As to the deficiency onshore tax, it held that because the payor-borrower

was merely designated by law to withhold and remit the said tax, it would then

follow that the tax should be imposed on RCBC as the payee-bank.[22] Finally, in

relation to the assessment of the deficiency documentary stamp tax on petitioners

special savings account, it held that petitioners special savings account was a

certificate of deposit and, as such, was subject to documentary stamp tax.[23]

 

Hence, this petition.

 

While awaiting the decision of this Court, RCBC filed its Manifestation

dated July 22, 2009, informing the Court that this petition, relative to the DST

deficiency assessment, had been rendered moot and academic by its payment of the

tax deficiencies on Documentary Stamp Tax (DST) on Special Savings

Account (SSA) for taxable years 1994 and 1995 after the BIR approved its

applications for tax abatement.[24]

 

In its November 17, 2009 Comment to the Manifestation, the CIR pointed

out that the only remaining issues raised in the present petition were those pertaining

to RCBCs deficiency tax on FCDU Onshore Income for taxable years 1994 and

1995 in the aggregate amount of ₱80,161,827.56 plus 20% delinquency interest per

annum. The CIR prayed that RCBC be considered to have withdrawn its appeal with

respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years

1994 and 1995 and that the questioned CTA decision regarding RCBCs deficiency

tax on FCDU Onshore Income for the same period be affirmed.[25]

  

THE ISSUES  

Thus, only the following issues remain to be resolved by this Court:  Whether petitioner, by paying the other tax assessment covered by the waivers of the statute of limitations, is rendered estopped from questioning the validity of the said waivers with respect to the assessment of deficiency onshore tax.[26]

 and

 Whether petitioner, as payee-bank, can be held liable for deficiency onshore tax, which is mandated by law to be collected at source in the form of a final withholding tax.[27]

  

THE COURTS RULING  Petitioner is estopped fromquestioning the validity of the waivers  

RCBC assails the validity of the waivers of the statute of limitations on the

ground that the said waivers were merely attested to by Sixto Esquivias, then

Coordinator for the CIR, and that he failed to indicate acceptance or agreement of

the CIR, as required under Section 223 (b) of the 1977 Tax Code.[28] RCBC further

argues that the principle of estoppel cannot be applied against it because its payment

of the other tax assessments does not signify a clear intention on its part to give up

its right to question the validity of the waivers.[29]

 

The Court disagrees.

 

Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored

on the rule that an admission or representation is rendered conclusive upon the

person making it, and cannot be denied or disproved as against the person relying

thereon. A party is precluded from denying his own acts, admissions or

representations to the prejudice of the other party in order to prevent fraud and

falsehood.[30]

 

Estoppel is clearly applicable to the case at bench. RCBC, through its

partial payment of the revised assessments issued within the extended period as

provided for in the questioned waivers, impliedly admitted the validity of those

waivers. Had petitioner truly believed that the waivers were invalid and that the

assessments were issued beyond the prescriptive period, then it should not have paid

the reduced amount of taxes in the revised assessment. RCBCs subsequent

action effectively belies its insistence that the waivers are invalid. The records show

that on December 6, 2000, upon receipt of the revised assessment, RCBC

immediately made payment on the uncontested taxes. Thus, RCBC is estopped from

questioning the validity of the waivers. To hold otherwise and allow a party to

gainsay its own act or deny rights which it had previously recognized would run

counter to the principle of equity which this institution holds dear.[31]

 

 

 Liability for DeficiencyOnshore Withholding Tax

 

RCBC is convinced that it is the payor-borrower, as withholding agent,

who is directly liable for the payment of onshore tax, citing Section 2.57(A) of

Revenue Regulations No. 2-98 which states:

 (A) Final Withholding Tax. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income tax due from the payee on the said income. The liability for payment of the tax rests primarily on the payor as a withholding agent. Thus, in case of his failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from the payor/withholding agent. The payee is not required to file an income tax return for the particular income. (Emphasis supplied)  

The petitioner is mistaken.

 

Before any further discussion, it should be pointed out that RCBC erred in citing the

abovementioned Revenue Regulations No. 2-98 because the same governs collection

at source on income paid only on or after January 1, 1998. The deficiency

withholding tax subject of this petition was supposed to have been withheld on

income paid during the taxable years of 1994 and 1995. Hence, Revenue

Regulations No. 2-98 obviously does not apply in this case.

 

In Chamber of Real Estate and Builders Associations, Inc. v. The Executive

Secretary,[32] the Court has explained that the purpose of the withholding tax system

is three-fold: (1) to provide the taxpayer with a convenient way of paying his tax

liability; (2) to ensure the collection of tax, and (3) to improve the governments

cashflow. Under the withholding tax system, the payor is the taxpayer upon whom

the tax is imposed, while the withholding agent simply acts as an agent or a collector

of the government to ensure the collection of taxes.[33]

 

It is, therefore, indisputable that the withholding agent is merely a tax

collector and not a taxpayer, as elucidated by this Court in the case of Commissioner

of Internal Revenue v. Court of Appeals,[34] to wit: 

In the operation of the withholding tax system, the withholding agent is the payor, a separate entity acting no more than an agent of the government for the collection of the tax in order to ensure its payments; the payer is the taxpayer he is the person subject to tax imposed by law; and the payee is the taxing authority. In other words, the withholding agent is merely a tax collector, not a taxpayer. Under the withholding system, however, the agent-payor becomes a payee by fiction of law. His (agent) liability is direct and independent from the taxpayer, because the income tax is still imposed on and due from the latter. The agent is not liable for the tax as no wealth flowed into him he earned no income. The Tax Code only makes the agent personally liable for the tax arising from the breach of its legal duty to withhold as distinguished from its duty to pay tax since: 

the governments cause of action against the withholding agent is not for the collection of income tax, but for the enforcement of the withholding provision of Section 53 of the Tax Code, compliance with which is imposed on the withholding agent and not upon the taxpayer.[35] (Emphases supplied)

  

Based on the foregoing, the liability of the withholding agent is independent from

that of the taxpayer. The former cannot be made liable for the tax due because it is

the latter who earned the income subject to withholding tax. The withholding agent

is liable only insofar as he failed to perform his duty to withhold the tax and remit

the same to the government. The liability for the tax, however, remains with the

taxpayer because the gain was realized and received by him.

 

While the payor-borrower can be held accountable for its negligence in performing

its duty to withhold the amount of tax due on the transaction, RCBC, as the taxpayer

and the one which earned income on the transaction, remains liable for the payment

of tax as the taxpayer shares the responsibility of making certain that the tax is

properly withheld by the withholding agent, so as to avoid any penalty that may

arise from the non-payment of the withholding tax due.

 

RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the

payor-borrower as the withholding agent. As such, it is liable for payment of

deficiency onshore tax on interest income derived from foreign currency loans,

pursuant to Section 24(e)(3) of the National Internal Revenue Code of 1993:

 Sec. 24. Rates of tax on domestic corporations.

xxxx(e) Tax on certain incomes derived by domestic corporations

xxxx(3) Tax on income derived under the Expanded Foreign Currency Deposit System. Income derived by a depository bank under the expanded foreign currency deposit system from foreign currency transactions with nonresidents, offshore banking units in the Philippines, local commercial banks including branches of foreign banks that may be authorized by the Central Bank to transact business with foreign currency depository system units and other depository banks under the expanded foreign currency deposit system shall be exempt from all taxes, except taxable income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board to be subject to the usual income tax payable by

banks: Provided, That interest income from foreign currency loans granted by such depository banks under said expanded system to residents (other than offshore banking units in the Philippines or other depository banks under the expanded system) shall be subject to a 10% tax. (Emphasis supplied) 

 

As a final note, this Court has consistently held that findings and

conclusions of the CTA shall be accorded the highest respect and shall be presumed

valid, in the absence of any clear and convincing proof to the contrary. [36] The CTA,

as a specialized court dedicated exclusively to the study and resolution of tax

problems, has developed an expertise on the subject of taxation.[37] As such, its

decisions shall not be lightly set aside on appeal, unless this Court finds that the

questioned decision is not supported by substantial evidence or there is a showing of

abuse or improvident exercise of authority on the part of the Tax Court.[38]

 

WHEREFORE, the petition is DENIED.

 

SO ORDERED.  

 

JOSE CATRAL MENDOZA

Associate Justice

Republic of the PhilippinesSupreme Court

Manila  

SECOND DIVISION  

ALLIED BANKING G.R. No. 175097CORPORATION,

Petitioner,Present:CARPIO, J., Chairperson,

- versus - BRION,DEL CASTILLO,ABAD, andPEREZ, JJ.

COMMISSIONER OFINTERNAL REVENUE, Promulgated:

Respondent. February 5, 2010x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

   

D E C I S I O N   DEL CASTILLO, J.:  

The key to effective communication is clarity.

 

The Commissioner of Internal Revenue (CIR) as well as his duly authorized

representative must indicate clearly and unequivocally to the taxpayer whether an action

constitutes a final determination on a disputed assessment.[1] Words must be carefully chosen

in order to avoid any confusion that could adversely affect the rights and interest of the

taxpayer.

Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic

Act (RA) No. 9282,[3] in relation to Rule 45 of the Rules of Court, are the August 23, 2006

Decision[4] of the Court of Tax Appeals (CTA) and its October 17, 2006 Resolution[5] denying

petitioners Motion for Reconsideration.

 

Factual Antecedents

 

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary

Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency

Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax

(GRT) in the amount of P38,995,296.76 on industry issue for the taxable year 2001.[6] Petitioner received the PAN onMay 18, 2004 and filed a protest against it on May 27, 2004.[7]

 

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment

Notices to petitioner, which partly reads as follows:[8]

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

Petitioner received the Formal Letter of Demand with Assessment Notices on August 30,

2004.[9]

 

 

Proceedings before the CTA First Division

 

On September 29, 2004, petitioner filed a Petition for Review[10] with the CTA

which was raffled to its First Division and docketed as CTA Case No. 7062.[11]

 

On December 7, 2004, respondent CIR filed his Answer.[12] On July 28, 2005, he

filed a Motion to Dismiss[13] on the ground that petitioner failed to file an administrative protest

on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the Motion to

Dismiss on August 18, 2005.[14]

 

On October 12, 2005, the First Division of the CTA rendered a

Resolution[15] granting respondents Motion to Dismiss. It ruled: Clearly, it is neither the assessment nor the formal demand

letter itself that is appealable to this Court. It is the decision of the Commissioner of Internal Revenue on the disputed assessment that can be appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out by respondent, a disputed assessment is one wherein the taxpayer or his duly authorized representative filed an administrative protest against the formal letter of demand and assessment notice within thirty (30) days from date [of] receipt thereof. In this case, petitioner failed to file an administrative protest on the formal letter of demand with the corresponding assessment notices. Hence, the assessments did not become disputed assessments as subject to the Courts review under Republic Act No. 9282. (See alsoRepublic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)

 WHEREFORE, the Motion to Dismiss

is GRANTED. The Petition for Review is hereby DISMISSED for lack of jurisdiction.

 SO ORDERED.[16]

 

Aggrieved, petitioner moved for reconsideration but the motion was denied by the

First Division in its Resolution dated February 1, 2006.[17]

Proceedings before the CTA En Banc

 

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

 

Finding no reversible error in the Resolutions dated October 12,

2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition

for Review[19]as well as petitioners Motion for Reconsideration.[20]

 

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an

administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an

administrative protest is an integral part of the remedies given to a taxpayer in challenging the

legality or validity of an assessment. According to the CTA En Banc, although there are

exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not

fall in any of the exceptions.

 

Issue

 

Hence, the present recourse, where petitioner raises the lone issue of whether the

Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR

appealable to the CTA under RA 9282.

 

Our Ruling 

The petition is meritorious.

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

  

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

matters that are clearly within its jurisdiction.[21] Section 7 of RA 9282 provides: Sec. 7. Jurisdiction. The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as

herein provided: (1) Decisions of the Commissioner

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

 (2) Inaction by the Commissioner of

Internal Revenue in cases

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

 x x x x

 

The word decisions in the above quoted provision of RA 9282 has been interpreted

to mean the decisions of the CIR on the protest of the taxpayer against the assessments.

[22]Corollary thereto, Section 228 of the National Internal Revenue Code (NIRC) provides for

the procedure for protesting an assessment. It states: 

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

(a) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; or

 (b) When a discrepancy has been determined between the

tax withheld and the amount actually remitted by the withholding agent; or

 (c) When a taxpayer who opted to claim a refund or tax

credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same

amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; or

 (d) When the excise tax due on excisable articles has not

been paid; or (e) When an article locally purchased or imported by an

exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.

 The taxpayers shall be informed in writing of the law and the

facts on which the assessment is made; otherwise, the assessment shall be void.

 Within a period to be prescribed by implementing rules and

regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings.

 Such assessment may be protested administratively by filing

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

 If the protest is denied in whole or in part, or is not acted

upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

 

In the instant case, petitioner timely filed a protest after receiving the PAN. In

response thereto, the BIR issued a Formal Letter of Demand with Assessment

Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute

the assessments by filing an administrative protest within 30 days from receipt

thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a

Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the

Petition for Review by the CTA was proper. The case is an exception to therule on exhaustion of administrative remedies

  

However, a careful reading of the Formal Letter of Demand with Assessment

Notices leads us to agree with petitioner that the instant case is an exception to the rule on

exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency

concerned.

 

In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent

contended that before filing a petition with the court, petitioner should have first exhausted all

administrative remedies by appealing to the Office of the President. However, we ruled that

respondent was estopped from invoking the rule on exhaustion of administrative remedies

considering that in its Resolution, it said, The opinions promulgated by the Secretary of Justice

are advisory in nature, which may either be accepted or ignored by the office seeking the

opinion, and any aggrieved party has the court for recourse. The statement of the respondent in

said case led the petitioner to conclude that only a final judicial ruling in her favor would be

accepted by the Commission.

 

Similarly, in this case, we find the CIR estopped from claiming that the filing of the

Petition for Review was premature because petitioner failed to exhaust all administrative

remedies.

 

The Formal Letter of Demand with Assessment Notices reads: Based on your letter-protest dated May 26, 2004, you alleged the following:

 1.              That the said assessment has already prescribed

in accordance with the provisions of Section 203 of the Tax Code.

 2.              That since the exemption of FCDUs from all

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

Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not prescribed for [sic] simply because no returns were filed, thus, the three year prescriptive period has not lapsed. With the implementation of the CTRP, the phrase exempt from all taxes was deleted. Please refer to Section 27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for deficiency gross receipts tax on onshore income from foreign currency transactions in accordance with the rates provided under Section 121 of the said Tax Code. Likewise, deficiency documentary stamp taxes was [sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits and related transactions pursuant to Sections 180 and 181 of NIRC, as amended. The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A) and 249(b), respectively, of the National Internal Revenue Code, as amended. It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you may appeal this final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.[24] (Emphasis supplied)

It appears from the foregoing demand letter that the CIR has already made a final

decision on the matter and that the remedy of petitioner is to appeal the final decision within 30

days.

 

In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we

considered the language used and the tenor of the letter sent to the taxpayer as the final decision

of the CIR.

 

In this case, records show that petitioner disputed the PAN but not the Formal

Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not

filing a protest against the Formal Letter of Demand with Assessment Notices since the

language used and the tenor of the demand letter indicate that it is the final decision of the

respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and

unequivocal language, whether his action on a disputed assessment constitutes his final

determination thereon in order for the taxpayer concerned to determine when his or her right to

appeal to the tax court accrues.[26] Viewed in the light of the foregoing, respondent is now

estopped from claiming that he did not intend the Formal Letter of Demand with Assessment

Notices to be a final decision.

 

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with

Assessment Notices, respondent used the word appeal instead of protest, reinvestigation, or

reconsideration. Although there was no direct reference for petitioner to bring the matter

directly to the CTA, it cannot be denied that the word appeal under prevailing tax laws refers to

the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner, under

Section 228 of the NIRC, the terms protest, reinvestigation and reconsideration refer to the

administrative remedies a taxpayer may take before the CIR, while the term appeal refers to

the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section

11 of RA 1125,[27] likewise uses the term appeal when referring to the action a taxpayer must

take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then,

petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA

merely took the cue from respondent. Besides, any doubt in the interpretation or use of the

word appeal in the Formal Letter of Demand with Assessment Notices should be resolved in

favor of petitioner, and not the respondent who caused the confusion.

 

To be clear, we are not disregarding the rules of procedure under Section 228 of the

NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99.[28] It is the

Formal Letter of Demand and Assessment Notice that must be administratively protested or

disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement

in St. Stephens Chinese Girls School v. Collector of Internal Revenue,[29] that the counting of

the 30 days within which to institute an appeal in the CTA commences from the date of receipt

of the decision of the CIR on the disputed assessment, not from the date the assessment was

issued.

 

What we are saying in this particular case is that, the Formal Letter of Demand with

Assessment Notices which was not administratively protested by the petitioner can be

considered a final decision of the CIR appealable to the CTA because the words used,

specifically the words final decision and appeal, taken together led petitioner to believe that the

Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on

the letter-protest it filed and that the available remedy was to appeal the same to the CTA.

 

We note, however, that during the pendency of the instant case, petitioner availed of

the provisions of Revenue Regulations No. 30-2002 and its implementing Revenue

Memorandum Order by submitting an offer of compromise for the settlement of the GRT,

DST and VAT for the period 1998-2003, as evidenced by a Certificate of Availment

dated November 21, 2007.[30]Accordingly, there is no reason to reinstate the Petition for

Review in CTA Case No. 7062.

 

WHEREFORE, the petition is hereby GRANTED. The assailed August 23,

2006 Decision and the October 17, 2006 Resolution of the Court of Tax Appeals

are REVERSED andSET ASIDE. The Petition for Review in CTA Case No. 7062 is

hereby DISMISSED based solely on the Bureau of Internal Revenues acceptance of

petitioners offer of compromise for the settlement of the gross receipts tax, documentary stamp

tax and value added tax, for the years 1998-2003.

 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166018               June 4, 2014

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent;

x - - - - - - - - - - - - - - - - - - - - - - - x

G.R. No. 167728

THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED-PHILIPPINE BRANCHES, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

These petitions for review on certiorari1 assail the Decision2 and Resolution dated July 8, 2004 and October 25, 2004, respectively, of the Court of Appeals in CA-G.R. SP No. 77580, as well as the Decision3 and Resolution dated September 2, 2004 and April 4, 2005, respectively, of the Court of Appeals in CA-G.R. SP No. 70814. The respective Decisions in the said cases similarly reversed and set aside the decisions of the Court of Tax Appeals (CTA) in CTA Case Nos. 59514 and 6009,5 respectively, and dismissed the petitions of petitioner Hongkong and Shanghai Banking Corporation Limited-Philippine Branches (HSBC). The corresponding Resolutions, on the other hand, denied the respective motions for reconsideration of the said Decisions.

HSBC performs, among others, custodial services on behalf of its investor-clients, corporate and individual, resident or non-resident of the Philippines, with respect to their passive investments in the Philippines, particularly investments in shares of stocks in domestic corporations. As a custodian bank, HSBC serves as the collection/payment agent with respect to dividends and other income derived from its investor-clients’ passive investments.6

HSBC’s investor-clients maintain Philippine peso and/or foreign currency accounts, which are managed by HSBC through instructions given through electronic messages. The said instructions are standard forms known in the banking industry as SWIFT, or "Society for Worldwide Interbank Financial Telecommunication." In purchasing shares of stock and other investment in securities, the investor-clients would send electronic messages from abroad instructing HSBC to debit their local or foreign currency accounts and to pay the purchase price therefor upon receipt of the securities.7

Pursuant to the electronic messages of its investor-clients, HSBC purchased and paid Documentary Stamp Tax (DST) from September to December 1997 and also from January to December 1998 amounting toP19,572,992.10 and P32,904,437.30, respectively, broken down as follows:

A. September to December 1997

September 1997 P 6,981,447.90

October 1997 6,209,316.60

November 1997 3,978,510.30

December 1997 2,403,717.30

Total P19,572,992.10

B. January to December 1998

January 1998 P 3,328,305.60

February 1998 4,566,924.90

March 1998 5,371,797.30

April 1998 4,197,235.50

May 1998 2,519,587.20

June 1998 2,301,333.00

July 1998 1,586,404.50

August 1998 1,787,359.50

September 1998 1,231,828.20

October 1998 1,303,184.40

November 1998 2,026,379.70

December 1998 2,684,097.50

Total P32,904,437.30

On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then Commissioner, Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect that instructions or advises from abroad on the management of funds located in the Philippines which do not involve transfer of funds from abroad are not subject to DST. BIR Ruling No. 132-99 reads:

Date: August 23, 1999

FERRY TOLEDO VICTORINO GONZAGA& ASSOCIATESG/F AFC Building, Alfaro St.Salcedo Village, MakatiMetro Manila

Attn: Atty. Tomas C. ToledoTax Counsel

Gentlemen:

This refers to your letter dated July 26, 1999 requesting on behalf of your clients, the CITIBANK & STANDARD CHARTERED BANK, for a ruling as to whether or not the electronic instructions involving the following transactions of residents and non-residents of the Philippines with respect to their local or foreign currency accounts are subject to documentary stamp tax under Section 181 of the 1997 Tax Code, viz:

A. Investment purchase transactions:

An overseas client sends instruction to its bank in the Philippines to either:

(i) debit its local or foreign currency account and to pay a named recipient in the Philippines; or

(ii) receive funds from another bank in the Philippines for deposit into its account and to pay a named recipient in the Philippines."

The foregoing transactions are carried out under instruction from abroad and [do] not involve actual fund transfer since the funds are already in the Philippine accounts. The instructions are in the form of electronic messages (i.e., SWIFT MT100 or MT 202 and/or MT 521). In both cases, the payment is against the delivery of investments purchased. The purchase of investments and the payment comprise one single transaction. DST has already been paid under Section 176 for the investment purchase.

B. Other transactions:

An overseas client sends an instruction to its bank in the Philippines to either:

(i) debit its local or foreign currency account and to pay a named recipient, who may be another bank, a corporate entity or an individual in the Philippines; or

(ii) receive funds from another bank in the Philippines for deposit to its account and to pay a named recipient, who may be another bank, a corporate entity or an individual in the Philippines."

The above instruction is in the form of an electronic message (i.e., SWIFT MT 100 or MT 202) or tested cable, and may not refer to any particular transaction.

The opening and maintenance by a non-resident of local or foreign currency accounts with a bank in the Philippines is permitted by the Bangko Sentral ng Pilipinas, subject to certain conditions.

In reply, please be informed that pursuant to Section 181 of the 1997 Tax Code, which provides that –

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.– Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange, or order, or Philippine equivalent of such value, if expressed in foreign currency. (Underscoring supplied.)

a documentary stamp tax shall be imposed on any bill of exchange or order for payment purporting to be drawn in a foreign country but payable in the Philippines.

Under the foregoing provision, the documentary stamp tax shall be levied on the instrument, i.e., a bill of exchange or order for the payment of money, which purports to draw money from a foreign country but payable in the Philippines. In the instant case, however, while the payor is residing outside the Philippines, he maintains a local and foreign currency account in the Philippines from where he will draw the money intended to pay a named

recipient. The instruction or order to pay shall be made through an electronic message, i.e., SWIFT MT 100 or MT 202 and/or MT 521. Consequently, there is no negotiable instrument to be made, signed or issued by the payee. In the meantime, such electronic instructions by the non-resident payor cannot be considered as a transaction per se considering that the same do not involve any transfer of funds from abroad or from the place where the instruction originates. Insofar as the local bank is concerned, such instruction could be considered only as a memorandum and shall be entered as such in its books of accounts. The actual debiting of the payor’s account, local or foreign currency account in the Philippines, is the actual transaction that should be properly entered as such.

Under the Documentary Stamp Tax Law, the mere withdrawal of money from a bank deposit, local or foreign currency account, is not subject to DST, unless the account so maintained is a current or checking account, in which case, the issuance of the check or bank drafts is subject to the documentary stamp tax imposed under Section 179 of the 1997 Tax Code. In the instant case, and subject to the physical impossibility on the part of the payor to be present and prepare and sign an instrument purporting to pay a certain obligation, the withdrawal and payment shall be made in cash. In this light, the withdrawal shall not be subject to documentary stamp tax. The case is parallel to an automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one bank.

Likewise, the receipt of funds from another bank in the Philippines for deposit to the payee’s account and thereafter upon instruction of the non-resident depositor-payor, through an electronic message, the depository bank to debit his account and pay a named recipient shall not be subject to documentary stamp tax.

It should be noted that the receipt of funds from another local bank in the Philippines by a local depository bank for the account of its client residing abroad is part of its regular banking transaction which is not subject to documentary stamp tax. Neither does the receipt of funds makes the recipient subject to the documentary stamp tax. The funds are deemed to be part of the deposits of the client once credited to his account, and which, thereafter can be disposed in the manner he wants. The payor-client’s further instruction to debit his account and pay a named recipient in the Philippines does not involve transfer of funds from abroad. Likewise, as stated earlier, such debit of local or foreign currency account in the Philippines is not subject to the documentary stamp tax under the aforementioned Section 181 of the Tax Code.

In the light of the foregoing, this Office hereby holds that the instruction made through an electronic message by non-resident payor-client to debit his local or foreign currency account maintained in the Philippines and to pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the 1997 Tax Code. Such being the case, such electronic instruction purporting to draw funds from a local account intended to be paid to a named recipient in the Philippines is not subject to documentary stamp tax imposed under the foregoing Section.

This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, this ruling shall be considered null and void.

Very truly yours,

(Sgd.) BEETHOVEN L. RUALOCommissioner of Internal Revenue8

With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an administrative claim for the refund of the amount of P19,572,992.10 allegedly representing erroneously paid DST to the BIR for the period covering September to December 1997.

Subsequently, on January 31, 2000, HSBC filed another administrative claim for the refund of the amount ofP32,904,437.30 allegedly representing erroneously paid DST to the BIR for the period covering January to December 1998.

As its claims for refund were not acted upon by the BIR, HSBC subsequently brought the matter to the CTA as CTA Case Nos. 5951 and 6009, respectively, in order to suspend the running of the two-year prescriptive period.

The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CTA Case No. 5951 favored HSBC. Respondent Commissioner of Internal Revenue was ordered to refund or issue a tax credit certificate in favor of HSBC in the reduced amounts of P30,360,570.75 in CTA Case No. 6009 andP16,436,395.83 in CTA Case No. 5951, representing erroneously paid DST that have been sufficiently substantiated with documentary evidence. The CTA ruled that HSBC is entitled to a tax refund or tax credit because Sections 180 and 181 of the 1997 Tax Code do

not apply to electronic message instructions transmitted by HSBC’s non-resident investor-clients:

The instruction made through an electronic message by a nonresident investor-client, which is to debit his local or foreign currency account in the Philippines and pay a certain named recipient also residing in the Philippines is not the transaction contemplated in Section 181 of the Code. In this case, the withdrawal and payment shall be made in cash. It is parallel to an automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one bank. The act of debiting the account is not subject to the documentary stamp tax under Section 181. Neither is the transaction subject to the documentary stamp tax under Section 180 of the same Code. These electronic message instructions cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred (Words and Phrases).

These instructions are considered as mere memoranda and entered as such in the books of account of the local bank, and the actual debiting of the payor’s local or foreign currency account in the Philippines is the actual transaction that should be properly entered as such.9

The respective dispositive portions of the Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CTA Case No. 5951 read:

II. CTA Case No. 6009

WHEREFORE, in the light of all the foregoing, the instant Petition for Review is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the amount of P30,360,570.75 representing erroneous payment of documentary stamp tax for the taxable year 1998.10

II. CTA Case No. 5951

WHEREFORE, in the light of the foregoing, the instant petition is hereby partially granted. Accordingly, respondent is hereby ORDERED to REFUND, or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner in the reduced amount of P16,436,395.83 representing erroneously paid documentary stamp tax for the months of September 1997 to December 1997.11

However, the Court of Appeals reversed both decisions of the CTA and ruled that the electronic messages of HSBC’s investor-clients are subject to DST. The Court of Appeals explained:

At bar, [HSBC] performs custodial services in behalf of its investor-clients as regards their passive investments in the Philippines mainly involving shares of stocks in domestic corporations. These investor-clients maintain Philippine peso and/or foreign currency accounts with [HSBC]. Should they desire to purchase shares of stock and other investments securities in the Philippines, the investor-clients send their instructions and advises via electronic messages from abroad to [HSBC] in the form of SWIFT MT 100, MT 202, or MT 521 directing the latter to debit their local or foreign currency account and to pay the purchase price upon receipt of the securities (CTA Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to Section 181 of the NIRC, [HSBC] was thus required to pay [DST] based on its acceptance of these electronic messages – which, as [HSBC] readily admits in its petition filed before the [CTA], were essentially orders to pay the purchases of securities made by its client-investors (Rollo, p. 60).

Appositely, the BIR correctly and legally assessed and collected the [DST] from [HSBC] considering that the said tax was levied against the acceptances and payments by [HSBC] of the subject electronic messages/orders for payment. The issue of whether such electronic messages may be equated as a written document and thus be subject to tax is beside the point. As We have already stressed, Section 181 of the law cited earlier imposes the [DST] not on the bill of exchange or order for payment of money but on the acceptance or payment of the said bill or order. The acceptance of a bill or order is the signification by the drawee of its assent to the order of the drawer to pay a given sum of money while payment implies not only the assent to the said order of the drawer and a recognition of the drawer’s obligation to pay such aforesaid sum, but also a compliance with such obligation (Philippine National Bank vs. Court of Appeals, 25 SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate Court, 216 SCRA 257 [1992]). What is vital to the valid imposition of the [DST] under Section 181 is the existence of the requirement of acceptance or payment by the drawee (in this case, [HSBC]) of the order for payment of money from its investor-clients and that the said order was drawn from a foreign country and payable in the Philippines. These requisites are surely present here.

It would serve the parties well to understand the nature of the tax being imposed in the case at bar. In Philippine Home Assurance Corporation vs. Court of Appeals (301 SCRA 443 [1999]), the Supreme Court ruled that [DST is] levied on the exercise by persons of certain privileges conferred by

law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments, independently of the legal status of the transactions giving rise thereto. In the same case, the High Court also declared – citing Du Pont vs. United States (300 U.S. 150, 153 [1936])

The tax is not upon the business transacted but is an excise upon the privilege, opportunity, or facility offered at exchanges for the transaction of the business. It is an excise upon the facilities used in the transaction of the business separate and apart from the business itself. x x x.

To reiterate, the subject [DST] was levied on the acceptance and payment made by [HSBC] pursuant to the order made by its client-investors as embodied in the cited electronic messages, through which the herein parties’ privilege and opportunity to transact business respectively as drawee and drawers was exercised, separate and apart from the circumstances and conditions related to such acceptance and subsequent payment of the sum of money authorized by the concerned drawers. Stated another way, the [DST] was exacted on [HSBC’s] exercise of its privilege under its drawee-drawer relationship with its client-investor through the execution of a specific instrument which, in the case at bar, is the acceptance of the order for payment of money. The acceptance of a bill or order for payment may be done in writing by the drawee in the bill or order itself, or in a separate instrument (Prudential Bank vs. Intermediate Appellate Court, supra.)Here, [HSBC]’s acceptance of the orders for the payment of money was veritably ‘done in writing in a separate instrument’ each time it debited the local or foreign currency accounts of its client-investors pursuant to the latter’s instructions and advises sent by electronic messages to [HSBC]. The [DST] therefore must be paid upon the execution of the specified instruments or facilities covered by the tax – in this case, the acceptance by [HSBC] of the order for payment of money sent by the client-investors through electronic messages. x x x.12

Hence, these petitions.

HSBC asserts that the Court of Appeals committed grave error when it disregarded the factual and legal conclusions of the CTA. According to HSBC, in the absence of abuse or improvident exercise of authority, the CTA’s ruling should not have been disturbed as the CTA is a highly specialized court which performs judicial functions, particularly for the review of tax cases. HSBC further argues that the Commissioner of Internal Revenue had already settled the issue on the taxability of electronic

messages involved in these cases in BIR Ruling No. 132-99 and reiterated in BIR Ruling No. DA-280-2004.13

The Commissioner of Internal Revenue, on the other hand, claims that Section 181 of the 1997 Tax Code imposes DST on the acceptance or payment of a bill of exchange or order for the payment of money. The DST under Section 18 of the 1997 Tax Code is levied on HSBC’s exercise of a privilege which is specifically taxed by law. BIR Ruling No. 132-99 is inconsistent with prevailing law and long standing administrative practice, respondent is not barred from questioning his own revenue ruling. Tax refunds like tax exemptions are strictly construed against the taxpayer.14

The Court finds for HSBC.

The Court agrees with the CTA that the DST under Section 181 of the Tax Code is levied on the acceptance or payment of "a bill of exchange purporting to be drawn in a foreign country but payable in the Philippines" and that "a bill of exchange is an unconditional order in writing addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to order or to bearer." A bill of exchange is one of two general forms of negotiable instruments under the Negotiable Instruments Law.15

The Court further agrees with the CTA that the electronic messages of HSBC’s investor-clients containing instructions to debit their respective local or foreign currency accounts in the Philippines and pay a certain named recipient also residing in the Philippines is not the transaction contemplated under Section 181 of the Tax Code as such instructions are "parallel to an automatic bank transfer of local funds from a savings account to a checking account maintained by a depositor in one bank." The Court favorably adopts the finding of the CTA that the electronic messages "cannot be considered negotiable instruments as they lack the feature of negotiability, which, is the ability to be transferred" and that the said electronic messages are "mere memoranda" of the transaction consisting of the "actual debiting of the [investor-client-payor’s] local or foreign currency account in the Philippines" and "entered as such in the books of account of the local bank," HSBC.16

More fundamentally, the instructions given through electronic messages that are subjected to DST in these cases are not negotiable instruments as they do not comply with the requisites of negotiability under Section 1 of the Negotiable Instruments Law, which provides:

Sec. 1. Form of negotiable instruments.– An instrument to be negotiable must conform to the following requirements:

(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum certain in money;

(c) Must be payable on demand, or at a fixed or determinable future time;

(d) Must be payable to order or to bearer; and

(e) Where the instrument is addressed to a drawee, he must be named or otherwise indicated therein with reasonable certainty.

The electronic messages are not signed by the investor-clients as supposed drawers of a bill of exchange; they do not contain an unconditional order to pay a sum certain in money as the payment is supposed to come from a specific fund or account of the investor-clients; and, they are not payable to order or bearer but to a specifically designated third party. Thus, the electronic messages are not bills of exchange. As there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines, there could have been no acceptance or payment that will trigger the imposition of the DST under Section 181 of the Tax Code.

Section 181 of the 1997 Tax Code, which governs HSBC’s claim for tax refund for taxable year 1998 subject of G.R. No. 167728, provides:

SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of Thirty centavos (P0.30) on each Two hundred pesos (P200), or fractional part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign currency. (Emphasis supplied.)

Section 230 of the 1977 Tax Code, as amended, which governs HSBC’s claim for tax refund for DST paid during the period September to December 1997 and subject of G.R. No. 166018, is worded exactly the same as its counterpart provision in the 1997 Tax Code quoted above.

The origin of the above provision is Section 117 of the Tax Code of 1904,17 which provided: SECTION 117. The acceptor or acceptors of any bill of exchange or order for the payment of any sum of money drawn or purporting to be drawn in any foreign country but payable in the Philippine Islands, shall, before paying or accepting the same, place thereupon a stamp in payment of the tax upon such document in the same manner as is required in this Act for the stamping of inland bills of exchange or promissory notes, and no bill of exchange shall be paid nor negotiated until such stamp shall have been affixed thereto.18 (Emphasis supplied.)

It then became Section 30(h) of the 1914 Tax Code19:

SEC. 30. Stamp tax upon documents and papers. – Upon documents, instruments, and papers, and upon acceptances, assignments, sales, and transfers of the obligation, right, or property incident thereto documentary taxes for and in respect of the transaction so had or accomplished shall be paid as hereinafter prescribed, by the persons making, signing, issuing, accepting, or transferring the same, and at the time such act is done or transaction had:

x x x x

(h) Upon any acceptance or payment upon acceptance of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippine Islands, on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of such value, if expressed in foreign currency, two centavos[.] (Emphasis supplied.)

It was implemented by Section 46 in relation to Section 39 of Revenue Regulations No. 26,20 as amended:

SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other kinds of orders for the payment of money, payable at sight or on demand, or after a specific period after sight or from a stated date."

SEC. 46. Bill of Exchange, etc. – When any bill of exchange or order for the payment of money drawn in a foreign country but payable in this country whether at sight or on demand or after a specified period after sight or from a stated date, is presented for acceptance or payment, there must be affixed upon acceptance or payment of documentary stamp equal to P0.02 for each P200 or fractional part thereof. (Emphasis supplied.)

It took its present form in Section 218 of the Tax Code of 1939,21 which provided:

SEC. 218. Stamp Tax Upon Acceptance of Bills of Exchange and Others. – Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of four centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange or order, or the Philippine equivalent of such value, if expressed in foreign currency. (Emphasis supplied.)

It then became Section 230 of the 1977 Tax Code,22 as amended by Presidential Decree Nos. 1457 and 1959,which, as stated earlier, was worded exactly as Section 181 of the current Tax Code:

SEC. 230. Stamp tax upon acceptance of bills of exchange and others. – Upon any acceptance or payment of any bill of exchange or order for the payment of money purporting to be drawn in a foreign country but payable in the Philippines, there shall be collected a documentary stamp tax of thirty centavos on each two hundred pesos, or fractional part thereof, of the face value of any such bill of exchange, or order, or the Philippine equivalent of such value, if expressed in foreign currency. (Emphasis supplied.)

The pertinent provision of the present Tax Code has therefore remained substantially the same for the past one hundred years.1âwphi1 The identical text and common history of Section 230 of the 1977 Tax Code, as amended, and the 1997 Tax Code, as amended, show that the law imposes DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the payment of money that was drawn abroad but payable in the Philippines.

DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto.23 Under Section 173 of the 1997 Tax Code, the persons primarily liable for the payment of the DST are those (1) making, (2) signing, (3) issuing, (4) accepting, or (5) transferring the taxable documents, instruments or papers.24

In general, DST is levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. Examples of such privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment of DST are leases of lands, mortgages, pledges and trusts, and conveyances of real property.25

As stated above, Section 230 of the 1977 Tax Code, as amended, now Section 181 of the 1997 Tax Code, levies DST on either (a) the acceptance or (b) the payment of a foreign bill of exchange or order for the payment of money that was drawn abroad but payable in the Philippines. In other words, it levies DST as an excise tax on the privilege of the drawee to accept or pay a bill of exchange or order for the payment of money, which has been drawn abroad but payable in the Philippines, and on the corresponding privilege of the drawer to have acceptance of or payment for the bill of exchange or order for the payment of money which it has drawn abroad but payable in the Philippines.

Acceptance applies only to bills of exchange.26 Acceptance of a bill of exchange has a very definite meaning in law.27 In particular, Section 132 of the Negotiable Instruments Law provides:

Sec. 132. Acceptance; how made, by and so forth. – The acceptance of a bill [of exchange28] is the signification by the drawee of his assent to the order of the drawer. The acceptance must be in writing and signed by the drawee. It must not express that the drawee will perform his promise by any other means than the payment of money.

Under the law, therefore, what is accepted is a bill of exchange, and the acceptance of a bill of exchange is both the manifestation of the drawee’s consent to the drawer’s order to pay money and the expression of the drawee’s promise to pay. It is "the act by which the drawee manifests his consent to comply with the request contained in the bill of exchange directed to him and it contemplates an engagement or promise to pay."29 Once the drawee accepts, he becomes an acceptor.30 As acceptor, he engages to pay the bill of exchange according to the tenor of his acceptance.31

Acceptance is made upon presentment of the bill of exchange, or within 24 hours after such presentment.32Presentment for acceptance is the production or exhibition of the bill of exchange to the drawee for the purpose of obtaining his acceptance.33

Presentment for acceptance is necessary only in the instances where the law requires it.34 In the instances where presentment for acceptance is not necessary, the holder of the bill of exchange can proceed directly to presentment for payment.

Presentment for payment is the presentation of the instrument to the person primarily liable for the purpose of demanding and obtaining payment thereof.35

Thus, whether it be presentment for acceptance or presentment for payment, the negotiable instrument has to be produced and shown to the drawee for acceptance or to the acceptor for payment.

Revenue Regulations No. 26 recognizes that the acceptance or payment (of bills of exchange or orders for the payment of money that have been drawn abroad but payable in the Philippines) that is subjected to DST under Section 181 of the 1997 Tax Code is done after presentment for acceptance or presentment for payment, respectively. In other words, the acceptance or payment of the subject bill of exchange or order for the payment of money is done when there is presentment either for acceptance or for payment of the bill of exchange or order for the payment of money.

Applying the above concepts to the matter subjected to DST in these cases, the electronic messages received by HSBC from its investor-clients abroad instructing the former to debit the latter's local and foreign currency accounts and to pay the purchase price of shares of stock or investment in securities do not properly qualify as either presentment for acceptance or presentment for payment. There being neither presentment for acceptance nor presentment for payment, then there was no acceptance or payment that could have been subjected to DST to speak of.

Indeed, there had been no acceptance of a bill of exchange or order for the payment of money on the part of HSBC. To reiterate, there was no bill of exchange or order for the payment drawn abroad and made payable here in the Philippines. Thus, there was no acceptance as the electronic messages did not constitute the written and signed manifestation of HSBC to a drawer's order to pay money. As HSBC could not have been an acceptor, then it could not have made any payment of a bill of exchange or order for the payment of money drawn abroad but payable here in the Philippines. In other words, HSBC could not have been held liable for DST under Section 230 of the 1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is not "a person making, signing, issuing, accepting, or, transferring" the taxable instruments under the said provision. Thus, HSBC erroneously paid DST on the said electronic messages for which it is entitled to a tax refund.

WHEREFORE, the petitions are hereby GRANTED and the Decisions dated May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CT A Case No. 5951 of the Court of Tax Appeals are REINSTATED.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTROAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

 

G.R. No. 74965 November 9, 1994

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, DEPUTY CITY SHERIFF CARMELO V. CACHERO, MARITIME COMPANY OF THE PHILIPPINES, DOMINGO C. NIANGAR, DANIEL C. SABINO, FERNANDO S. TULIAO and TULMAR TRADING CORPORATION, respondents.

Reynaldo L. Libanan for respondent deputy sheriff.

Joaquin G. Chung, Jr. Law Office for respondent Tulmar Trading Corp.

Eliodoro C. Cruz & Arsenio P. Dizon for Maritime Co. of the Philippines.

 

MENDOZA, J.:

This is a petition for certiorari to set aside the resolution dated April 4, 1986 1 of the National Labor Relations Commission in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar v. Maritime Company of the Philippines), affirming the denial by the Labor Arbiter 2 of petitioner's motion to annul the sheriff's sale of four barges or, in the alternative, to order him to remit the proceeds of his sale to the Bureau of the Internal Revenue for the satisfaction of the tax liabilities of private respondent Maritime Company of the Philippines.

The facts are as follows:

On January 12, 1984 the Commissioner of the Internal Revenue sent two letters 3 of demand to the respondent Maritime Company of the Philippines for deficiency common carrier's tax, fixed tax, 6% Commercial Broker's tax, documentary stamp tax, income tax and withholding taxes in the total amount of P17,284,882.45.

The assessment became final and executory as private respondent did not contest it. But as private respondent did not pay its tax liability either, the Commissioner of Internal Revenue issued warrants of distraint of personal property and levy of real property of private respondent. Copies of the warrants, both dated January 23, 1985, were served on January 28, 1985 on Yoly T. Petrache, private respondent's accountant. 4

On April 16, 1985 a "Receipt for Goods, Articles, and Things Seized 5 under Authority of the National Internal Revenue Code" was executed, covering, among other things, six barges identified as MCP-1,2,3,4,5 and 6. This receipt is required by § 303 (now § 206) of the NIRC as proof of the constructive distraint of property. It is an undertaking by the taxpayer or person in possession of the property covered that he will preserve the property and deliver it upon order of the court or the Internal Revenue Commissioner.

The receipt was prepared by the BIR for the signature of a representative of respondent Maritime Company of the Philippines, but it was not in fact signed. Petitioner later explained that the individuals who had possession of the barges had refused to sign the receipt.

This circumstance has given rise to the question in this case as it appears that four of the barges placed under constructive distraint were levied upon execution by respondent deputy sheriff of Manila on July 20, 1985 to satisfy a judgment for unpaid wages and other benefits of employees of respondent Maritime Company of the Philippines. More specifically, the question in this case is the validity of the warrant of distraint served by the Revenue Seizure Officer against the writ of execution subsequently levied upon the same property by the deputy sheriff of Manila to satisfy the claims of employees in NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar, et al. v. Maritime Company of the Philippines) for P490,749.21.

The four barges were sold by respondent deputy sheriff at a public auction on August 12, 1985. The highest bidder, Daniel C. Sabino, subsequently

sold them to private respondents Fernando S. Tuliao and Tulmar Trading Corporation.

On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale and to enjoin the sheriff from disposing of the proceeds of the sale or, in the alternative, to remit them to the Bureau of Internal Revenue so that the amount could be applied to the payment of private respondent Maritime Company's tax liabilities.

In an order dated September 30, 1985, Labor Arbiter Ceferina Diosana denied the motion on the ground that petitioner Commissioner of Internal Revenue failed to show that the barges which were levied upon in execution and sold at public auction had been validly placed under constructive distraint. 6 The Labor Arbiter likewise rejected petitioner's contention that the government's claim for taxes was preferred under Art. 2247, in relation to Art. 2241(1) of the Civil Code, on the ground that under this provisions only taxes and fees which are due on specific movables enjoy preference, whereas the taxes claimed by petitioner were not due on the four barges in question.

The order was appealed to the NLRC, which in resolution dated April 4, 1986, affirmed the denial of the Internal Revenue Commissioner's motion. Hence this petition for certiorari.

For reasons to be presently stated, the petition is granted.

The National Internal Revenue Code provides for the collection of delinquent taxes by any of the following remedies: (a) distraint of personal property or levy of real property of the delinquent taxpayer and (b) civil or criminal action.

With respect to the four barges in question, petitioner resorted to constructive distraint pursuant to § 303 (now § 206) of the NLRC. This provisions states:

Constructive distraint of the property of a taxpayer. — To safeguard the interest of the Government, the Commissioner of Internal Revenue may place under constructive distraint the property of a delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to tax, or intends to leave the Philippines, or remove his property therefrom, or hide or conceal his

property, or perform any act tending to obstruct the proceedings, for collecting the tax due or which may be due from him.

The constructive distraint of personal property shall be effected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same in any manner whatever without the express authority of the Commissioner of Internal Revenue.

In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and in the presence of two witnesses leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint..

Although the warrant of distraint in this case had been issued earlier (January 23,1985) than the levy on execution in the labor case on July 20, 1985, the Labor Arbiter nevertheless held that there was no valid distraint of personal property on the ground that the receipt of property distrained had not been signed by the taxpayer as required above. In her order, which the NLRC affirmed in toto, the Labor Arbiter said:

It is claimed by the Commissioner of the Internal Revenue that on January 23, 1984, he issued a warrant of distraint of personal property on respondent to satisfy the collection of the deficiency taxes in the aggregate sum of P17,284,882.45 and a copy of said warrant was served upon Maritime Company on January 28, 1985 and pursuant to the warrant, the Commissioner, through Revenue Seizure Agent Roland L. Bombay, issued on April 16, 1985, to Maritime Company a receipt for goods, articles and things seized pursuant to authority granted to him under the National Internal Revenue Code. Such personal properties seized includes, among others, "Six (6) units of barges MCI-6 . . . " However, his own receipts for goods attached to his motions does not show that it

was received by Maritime; neither does it show any signature of any of Maritime's Officers.

Apart from the foregoing, in his affidavit of 11 September 1985, Sheriff Cachero stated that before he sold the subject four barges at public auction, he conducted an investigation on the ownership of the said four barges. In brief, he found out that the said four barges were purchased by respondent through Makati Leasing and that the whole purchase price has been paid by respondent. In fact, the corresponding deed of sale has already been signed. He did not find any lien or encumbrance on any of the said four barges. Thus it cannot be true that the Commissioner effected a valid warrant of distraint of personal property on the four barges in question. 7

However, this case arose out of the same facts involved in Republic v. Enriquez, 8 in which we sustained the validity of the distraint of the six barges, which included the four involved in this case, against the levy on execution made by another deputy sheriff of Manila in another case filed against Maritime Company. Two barges (MCP-1 and MCP-4) were the subject of a levy in the case. There we found that the "Receipt for Goods, Articles and Things Seized under Authority of the National Internal Revenue Code" covering the six barges had been duly executed, with the Headquarters, First Coast Guard District, Farola Compound Binondo, Manila acknowledging receipt of several barges, vehicles and two (2) bodegas of spare parts belonging to Maritime Company of the Philippines.

Apparently, what had been attached to the petitioner's motion filed by the government with the Labor Arbiter in this case was a copy, not the original one showing the rubber stamp of the Coast Guard and duly signed by its representative. A xerox copy of this signed receipt was submitted in the prior case. 9 This could be due to the fact that, except for Solicitor Erlinda B. Masakayan, the government lawyers who prepared the petition in the prior case were different from those who filed the present petition. They admitted that the receipt of property distrained had not been signed by the taxpayer or person in possession of the taxpayer's property allegedly because they had refused to do so. What apparently they did not know is that the receipt had been acknowledged by the Coast Guard which obviously had the barges in its possession.

In addition to the receipt duly acknowledged by the Coast Guard, the record of the prior case also shows that on October 4, 1985, the Commissioner of

the Internal Revenue issued a "Notice of Seizure of Personal Property" stating that the goods and chattels listed on its reverse side, among which were the four barges (MCP-2, MCP-3, MCP-5, and MCP-6), had been distrained by the Commissioner of Internal Revenue. 10

The "Notice of Seizure of Personal Property," a copy of which was received by Atty. Redentor R. Melo in behalf of Maritime Company of the Philippines, together with the receipt of the Coast Guard, belies the claim of respondent deputy sheriff that when he levied upon the four barges there was no indication that the barges had previously been placed under distraint by the Commissioner of Internal Revenue.

Accordingly, what we said in the prior case 11 in upholding the validity of distraint of two of the six barges (MCP Nos. 1 and 4), fully applies in this case:

It is settled that the claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment. The tax lien attaches not only from the service of the warrant of distraint of personal property but from the time the tax became due and payable. Besides, the distraint on the subject properties of the Maritime Company of the Philippines as well as the notice of their seizure were made by petitioner, through the Commissioner of the Internal Revenue, long before the writ of the execution was issued by the Regional Trial Court of Manila, Branch 31. There is no question then that at the time the writ of execution was issued, the two (2) barges, MPC-1 and MCP-4, were no longer properties of the Maritime Company of the Philippines. The power of the court in execution of judgments extends only to properties unquestionably belonging to the judgment debtor. Execution sales affect the rights of the judgment debtor only, and the purchaser in an auction sale acquires only such right as the judgment debtor had at the time of sale. It is also well-settled that the sheriff is not authorized to attach or levy on property not belonging to the judgment debtor.

Nor is there any merit in the contention of the NLRC that taxes are absolutely preferred claims only with respect to movable or immovable properties on which they are due and that since the taxes sought to be collected in this case are not due on the barges in question the

government's claim cannot prevail over the claims of employees of the Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor Code, "enjoy first preference."

In Republic v. Peralta 12 this Court rejected a similar contention. Through Mr. Justice Feliciano we held:

. . . [T]he claim of the Bureau of Internal Revenue for unpaid tobacco inspection fees constitutes a claim for unpaid internal revenue taxes which gives rise to a tax lien upon all the properties and assets, movable or immovable, of the insolvent as taxpayer. Clearly, under Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given preference over any other claim of any other creditor, in respect of any and all properties of the insolvent.

xxx xxx xxx

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are already covered by Article 2241, number 6: "claims for laborer's wages, on the goods manufactured or the work done," or by Article 2242, number 3: "claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals or other works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come with the ambit of the category of ordinary preferred credits under Article 2244.

Applying Article 2241, number 6 to the instant case, the claims of the Unions for separation pay of their members constitute liens attaching to the processed leaf tobacco, cigars and cigarettes and other products produced or manufactured by the Insolvent, but not to other assets owned by the Insolvent. And even in respect of such

tobacco and tobacco products produced by the Insolvent, the claims of the Unions may be given effect only after the Bureau of Internal Revenue's claim for unpaid tobacco inspection fees shall have been satisfied out of the products so manufactured by the Insolvent.

Article 2242, number 3, also creates a lien or encumbrance upon a building or other real property of the Insolvent in favor of workmen who constructed or repaired such building or other real property. Article 2242, number 3, does not however appear relevant in the instant case, since the members of the Unions to whom separation pay is due rendered services to the Insolvent not (so far as the record of this case would show) in the construction or repair of buildings or other real property, but rather, in the regular course of the manufacturing operations of the Insolvent. The Unions' claims do not therefore constitute a lien or encumbrance upon any immovable property owned by the insolvent, but rather, as already indicated, upon the Insolvent's existing inventory (if any) of processed tobacco and tobacco products.

In addition, we have held 13 that Art. 110 of the Labor Code applies only in case of bankruptcy or judicial liquidation of the employer. This is clear from the text of the law.

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claims to a share in the assets of the employer.

This case does not involve the liquidation of the employer's business.

WHEREFORE, the petition for certiorari is GRANTED and the resolution dated April 4, 1986 of respondent NLRC in NLRC Case No. NCR-12-4233-84 is SET ASIDE insofar as it denies the government's claim for taxes, and respondent deputy sheriff Carmelo V. Cachero or his successor is ORDERED to remit the proceeds of the auction sale to the Bureau of

Internal Revenue to be applied as part payment of respondent Maritime Company's tax liabilities.

SO ORDERED.

Narvasa, C.J., Regalado and Puno, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-14575             July 31, 1961

MITHI NG BAYAN COOPERATIVE MARKETING ASSOCIATION, INC., petitioner, vs.J. ANTONIO ARANETA, Collector of Internal Revenue, respondent.

Estanislao A. Fernandez and Leandro H. Fernandez for petitioner.Office of the Solicitor General for respondent.

PADILLA, J.:

This is an appeal under section 18, Republic Act No. 125, by the Mithi Ng Bayan Cooperative Marketing Association Inc., from that part of a judgment dated 14 August 1958 rendered by the Court of Tax Appeals upholding the decision of the Collector of Internal Revenue that denied the petitioner's claim for refund of the sum of P3,590.53 paid by it as privilege or fixed tax upon business and percentage tax, and surcharge. due (Annex A) and the resolution dated 8 October 1958, denying its motion r reconsideration.

On 3 July 1953, Pedro Guevarra, an agent of the Bureau of Internal Revenue, assigned in San Pablo City, reported to the provincial revenue agent that the petitioner, an, association of persons organized and incorporated as a cooperative marketing association under the provisions of the Cooperative Marketing Law Act No. 3425, as amended and the Corporation Law, Act No. 1459, as amended, has been operating a ricemill

in barrio Calios, Santa Cruz, Laguna, where palay owned by members and non members are milled, that a fee is charged and collected by the petitioner from the owners for milling their palay; and that the petitioner paid the fixed tax of P10 due for the year 1952 and the percentage tax of 2% due on the total value of rice milled during the first and second quarters of 1952 but did not pay the fixed tax due for the year 1953 and the percentage tax of 2% due on the total value of rice milled during the third quarter of 1952 to the first quarter of 1953. The agent recommended that a letter be sent payment of the total Sum of to the petitioner demanding computed as follows: P3,610.53. computed as follows:.

Fix tax C-19 for 1953 .................................................................. P 10.00

2% of P143,220.92 (value of rice removed from 3rd qrtr. 1952 to 1st qrtr. of 1953 .......................................................... 2,864.42

25% Surcharge thereon .......................................................... 716.11

Compromise .............................................................................       20.00

            TOTAL TAX LIABILITY ................................................... P3,610.53

(Exhibit 1, pp. 2-3, BIR rec.). Acting upon the recommendation of the agent, on 19 December 1953 the respondent Collector of Internal Revenue demanded from the petitioner payment of the sum of P3,590.53 (less P20 for compromise), within 30 days from receipt of the letter of demand and informed it that if it be not agreeable to the assessment, it could take up the matter with the Conference Staff of the Bureau of Internal Revenue by filing within the same period of time a written notice of its in attention to appear before the Staff either in person or by an attorney-at-law or a certified public accountant as counsel and that if it be agreeable to extrajudicially settle the penal liabilities arising from violations of the National Internal Revenue Code, as amended, it could pay the sum of P100 as penalty in addition to the sum of P3,590.53, or a total of P3,690.53 (Exhibit E). On 13 January 1954 the petitioner wrote to the respondent Collector informing him that it was not agreeable to his proposal and filed its notice of intention to appear before the Conference Staff (Exhibit F). After hearing, on 9 December 1954 the Conference Staff recommended to the respondent Collector the enforcement of the assessment dated 19 December 1953 for taxes and surcharge in the sum of P3,590.53 and suggested the imposition upon the petitioner of a compromise penalty in the sum of P100 (Exhibit 9). The

respondent Collector approved the recommendation of the Conference staff and on 4 January 1955 demanded payment of the tal sum of 690.53 within ten day from receipt of the letter, otherwise it would enforce collection through the summary remedies provided for by law (Exhibit G).

On 14 February 1955 the petitioner appealed under the revisions of section 11, Republic Act No. 1125, to the Court of Tax Appeals to have the decision of the Collector of Internal Revenue reviewed. On 16 March 1955 the respondent Collector filed under the provisions of Rule 7 of he Rules of the Court of Tax Appeals his answer to the petition for review of the decision of the respondent Collector.

On 6 December 1955 the respondent issued a warrant of distraint and levy ordering the deputy provincial treasurer, through the provincial treasurer, "to distraint the goods chatters or effects and other personal property of whatever character, and levy upon the real property and interest in/or rights to real property of the delinquent taxpayer, and sell so much of such personal or real property as may be necessary to satisfied in full the sum or sums due as set forth above (P3,690.53), and to cover such expenses as may be incurred in making this distraint and levy." (Exhibit H). On 14 March 1956 the petitioner filed in the Court of Tax appeals an "urgent motion to suspend execution of warrant of distraint and levy and collection of tax," on the ground that the enforcement of the said warrant of distraint and levy and collection of tax would jeopardize the interest of the petitioner because it is exempt from the payment of the taxes sought to be collected. It offered to file a bond for that purpose. On 21 March 1956 the respondent filed a objection to the petitioner's motion. After hearing, the Court denied the petitioner's motion.

On 20 June 1956 the petitioner paid to the deputy provincial treasurer in the municipality of Santa Cruz, province of Laguna, the sum of P2,000 as partial payment and on 11 July 1956 the sum of P1,690.53 as full payment of the taxes and surcharge sought to be collected by the respondent (Exhibits I, I-1 and. 1-2). On 27 March 1957 the petitioner wrote to the respondent requesting that the sum of P3,690.53 paid by it for taxes and Surcharge assessed and sought to be collected by the latter be refunded to the former (Exhibit J) — The respondent did not act upon the petitioner's request.

On 4 April 1957 the petitioner filed an amended petition to review the decision of the respondent, alleging the fact of payment of the sum P3,69,0.53 and request for it refund. On 16 May 1957 the respondent filed an amended answer to the amended petition.

On 11 December 1957 the parties entered into a stipulation the Court. The said Stipulation of facts and submitted it to the Court. The said stipulation provides:

COME NOW the herein parties thru their respective under signed counsel, and to this Honorable Court respectfully submit the following Statement of Facts, to wit:

1. That attached hereto are the lists of names of persons who brought and milled palay in the petitioner's ricemill between March 2 to 31, 1953, copied from Exhs. D and D-1, together with their respective identification or relation to the members of the petitioner-organization;

2. That said lists of names were copied from Exhs. D and D-1, which formed part of the Bureau of Internal Revenue records embodied in the records of this case;

3. That the column opposite or following the lists of names identify said persons, whether they are members, brothers, sisters, sons, daughters or close relatives, or helpers of members of the petitioner-organization;

4. That said persons will, respectively testify that they were known and/or called in the community by the names or nicknames appearing in the attached lists; that they brought their palay to be milled themselves being members of the petitioner-organization, or that they were respectively requested by members, who are their fathers, mothers, brothers, sisters, or close relatives or their landlords or employers to bring his or her palay to the ricemill of the petitioner-organization to be milled between March 2 to 31, 1953 and that they were given receipts which were placed in the names with which they were commonly known or called in the community;

5. That they know Fermin Domingo who is the Checker and the one in-charge of the petitioner-organization's ricemill and that they were in turn known to him; that they were issued receipts which they kept, being members, or which they surrendered and delivered to their fathers, mothers, brothers, sisters, or close relatives, or employers, who are members of the said petitioner-organization and who requested them to mill their palay in the ricemill of said petitioner;

6. That the testimonies of the said persons appearing in the attached lists will merely be the same and/or corroborative to those that have already testified;

7. That in order to abbreviate this proceedings and to avoid a lengthy and costly litigation, said persons appearing in the attached lists will no longer be presented to testify in this case.

WHEREFORE, it is respectfully prayed that this Stipulation of Facts be approved by this Honorable Court.

After hearing and after the parties had filed their respective memoranda and the petitioner a reply to the respondent's memorandum, on 14 August 1958 the Court rendered judgment declaring that the "petitioner can not be considered as having been organized in accordance with Act No. 3425, and its claim for exemption under Section 18 of said Act can not be sustained." The dispositive part of the judgment provides:

FOR THE FOREGOING CONSIDERATIONS, we are of he opinion that the sum of P3,590.53, representing the fixed and percentage taxes, plus surcharge, was validly collected from petitioner as operator of a rice mill, and its claim for refund hereof must be, as the same is hereby, denied. With respect to he sum of P100.00 as compromise penalty, the collection thereof being unauthorized and illegal, respondent is ordered to refund he said amount, plus interest at the legal rate. No pronouncement as to costs. (Annex A)

On 3 September 1958 the petitioner filed a motion for reconsideration, on 29 September 1958 the respondent, an objection thereto, and on 2 October 1958 the petitioner, a reply to the respondent's objection. On 8 October 1958 the Court denied the petitioner's motion for reconsideration on Hence this appeal. The petitioner's appeal is only with respect to that part of the judgment upholding the legality of the imposition of the sum of P3,590.53 as taxes and surcharge due and denying its claim for refund of the said amount.

Is the petitioner an association organized under the provisions of the Cooperative Marketing Law, Act No. 3425, as amended, exempt from the payment of privilege tax or fixed tax upon business and percentage tax, imposed by sections 178, 182, 183 and 189, of the National Internal Revenue Code, as amended, is the question to be resolved in this appeal.

Section 48, Act No. 3425, as amended by Republic Act No. 702, exempting cooperative associations organized under the said Law from payment of merchant's sales tax, income tax and other percentage taxes, provides:

Any association organized under this Act shall not be subject to the payment of the merchant's sales tax, the income tax, and all others percentage taxes of whatever nature and description.

Any exemptions under any and all existing laws applying to agricultural products in the possession or under the control of the individual producer, shall apply similarly and completely to agricultural products delivered by the farmer members to the association, or which are in the possession or under the control of the association.

Sections 1, 3, 6 and 7 of Act No. 3425, as amended, provide:

Section 1. This Act shall be known and may be cited as "The Cooperative Marketing Law". Every association incorporated under this Law shall be operated primarily for the mutual benefit of the members thereof, as producers, and should aim to promote, foster, and encourage the intelligent and orderly marketing of agricultural products through cooperation; to make the distribution of agricultural products between producer and consumer as direct as can be efficiently done; and to stabilize the marketing of agricultural products.

Sec. 3. Fifteen or more persons, a majority of whom are residents of the Philippine Islands, engaged in the production of agricultural products, may form a Cooperative marketing association, with or without capital stock, under the provisions of this Act, by the adoption of and filing with the Bureau of Commerce and Industry articles of incorporation and by-laws in the same manner as is required of other corporations organized under the Corporation Law, Act Numbered One thousand four hundred fifty-nine as amended, except as herein Provided.

Sec. 6 . . . (a) . . . No association, organized under this Act, shall handle the agricultural products of any non-member except for storage.

Sec. 7. Under the terms and conditions prescribed in the by-laws adopted by it, an association shall admit as members, or issue common stock only to persons engaged in the production of the agricultural products to be handled by or through the association, including the lessees and tenants of land used for the production of such products and any lessors and landlords who received as rent all or part of the crop raised on the leased premises.

It is plain from the foregoing provisions of the Cooperative Marketing Law that a cooperative marketing association should be organized by and composed of persons engaged in the production of agricultural products for the benefit of producers-members and the association should aim to Promote, foster, and encourage the intelligent and orderly marketing of agricultural products through cooperation; to make the distribution of agricultural products between producer and consumer as direct as can be efficiently done; and to stabilize the marketing of agricultural products." If the association fails to comply with these requirements, it cannot be Considered as an association on organized under the Cooperative Marketing Law. It cannot be gain said that once the association admits as member persons who are not engaged in the production of agricultural products, the reason for its existence under the law ceases to operate and the privilege of exemption, from the payment of taxes provided for in section 48 of the Law is withdrawn from it. A person not engaged in the production of agricultural products has no direct relation to and common cause with one who is so engaged to bring about an intelligent and orderly marketing, a direct and efficient distribution between producers an consumer and he stabilization of the marketing of agricultural products through cooperation with his fellow producers.

Section 1, Article IV, of the unamended by-laws of the petitioner association provides:

Any person, residing in the municipality in which the association is organized (Santa Cruz, Laguna), who pays a membership fee of P1.00 and buys at least a share of stock in his name, may become a member of the Association PROVIDED, HOWEVER, That before becoming a member he shall file an application for membership addressed to the Board of Directors of the Association, which shall decide whether or not he is to be ac accepted as member. (Exhibit A-1, pp. 80-85, BIR rec.)

It goes without saying that any resident municipality of Santa Cruz, Laguna, who pay to of the petitioner association a membership fee of P1 and buys in

his name at lease a share of stock of the association, even if he is not engaged in the production of agricultural products may become a member of the petitioner association. For that reason, the requirement of the law that members of a cooperative marketing association should be engaged in the production of agricultural products is not complied with.

Although the witnesses for the petitioner association, namely, Jose del Mundo, Esteban Dayo, Pedro Calinagan, Jose Reyes, Miguel Carlos, Daniel Panganiban and Fermin Domingo, testified that they were members of, the petitioner association and were either owners of riceland or farmers who milled their palay in the ricemill of the petitioner association, yet such testimony alone does not establish the fact that all of the members of the petitioner association are engaged in the production of agricultural products. In the stipulation of facts submitted to the courts the parties merely agreed that the persons who brought and milled their palay in the petitioner's ricemill from 2 to 31 March 1953 listed in Exhibits D, D-1 and 10 and their respective relation to the members of he petitioner-organization stated therein, would testify that they were known or called in the community by the names or nick names appearing therein; that they themselves brought their palay or had it brought through their respective relatives landlords or employers to the ricemill for milling; and that to abbreviate the proceeding and avoid a lengthy and costly litigation, the said persons appearing in the list (Exhibits D, D-1 and 10), would no longer be present to testify at the hearing of the case. The evidence at hand does not sufficiently establish the fact that all members of the petitioner association are engaged in the production of agricultural products. Hence, it cannot be said to have been organized as a cooperative marketing association and entitled to exemption from the payment of taxes provided for in section 48 of the Cooperative Marketing Law, Act No. 3425, as amended.

The judgment under review is affirmed, with costs against the petitioner.

Bengzon, C.J., Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, De Leon and Natividad, JJ.,concur.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

GR. No. L-37061 September 5, 1984

MAMBULAO LUMBER COMPANY, petitioner, vs.REPUBLIC OF THE PHILIPPINES, respondent.

 

CUEVAS, J.:

Petitioner in this appeal by certiorari, seeks the reversal of the decision of the defunct Court of Appeals which affirmed the judgment of the then Court of First Instance of Manila ordering petitioner to pay respondent the amount of P15,739.80 representing its tax liability not secured by any bond, with legal interest thereon from August 25, 1961 until fully paid.

Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue, Regional District No. 6, Bicol Region, Naga City, conducted an examination of the books of accounts of herein petitioner Mambulao number Company for the purpose of determining said taxpayer's forest charges and percentage tax liabilities.

On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among others that —

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

It can be stated in this connection that sometime in the early part of 1949, the personnel of the local office of the Bureau of Forestry in Daet, Camarines Norte, manifested under the name of the subject taxpayer 2,052.48 cubic meters of timber, with the corresponding forest charges in the total amount of P15,443.65 including surcharges. The Bureau of Forestry then demanded for the payment of said forest charges on January 15, 1949. However, the subject taxpayer, for one reason or the other, contested this assessment until this case reached the hands of the

Secretary of Agriculture and Natural Resources, the undersigned cannot therefore include in his assessment this amount in question, hence, due course is given, recommending that this bureau take proper action regarding this case.

Consequently, on August 29, 1958, the Acting Commissioner of Internal Revenue addressed a letter to petitioner, the pertinent portion of which reads-

Mambulao Lumber Company R-406 Samanillo Building Escolta, Manila

Gentlemen:

xxx xxx xxx

It was also ascertained that in 1949 you manifested 2,052.48 cubic meters of timber, the forest charges and surcharges of which in the total amount of P15,443.55 was demanded of you by the Bureau of Forestry on January 15, 1949. ...

In view thereof there is due from you the amount of P33,595.26 as deficiency sales tax, forest charges and surcharges, committed as follows:

Sales Tax x x x

Forest Charges

Forest charges and surcharges for the year 1949 appealed to the Secretary of Agriculture and Natural Resources P15,443.55

xxx xxx xxx

Total amount due & payable P33,595.26

Demand is hereby made upon you to pay the aforesaid amount of P 33,595.26 to the City Treasurer of Manila or this office within ten (10) days from receipt hereof so that this case may be closed.

xxx xxx xxx

Sgd.Melencio DomingoActing Commissionerof Internal Revenue

The aforesaid letter was acknowledged to have been received by petitioner on September 19, 1958. 3 On October 18, 1958, petitioner requested for a reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959, respondent Commissioner of Internal Revenue give petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of payments with a warning that failure to comply therewith would be construed as an abandonment of the request for reinvestigation.

For failure of petitioner to comply with the above letter-request and/or to pay its tax liability despite demands for the payment thereof, respondent Commissioner of Internal Revenue filed. a complaint for collection in the Court of First Instance of Manila on August 25, 1961. 4

After trial, judgment was rendered by the trial court, the dispositive portion of which reads —

WHEREFORE, judgment is rendered —

(a) Ordering both defendants, jointly and severally, to pay plaintiff the amount of P1,219.95 plus legal interest thereon from August 25, 1961, the date of the filing of the original complaint until fully paid, or in case of failure to Pay the said amount, ordering the forfeiture of GISCOR Bond No. 35 to the amount of P1,219.95; and

(b) Ordering defendant Mambulao Lumber Company to pay the plaintiff the amount of P15,739.80 representing its tax liability not secured by any bond, with legal interest thereon from August 25, 1961, until paid.

With costs against defendants.

From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that portion of the trial court's decision ordering it to pay the amount of P15,443.55 representing forest charges and surcharges due for the year 1949.

As herein earlier stated, the then Court of Appeals affirmed the decision of the trial court. Petitioner filed a motion for reconsideration which was denied by the said court in its Resolution dated June 7, 1973. Hence, the instant appeal, petitioner presenting the lone issue of whether or not the right of plaintiff (respondent herein) to file a judicial action for the collection of the amount of P15,443.55 as forest charges and surcharges due from the petitioner Mambulao Lumber Company for the year 1949 has already prescribed.

Relying on the provisions of Section 332 of the National Internal Revenue Code which reads-

Section 332. Exemptions as to period of limitation of assessment and collection of taxes —

xxx xxx xxx

(c) Where the assessment of any internal revenue tax has been made within the period of limitation above prescribed such tax may be collected by distraint or levy or by a proceeding in court, but only if begun (1) within five years after the assessment of the tax, or (2) prior to the expiration of any period for collection agreed upon in writing by the Collector of Internal Revenue and the taxpayer before the expiration of such five-year period. The period so agreed upon may be extended by subsequent agreements in writing made before the expiration of the period previously agreed upon.

petitioner argues that counting from January 15, 1949 when the Bureau of Forestry in Daet, Camarines Norte made an assessment and demand for payment of the amount of P15,443.55 as forest charges and surcharges for the year 1949, up to the filing of the complaint for collection before the lower court on August 25, 196 1, more than five (5) years had already elapsed, hence, the action had clearly prescribed.

Petitioner's aforesaid argument lacks merit. As correctly observed by the trial court and the Court of Appeals in the appealed decision, the letter of demand of the Acting Commissioner of Internal Revenue dated August 29, 1958 was the basis of respondent's complaint filed in this case and not the demand letter of the Bureau of Forestry dated January 15, 1949. This must be so because forest charges are internal revenue taxes 6 and the sole power and duty to collect the same is lodged with the Bureau of Internal Revenue 7 and not with the Bureau of Forestry. The computation and/or assessment of forest charges made by the Bureau of Forestry may or may not be adopted by the Commissioner of Internal Revenue and such computation made by the Bureau of Forestry is not appealable to the Court of Tax Appeals. 8 Therefore, for the purpose of computing the five-year period within which to file a complaint for collection, the demand or even the assessment made by the Bureau of Forestry is immaterial.

In the case at bar, the commencement of the five-year period should be counted from August 29, 1958, the date of the letter of demand of the Acting Commissioner of Internal Revenue 9 to petitioner Mambulao Lumber Company. It is this demand or assessment that is appealable to the Court of Tax Appeals. The complaint for collection was filed in the Court of First Instance of Manila on August 25, 1961, very much within the five-year period prescribed by Section 332 (c) of the Tax Code. Consequently, the right of the Commissioner of Internal Revenue to collect the forest charges and surcharges in the amount of P15,443.55 has not prescribed.

Furthermore, it is not disputed that on October 18, 1958, petitioner requested for a reinvestigation of its tax liability. In reply thereto, respondent in a letter dated July 8, 1959, gave petitioner a period of twenty (20) days from receipt thereof to submit the results of its verification of payments and failure to comply therewith would be construed as abandonment of the request for reinvestigation. Petitioner failed to comply with this requirement. Neither did it appeal to the Court of Tax Appeals within thirty (30) days from receipt of the letter dated July 8, 1959, as prescribed under Section 11 of Republic Act No. 1125, thus making the assessment final and executory.

Taxpayer's failure to appeal to the Court of Tax Appeals in due time made the assessment in question final, executory and demandable. And when the action was instituted on September 2, 1958 to enforce the deficiency assessment in question, it was already barred from disputing the correctness of the assessment or invoking any defense that would reopen the question of its tax liability. Otherwise, the period of thirty days for appeal to the Court of Tax Appeals would make little sense.

In a proceeding like this the taxpayer's defenses are similar to those of the defendant in a case for the enforcement of a judgment by judicial action under Section 6 of Rule 39 of the Rules of Court. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon, other than by evidence of want of jurisdiction, of collusion between the parties, or of fraud in the party offering the record with respect to the proceedings. As held by this Court in Insular Government vs. Nico the taxpayer may raise only the questions whether or not the Collector of Internal Revenue had jurisdiction to do the particular act, and whether any fraud was committed in the doing of the act. In that case, Doroteo Nico was fined by the Collector of Internal Revenue for violation of sub-paragraphs (d), (e) and (g) of Section 28 as well as Sections 36, 101 and 107 of Act 1189. Under Section 54 of the same Act, the taxpayer was given the right to appeal from the decision of the Collector of Internal Revenue to the Court of First Instance within a period of ten days from notice of imposition of the fine. Nico did not appeal, neither did he pay the fine. Pursuant to Section 33 of the Act, the Collector of Internal Revenue filed an action in the Court of First Instance to enforce his decision and collect the fine. The decision of the Collector of Internal Revenue having become final, this Court, on appeal, allowed no further inquiry into the merits of the same. 10

In a suit for collection of internal revenue taxes, as in this case, where the assessment has already become final and executory, the action to collect is akin to an action to enforce a judgment. No inquiry can be made therein as to the merits of the original case or the justness of the judgment relied upon. Petitioner is thus already precluded from raising the defense of prescription.

Where the taxpayer did not contest the deficiency income tax assessed against him, the same became final and properly collectible by means of an ordinary court action. The taxpayer cannot dispute an assessment which is being enforced by judicial action, He should have disputed it before it was brought to court. 11

WHEREFORE, the decision appealed from is hereby AFFIRMED and the petition DISMISSED. No costs.

SO ORDERED.

Abad Santos, Escolin and Gutierrez, Jr.,* JJ concur.

Makasiar, (Chairman) and Guerrero, JJ., are on leave.

Concepcion, Jr., J., took no part.

 

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-41919-24 May 30, 1980

QUIRICO P. UNGAB, petitioner, vs.HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First Instance, Branch 1, 16TH Judicial District, Davao City, THE COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his capacity as State Prosecutor, respondents.

 

CONCEPCION JR., J:

Petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set aside the informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused;" and to restrain the respondent Judge from further proceeding with the hearing and trial of the said cases.

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns filed by the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the course of his examination, he discovered that the petitioner failed to report his income

derived from sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing him that there is due from him (petitioner) the amount of P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner wrote the BIR District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on commission basis in the banana sapling business and that his income, as reported in his income tax returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully convinced that the petitioner had filed a fraudulent income tax return so that he submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the records of the case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that the herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his prosecution: têñ.£îhqwâ£

(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just taxes due the government under Section 45 in relation to Section 72 of the National Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid fixed taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section 183 of the National Internal Revenue Code;

(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the total sales of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of its due revenue in the amount of P15,872.59, inclusive of surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the Commissioner of Internal Revenue approved the prosecution of the petitioner. 3

Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all violations of the National Internal Revenue Code, as amended, and other related laws, in

Administrative Order No. 116 dated December 5, 1974, and to whom the case was assigned, conducted a preliminary investigation of the case, and finding probable cause, filed six (6) informations against the petitioner with the Court of First Instance of Davao City, to wit: têñ.£îhqwâ£

(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the National Internal-Revenue Code, for filing a fraudulent income tax return for the calendar year ending December 31, 1973; 4

(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178, 186, and 208 of the National Internal Revenue Code, for engaging in business as producer of saplings, from January, 1973 to December, 1973, without first paying the annual fixed or privilege tax thereof; 5

(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales, receipts and earnings in his business as producer of banana saplings and to pay the percentage tax due thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales receipts and earnings in his business as producer of saplings, and to pay the percentage tax due thereon, for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales, receipts and earnings in his business as producer of banana saplings for the quarter ending on June 30, 1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National Internal Revenue Code, for failure to render a true and complete

return on the gross quarterly sales, receipts and earnings as producer of banana saplings, for the quarter ending on September 30, 1973, and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that: (1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-entitled cases in view of his pending protest against the assessment made by the BIR Examiner. 10 However, the trial court denied the motion on October 22, 1975. 11 Whereupon, the petitioner filed the instant recourse. As prayed for, a temporary restraining order was issued by the Court, ordering the respondent Judge from further proceeding with the trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused."

The petitioner seeks the annulment of the informations filed against him on the ground that the respondent State Prosecutor is allegedly without authority to do so. The petitioner argues that while the respondent State Prosecutor may initiate the investigation of and prosecute crimes and violations of penal laws when duly authorized, certain requisites, enumerated by this Court in its decision in the case of Estrella vs. Orendain, 12should be observed before such authority may be exercised; otherwise, the provisions of the Charter of Davao City on the functions and powers of the City Fiscal will be meaningless because according to said charter he has charge of the prosecution of all crimes committed within his jurisdiction; and since "appropriate circumstances are not extant to warrant the intervention of the State Prosecution to initiate the investigation, sign the informations and prosecute these cases, said informations are null and void." The ruling adverted to by the petitioner reads, as follows: têñ.£îhqwâ£

In view of all the foregoing considerations, it is the ruling of this Court that under Sections 1679 and 1686 of the Revised Administrative Code, in any instance where a provincial or city fiscal fails, refuses or is unable, for any reason, to investigate or prosecute a case and, in the opinion of the Secretary of Justice it is advisable in the public interest to take a different course of action, the Secretary of Justice may either appoint as acting provincial or city fiscal to handle the investigation or prosecution exclusively and only of such case, any practicing attorney or some competent officer of the

Department of Justice or office of any city or provincial fiscal, with complete authority to act therein in all respects as if he were the provincial or city fiscal himself, or appoint any lawyer in the government service, temporarily to assist such city of provincial fiscal in the discharge of his duties, with the same complete authority to act independently of and for such city or provincial fiscal provided that no such appointment may be made without first hearing the fiscal concerned and never after the corresponding information has already been filed with the court by the corresponding city or provincial fiscal without the conformity of the latter, except when it can be patently shown to the court having cognizance of the case that said fiscal is intent on prejudicing the interests of justice. The same sphere of authority is true with the prosecutor directed and authorized under Section 3 of Republic Act 3783, as amended and/or inserted by Republic Act 5184. The observation in Salcedo vs. Liwag, supra, regarding the nature of the power of the Secretary of Justice over fiscals as being purely over administrative matters only was not really necessary, as indicated in the above relation of the facts and discussion of the legal issues of said case, for the resolution thereof. In any event, to any extent that the opinion therein may be inconsistent herewith the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule therein established had not been violated. The respondent State Prosecutor, although believing that he can proceed independently of the City Fiscal in the investigation and prosecution of these cases, first sought permission from the City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974, designating the said State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation and prosecution of all violations of the National Internal Revenue Code, as amended, and other related laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases, and in fact, said investigation was conducted in the office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate and premature since the Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals.

The contention is without merit. What is involved here is not the collection of taxes where the assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal prosecution for violations of the National Internal Revenue Code which is within the cognizance of courts of first instance. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code. têñ.£îhqwâ£

The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. 15

Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. 16 Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner.

WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order heretofore issued is hereby set aside. With costs against the petitioner.

SO ORDERED.

Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ., concur.1äwphï1.ñët

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

G.R. No. 119761 August 29, 1996

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and FORTUNE TOBACCO CORPORATION,respondents.

 

VITUG, J.:p

The Commissioner of Internal Revenue ("CIR") disputes the decision, dated 31 March 1995, of respondent Court of Appeals 1 affirming the 10th August 1994 decision and the 11th October 1994 resolution of the Court of Tax Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner of Internal Revenue."

The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the manufacture of different brands of cigarettes.

On various dates, the Philippine Patent Office issued to the corporation separate certificates of trademark registration over "Champion," "Hope," and "More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz

of the Presidential Commission on Good Government, "the initial position of the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign brands since they were listed in the World Tobacco Directory as belonging to foreign companies. However, Fortune Tobacco changed the names of 'Hope' to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said brands from the foreign brand category. Proof was also submitted to the Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune Tobacco Corporation register and therefore a local brand." 3 Ad Valorem taxes were imposed on these brands, 4 at the following rates:

BRAND AD VALOREM TAX RATEE.O. 22 and E.O. 273 RA 695606-23-86 07-25-87 06-18-9007-01-86 01-01-88 07-05-90

Hope Luxury M. 100'sSec. 142, (c), (2) 40% 45%Hope Luxury M. KingSec. 142, (c), (2) 40% 45%More Premium M. 100'sSec. 142, (c), (2) 40% 45%More Premium InternationalSec. 142, (c), (2) 40% 45%Champion Int'l. M. 100'sSec. 142, (c), (2) 40% 45%Champion M. 100'sSec. 142, (c), (2) 40% 45%Champion M. KingSec. 142, (c), last par. 15% 20%Champion LightsSec. 142, (c), last par. 15% 20% 5

A bill, which later became Republic Act ("RA") No. 7654, 6 was enacted, on 10 June 1993, by the legislature and signed into law, on 14 June 1993, by the President of the Philippines. The new law became effective on 03 July 1993. It amended Section 142(c)(1) of the National Internal Revenue Code ("NIRC") to read; as follows:

Sec. 142. Cigars and Cigarettes. —

xxx xxx xxx

(c) Cigarettes packed by machine. — There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer's wholesale price or the actual manufacturer's wholesale price, whichever is higher:

(1) On locally manufactured cigarettes which are currently classified and taxed at fifty-five percent (55%) or the exportation of which is not authorized by contract or otherwise, fifty-five (55%) provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack.

(2) On other locally manufactured cigarettes, forty-five percent (45%) provided that the minimum tax shall not be less than Three Pesos (P3.00) per pack.

xxx xxx xxx

When the registered manufacturer's wholesale price or the actual manufacturer's wholesale price whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed Four Pesos and eighty centavos (P4.80) per pack, the rate shall be twenty percent (20%). 7 (Emphasis supplied)

About a month after the enactment and two (2) days before the effectivity of RA 7654, Revenue Memorandum Circular No. 37-93 ("RMC 37-93"), was issued by the BIR the full text of which expressed:

REPUBLIKA NG PILIPINASKAGAWARAN NG PANANALAPI

KAWANIHAN NG RENTAS INTERNAS

July 1, 1993

REVENUE MEMORANDUM CIRCULAR NO. 37-93

SUBJECT: Reclassification of Cigarettes Subject to Excise Tax

TO: All Internal Revenue Officers and Others Concerned.

In view of the issues raised on whether "HOPE," "MORE" and "CHAMPION" cigarettes which are locally manufactured are appropriately considered as locally manufactured cigarettes bearing a foreign brand, this Office is compelled to review the previous rulings on the matter.

Section 142 (c)(1) National Internal Revenue Code, as amended by R.A. No. 6956, provides:

On locally manufactured cigarettes bearing a foreign brand, fifty-five percent (55%) Provided, That this rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. Whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern.

Under the foregoing, the test for imposition of the 55% ad valorem tax on cigarettes is that the locally manufactured cigarettes bear a foreign brand regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer. The brand must be originally owned by a foreign manufacturer or producer. If ownership of the cigarette brand is, however, not definitely determinable, ". . . the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern. . . ."

"HOPE" is listed in the World Tobacco Directory as being manufactured by (a) Japan Tobacco, Japan and (b) Fortune Tobacco, Philippines. "MORE" is listed in the said directory as being manufactured by: (a) Fills de Julia Reig, Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald Canada; (d) Rettig-Strenberg, Finland; (e) Karellas, Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New

Zealand; (h) Fortune Tobacco, Philippines; (i) R.J. Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k) Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m) R.J. Reynolds, USA. "Champion" is registered in the said directory as being manufactured by (a) Commonwealth Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan; (d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and (f) Tabac Reunies, Switzerland.

Since there is no showing who among the above-listed manufacturers of the cigarettes bearing the said brands are the real owner/s thereof, then it follows that the same shall be considered foreign brand for purposes of determining the ad valorem tax pursuant to Section 142 of the National Internal Revenue Code. As held in BIR Ruling No. 410-88, dated August 24, 1988, "in cases where it cannot be established or there is dearth of evidence as to whether a brand is foreign or not, resort to the World Tobacco Directory should be made."

In view of the foregoing, the aforesaid brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation are hereby considered locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes.

Any ruling inconsistent herewith is revoked or modified accordingly.

(SGD) LIWAYWAY VINZONS-CHATO

Commissioner

On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On 15 July 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93.

In a letter, dated 19 July 1993, addressed to the appellate division of the BIR, Fortune Tobacco requested for a review, reconsideration and recall of RMC 37-93. The request was denied

on 29 July 1993. The following day, or on 30 July 1993, the CIR assessed Fortune Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.

On 03 August 1993, Fortune Tobacco filed a petition for review with the CTA. 8

On 10 August 1994, the CTA upheld the position of Fortune Tobacco and adjudged:

WHEREFORE, Revenue Memorandum Circular No. 37-93 reclassifying the brands of cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being manufactured by Fortune Tobacco Corporation as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax on cigarettes is found to be defective, invalid and unenforceable, such that when R.A. No. 7654 took effect on July 3, 1993, the brands in question were not CURRENTLY CLASSIFIED AND TAXED at 55% pursuant to Section 1142(c)(1) of the Tax Code, as amended by R.A. No. 7654 and were therefore still classified as other locally manufactured cigarettes and taxed at 45% or 20% as the case may be.

Accordingly, the deficiency ad valorem tax assessment issued on petitioner Fortune Tobacco Corporation in the amount of P9,598,334.00, exclusive of surcharge and interest, is hereby canceled for lack of legal basis.

Respondent Commissioner of Internal Revenue is hereby enjoined from collecting the deficiency tax assessment made and issued on petitioner in relation to the implementation of RMC No. 37-93.

SO ORDERED. 9

In its resolution, dated 11 October 1994, the CTA dismissed for lack of merit the motion for reconsideration.

The CIR forthwith filed a petition for review with the Court of Appeals, questioning the CTA's 10th August 1994 decision and 11th October 1994 resolution. On 31 March 1993, the appellate

court's Special Thirteenth Division affirmed in all respects the assailed decision and resolution.

In the instant petition, the Solicitor General argues: That —

I. RMC 37-93 IS A RULING OR OPINION OF THE COMMISSIONER OF INTERNAL REVENUE INTERPRETING THE PROVISIONS OF THE TAX CODE.

II. BEING AN INTERPRETATIVE RULING OR OPINION, THE PUBLICATION OF RMC 37-93, FILING OF COPIES THEREOF WITH THE UP LAW CENTER AND PRIOR HEARING ARE NOT NECESSARY TO ITS VALIDITY, EFFECTIVITY AND ENFORCEABILITY.

III. PRIVATE RESPONDENT IS DEEMED TO HAVE BEEN NOTIFIED OR RMC 37-93 ON JULY 2, 1993.

IV. RMC 37-93 IS NOT DISCRIMINATORY SINCE IT APPLIES TO ALL LOCALLY MANUFACTURED CIGARETTES SIMILARLY SITUATED AS "HOPE," "MORE" AND "CHAMPION" CIGARETTES.

V. PETITIONER WAS NOT LEGALLY PROSCRIBED FROM RECLASSIFYING "HOPE," "MORE" AND "CHAMPION" CIGARETTES BEFORE THE EFFECTIVITY OF R.A. NO. 7654.

VI. SINCE RMC 37-93 IS AN INTERPRETATIVE RULE, THE INQUIRY IS NOT INTO ITS VALIDITY, EFFECTIVITY OR ENFORCEABILITY

BUT INTO ITS CORRECTNESS OR PROPRIETY; RMC 37-93 IS CORRECT. 10

In fine, petitioner opines that RMC 37-93 is merely an interpretative ruling of the BIR which can thus become effective without any prior need for notice and hearing, nor publication, and that its issuance is not discriminatory since it would apply under similar circumstances to all locally manufactured cigarettes.

The Court must sustain both the appellate court and the tax court.

Petitioner stresses on the wide and ample authority of the BIR in the issuance of rulings for the effective implementation of the provisions of the National Internal Revenue Code. Let it be made clear that such authority of the Commissioner is not here doubted. Like any other government agency, however, the CIR may not disregard legal requirements or applicable principles in the exercise of its quasi-legislative powers.

Let us first distinguish between two kinds of administrative issuances — a legislative rule and aninterpretative rule.

In Misamis Oriental Association of Coco Traders, Inc., vs. Department of Finance Secretary, 11 the Court expressed:

. . . a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details thereof . In the same way that laws must have the benefit of public hearing, it is generally required that before a legislative rule is adopted there must be hearing. In this connection, the Administrative Code of 1987 provides:

Public Participation. — If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.

(2) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a

newspaper of general circulation at least two (2) weeks before the first hearing thereon.

(3) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published. On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing. 12

It should be understandable that when an administrative rule is merely interpretative in nature, its applicability needs nothing further than its bare issuance for it gives no real consequence more than what the law itself has already prescribed. When, upon the other hand, the administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed, it behooves the agency to accord at least to those directly affected a chance to be heard, and thereafter to be duly informed, before that new issuance is given the force and effect of law.

A reading of RMC 37-93, particularly considering the circumstances under which it has been issued, convinces us that the circular cannot be viewed simply as a corrective measure (revoking in the process the previous holdings of past Commissioners) or merely as construing Section 142(c)(1) of the NIRC, as amended, but has, in fact and most importantly, been made in order to place "Hope Luxury," "Premium More" and "Champion" within the classification of locally manufactured cigarettes bearing foreign brands and to thereby have them covered by RA 7654. Specifically, the new law would have its amendatory provisions applied to locally manufactured cigarettes which at the time of its effectivity were not so classified as bearing foreign brands. Prior to the issuance of the questioned circular, "Hope Luxury," "Premium More," and "Champion" cigarettes were in the category of locally manufactured cigarettes not bearing foreign brand subject to 45% ad valorem tax. Hence, without RMC 37-93, the enactment of RA 7654, would have had no new tax rate consequence on private respondent's products. Evidently, in order to place "Hope Luxury," "Premium More," and "Champion" cigarettes within the scope of the amendatory law and subject them to an increased tax rate, the now

disputed RMC 37-93 had to be issued. In so doing, the BIR not simply intrepreted the law; verily, it legislated under its quasi-legislative authority. The due observance of the requirements of notice, of hearing, and of publication should not have been then ignored.

Indeed, the BIR itself, in its RMC 10-86, has observed and provided:

RMC NO. 10-86Effectivity of Internal Revenue Rules and Regulations

It has been observed that one of the problem areas bearing on compliance with Internal Revenue Tax rules and regulations is lack or insufficiency of due notice to the tax paying public. Unless there is due notice, due compliance therewith may not be reasonably expected. And most importantly, their strict enforcement could possibly suffer from legal infirmity in the light of the constitutional provision on "due process of law" and the essence of the Civil Code provision concerning effectivity of laws, whereby due notice is a basic requirement (Sec. 1, Art. IV, Constitution; Art. 2, New Civil Code).

In order that there shall be a just enforcement of rules and regulations, in conformity with the basic element of due process, the following procedures are hereby prescribed for the drafting, issuance and implementation of the said Revenue Tax Issuances:

(1) This Circular shall apply only to (a) Revenue Regulations; (b) Revenue Audit Memorandum Orders; and (c) Revenue Memorandum Circulars and Revenue Memorandum Orders bearing on internal revenue tax rules and regulations.

(2) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after the following procedures have been taken;

xxx xxx xxx

(5) Strict compliance with the foregoing procedures isenjoined. 13

Nothing on record could tell us that it was either impossible or impracticable for the BIR to observe and comply with the above requirements before giving effect to its questioned circular.

Not insignificantly, RMC 37-93 might have likewise infringed on uniformity of taxation.

Article VI, Section 28, paragraph 1, of the 1987 Constitution mandates taxation to be uniform and equitable. Uniformity requires that all subjects or objects of taxation, similarly situated, are to be treated alike or put on equal footing both in privileges and liabilities. 14 Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate 15 and the tax must operate with the same force and effect in every place where the subject may be found.

Apparently, RMC 37-93 would only apply to "Hope Luxury," "Premium More" and "Champion" cigarettes and, unless petitioner would be willing to concede to the submission of private respondent that the circular should, as in fact my esteemed colleague Mr. Justice Bellosillo so expresses in his separate opinion, be considered adjudicatory in nature and thus violative of due process following the Ang Tibay 16 doctrine, the measure suffers from lack of uniformity of taxation. In its decision, the CTA has keenly noted that other cigarettes bearing foreign brands have not been similarly included within the scope of the circular, such as —

1. Locally manufactured by ALHAMBRA INDUSTRIES, INC.

(a) "PALM TREE" is listed as manufactured by office of Monopoly, Korea (Exhibit "R")

2. Locally manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY

(a) "GOLDEN KEY" is listed being manufactured by United Tobacco, Pakistan (Exhibit "S")

(b) "CANNON" is listed as being manufactured by Alpha Tobacco, Bangladesh (Exhibit "T")

3. Locally manufactured by LA PERLA INDUSTRIES, INC.

(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U")

(b) "RIGHT" is listed as being manufactured by SVENSKA, Tobaks, Sweden (Exhibit "V-1")

4. Locally manufactured by MIGHTY CORPORATION

(a) "WHITE HORSE" is listed as being manufactured by Rothman's, Malaysia (Exhibit "U-1")

5. Locally manufactured by STERLING TOBACCO CORPORATION

(a) "UNION" is listed as being manufactured by Sumatra Tobacco, Indonesia and Brown and Williamson, USA (Exhibit "U-3")

(b) "WINNER" is listed as being manufactured by Alpha Tobacco,

Bangladesh; Nangyang, Hongkong; Joo Lan, Malaysia; Pakistan Tobacco Co., Pakistan; Premier Tobacco, Pakistan and Haggar, Sudan (Exhibit "U-4"). 17

The court quoted at length from the transcript of the hearing conducted on 10 August 1993 by the Committee on Ways and Means of the House of Representatives; viz:

THE CHAIRMAN. So you have specific information on Fortune Tobacco alone. You don't have specific information on other tobacco manufacturers. Now, there are other brands which are similarly situated. They are locally manufactured bearing foreign brands. And may I enumerate to you all these brands, which are also listed in the World Tobacco Directory . . . Why were these brand not reclassified at 55 if your want to give a level playing filed to foreign manufacturers?

MS. CHATO. Mr. Chairman, in fact, we have already prepared a Revenue Memorandum Circular that was supposed to come after RMC No. 37-93 which have really named specifically the list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes and includes all these brands that you mentioned at 55 percent except that at that time, when we had to come up with this, we were forced to study the brands of Hope, More and Champion because we were given documents that would indicate the that these brands were actually being claimed or patented in other countries because we went by Revenue Memorandum Circular 1488 and we wanted to give some rationality to how it came about but we couldn't find the rationale there. And we really found based on our own interpretation that the only test that is given by that existing law would be registration in the World Tobacco Directory. So we came out with this proposed revenue memorandum circular which we forwarded to the Secretary of Finance except that at that point in time, we went by the Republic Act 7654 in Section 1 which amended Section 142, C-1, it said, that on locally manufactured cigarettes which are currently classified and taxed at 55 percent. So we were saying that when this law took effect in July 3 and if we are going to come up with this revenue circular thereafter, then I think our action

would really be subject to question but we feel that . . . Memorandum Circular Number 37-93 would really cover even similarly situated brands. And in fact, it was really because of the study, the short time that we were given to study the matter that we could not include all the rest of the other brands that would have been really classified as foreign brand if we went by the law itself. I am sure that by the reading of the law, you would without that ruling by Commissioner Tan they would really have been included in the definition or in the classification of foregoing brands. These brands that you referred to or just read to us and in fact just for your information, we really came out with a proposed revenue memorandum circular for those brands. (Emphasis supplied)

(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).

xxx xxx xxx

MS. CHATO. . . . But I do agree with you now that it cannot and in fact that is why I felt that we . . . I wanted to come up with a more extensive coverage and precisely why I asked that revenue memorandum circular that would cover all those similarly situated would be prepared but because of the lack of time and I came out with a study of RA 7654, it would not have been possible to really come up with the reclassification or the proper classification of all brands that are listed there. . .(emphasis supplied) (Exhibit "FF-2d," page IX-1)

xxx xxx xxx

HON. DIAZ. But did you not consider that there are similarly situated?

MS. CHATO. That is precisely why, Sir, after we have come up with this Revenue Memorandum Circular No. 37-93, the other brands came about the would have also clarified RMC 37-93 by I was saying really because of the fact that I was just recently appointed and the lack of time, the period that was allotted to us to come up with the right actions on the matter, we were really caught by the July 3 deadline. But in fact, We have already prepared a revenue

memorandum circular clarifying with the other . . . does not yet, would have been a list of locally manufactured cigarettes bearing a foreign brand for excise tax purposes which would include all the other brands that were mentioned by the Honorable Chairman. (Emphasis supplied) (Exhibit "FF-2-d," par. IX-4). 18

All taken, the Court is convinced that the hastily promulgated RMC 37-93 has fallen short of a valid and effective administrative issuance.

WHEREFORE, the decision of the Court of Appeals, sustaining that of the Court of Tax Appeals, is AFFIRMED. No costs.

SO ORDERED.

Kapunan, J., concurs.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 166786             May 3, 2006

MICHEL J. LHUILLER Pawnshop, Inc. Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

YNARES-SANTIAGO, J.:

Assailed in this petition for review on certiorari is the June 29, 2004 Decision1 of the Court of Appeals in CA-G.R. SP No. 67667, which reversed the October 24, 2001 Decision2 of the Court Tax Appeals and ordered petitioner Michel J. Lhuillier Pawnshop, Inc., to pay (1) P19,961,636.09 as

deficiency Value Added Tax (VAT); and (2) P3,142,986.02 as deficiency Documentary Stamp Tax (DST), for the year 1997.

The facts show that petitioner, a corporation engaged in the pawnshop business, received Assessment Notice Nos. 81-VAT-13-97-99-12-118 and 81-DST-13-97-99-12-119, issued by the Chief Assessment Division, Revenue Region No. 13, Cebu City, for deficiency VAT in the amount of P19,961,636.09 and deficiency DST in the amount of P13,142,986.02, for the year 1997. Petitioner filed a motion for reconsideration of said assessment notices but was denied by respondent Commissioner of Internal Revenue (CIR).

On petition for review with the Court of Tax Appeals, the latter rendered decision in favor of petitioner setting aside the assessment notices issued by the CIR. It ruled, inter alia, that the subject of a DST under Section 195 of the National Internal Revenue Code (NIRC) is the document evidencing the covered transaction. Holding that a pawn ticket is neither a security nor a printed evidence of indebtedness, the tax court concluded that such pawn ticket cannot be the subject of a DST. The dispositive portion thereof, states:

WHEREFORE, in view of all the foregoing, the instant Petition for Review is hereby GRANTED. Accordingly, Assessment Notices Nos. 81-VAT-13-97-99-12-118 and 81-DST-13-97-99-11-119 are hereby CANCELLED and SET ASIDE.

SO ORDERED.3

Respondent filed a petition for review with the Court of Appeals which reversed the CTA decision and sustained the assessments against petitioner. It ratiocinated, among others, that a pawn ticket, per se, is not subject to DST; rather, it is the transaction involved, which in this case is pledge, that is being taxed. Hence, petitioner was properly assessed to pay DST. The decretal portion thereof, provides:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Tax Appeals dated October 24, 2001 is REVERSED and SET ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is ORDERED TO PAY: (1) P19,961636.09, as deficiency Value-Added Tax, inclusive of surcharge and interest; and (2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997. No pronouncement as to cost.

SO ORDERED.4

Respondent filed a motion for partial reconsideration praying that petitioner be ordered to pay deficiency interest of 20% per annum for failure to pay the same on January 2, 2000, as indicated in the notices. On December 29, 2004, the Court of Appeals granted the motion and modified the June 29, 2004 decision as follows:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Tax Appeals dated October 24, 2001 is REVERSED and SET ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is ORDERED TO PAY: (1) 19,961,636.09, as deficiency Value-Added Tax, inclusive of surcharge and interest; (2) P3,142,986.02, as deficiency Documentary Stamp Tax, inclusive of surcharge and interest, for the year 1997; and (3) Delinquency Interest at the rate of 20% per annum from January 2, 2000, until the deficiency assessment are fully paid, pursuant to Section 249 of the National Internal Revenue Code. No pronouncement as to costs.

SO ORDERED.5

On January 25, 2005, petitioner elevated the case to this Court. Subsequently, it filed a motion to withdraw the petition with respect to the issue of VAT.6 Petitioner manifested that the Chamber of Pawnbrokers of the Philippines, where it is a member, entered into a Memorandum of Agreement7 with the Bureau of Internal Revenue (BIR) allowing the pawnshop industry to compromise the issue of VAT on pawnshops. Considering that petitioner already paid the agreed amount of settlement, it prayed that the case be decided solely on the issue of DST.

On September 28, 2005, the Court granted petitioner’s partial withdrawal of the petition.8 Hence, the lone question to be resolved in the present petition is whether petitioner’s pawnshop transactions are subject to DST.

The Court rules in the affirmative.

Sections 173 and 195 of the NIRC, state:

SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments, and Papers. – Upon documents, instruments, loan agreements and papers, and upon acceptances, assignments, sales and transfers of the obligation, right or property incident thereto, there shall be levied,

collected and paid for, and in respect of the transaction so had or accomplished, the corresponding documentary stamp taxes x x x. (Emphasis supplied)

SEC. 195. Stamp Tax on Mortgages, Pledges, and Deeds of Trust. – On every mortgage or pledge of lands, estate, or property, real or personal, heritable or movable, whatsoever, where the same shall be made as security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable and on any conveyance of land, estate, or property whatsoever, in trust or to be sold, or otherwise converted into money which shall be and intended only as security, either by express stipulation or otherwise, there shall be collected a documentary stamp tax at the following rates:

"(a) When the amount secured does not exceed Five thousand pesos (P5,000), Twenty pesos (P20).1avvphil.net

(b) On each Five thousand pesos (P5,000), or fractional part thereof in excess of Five thousand pesos (P5,000), an additional tax of Ten pesos (10.00).

x x x x. (Emphasis supplied)

It is clear from the foregoing provisions that the subject of a DST is not limited to the document embodying the enumerated transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations, rights or properties incident thereto. In Philippine Home Assurance Corporation v. Court of Appeals,9 it was held that:

In general, documentary stamp taxes are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. Examples of such privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment of documentary stamp taxes are leases of lands, mortgages, pledges and trusts, and conveyances of real property. (Emphasis added)

Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or to a third person movable property as security for the performance of the principal obligation, upon the fulfillment of which the thing pledged, with all

its accessions and accessories, shall be returned to the debtor or to the third person.10 This is essentially the business of pawnshops which are defined under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending money on personal property delivered as security for loans.

Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and Regulations For Pawnshops11issued by the Central Bank12 to implement the Act, require every pawnshop or pawnbroker to issue, at the time of every such loan or pledge, a memorandum or ticket signed by the pawnbroker and containing the following details: (1) name and residence of the pawner; (2) date the loan is granted; (3) amount of principal loan; (4) interest rate in percent; (5) period of maturity; (6) description of pawn; (7) signature of pawnbroker or his authorized agent; (8) signature or thumb mark of pawner or his authorized agent; and (9) such other terms and conditions as may be agreed upon between the pawnbroker and the pawner. In addition, Central Bank Circular No. 445,13 prescribed a standard form of pawn tickets with entries for the required details on its face and the mandated terms and conditions of the pledge at the dorsal portion thereof.

Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:

"Pawn ticket" is the pawnbrokers’ receipt for a pawn. It is neither a security nor a printed evidence of indebtedness."

True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of pledge. At any rate, it is not said ticket that creates the pawnshop’s obligation to pay DST but the exercise of the privilege to enter into a contract of pledge. There is therefore no basis in petitioner’s assertion that a DST is literally a tax on a document and that no tax may be imposed on a pawn ticket.

The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government; and that a tax cannot be imposed without clear and express words for that purpose.14 Taking our bearing from the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that said provision may be interpreted in favor of petitioner. Section 195 unqualifiedly subjects all pledges to DST. It states that "[o]n every x x x pledge x x x there shall be collected a documentary stamp tax x x x." It is clear, categorical, and needs no further interpretation or construction. The explicit tenor thereof requires hardly anything than a simple application.15

The onus of proving that pawnshops are not subject to DST is thus shifted to petitioner. In establishing tax exemptions, it should be borne in mind that taxation is the rule, exemption is the exception. Accordingly, statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. One who claims an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted.16

In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment of DST. Section 19917 of the NIRC enumerated certain documents which are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioner’s nebulous claim that it is not subject to DST is without merit. It cannot be over-emphasized that tax exemption represents a loss of revenue to the government and must, therefore, not rest on vague inference.18 Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be clear and express; it cannot be made to rest on doubtful implications.19

The Court notes that BIR Ruling No. 305-87,20 and BIR Ruling No. 018-88,21 which held that a pawn ticket is subject to DST because it is an evidence of a pledge transaction, had been revoked by BIR Ruling No. 325-88.22In the latter ruling, the BIR held that DST is a tax on the document; and since a pawn ticket is not an evidence of indebtedness, it cannot be subject to DST. Nevertheless, this interpretation is not consistent with the provisions of Section 195 of the NIRC which categorically taxes the privilege to enter into a contract of pledge. Indeed, administrative issuances must not override, supplant or modify the law but must be consistent with the law they intend to carry out.23

Finally, petitioner invokes the declaration of nullity of Revenue Memorandum Circular (RMC) No. 43-91 inCommissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc.24 Said case, however, is not applicable to the present controversy. RMC No. 43-91 is actually a clarification of Revenue Memorandum Order No. 15-91 which classified pawnshops as "lending investors" and imposed upon them a 5% lending investor’s tax. While RMC No. 43-91 declared in addition that pawnshops are subject to DST, such was never an issue inCommissioner of Internal Revenue v. Michel J. Lhuillier Pawnshop, Inc., because nowhere was it mentioned therein that the pawnshop involved was directed to pay DST. Otherwise stated, the declaration of nullity of RMC No. 43-91 was the Court’s finding, among others, that pawnshops cannot be classified as lending investors; and certainly not because pawnshops are not subject to DST. The invocation of said ruling is therefore misplaced.

WHEREFORE, the petition is DENIED and the June 29, 2004 Decision of the Court of Appeals, as modified on December 29, 2004, in CA-G.R. SP No. 67667, is AFFIRMED.

SO ORDERED.

CONSUELO YNARES-SANTIAGOAssociate Justice

Republic of the PhilippinesSUPREME COURT

SECOND DIVISION

G.R. No. 139736 October 17, 2005

BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, Respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,1 which reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated 02 February 1999,2 and which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner Bank of the Philippine Islands (BPI) to pay the amount of P28,020.00 as deficiency documentary stamp tax (DST) for the taxable year 1985, inclusive of the compromise penalty.

There is hardly any controversy as to the factual antecedents of this Petition.

Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00.

On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054,3finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank, computed as follows –

1985 Deficiency Documentary Stamp TaxForeign Bills of Exchange………………………….. P 18,480,000.00Tax Due Thereon:

P 18,480,000.00  x P0.30 (Sec. 182 NIRC).

P200.00Add: Suggested compromise penalty………….……TOTAL AMOUNT DUE AND COLLECTIBLE…. P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20 October 1989.

Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. The said protest letter is reproduced in full below –

November 16, 1989

The Commissioner of Internal Revenue

Quezon City

Attention of: Mr. Pedro C. Aguillon

Asst. Commissioner for Collection

Sir:

On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your assessment against it for deficiency documentary stamp tax for the year 1985 in the amount of P28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and another U.S. $500,000.00 on June 14, 1985.

1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of documentary stamp tax is added to the total price or charge to the buyer and the seller affixes the corresponding documentary stamp on the document. Similarly, when the Central Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary stamp on the transaction.

2. In the two transactions subject of your assessment, no documentary stamps were affixed because the buyer, Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of the Tax Code "that whenever one party to a taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax," this proviso (and the other amendments of P.D. 1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for the documentary stamp tax could not be shifted to the seller.

In view of the foregoing, we request that the assessment be revoked and cancelled.

Very truly yours,

PADILLA LAW OFFICE

By:

(signed)

SABINO PADILLA, JR.5

Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.7

Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its "request for

reconsideration," and addressing the points raised by petitioner BPI in its protest letter, dated 16 November 1989, thus –

In reply, please be informed that after a thorough and careful study of the facts of the case as well as the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally untenable. It is admitted that while industry practice or market convention has the force of law between the members of a particular industry, it is not binding with the BIR since it is not a party thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art. 1306 of the New Civil Code.)

Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code, as amended, the same was already interpreted to hold that the other party who is not exempt from the payment of documentary stamp tax liable from the tax. This interpretation was further strengthened by the following BIR Rulings which in substance state:

1. BIR Unnumbered Ruling dated May 30, 1977 –

"x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or transferring the instrument, document or paper. It is now settled that where one party to the instrument is exempt from said taxes, the other party who is not exempt should be liable."

2. BIR Ruling No. 144-84 dated September 3, 1984 –

"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other party to the contract and the one assuming the payment of the expenses incidental to the registration in the vendee’s name of the property sold, is not exempt from said tax, then it is the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977, as amended."

Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.8

Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October 1997;9 to which

respondent BIR Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08 December 1997.10

Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest. In her Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s protest; and remained silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST.

After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.

The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that –

In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a "protest" is to be treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . .

. . .

In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment on November 17, 1989, there can be no conclusion other than that said protest stopped the running of the prescriptive period of the Commissioner to collect.

Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by the Commissioner, shall suspend the prescriptive period to collect. The underscored portion above does not mean that the Commissioner will cancel the subject assessment but should be construed as when the same was entertained by the Commissioner by not issuing any warrant of distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and until the request for reinvestigation is finally given due course. Taking into consideration this provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which specifically and categorically states that a protest could be considered as a request for reinvestigation, We rule that prescription has not set in against the government.11

The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier case,Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,12 the CTA reached the conclusion that the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were not subject to DST –

From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from paying the documentary stamp tax for the period above-mentioned. This Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the Central Bank is shifted to the seller.

Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for the former’s 1985 sales of foreign currencies to the latter. This aforecited case of Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in its resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with the Supreme Court under Entry of Judgment dated March 1, 1996.13

In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt.

Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its Decision dated 11 August 1999,14 the Court of Appeals sustained the finding of the CTA on the first issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and, therefore, the prescriptive period for collection on the Assessment had not yet lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on the second issue and basically adopted the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty.

Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution of the same two legal issues raised and discussed in the courts below, to reiterate: (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.

I

The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were already barred by prescription.

Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed.

The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax Code of 1977, as amended,15 which provides that –

SEC. 203. Period of limitation upon assessment and collection. – Except as provided in the succeeding section, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.16

The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the following provisions of the same Code –

SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. – (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof.

(b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

(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.

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding section and paragraph (a) hereof shall be construed to authorize the examination and investigation or inquiry into any tax returns filed in accordance with the provisions of any tax amnesty law or decree.17

SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided,That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.18

As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three years19 after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.20

In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the prescription of the period to collect the deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10 October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to when the said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it can be granted that

the latest date the BIR could have released, mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20 October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20 October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed deficiency DST.

The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI only on 23 October 1992.

Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrantand service thereof on the taxpayer.22 It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed.

If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what more the letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI and requesting payment of the deficiency DST? Even later and more unequivocally barred by prescription on collection was the demand made by respondent BIR Commissioner for payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the CTA, filed on 08 December 1997.23

II

There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed DST under the Tax Code of 1977, as

amended.

In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI.

A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor.

Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.24 As aptly explained in Republic of the Philippines v. Ablaza25 –

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.

In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 22426 thereof the circumstances when the

prescriptive periods for assessing and collecting taxes could be suspended or interrupted.

To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government.

B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, respectively. Petitioner BPI, however, did not execute any such waiver in the case at bar.

According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit –

SEC. 223. – Exceptions as to period of limitation of assessment and collection of taxes. –

. . .

(b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon.

. . .

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.27

The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed

as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally.28

A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with.

This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.29

In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of collection of the said tax up to December 31, 1993 pending reconsideration of its protest. . ."30 Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended.

C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of the statute of limitations on collection of the

assessed deficiency DST under Section 224 of the Tax Code of 1977, as amended.

The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224 thereof, which reads –

SEC. 224. Suspension of running of statute. – The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided,That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.31

Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended "when the taxpayer requests for a reinvestigation which is granted by the Commissioner."

This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows –

PROTEST TO ASSESSMENT

SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation. . .

. . .

For the purpose of the protest herein –

(a) Request for reconsideration. – refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both.

(b) Request for reinvestigation. – refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both.

With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter can not.

The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on 17 November 1989, did not specifically request for either a reconsideration or reinvestigation. A close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a question of law, in particular, whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI as a request for reconsideration.32 These considerations would lead this Court to deduce that the protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on the suspension of the running of the statute of limitations should not apply.

Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and collection.

That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence.

In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that –

. . .The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . .34

In Republic of the Philippines v. Acebedo,35 this Court similarly found that –

. . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this request was considered or acted upon.In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection.

The burden of proof that the taxpayer’s request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the

actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation.

In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original assessment against taxpayer Querol was revised by permitting him to deduct reasonable depreciation. In another case, Republic of the Philippines v. Lopez,37 taxpayer Lopez filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a collection suit against taxpayer Lopez. When the taxpayers spouses Sison, inCommissioner of Internal Revenue v. Sison,38 contested the assessment against them and asked for a reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly, in Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquias’s request for reinvestigation and duly notified him of the date when such reinvestigation would be held; only, neither taxpayer Oquias nor his counsel appeared on the given date.

In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same cases that the period between the request for reinvestigation and the revised assessment should be subtracted from the total prescriptive period for the assessment of the tax; and, once the assessment had been reconsidered at the taxpayer’s instance, the period for collection should begin to run from the date of the reconsidered or modified assessment.40

The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had been conducted.

Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter until 10 September 1992, less than a month before the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was due to expire.

There were internal communications, mostly indorsements of the docket of the case from one BIR division to another; but these hardly fall within the same sort of acts in the previously discussed cases that satisfactorily demonstrated the grant of the taxpayer’s request for reinvestigation. Petitioner BPI, in the meantime, was left in the dark as to the status of its protest in the absence of any word from the BIR. Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet acted on the protest of the former –

This refers to your protest against and/or request for reconsideration of the assessment/s of this Office against you involving the amount of P28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty for the year 1985.

In this connection, it is requested that the enclosed waiver of the statute of limitations extending the period of collection of the said tax/es to December 31, 1993 be executed by you as a condition precedent of our giving due course to your protest…41

When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of limitations on collection was a condition precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was understood that the grant of such request for reconsideration was being held off until compliance with the given condition. When petitioner BPI failed to comply with the condition precedent, which was the execution of the waiver, the logical inference would be that the request was not granted and was not given due course at all.

III

The suspension of the statute of limitations on collection of the assessed deficiency DST from petitioner BPI does not find support in jurisprudence.

It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said prescriptive period was suspended, invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.42 It was in this case in which this Court ruled that the prescriptive period provided by law to make a collection is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment.

Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had unjustifiably expanded the grounds for suspending the prescriptive period for collection of national internal revenue taxes.

This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the said case cannot be applied to the particular facts of the Petition at bar.

A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax Code, was recognized in the Suyoc case.

As had been previously discussed herein, the statute of limitations on assessment and collection of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.43

In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the same time, reserving its right to question the correctness of the assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the collection of the reduced assessment that was questioned before this Court for being enforced beyond the prescriptive period.44

In resolving the issue on prescription, this Court ratiocinated thus –

It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.45

By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of the Government to collect the tax assessed against it. This Court adopted the following principle from American jurisprudence: "He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect ‘this is your own act, and therefore you are not damnified.’"46

In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense

of prescription because by his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax.

Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that the statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or reinvestigation, runs counter to the ruling made by this Court in the Suyoc case.

B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved herein.

In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of this Court –

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . .

. . .

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration…

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final assessment… It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.47

The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, "settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment."48 It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.

The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended.49

To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for

reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted.50 The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation.51

This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that, "[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division…" The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment.

The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as clarified and qualified herein, such request is granted by the BIR Commissioner.

Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein. As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted or acted upon by the BIR.

IV

Conclusion

To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of limitations on collection.

The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner.

Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case.

Applying the given rules to the present Petition, this Court finds that –

(a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued against petitioner BPI, had already expired; and

(b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein: Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was granted by respondent BIR Commissioner which could have suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and that would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the tax assessed, as required in the Suyoc case.

This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They presented no reason or explanation as to why it took them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the

taxpayer from such prolonged and unreasonable assessment and investigation by the BIR.

Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a determination on the validity and correctness of the said Assessment for the latter would only be unenforceable.

Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED.

SO ORDERED.

MINITA V. CHICO-NAZARIO

Associate Justice

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 109976             April 26, 2005

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

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.

D E C I S I O N

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 ofP335,259,450.21.  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 ofP303,343,765.32 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 P        2,952,349.23Add: Payment made by PNOC pursuant to the compromise agreement of June 22, 1987

P           91,003,129.89

Total tax payment P           93,955,479.12

Private respondent Savellano, through four installments, was paid the informer's reward in the total amount ofP14,093,321.89, 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 P    385,961,580.82Final tax rateInformer's reward due (BIR deficiency tax assessment x Final tax rate)

P      57,894,237.12

Less: Payment received by private respondent Savellano P           14,093,321.89 Outstanding balance P     43,800,915.25

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 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

In his Answer filed with the CTA, BIR Commissioner Tan asserted that the Petition stated no cause of action against him, and that private respondent Savellano was already paid the 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 privity with private respondent Savellano; (2) the BIR Commissioner's discretionary act in entering into the compromise agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against it.23 On the other hand, PNB asserted that (1) the CTA lacked jurisdiction over the case; and (2) the BIR Commissioner's decision to accept the compromise was discretionary on his part and, therefore, cannot be reviewed or interfered with by the courts.24 PNOC and PNB later filed their amended Answer invoking an opinion of the Commission on Audit (COA) disallowing the payment by the BIR of 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 dated November 11, 1986

P     385,961,580.82

Less: Amount paid under E.O. No. 44 P             91,003,129.89 Amount still due and collectible P         294,958,450.73 30

This BIR letter was received by PNB on 06 February 1991,31 and was protested by it through a letter, dated 11 April 1991.32 The BIR denied 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

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 ofP294,958,450.73, 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

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:

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.,58and refers to the earlier case of Lichauco & Company, Inc. v. Apostol, et al.,59 for the guidelines in determining the relation between the two statutes in question, to wit:

The cases relating to the subject of repeal by implication all proceed on the assumption that if the act of later date clearly reveals an intention on the part of the law making power to abrogate the prior law, this intention must be given effect; but there must always be a sufficient revelation of this intention, and it has become an unbending rule of statutory construction that the intention to repeal a former law will not be imputed to the Legislature when it appears that the two statutes, or provisions,

with reference to which the question arises bear to each other the relation of general to special.  (Underscoring ours.)

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

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

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

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

Sustained herein is the contention of private respondent Savellano that P.D. No. 242 is a general law that deals with administrative settlement or adjudication of disputes, claims and controversies between or among government offices, agencies and instrumentalities, including government-owned or controlled corporations. Its coverage is broad and sweeping, encompassing all disputes, claims and controversies.  It has been incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as the Revised Administrative Code of the Philippines.62 On the other hand, Rep. Act No. 1125 is a special law63 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.

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 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 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.

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

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

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

PNOC reiterated the offer in its letter to the BIR, dated 14 October 1986.77 The BIR, in its letters to PNOC, dated 8 October 198678 and 11 November 1986,79 consistently denied PNOC's offer because the claim for tax refund/credit of NAPOCOR was still under process, so that the offer to set-off such claim against PNOC's tax liability was premature.

Furthermore, E.O. No. 44 does not contemplate compromise payment by set-off of a tax liability against a claim for tax refund/credit.  Compromise under E.O. No. 44 may be availed of only in the following circumstances:

SEC. 3.  Who may avail. – Any person, natural or juridical, may settle thru a compromise any delinquent account or disputed assessment which has been due as of December 31, 1985, by paying an amount equal to thirty percent (30%) of the basic tax assessed.

…

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

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

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

PNOC's offer to set-off was obviously made to avoid actual cash-out by the company. The offer defeated the purpose of E.O. No. 44 because it would not only delay collection, but more importantly, it would not guarantee collection.  First of all, BIR's collection was contingent on whether the claim

for tax refund/credit of NAPOCOR would be subsequently granted.  Second, collection could not be made immediately and would have to wait until the resolution of the claim for tax refund/credit of NAPOCOR.  Third, there is no proof, other than the bare allegation of PNOC, that NAPOCOR's claim for tax refund/credit is an account receivable of PNOC.  A possible dispute between NAPOCOR and PNOC as to the proceeds of the tax refund/credit would only delay collection by the BIR even further.

It was only in its letter, dated 09 June 1987, that PNOC actually offered to compromise its tax liability in accordance with the terms and circumstances prescribed by E.O. No. 44 and its implementing rules and regulations, by stating that:

Consequently, we reiterate our previous request for compromise under E.O. No. 44, and convey our preparedness to settle the subject tax assessment liability by payment of the compromise amount ofP91,003,129.89, 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.

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

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

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 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. –

…

(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:

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.

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

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

Supposing that CTA Case No. 4249 is not a collection case which stops the running of the prescriptive period for the collection of the tax, CTA Case No. 4249, at the very least, suspends the running of the said prescriptive period.  Under Section 271 of the NIRC of 1977, as amended, the running of the prescriptive period to collect deficiency taxes shall be suspended for the period during which the BIR Commissioner is prohibited from beginning a distraint or levy or instituting a proceeding in court, and for 60 days thereafter.108 Just as in the cases of Republic v. Ker & Co., Ltd.109 and 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.

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.

Since the BIR had already collected P294,958,450.73 from PNB through the execution of the 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.

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

(1)    The compromise agreement between PNOC and the BIR, dated 22 June 1987, is declared void for being contrary to law and public policy, and is without force and effect;

(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;

(3)The withholding tax assessment against PNB, dated 08 October 1986, had become final and unappealable.  The BIR Commissioner is ordered to enforce the said assessment and collect the amount ofP294,958,450.73, 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.

THIRD DIVISION

[G.R. No. 104171. February 24, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F. GOODRICH PHILS., INC. (now SIME DARBY INTERNATIONAL TIRE CO., INC.) and THE COURT OF APPEALS, respondents.

D E C I S I O N

PANGANIBAN, J.:

Notwithstanding the expiration of the five-year prescriptive period, may the Bureau of Internal Revenue (BIR) still assess a taxpayer even after the latter has already paid the tax due, on the ground that the previous assessment was insufficient or based on a false return?

The Case

This is the main question raised before us in this Petition for Review on Certiorari assailing the Decision[1] dated February 14, 1992, promulgated by the Court of Appeals[2] in CA-GR SP No. 25100.The assailed Decision reversed the Court of Tax Appeals (CTA)[3] which upheld the BIR commissioners assessments made beyond the five-year statute of limitations.

The Facts

The facts are undisputed.[4] Private Respondent BF Goodrich Phils., Inc. (now Sime Darby International Tire Co. Inc.), was an American-owned and controlled corporation previous to July 3, 1974. As a condition for approving the manufacture by private respondent of tires and other rubber products, the Central Bank of the Philippines required that it should develop a rubber plantation. In compliance with this requirement, private respondent purchased from the Philippine government in 1961, under the Public Land Act and the Parity Amendment to the 1935 Constitution, certain parcels of land located in Tumajubong, Basilan, and there developed a rubber plantation.

More than a decade later, on August 2, 1973, the justice secretary rendered an opinion stating that, upon the expiration of the Parity Amendment on July 3, 1974, the ownership rights of Americans over public agricultural lands, including the right to dispose or sell their real estate, would be lost. On the basis of this Opinion, private respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its Basilan landholding for P500,000 payable in installments. In accord with the terms of the sale, Siltown Realty Philippines, Inc. leased the said parcels of land to private respondent for a period of 25 years, with an extension of another 25 years at the latters option.

Based on the BIRs Letter of Authority No. 10115 dated April 14, 1975, the books and accounts of private respondent were examined for the purpose of determining its tax liability for taxable year 1974.The examination resulted in the April 23, 1975 assessment of private respondent for deficiency income tax in the amount of P6,005.35, which it duly paid.

Subsequently the BIR also issued Letters of Authority Nos. 074420 RR and 074421 RR and Memorandum Authority Reference No. 749157 for the purpose of examining Siltowns business, income and tax liabilities. On the basis of this examination, the BIR commissioner issued against private respondent on October 10, 1980, an assessment for deficiency in donors tax in the amount of P1,020,850, in relation to the previously mentioned sale of its Basilan landholdings to Siltown. Apparently, the BIR deemed the consideration for the sale insufficient, and the difference between the fair market value and the actual purchase price a taxable donation.

In a letter dated November 24, 1980, private respondent contested this assessment. On April 9, 1981, it received another assessment dated March 16, 1981, which increased to P1,092,949 the amount demanded for the alleged deficiency donors tax, surcharge, interest and compromise penalty.

Private respondent appealed the correctness and the legality of these last two assessments to the CTA. After trial in due course, the CTA rendered its Decision dated March 29, 1991, the dispositive portion of which reads as follows:

WHEREFORE, the decision of the Commissioner of Internal Revenue assessing petitioner deficiency gift tax is MODIFIED and petitioner is ordered to pay the amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March 16, 1981 until fully paid provided that the maximum amount that may be collected as interest on delinquency shall in no case exceed an amount corresponding to a period of three years pursuant to Section 130(b) (1) and (c) of the 1977 Tax Code, as amended by P.D. No. 1705, which took effect on August 1, 1980.

SO ORDERED.[5]

Undaunted, private respondent elevated the matter to the Court of Appeals, which reversed the CTA, as follows:

What is involved here is not a first assessment; nor is it one within the 5-year period stated in Section 331 above. Since what is involved in this case is a multiple assessment beyond the five-year period, the assessment must be based on the grounds provided in Section 337, and not on Section 15 of the 1974 Tax Code. Section 337 utilizes the very specific terms fraud, irregularity, and mistake. Falsity does not appear to be included in this enumeration. Falsity suffices for an assessment, which is a first assessment made within the five-year period. When it is a subsequent assessment made beyond the five-year period, then, it may be validly justified only by fraud, irregularity and mistake on the part of the taxpayer.[6]

Hence, this Petition for Review under Rule 45 of the Rules of Court.[7]

The Issues

Before us, petitioner raises the following issues:

I

Whether or not petitioners right to assess herein deficiency donors tax has indeed prescribed as ruled by public respondent Court of Appeals

II

Whether or not the herein deficiency donors tax assessment for 1974 is valid and in accordance with law

Prescription is the crucial issue in the resolution of this case.

The Courts Ruling

The petition has no merit.

Main Issue: Prescription

The petitioner contends that the Court of Appeals erred in reversing the CTA on the issue of prescription, because its ruling was based on factual findings that should have been left undisturbed on appeal, in the absence of any showing that it had been tainted with gross error or grave abuse of discretion.[8] The Court is not persuaded.

True, the factual findings of the CTA are generally not disturbed on appeal when supported by substantial evidence and in the absence of gross error or grave abuse of discretion. However, the CTAs application of the law to the facts of this controversy is an altogether different matter, for it involves a legal question. There is a question of law when the issue is the application of the law to a given set of facts. On the other hand, a question of fact involves the truth or falsehood of alleged facts.[9] In the present case, the Court of Appeals ruled not on the truth or falsity of the facts found by the CTA, but on the latters application of the law on prescription.

Section 331 of the National Internal Revenue Code provides:

SEC. 331. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal-revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after expiration of such period. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code.

Applying this provision of law to the facts at hand, it is clear that the October 16, 1980 and the March 1981 assessments were issued by the BIR beyond the five-year statute of limitations. The Court has thoroughly studied the records of this case and found no basis to disregard the five-year period of prescription. As succinctly pronounced by the Court of Appeals:

The subsequent assessment made by the respondent Commissioner on October 10, 1980, modified by that of March 16, 1981, violates the law. Involved in this petition is the income of the petitioner for the year 1974, the returns for which were required to be filed on or before April 15 of the succeeding year. The returns for the year 1974 were duly filed by the petitioner, and assessment of taxes due for such year -- including that on the transfer of properties on June 21, 1974 -- was made on April 13, 1975 and acknowledged by Letter of Confirmation No. 101155 terminating the examination on this subject. The subsequent assessment of October 10, 1980 modified, by that of March 16, 1981, was made beyond the period expressly set in Section 331 of the National Intenal Revenue Code xxx.[10]

Petitioner relies on the CTA ruling, the salient portion of which reads:

Falsity is what we have here, and for that matter, we hasten to add that the second assessment (March 16, 1981) of the Commissioner was well-advised having been made in contemplation of his power under Section 15 of the 1974 Code (now Section 16, of NIRC) to assess the proper tax on the best evidence obtainable when there is reason to believe that a report of a taxpayer is false, incomplete or erroneous.More, when there is falsity with intent to evade tax as in this case, the ordinary period of limitation upon assessment and collection does not apply so that contrary to the averment of petitioner, the right to assess respondent has not prescribed.

What is the considered falsity? The transfer through sales of the parcels of land in Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum of P500,000.00 only whereas said lands had been sworn to under Presidential Decree No. 76 (Dec. 6, 1972) as having a value of P2,683,467 (P2,475, 467 + P207,700) (see Declaration of Real Property form, p. 28, and p. 15, no. 5, BIR Record).[11]

For the purpose of safeguarding taxpayers from any unreasonable examination, investigation or assessment, our tax law provides a statute of limitations in the collection of taxes. Thus, the law on prescription, being a remedial measure, should be liberally construed in order to afford such protection.[12] As a corollary, the exceptions to the law on prescription should perforce be strictly construed.

Section 15 of the NIRC, on the other hand, provides that [w]hen 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 of Internal Revenue shall assess the proper tax on the best evidence obtainable.Clearly, Section 15 does not provide an exception to the statute of limitations on the issuance of an assessment, by allowing the initial assessment to be made on the basis of the best evidence available.Having made its initial assessment in the manner prescribed, the commissioner could not have been authorized to issue, beyond the five-year prescriptive period, the second and the third assessments under consideration before us.

Nor is petitioners claim of falsity sufficient to take the questioned assessments out of the ambit of the statute of limitations. The relevant part of then Section 332 of the NIRC, which enumerates the exceptions to the period of prescription, provides:

SEC. 332. Exceptions as to period of limitation of assessment and collection of taxes. -- (a) In the case of a false or fraudulent return with intent to evade a tax or of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission: xxx.

Petitioner insists that private respondent committed falsity when it sold the property for a price lesser than its declared fair market value. This fact alone did not constitute a false return which contains wrong information due to mistake, carelessness or ignorance.[13] It is possible that real property may be sold for less than adequate consideration for a bona fide business purpose; in such event, the sale remains an arms length transaction. In the present case, the private respondent was compelled to sell the property even at a price less than its market value, because it would have lost all ownership rights over it upon the expiration of the parity amendment. In other words, private respondent was attempting to minimize its losses. At the same time, it was able to lease the property for 25 years, renewable for another 25. This can be regarded as another consideration on the price.

Furthermore, the fact that private respondent sold its real property for a price less than its declared fair market value did not by itself justify a finding of false return. Indeed, private respondent declared the sale in its 1974 return submitted to the BIR.[14] Within the five-year prescriptive period, the BIR could have issued the questioned assessment, because the declared fair market value of said property was of public record. This it did not do, however, during all those five years. Moreover, the BIR failed to prove that respondent's 1974 return had been filed fraudulently. Equally. significant was its failure to prove respondent's intent to evade the payment of the correct amount of tax.

Ineludibly, the BIR failed to show that private respondent's 1974 return was filed fraudulently with intent to evade the payment of the correct amount of tax.[15] Moreover, even though a donor's tax, which is defined as "a tax on the privilege of transmitting one's property or property rights to another or others without adequate and full valuable consideration,"[16] is different from capital gains tax, a tax on the gain from the sale of the taxpayer's property forming part of capital assets,[17] the tax return filed by private respondent to report its income for the year 1974 was sufficient compliance with the legal requirement to file a return. In other words, the fact that the sale transaction may have partly resulted in a donation does not change the fact that private respondent already reported its income for 1974 by filing an income tax return.

Since the BIR failed to demonstrate clearly that private respondent had filed a fraudulent return with the intent to evade tax, or that it had failed to file a return at all, the period for assessments has obviously prescribed. Such instances of negligence or oversight on the part of the BIR cannot prejudice taxpayers, considering that the prescriptive period was precisely intended to give them peace of mind.

Based on the foregoing, a discussion of the validity and legality of the assailed assessments has become moot and unnecessary.

WHEREFORE, the Petition for Review is DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. No costs.

SO ORDERED.

FIRST DIVISION

[G.R. No. 96262. March 22, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. EMBROIDERY AND GARMENTS INDUSTRIES (PHIL.), INC., respondent.

D E C I S I O N

SYNOPSIS

Respondent was assessed by the Bureau of Internal Revenue (BIR) deficiency income tax and advance sales tax based on an informants report and the sworn statement of a former general manager of respondent that it sold all its dollar quotas to local Chinese textile traders at an overprice and faked its invoices to reduce the

costs of importation.  When a revised assessment was made by the BIR, respondent protested the same but it was nevertheless denied by the BIR Commissioner.   Aggrieved, respondent elevated the issue to the Court of Tax Appeals by way of a petition for review.  The tax court rendered a decision absolving respondent from liability.  It held that the assessments must be based on actual facts and proved by competent evidence, and not simply imposed on the mere basis of unverified information supplied by an informant.  Petitioner questioned the ruling of the Tax Court to the Court of Appeals by way of a petition for review.   The appellate court affirmed the questioned ruling.  His motion for reconsideration having been denied, this present recourse was resorted to by petitioner raising only issues of facts.

Findings of fact of the Court of Appeals and even of the tax court are final, binding and conclusive on the parties and upon this Court, which will not be reviewed or disturbed on appeal unless these findings are not supported by evidence, with certain well defined exceptions.  This case does not come within any of the exceptions.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; APPEAL BY CERTIORARI FROM DECISIONS OF COURT OF APPEALS TO SUPREME COURT; QUESTION OF LAW, ONLY ISSUE INVOLVED. -- It is a fundamental rule that an 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.

2. ID.; EVIDENCE; CREDIBILITY; FINDINGS OF FACT OF COURT OF APPEALS AND COURT OF TAX APPEALS, GENERALLY BINDING AND CONCLUSIVE; CASE AT BAR, NOT AN EXCEPTION. -- Findings of fact of the Court of Appeals and even of the tax court are final, binding or conclusive on the parties and upon this Court, which will not be reviewed or disturbed on appeal unless these findings are not supported by evidence, with certain well recognized exceptions, such as (1) when the conclusion is grounded entirely on speculations, 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; (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. This case does not come within any of the exceptions.

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 22, 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 respondents 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 % 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 % 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 respondents execution of a waiver of the statute of limitations.

On September 14, 1971, petitioner denied respondents 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, accordingly, reversed the BIR decision.In its decision, the Court of Tax Appeals held that the assessments were of doubtful validity as they were based on incompetent evidence consisting of an informants report and the sworn statement of a 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 womens 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 importations 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 an 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.

Davide, Jr., CJ., (Chairman), Melo, and Kapunan, JJ., concur.

Republic of the PhilippinesSupreme Court

Manila 

 THIRD DIVISION

  

BANCO FILIPINO G.R. No. 155682SAVINGS and

MORTGAGE BANK, Present:Petitioner,

YNARES-SANTIAGO, J.,- versus - Chairperson,

AUSTRIA-MARTINEZ,CALLEJO, SR.,

COURT OF APPEALS, CHICO-NAZARIO, andCOURT OF TAX APPEALS NACHURA, JJ.and COMMISSIONER OFINTERNAL REVENUE, Promulgated:Respondents. March 27, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x   

D E C I S I O N 

 AUSTRIA-MARTINEZ, J.:  

Herein Petition for Review on Certiorari under Rule 45 of the Rules of

Court assails the May 28, 2002 Decision[1] and October 16, 2002 Resolution[2] of the

Court of Appeals (CA) in CA-G.R. SP No. 55470[3] which affirmed the October 5,

1999 Decision[4] of the Court of Tax Appeals (CTA) in CTA Case No. 5611.

 

The facts are as stated by the CTA.[5]

 

In its Bureau of Internal Revenue (BIR) Form No. 1702 or

Corporation/Partnership Annual Income Tax Return[6] for fiscal year 1995, Banco

Filipino Savings and Mortgage Bank (petitioner) declared a net operating loss

of P211,476,241.00 and total tax credit of P13,103,918.00, representing the prior

years excess tax credit ofP11,481,342.00 and creditable withholding taxes

of P1,622,576.00.[7]

 

On February 4, 1998, petitioner filed with the Commissioner of Internal

Revenue (CIR) an administrative claim[8] for refund of creditable taxes withheld for

the year 1995 in the amount of P1,622,576.00.

 

As the CIR failed to act on its claim, petitioner filed a Petition for

Review[9] with the CTA on April 13, 1998. It attached to its Petition several

documents, including: 1) Certificate of Income Tax Withheld on Compensation

(BIR Form No. W-2) for the Year 1995 executed by Oscar Lozano

covering P720.00 as tax withheld on rental income paid to petitioner (Exhibit II);[10] and 2) Monthly Remittance Return of Income Taxes Withheld under BIR Form

No. 1743W issued by petitioner, indicating various amounts it withheld and remitted

to the BIR (Exhibits C through Z).[11]

 

In his Answer,[12] respondent CIR interposed special and afirmative

defenses, specifically that petitioners claim is not properly documented.

 

The CTA issued the October 5, 1999 Decision granting only a portion of petitioners

claim for refund, thus: 

WHEREFORE, in view of all the foregoing, Respondent is hereby ORDERED to REFUND or in the alternative to ISSUE a Tax Credit Certificate in the amount of EIGHTEEN THOUSAND EIGHT HUNDRED EIGHTY FOUR PESOS AND FORTY CENTAVOS (P18,884.40) in favor of the Petitioner, representing overpaid income tax for the year 1995. 

SO ORDERED.[13]

 

The CTA allowed the P18,884.40-portion of petitioners claim for refund

as these are covered by Exhibits AA through HH, [14] which are all in BIR Form No.

1743-750 (Certificate of Creditable Tax Withheld at Source) issued by various

payors and reflecting taxes deducted and withheld on petitioner-payees income from

the rental of its real properties. On the other hand, the CTA disallowed

the P1,603,691.60-portion of petitioners claim for tax refund on the ground that its

Exhibit II and Exhibits C through Z lack probative value as these are not in BIR

Form No. 1743.1,[15] the form required under Revenue Regulations No. 6-85 (as

amended by Revenue Regulation No. 12-94), to support a claim for refund.[16]

 

Petitioner filed a Petition for Review[17] with the CA but the CA dismissed

the same in the May 28, 2002 Decision assailed herein. Its Motion for

Reconsideration was also denied.[18]

 

Hence, herein Petition where the issues may be condensed into one:

whether the CA erred in affirming the disallowance by the CTA of P1,603,691.60 of

petitioners claim for tax refund on the ground that the latters Exhibit II and Exhibits

C through Z lack probative value.

The CA committed no error.

 

There are three conditions for the grant of a claim for refund of creditable

withholding tax: 1) the claim is filed with the CIR within the two-year period from

the date of payment of the tax;[19] 2) it is shown on the return of the recipient that the

income payment received was declared as part of the gross income; [20] and, 3) the

fact of withholding is established by a copy of a statement duly issued by the payor

to the payee showing the amount paid and the amount of the tax withheld

therefrom. The third condition is specifically imposed under Section 10 of Revenue

Regulation No. 6-85 (as amended), thus: 

Sec. 10. Claim for tax credit or refund. (a) Claims for Tax Credit or Refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom xxx. (Emphasis supplied)

 

There is no doubt that petitioner complied with the first two requirements in that the

claim it filed on January 30, 1998 was well within the two-year prescriptive period

counted from the date of filing of its annual income tax return (Exhibit A) on April

12, 1996; and that said return reflects the amount of P1,622,576.00 subject of the

claim.[21]

The question is whether it complied with the third condition by presenting

merely a Certificate of Income Tax Withheld on Compensation or BIR Form No. W-

2 (Exhibit II) and Monthly Remittance Return of Income Taxes Withheld under BIR

Form No. 1743W (Exhibits C through Z).

Petititioner argues that its Exhibit II and Exhibits C through Z should be

accorded the same probative value as a BIR Form No. 1743.1, for said documents

are also official BIR forms and they reflect the fact that taxes were actually withheld

and remitted. It appeals for liberality considering that its annual return clearly shows

that it is entitled to creditable withholding tax. [22]

 

The Court rejected a similar plea for liberality just recently in Far East

Bank and Trust Company v. Court of Appeals.[23] In that case, Far East Bank and

Trust Company (FEBTC), acting as the surviving entity from a merger with Cavite

Development Bank (CDB), filed a claim for refund of creditable taxes withheld by

CDB from the sale of its acquired assets. FEBTC attached to its claim: a)

confirmation receipts, payment orders and official receipts issued by the Central

Bank and the BIR; b) Income Tax Returns supported by financial statements filed by

FEBTC with the BIR; and c) a schedule prepared by FEBTC Accounting

Department of the creditable withholding taxes of CDB.FEBTC did not, however,

attach any BIR Form No. 1743.1. The CTA and CA disallowed FEBTCs claim for

refund. The Court affirmed the CTA and CA, thus: As mentioned, petitioner relies heavily on the confirmation receipts with the corresponding official receipts and payment orders to support its case. Standing alone, however, these documents only establish that CDB withheld certain amounts in 1990 and 1991. It does not follow that the payments reflected in the confirmation receipts relate to the creditable withholding taxes arising from the sale of the acquired properties. The claim that CDB had excess creditable withholding taxes can only be upheld if it were clearly and positively shown that the amounts on the various confirmation receipts were the amounts withheld by virtue of the sale of the acquired assets. On this point, the CA correctly pronounced:

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

payments from which the taxes paid were withheld are not reflected therein. If these are the only entries that are found on these proferred documents, We cannot begrudge the Respondent Court from nurturing veritable doubts on the nature and identity of the taxes withheld, when it declared, in part, in its Decision (Annex A of the Petition) that, It can not well be said that the amounts paid and remitted to the BIR were for CDBs account and not for the other possible payees of withholding taxes which CDB may also be liable to remit as a withholding agent x x x.[24] (Emphasis ours)

 

As to what evidence would establish the nature of the tax withheld and the income

payment from which it was deducted, the Court held: 

Petitioner also asserts that the confusion or difficulty in the implementation of Revenue Memorandum Circular 7-90 was the reason why CDB took upon itself the task of withholding the taxes arising from the sale, to ensure accuracy. Assuming this were true, CDB should have, nevertheless, accomplished the necessary returns to clearly identify the nature of the payments made and file the same with the BIR. Section 2 of the circular clearly provides that the amount of withholding tax paid by a corporation to the BIR during the quarter on sales or exchanges of property and which are creditable against the corporations tax liability are evidenced by Confirmation/Official Receipts and covered by BIR Form Nos. 1743W and 1743-B.On the other hand, Revenue Regulation 6-85 states that BIR Form No. 1743.1 establishes the fact of withholding. Since no competent evidence was adduced by petitioner, the failure to offer these returns as evidence of the amount of petitioners entitlement during the trial phase of this case is fatal to its cause. x x x.[25] (Emphasis supplied)

 

In fine, the document which may be accepted as evidence of the third condition, that

is, the fact of withholding, must emanate from the payor itself, and not merely from

the payee, and must indicate the name of the payor, the income payment basis of the

tax withheld, the amount of the tax withheld and the nature of the tax paid.

 

At the time material to this case, the requisite information regarding withholding

taxes from the sale of acquired assets can be found in BIR Form No. 1743.1.  As

described inSection 6[26] of Revenue Regulations No. 6-85,[27] BIR Form No. 1743.1

is a written statement issued by the payor as withholding agent showing the income

or other payments made by the said withholding agent during a quarter or year and

the amount of the tax deducted and withheld therefrom. It readily identifies the

payor, the income payment and the tax withheld. It is complete in the relevant

details which would aid the courts in the evaluation of any claim for refund of

creditable withholding taxes.

 

In relation to withholding taxes from rental income, the requisite information can be

found in BIR Form No. 1743-750. Petitioner is well aware of this for its own

Exhibits AA through HH are all in BIR Form No. 1743-750. As earlier stated, the

CTA approved petitioners claim for refund to the extent of P18,884.40, which is the

portion of its claim supported by its Exhibits AA through HH.

In the present case, the disputed portions of petitioners claim for refund is supported

merely by Exhibits C through Z and Exhibit II. Exhibits C through Z were issued by

petitioner as payee purportedly acting as withholding agent, and not by the alleged

payors in the transactions covered by the documents. Moreover, the documents do

not identify the payors involved or the nature of their transaction. They do not

indicate the amount and nature of the income payments upon which the tax was

computed or the nature of the transactions from which the income payments were

derived, specifically whether it resulted from the sale of petitioners acquired assets.

 

As to petitioners Exhibit II, while it was issued by a payor, the document

does not state the amount and nature of the income payment. Hence, it cannot be

verified from the document if the tax withheld is correct.

 

Perhaps aware of the deficiencies in its evidence, petitioner also presented

Exhibit B[28] which is a list of Miscellaneous Assets it sold to various

persons. However, Exhibit B was prepared by petitioners own real estate

department, and is therefore of doubtful credence.[29] Furthermore, there is nothing in

Exhibit B which would link the the transactions described therein to the taxes

reflected in Exhibit II and Exhibits C through Z.

 

For all its deficiencies, therefore, petitioners Exhibits C through Z cannot

take the place of BIR Form No. 1743.1 and its Exhibit II, of BIR Form No. 1743-

750. Petitioner cannot fault the CA and CTA for finding said evidence insufficient to

support its claim for tax refund. Such finding of both courts, obviously grounded on

evidence, will not be so lightly discarded by this Court,[30] not even on a plea for

liberality of which petitioner, by its own negligence, is undeserving.[31]

 WHEREFORE, the petition is DENIED for lack of merit.  

No costs.

 

SO ORDERED.

  

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

SECOND DIVISION

[ G.R. NO. 149589, September 15, 2006 ]

FAR EAST BANK & TRUST COMPANY, PETITIONER, VS. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. 

R E S O L U T I O N

CORONA, J.:

Before this Court is a petition for review on certiorari of the decision[1] of the

Court of Appeals (CA) in CA-G.R. SP No. 49597 dated January 31, 2001

and the resolution dated August 23, 2001 denying the motion for

reconsideration.[2]

Petitioner Far East Bank & Trust Company (FEBTC)[3] filed with the Bureau

of Internal Revenue an application for a tax credit/tax refund of alleged

excess payments of its gross receipts tax (GRT). FEBTC claimed it

had overpaid its GRT for the 3rd and 4th quarters of 1994 and the entire

1995 amounting to P14,816,373.

Since no action was taken by the Commissioner of Internal Revenue (CIR)

on its claim, petitioner filed a case in the Court of Tax Appeals (CTA) on

October 18, 1996 to comply with the two-year reglementary period and avoid

the prescription of its action.[4] On July 30, 1998, the CTA rendered a

decision denying the claim for lack of evidence. [5]

It appears that petitioner failed to file its formal offer of evidence in the CTA,

constraining the tax court to rule in favor of the CIR. As explained by the

CTA:

...Its repeated non-appearance and failure to comply with court procedures

such as the filing of a formal offer of evidence and memorandum only serve

to weaken, if not put a death knell, to its claim for refund.

The Rules of Court is strict in considering no evidence which has not been

formally offered (Section 24, Rule 132). Without any formal offer of evidence,

thus, we could only blame the petitioner for its lost cause. Simply put, it has

not proven anything.[6]

On August 26, 1998, 22 days after its receipt of the decision, petitioner filed

a motion for reconsideration. The CTA denied the motion for being filed out

of time and for lack of merit.

Aggrieved, petitioner elevated the case to the CA.[7] The appellate court

found the petition devoid of merit. Eventually, it dismissed the petition and

affirmed the CTA decision in toto. Petitioner's motion for reconsideration was

also denied. Thus, this petition.

Petitioner urges this Court to reverse and set aside the ruling of the

appellate court. It contends that it appended its formal offer of evidence to its

motion for reconsideration in the CTA. It now asks us to relax procedural

rules in the interest of justice.

We deny the petition and rule against petitioner FEBTC on two points.

First, it is well-settled that the courts cannot consider evidence which has not

been formally offered.[8] Parties are required to inform the courts of the

purpose of introducing their respective exhibits to assist the latter in ruling on

their admissibility in case an objection thereto is made.[9] Without a formal

offer of evidence, courts are constrained to take no notice of the evidence

even if it has been marked and identified.[10] Needless to say, the failure of

petitioner to make a formal offer of evidence was detrimental to its cause.

This case does not fall within the exception in Oñate v. Court of

Appeals[11] where the Court relaxed the foregoing rule and allowed evidence,

not formally offered, to be considered on condition that: (1) evidence must

have been identified by testimony duly recorded and (2) it must have been

incorporated in the records of the case. In this case, "...[petitioner's] duly

marked and identified exhibits [were] not incorporated in the records... They

are nowhere to be found."[12]

A tax refund is in the nature of a tax exemption which must be

construed strictissimi juris against the taxpayer.[13]To stress, the taxpayer

must present convincing evidence to substantiate a claim for refund. Without

any documentary evidence on record, petitioner failed to discharge the

burden of proving its right to a tax credit/tax refund. Therefore, the CTA and

CA correctly denied its claim.

Second, if no appeal or motion for reconsideration is filed on time, the

judgment or final order of the court becomes final and executory.[14] Here, the

records of the case confirm that petitioner's motion for reconsideration in the

CTA was filed out of time. Petitioner received its notice and a copy of the

CTA decision on August 4, 1998.[15] Under the rules, it had fifteen days (or

until August 19, 1998) to move for reconsideration. By the time it filed its

motion for reconsideration on August 26, 1998,[16] the decision of the CTA

had already attained finality. As a final judgment, it had by then already laid

the issues to rest and the appellate courts could no longer review it.

Courts are charged with putting an end to controversies. In keeping with this

function, judgments must become final at some definite time fixed by law. [17]

WHEREFORE, the petition is hereby DENIED. The January 31, 2001

decision and August 23, 2001 resolution of the Court of Appeals

are AFFIRMED.

Costs against petitioner.

SO ORDERED.

Puno, (Chairperson), Sandoval-Gutierrez, Azcuna, and Garcia, JJ., concur.

THIRD DIVISION

[ G.R. NO. 151857, April 28, 2005 ]

CALAMBA STEEL CENTER, INC. (FORMERLY JS STEEL CORPORATION), PETITIONER, VS. COMMISSIONER OF

INTERNAL REVENUE, RESPONDENT. 

D E C I S I O N

PANGANIBAN, J.:

A tax refund may be claimed even beyond the taxable year following that in

which the tax credit arises.  Hence, excess income taxes paid in 1995 that

have not been applied to or used in 1996 may still be the subject of a tax

refund in 1997, provided that the claim for such refund is filed with the

internal revenue commissioner within two years after payment of said   

taxes.  As a caveat, the Court stresses that the recognition of the entitlement

to a tax refund does not necessarily mean the automatic payment of the sum

claimed in the final adjustment return of the taxpayer.  The amount of the

claim must still be proven in the normal course.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,

assailing the January 10, 2002 Decision[2] of the Court of Appeals (CA) in

CA-GR SP No. 58838.  The assailed Decision disposed as follows:

“IN VIEW OF ALL THE FOREGOING, the instant petition

is DISMISSED and the assailed Decision and Resolution

are AFFIRMED.  Costs against Petitioner.”[3]

The Facts

Quoting the Court of Tax Appeals (CTA), the CA narrated the antecedents

as follows:

“Petitioner is a domestic corporation engaged in the manufacture of steel

blanks for use by manufacturers of automotive, electrical, electronics in

industrial and household appliances.

“Petitioner filed an Amended Corporate Annual Income Tax Return on June

4, 1996 declaring a net taxable income of P9,461,597.00, tax credits of

P6,471,246.00 and tax due in the amount of P3,311,559.00.

“Petitioner also reported quarterly payments for the second and third

quarters of 1995 in the amounts of P2,328,747.26 and P1,082,108.00,

respectively.

“It is the proposition of the [p]etitioner that for the year 1995, several of its

clients withheld taxes from their income payments to [p]etitioner and remitted

the same to the Bureau of Internal Revenue (BIR) in the sum of

P3,159,687.00.  Petitioner further alleged that due to its income/loss

positions for the three quarters of 1996, it was unable to use the excess tax

paid for and in its behalf by the withholding agents.

“Thus, an administrative claim was filed by the [p]etitioner on April 10, 1997

for the refund of P3,159,687.00 representing excess or unused creditable

withholding taxes for the year 1995.  The instant petition was subsequently

filed on April 18, 1997.

“Respondent, in his Answer, averred, among others, that:

‘1)    Petitioner has no cause of action;

‘2)  Petitioner failed to comply with the procedural requirements set out in

Section 5 of Revenue Regulations No. [(RR)] 12-94;

‘3)    It is incumbent upon [p]etitioner to prove by competent and sufficient

evidence that the tax refund or tax credit being sought is allowed under the

National Internal Revenue Code and its implementing rules and regulations;

and

‘4)    Claims for tax refund or tax credit are construed strictly against the

taxpayer as they partake the nature of tax exemption.

“To buttress its claim, [p]etitioner presented documentary and testimonial

evidence.  Respondent, on the other hand, presented the [r]evenue   

[o]fficer who conducted the examination of [p]etitioner’s claim and found

petitioner liable for deficiency value added tax.  Petitioner also presented

rebuttal evidence.

“The sole issue submitted for [o]ur determination is whether or not

[p]etitioner is entitled to the refund of P3,159,687.00 representing excess or

overpaid income tax for the taxable year 1995.”[4]

Ruling of the Court of Appeals

In denying petitioner’s refund, the CA reasoned out that no evidence other

than that presented before the CTA was adduced to prove that excess tax

payments had been made in 1995.  From the inception of the case to the

formal offer of its evidence, petitioner did not present its 1996 income tax

return to disclose its total income tax liability, thus making it difficult to

determine whether such excess tax payments were utilized in 1996.

Hence, this Petition.[5]

The Issue

Petitioner raises this sole issue for our consideration:

“Whether the Court of Appeals gravely erred when, while purportedly

requiring petitioner to submit its 1996 annual income tax return to support

its    claim for refund, nonetheless ignored the existence of the tax return

extant on the record the authenticity of which has not been denied or its

admissibility opposed by the Commissioner of Internal Revenue.”[6]

The Court’s Ruling

The Petition is partly meritorious.

Sole Issue:

Entitlement to Tax Refund

Section 69 of the National Internal Revenue Code (NIRC)[7] provides:

“Sec. 69.    Final adjustment return. -- Every corporation liable to tax under

Section 24 shall file a final adjustment return covering the total taxable

income for the preceding calendar or fiscal year. If the sum of the quarterly

tax payments made during the said taxable year is not equal to the total tax

due on the entire taxable net income of that year the corporation shall either:

‘(a)    Pay the excess tax still due; or

‘(b)    Be refunded the excess amount paid, as the case may be.

“In case the corporation is entitled to a refund of the excess estimated

quarterly income taxes paid, the refundable amount shown on its final

adjustment return may be credited against the estimated quarterly income

tax liabilities for the taxable quarters of the succeeding taxable year.”

Tax Refund

Allowed by NIRC

A perusal of this provision shows that a taxable corporation is entitled to

a tax refund when the sum of the quarterlyincome taxes it paid during a

taxable year exceeds its total income tax due also for that year. 

Consequently, the refundable amount that is shown on its final adjustment

return may be credited, at its option, against its quarterlyincome tax

liabilities for the next taxable year.

Petitioner is a corporation liable to pay income taxes under Section 24 of the

NIRC.  Hence, it is a taxable corporation.  In 1995, it reported that it had

excess income taxes that had been paid for and on its behalf by

itswithholding agents; and that, applying the above-quoted Section 69, this

excess should be credited against itsincome tax liabilities for 1996. 

However, it claimed in 1997 that it should get a refund, because it was still

unable to use the excess income taxes paid in 1995 against its tax

liabilities in 1996.  Is this possible?  Stating the argument otherwise, may

excess income taxes paid in 1995 that could not be applied to taxes due in

1996 be refunded in 1997?

The answer is in the affirmative.  Here are the reasons:

Claim of Tax Refund Beyond the

Succeeding Taxable Year

First, a tax refund may be claimed even beyond the taxable year following

that in which the tax credit arises.

No provision in our tax law limits the entitlement to such a refund, other than

the requirement that the filing of the administrative claim    for it be made by

the taxpayer within a two-year prescriptive period.  Section 204(3) of the

NIRC states that no refund of taxes “shall be allowed unless the taxpayer

files in writing with the Commissioner [the] claim for x x x refund within two

years after the payment of the tax.”

Applying the aforequoted legal provisions, if the excess income taxes paid in

a given taxable year have not been entirely used by a taxable

corporation against its quarterly income tax liabilities for the next taxable

year, the unused amount of the excess may still be refunded, provided that

the claim for such a refund is made within two years after payment of    the

tax.  Petitioner filed its claim in 1997 -- well within the two-year prescriptive

period.  Thus, its unused tax credits in 1995 may still be refunded.

Even the phrase “succeeding taxable year” in the second paragraph of the

said Section 69 is a limitation that applies only to a tax credit, not a tax

refund.  Petitioner herein does not claim a tax credit, but a tax refund. 

Therefore, the statutory limitation does not apply.

Income Payments Merely

Declared Part of Gross Income

Second, to be able to claim a tax refund, a taxpayer only needs

to declare the income payments it received as part of its gross income and

to establish the fact of withholding.

Section 5 of RR 12-94[8] states:

x x x                          x x x                             x x x

“(a)    Claims for Tax Credit or Refund of income tax deducted and withheld

on income payments shall be given due course only when it is shown on the

return that the income payment received has been declared as part of the

gross income and the fact of withholding is established by a copy of the

Withholding Tax Statement duly issued by the payor to the payee showing

the amount paid and the amount of tax withheld therefrom.

“(b)    Excess Credits. -- A taxpayer's excess expanded withholding tax

credits for the taxable quarter/taxable year shall automatically be allowed as

a credit for purposes of filing his income tax return for the taxable

quarter/taxable year immediately succeeding the taxable quarter/taxable

year in which the aforesaid excess credit arose, provided, however, he

submits with his income tax return a copy of his income tax return for the

aforesaid previous taxable period showing the amount of his aforementioned

excess withholding tax credits.

“If the taxpayer, in lieu of the aforesaid automatic application of his excess

credit, wants a cash refund or a tax credit certificate for use in payment of

his other national internal tax liabilities, he shall make a written request

therefor. Upon filing of his request, the taxpayer's income tax return showing

the excess expanded withholding tax credits shall be examined. The excess

expanded withholding tax, if any, shall be determined and refunded/credited

to the taxpayer-applicant. The refund/credit shall be made within a period of

sixty (60) days from date of the taxpayer's request provided, however, that

the taxpayer-applicant submitted for audit all his pertinent accounting

records and that the aforesaid records established the veracity of his claim

for a refund/credit of his excess expanded withholding tax credits.”

That petitioner filed its amended 1995 income tax return in 1996 is

uncontested.  In addition, the resulting investigation by the BIR on August

15, 1997, reveals that the income accounts were “correctly declared based

on the existing supporting documents.”[9]  Therefore, there is no need for

petitioner to show again the income payments it received in 1995 as part of

its gross income in 1996.

That petitioner filed its 1996 final adjustment return in 1997 is the crux of the

controversy.  However, as will be demonstrated shortly, the lack of such a

return will not defeat its entitlement to a refund.

Tax Refund Provisions:

Question of Law

Third, it is a cardinal rule that “only legal issues may be raised”[10] in petitions

for review under Rule 45.[11]

The proper interpretation of the provisions on tax refund is a question of

law that “does not call for an examination of the probative value of the

evidence presented by the parties-litigants.”[12] Having been unable to use

the excess income taxes paid in 1995 against its other tax liabilities in 1996,

petitioner clearly deserves a refund.  It cannot by any sweeping denial be

deprived of what rightfully belongs to it.

The truth or falsity of the contents of or entries in the 1996 final adjustment

return, which has not been formally offered in evidence and examined by

respondent, involves, however, a question of fact.  This Court is not a trier of

facts.  Neither is it a collection agency for the government.  Although we rule

that petitioner is entitled to a tax refund, the amount of that refund is a matter

for the CTA to determine judiciously based on the records that include its

own copy of petitioner’s 1996 final adjustment return.

Liberal Constructionof Rules

Fourth, ordinary rules of procedure frown upon the submission of final

adjustment returns after trial has been conducted.  However, both the CTA

law and jurisprudence mandate that the proceedings before the tax court

“shall not be governed strictly by technical rules of evidence.”[13] As a rule, its

findings of fact[14] (as well as that of the CA) are final, binding and

conclusive[15] on the parties and upon this Court; however, as an exception,

such findings may be reviewed or disturbed on appeal[16] when they are not

supported by evidence.[17]

Our Rules of Court apply “by analogy or in a suppletory[18] character and

whenever practicable and convenient”[19] and “shall be liberally construed in

order to promote their objective of securing a just, speedy and inexpensive

disposition of every action and proceeding.”[20] After all, “[t]he paramount

consideration remains the ascertainment of truth.”[21]

In the present case, the 1996 final adjustment return was attached as Annex

A to the Reply to Comment filed by petitioner with the CA.[22]  The return

shows a negative amount for its taxable income that year.  Therefore, it

could not have applied or used the excess tax credits of 1995 against its tax

liabilities in 1996.

Judicial Notice

of Attached Return

Fifth, the CA and CTA could have taken judicial notice of the 1996 final

adjustment return which had been attached in CTA Case No. 5799.  “Judicial

notice takes the place of proof and is of equal force.”[23]

As a general rule, courts are not authorized to take judicial notice of the

contents of records in other cases tried or pending in the same court, even

when those cases were heard or are actually pending before the same

judge.  However, this rule admits of exceptions, as when reference to such

records is sufficiently made without objection from the opposing parties:

‘“. . . [I]n the absence of objection, and as a matter of convenience to all

parties, a court may properly treat all or any part of the original record of a

case filed in its archives as read into the record of a case pending before it,

when, with the knowledge of the opposing party, reference is made to it for

that purpose, by name and number or in some other manner by which it is

sufficiently designated; or when the original record of the former case or any

part of it, is actually withdrawn from the archives by the court's direction, at

the request or with the consent of the parties, and admitted as a part of the

record of the case then pending.’”[24]

Prior to rendering its Decision on January 12, 2000, the CTA was already

well-aware of the existence of another case pending before it, involving the

same subject matter, parties and causes of action.[25] Because of the close

connection of that case with the matter in controversy, the CTA could have

easily taken judicial notice[26] of the contested document attached in that

other case.

Furthermore, there was no objection raised to the inclusion of the said

1996 final adjustment return in petitioner’s Reply to Comment before the

CA.  Despite clear reference to that return, a reference made with the

knowledge of respondent, the latter still failed to controvert petitioner’s

claim.  The appellate court should have cast aside strict technicalities[27] and

decided the case on the basis of such uncontested return.  Verily, it had the

authority to “take judicial notice of its records and of the facts [that] the

record establishes.”[28]

Section 2 of Rule 129 provides that courts “may take judicial notice of

matters x x x ought to be known to judges because of their judicial

functions.”[29] If the lower courts really believed that petitioner was not entitled

to a tax refund, they could have easily required respondent to ascertain its

veracity and accuracy[30] and to prove that petitioner did not suffer any net

loss in 1996.

Contrary to the contention of petitioner, BPI-Family Savings Bank v.

CA[31] (on which it rests its entire arguments) is not on all fours with the facts

of this case.

While the petitioner in that case also filed a written claim for a tax refund,

and likewise failed to present its 1990 corporate annual income tax return, it

nonetheless offered in evidence its top-ranking official’s testimony and

certification pertaining to only two taxable years (1989 and 1990).  The said

return was attached only to its Motion for Reconsideration before the CTA.

Petitioner in this case offered documentary and testimonial evidence that

extended beyond two taxable years, because the excess credits in the first

(1995) taxable year had not been used up during the second (1996) taxable

year, and because the claim for the refund of those credits had been filed

during the third (1997) taxable year.  Its final adjustment return was instead

attached to its Reply to Comment filed before the CA.

Moreover, in BPI-Family Savings Bank, petitioner was able to show “the

undisputed fact: that petitioner had suffered a net loss in 1990 x x x.”[32] In

the instant case, there is no such “undisputed fact” as yet.  The mere

admission into the records of petitioner’s 1996 final adjustment return is not

a sufficient proof of the truth of the contents of or entries in that return.

In addition, the BIR in BPI-Family Savings Bank did not controvert the

veracity of the return or file an opposition to the Motion and the return. 

Despite the fact that the return was ignored by both the CA and the CTA, the

latter even declared in another case (CTA Case No. 4897) that petitioner

had suffered a net loss for taxable year 1990.  When attached to the Petition

for Review filed before this Court, that Decision was not at all claimed by the

BIR to be fraudulent or nonexistent.  The Bureau merely contended that this

Court should not take judicial notice of the said Decision.

In this case, however, the BIR has not been given the chance to challenge

the veracity of petitioner’s final adjustment return.  Neither has the CTA

decided any other case categorically declaring a net loss for petitioner

intaxable year 1996.  After this return was attached to petitioner’s Reply to

Comment before the CA, the appellate court should have required the filing

of other responsive pleadings from respondent, as was necessary and

proper for it to rule upon the return.

Admissibility Versus Weight

Indeed, “[a]dmissibility x x x is one thing, weight is another.”[33] “To admit

evidence and not to believe it are not incompatible with each other x x

x.”[34] Mere allegations by petitioner of the figures in its 1996 final adjustment

return are not a sufficient proof of the amount of its refund entitlement.  They

do not even constitute evidence[35]adverse to respondent, against whom they

are being presented.[36]

While it seems that the “[non-production] of a document which courts almost

invariably expect will be produced ‘unavoidably throws a suspicion over the

cause,’”[37] this is not really the conclusion to be arrived at here.  When

petitioner purportedly filed its administrative claim for a tax refund on April

10, 1997, the deadline for filing the 1996final adjustment return was not yet

over.  Hence, it could not have attached this return to its claim.

For reasons unknown even to this Court, petitioner failed to offer such return

as evidence during the trial phase of this case.  For its negligence, petitioner

“cannot be allowed to seek refuge in a liberal application of the [r]ules”[38]by

giving it a blanket approval of the total refund it claims.  “While in certain

instances, we allow a relaxation in the application of the rules, we never

intend to forge a weapon for erring litigants to violate the rules with impunity. 

The liberal interpretation and application of rules apply only in proper cases

of demonstrable merit and under justifiable causes and circumstances.”[39]

It would not be proper to allow petitioner to simply prevail and compel a

refund in the amount it claims, without affording the government a

reasonable opportunity to contest the former’s allegations.[40] Negligence

consisting of the unexplained failure to offer the exhibit should not be

rewarded with undeserved leniency.  Petitioner still bears the burden of

proving the amount of its claim for tax refund.  After all, “[t]ax refunds are in

the nature of tax exemptions”[41] and are to be construed strictissimi

juris against the taxpayer.

Finally, even in the absence of a final adjustment return or any claim for

a tax refund, respondent is authorized by law to examine any book, paper,

record or other data that may be relevant or material to such inquiry.

[42] Failure to make an assessment of petitioner’s proper tax liability or to

contest the return could be errors or omissions of administrative officers that

should never be allowed to jeopardize the government’s financial position.

Verily, “the officers of the Bureau of Internal Revenue should receive the

support of the courts when these officers attempt to perform in a

conscientious and lawful manner the duties imposed upon them by

law.”[43] Only after it is shown that “if something is received when there is no

right to demand it, and it was duly delivered through mistake, the obligation

to return it arises.”[44]

In brief, we hold that petitioner is entitled to a refund; however, the amount

must still be proved in proper proceedings before the CTA.

WHEREFORE, the Petition is hereby PARTLY GRANTED, and the assailed

Decision SET ASIDE.  The case is REMANDED to the Court of Tax Appeals

for the proper and immediate determination of the amount to be refunded to

petitioner on the basis of the latter’s 1996 final adjustment return.  No

pronouncement as to costs.

SO ORDERED.

Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.

SECOND DIVISION

[G.R. No. 141973. June 28, 2005]

PHILIPPINE PHOSPHATE FERTILIZER CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Once more, we stand by our ruling that:

If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments. When it is undisputed that a taxpayer is entitled to a refund, the State should not invoke technicalities to keep money not belonging to it. No one, not even the State, should enrich oneself at the expense of another.[1]

The antecedents of this case are as follows:

Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic corporation registered with the Export Processing Zone Authority (EPZA). It manufactures fertilizers for domestic and international distribution and as such, utilizes fuel, oil and other petroleum products which it procures locally from Petron Philippines Corporation (Petron). Petron initially pays the Bureau of Internal Revenue (BIR) and the Bureau of Customs the taxes and duties imposed upon the petroleum products. Petron is then reimbursed by petitioner when Petron sells such petroleum products to the petitioner. In a letter dated August 28, 1995, petitioner sought a refund of specific taxes paid on the purchases of petroleum products from Petron for the period of September 1993 to December 1994 in the total amount of P602,349.00 which claim is pursuant to the incentives it enjoyed by virtue of its EPZA registration. Since the two-year period within which petitioner could file a case for tax refund before the Court of Tax Appeals (CTA) was about to expire and no action had been taken by the BIR, petitioner instituted a petition for review before the CTA against the Commissioner of Internal Revenue (CIR).[2] During the trial, to prove that the duties imposed upon the petroleum products delivered to petitioner by Petron had been duly paid for by petitioner, petitioner presented a Certification from Petron dated August 17, 1995; a schedule of petroleum products sold and delivered to petitioner detailing the volume of sales and the excise taxes paid thereon; photocopies of Authority to Accept Payment for Excise Taxes issued by the CIR

pertaining to petroleum products purchased; as well as the testimony of Sylvia Osorio, officer of Petron, to attest to the summary and certification presented.[3] The CIR did not present any evidence to controvert the ones presented by petitioner nor did it file an opposition to petitioners formal offer of evidence.[4]

On August 11, 1998, the CTA promulgated its Decision finding that while petitioner is exempt from the payment of excise taxes, it failed to sufficiently prove that it is entitled to refund in this particular case since it did not submit invoices to support the summary of petroleum products sold and delivered to it by Petron.[5] The CTA rationalized thus:

[P]etitioner, as an EPZA registered enterprise is exempted from the payment of excise taxes, and if said taxes were passed on by the supplier to EPZA registered enterprise like the petitioner, tax credit shall be granted to the latter. The fact that it was not the petitioner who had paid the taxes directly to the Bureau of Internal Revenue does not have an adverse effect on petitioners action for refund. The law granting the exemption makes no distinction as to the circumstances when the law shall apply. Since the law makes no distinction, neither should we. The exemption is so broad as to cover the present situation.  Since an export processing zone is not considered to be covered by Philippine customs and internal revenue laws, the taxes paid by the petitioner on the petroleum products should be refunded or credited in its favor. Thus, the only thing left for us to do is to determine whether or not petitioner is entitled to the amount claimed for refund. After a careful scrutiny of the evidence presented, however, there appears to be a dispute with respect to the amount claimed. Petitioner submitted in evidence a certification issued by Petron to prove that the duties imposed upon the petroleum products delivered to petitioner by Petron had been duly paid for by petitioner (Exhibit A, p. 71, CTA records). Petitioner likewise presented a schedule of petroleum products sold and delivered to petitioner detailing the volume of sales and the excise taxes paid thereon (Exhibits A-1 to A-1a, pp. 72-73, CTA records). However, to show that Petron had previously paid the excise taxes on these petroleum products, petitioner presented photocopies of Authority to Accept Payment for Excise Taxes issued by respondent pertaining to petroleum products purchased (Exhibits A-2 to A-80), pp. 74-152, CTA records).

Although these Authority to Accept Payment for Excise Taxes reflect therein the amount of excise taxes paid by Petron to respondent, this Court cannot verify the exact amount of excise taxes which correspond to the petroleum products delivered to petitioner. This Authority to Accept Payment for Excise Taxes only proves the payment of millions of pesos in excise taxes made by Petron during the period covered by the claim but they fail to show to this Court which part of this huge amount actually represents the excise taxes paid on the petroleum products actually delivered to herein petitioner.Petitioner merely presented a summary of

petroleum products sold and delivered by Petron during the period covered by the claim. We cannot, by the summary alone, ascertain the veracity of the amount being claimed neither can it prove the existence of the invoices being referred to therein. Petitioner should have submitted the invoices supporting the schedules of petroleum products sold and delivered to it by Petron. These invoices would reveal whether or not the amount claimed for refund by petitioner is correct.

In an action for refund/credits the taxpayer has the burden of showing that the taxes paid are erroneously collected and that failure to meet such a burden is fatal to his cause. Tax refunds partake of the nature of the tax exemptions and therefore cannot be allowed unless granted in the most explicit and categorical language. The grant of refund privileges must be strictly construed against the taxpayer and liberally in favor of the government. (citations omitted)

Petitioner has the burden to prove the material allegations in its petition as well as the truth of its claim.[6] (Emphasis supplied)

disposing of the case as follows:

WHEREFORE, in view of the foregoing, the claim of refund of petitioner in the amount of P602,349.00 is hereby DENIED for lack of merit.[7]

On August 31, 1998, petitioner filed a motion for reconsideration alleging that it failed to submit invoices because it thought that the presentation of said invoices was not necessary to prove the claim for refund, since petitioners previous claims, in CTA Case Nos. 4654, 4993 and 4994,[8] involving similar facts, were granted by the CTA even without the presentation of invoices. It then prayed that the CTA decision be reconsidered and its claim for refund be allowed, or in the alternative, allow petitioner to present and offer the invoices in evidence to present its claim.[9]

The CTA denied the motion for reconsideration on January 6, 1999, explaining as follows:

It is important to note at the outset that Petitioners reliance on CTA Case Nos. 4994, 4654 and 4993 is misplaced because during the hearings of these cases up to the time of formal offer of evidence, CTA Circular No. 1-95 was not yet in effect. The nature and presentation of evidence involving voluminous documents prior to the effectivity of CTA Circular No. 1-95 differ from that which is required by this Court from the effectivity of said Circular beginning January 25, 1995. In the instant case, the Petition for Review was filed on September 1, 1995. It is obviously clear that the

provisions of CTA Circular 1-95 already applied to Petitioners presentation of evidence. Quoted hereunder are portions of CTA Circular 1-95:

1. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must properly be identified by a competent witness from the accounting firm.

2. The method of individual presentation of each and every receipt or invoice or other documents for marking, identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices and other documents covering the said accounts or payments must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever she/he desires to check and verify the correctness of the summary and CPA certification. However, the originals of the said receipts, invoices or documents should be ready for verification and comparison in case doubts on the authenticity of the particular documents presented is raised during the hearing of the case.

It can be revealed from the evidence presented by the Petitioner that it failed to present a certification of an independent Certified Public Accountant, as well as the invoices supporting the schedules of petroleum products sold and delivered to it by Petron. From this perspective alone, the claim for refund was correctly denied. Now that an unfavorable decision has been rendered by this Court, Petitioner belatedly seeks to present the invoices as additional evidence.

The prayer to present additional evidence partakes of the nature of a motion for new trial under Section 1 Rule 37 of the 1997 Rules of Civil Procedure. It has already been emphasized in several cases that failure to present evidence already existing at the time of trial does not warrant the grant of a new trial because said evidence can no longer be considered newly discovered but is more in the nature of forgotten evidence. Neither can such inadvertence on the part of the counsel to present said evidence qualify as excusable negligence.[10] (Emphasis supplied)

CTA Presiding Judge Ernesto D. Acosta dissented with the view that in the interest of justice, petitioner should be given a chance to prove its case by allowing it to present the invoices of its purchases.[11] He reasoned that:

A review of the schedule of invoices, Exhibits A-1 A-1-a, reveals that there are only about ninety four (94) invoices which does not need the assistance of an independent CPA. It can easily be presented before this Court or before a Clerk of Court for markings and comparison.

The reason advanced by the Petitioner was that they thought the presentation by the Manager of Petron Corporation of a duly notarized certification (supporting the schedules of invoices), coupled with testimonies of witness, Mrs. Sylvia Osorio of Petron Corporation, are enough to prove their case. Respondent did not even controvert said exhibits and testimonies. It is this Court that raised doubts on the veracity of the claim in view of the absence of the invoices. This ground could easily fall under the phrase mistake or excusable negligence as a ground for new trial under Sec. 1(a) of Rule 37 and not under the phrase newly discovered evidence as stated in our said resolution. The denial of this motion is too harsh considering that this case is only civil in nature, govern (sic) merely by the rule on preponderance of evidence.[12]

On January 25, 1999, petitioner filed another motion for reconsideration with motion for new trial praying that it be allowed to present an additional witness and to have invoices and receipts pre-marked in accordance with CTA Circular No. 1-95.[13] The CTA denied the same for the reason that it found no convincing reason to reverse its earlier decision and the motion for new trial was filed beyond the period prescribed by Sec. 1, Rule 37 of the Rules of Court as well as for appeals as provided under Sec. 4, Rule 43.[14]

Petitioner then went to the Court of Appeals (CA) which issued the herein assailed Resolution dismissing the petition for review, to wit:

Considering that the AFFIDAVIT OF NON-FORUM SHOPPING was executed by petitioners counsel, when under Adm. Circular No. 04-94, the petitioner should be the one to certify as to the facts and undertakings as required; and since any violation of the circular shall be a cause for the dismissal of the petition, the petition for review is hereby DENIED DUE COURSE OUTRIGHT, and is DISMISSED.

SO ORDERED.[15]

The motion for reconsideration was likewise denied.[16]

Hence the present petition raising the following issues:

1. Whether or not the Court of Tax Appeals should have granted petitioners claim for refund.

2. Whether or not the Court of Appeals should have given due course to the Petition for Review.[17]

Anent the first issue, petitioner argues that: the CTA erred in denying its claim for refund for its failure to present invoices and receipts; the evidence it adduced, which the CIR did not controvert nor contest, is sufficient to support petitioners claim for refund or tax credit; as opined by the Presiding Judge of the CTA in his dissenting opinion, the failure of petitioner to present invoices and receipts is a minor infraction of CTA Circular No. 1-95 which should not defeat petitioners right to refund; there is nothing in said circular which will support the contention of the CTA that the petitioner is mandated to present the invoices in the present case; the CTA, in its previous decisions involving the petitioner, one of which was even affirmed by the CA, held that a refund may be granted solely on the basis of certifications issued by Petron;[18] if it is the avowed purpose of CTA Circular No. 1-95 to ensure the speedy administration of justice, it should not compel petitioner to present additional voluminous evidence which will require the presentation of a Certified Public Accountant (CPA) for court examination aside from entailing additional costs to petitioner; petitioners counsel was of the honest belief that he was not required to adhere to what is provided in CTA Circular No. 1-95; petitioner should not be burdened by the infraction of its counsel and should be given the fullest opportunity to establish the merits of its action rather than for it to lose property on mere technicalities; it has also been held that evidence not offered and formally presented in evidence during the trial may still be considered by a court in the exercise of its discretion so as not to allow a mere technicality to overcome justice and fairness; petitioner should be granted its claim for refund, or, in the alternative, be given an opportunity to present the pre-marked invoices in accordance with CTA Circular No. 1-95.[19]

As to the second issue, petitioner explains that: its counsel was of the belief that he was authorized to execute the affidavit of non-forum shopping; in any event, its counsel immediately attached to the motion a copy of the affidavit of non-forum shopping executed by petitioners President, Ramon C. Avecilla as soon as he learned of his error; and Supreme Court Administrative Circular No. 04-94 should be liberally construed following Maricalum Mining Corp. vs. NLRC,[20] Loyola vs. Court of Appeals,[21] and Philippine Fishing Boat Officers and Engineers Union vs. Court of Industrial Relations.[22]

It then prayed that: the resolutions of the CA and the Decision of the CTA be reversed; and an order be issued to award petitioner tax credit certificate/refund in the amount ofP602,349.00 representing excise taxes paid for the period of September 1993 to December 1994 or in the alternative to allow petitioner to adduce evidence before the CTA to support its case.[23]

The CIR, in his Comment, contends that: the burden of proving entitlement to the refund/credit rests upon petitioner; the CTA was correct in requiring the submission of the invoices to support the schedules presented especially in this case where the CTA cannot determine which part of the huge amount paid by Petron actually represents the excise taxes paid on the petroleum products actually delivered to petitioner; the schedules are self-serving and if not corroborated by evidence have no evidentiary weight; the CTA is not precluded from requiring other evidence which will once and for all erase doubts to the claim for refund; claims for refund, partaking of the nature of tax exemptions, are construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority; even setting aside the requirements in CTA Circular No. 1-95, petitioner is still obliged to present the invoices in order to corroborate the entries in the summary and to reveal whether or not the amount claimed for refund by petitioner is correct; petitioners Motion for Reconsideration and Motion for New Trial filed on January 25, 1999 were properly denied by the CTA for having been filed out of time; and the CTAs decision must be respected on appeal since it has developed an expertise on the subject.[24]

Anent the second issue, respondent avers that the CA did not err in dismissing the petition for review on the ground that the affidavit of non-forum shopping was executed by petitioners counsel contrary to the requirements in Sec. 5, Rule 7 of the Rules of Court; and that the denial of the motion for reconsideration was also proper since the failure to comply with the requirements of non-forum shopping shall not be curable by mere amendment to the complaint.[25]

For clarity, we shall first discuss the issue of whether or not the CA should have given due course to the petition for review.

The primary question that has to be resolved is whether an Affidavit of Non-Forum Shopping, erroneously signed by counsel, may be cured by subsequent compliance.

Generally, subsequent compliance with the requirement of affidavit of non-forum shopping does not excuse a party from failure to comply in the first instance.[26]

Supreme Court Administrative Circular No. 04-94 of Section 5, Rule 7 of the 1997 Rules of Civil Procedure which requires the pleader to submit a certificate of non-forum shopping to be executed by the plaintiff or principal party is mandatory.[27] A certification of the plaintiffs counsel will not suffice for the reason that it is petitioner, and not the counsel, who is in the best position to know whether he actually filed or caused the filing of a petition.[28] A certification against forum shopping signed by counsel is a defective certification that is equivalent to non-compliance with the requirement and

constitutes a valid cause for the dismissal of the petition.[29] Hence, strictly speaking, the CA was correct in dismissing the petition.

There are instances, however, when we treated compliance with the rule with relative liberality, especially when there are circumstances or compelling reasons making the strict application of the rule clearly unjustified.[30]

In the case of Far Eastern Shipping Co. vs. Court of Appeals,[31] while we said that, strictly, a certification against forum shopping by counsel is a defective certification, the verification, signed by petitioners counsel in said case, is substantial compliance inasmuch as it served the purpose of the Rules of informing the Court of the pendency of another action or proceeding involving the same issues.[32] We then explained that procedural rules are instruments in the speedy and efficient administration of justice which should be used to achieve such end and not to derail it.[33]

In Damasco vs. NLRC,[34] the certifications against forum shopping were erroneously signed by petitioners lawyers, which, generally, would warrant the outright dismissal of their actions.[35] We resolved however that as a matter of social justice, technicality should not be allowed to stand in the way of equitably and completely resolving the rights and obligations of the parties.[36] In Cavile vs. Heirs of Clarita Cavile,[37] we likewise held that the merits of the substantive aspects of the case may be deemed as special circumstance for the Court to take cognizance of a petition although the certification against forum shopping was executed and signed by only one of the petitioners.[38] Finally, in Sy Chin vs. Court of Appeals,[39] we categorically stated that while a petition may be flawed as the certificate of non-forum shopping was signed only by counsel and not by the party, such procedural lapse may be overlooked in the interest of substantial justice.[40]

Here, the affidavit of non-forum shopping was signed by petitioners counsel. Upon receipt of the resolution of the CA, however, which dismissed its petition for non-compliance with the rules on affidavit of non-forum shopping, petitioner submitted, together with its motion for reconsideration, an affidavit signed by petitioners president in compliance with the said rule.[41]We deem this to be sufficient especially in view of the merits of the case, which may be considered as a special circumstance or a compelling reason that would justify tempering the hard consequence of the procedural requirement on non-forum shopping.[42]

Which brings us to the other issue of whether or not the CTA should have granted petitioners claim for refund.

The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims.[43] This is because tax refunds are in the nature of tax exemptions, the statutes of which are construed strictissimi

juris against the taxpayer and liberally in favor of the taxing authority.[44] Taxes are the lifeblood of the nation, therefore statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government.[45]

In this case, there is no dispute that petitioner is entitled to exemption from the payment of excise taxes by virtue of its being an EPZA registered enterprise.[46] As stated by the CTA, the only thing left to be determined is whether or not petitioner is entitled to the amount claimed for refund.[47]

Petitioners entire claim for refund, however, was denied for petitioners failure to present invoices allegedly in violation of CTA Circular No. 1-95. But nowhere in said Circular is it stated that invoices are required to be presented in claiming refunds. What the Circular states is that:

1. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers, dates and amounts covered by the invoices or receipts; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. Such summary and certification must properly be identified by a competent witness from the accounting firm. (Emphasis supplied)

The CTA in denying petitioners motion for reconsideration, also mentioned for the first time that petitioners failure to present a certification of an independent CPA is another ground that justified the denial of its claim for refund.

Again, we find such reasoning to be erroneous. The certification of an independent CPA is not another mandatory requirement under the Circular which petitioner failed to comply with. It is rather a requirement that must accompany the invoices should one decide to present invoices under the Circular. Since petitioner did not present invoices, on the assumption that such were not necessary in this case, it logically did not present a certification because there was nothing to certify.

The CTA also could not deny that in its previous decisions involving petitioners claims for refund, invoices were not deemed necessary to grant such claims. It merely said that in said decisions, CTA Circular No. 1-95 was not yet in effect.[48] Since CTA Circular No. 1-95 did not make it mandatory to present invoices, coupled with the previous cases of petitioner where the certifications issued by Petron sufficed, it is understandable that petitioner did not think it necessary to present invoices and the accompanying certifications when it filed the present case for refund before the CTA.

Even then, petitioner, in its motion for reconsideration, asked the CTA for an opportunity to present invoices to substantiate its claims. But this was denied by the CTA explaining that its prayer to present additional evidence partakes of the nature of a motion for new trial under Section 1, Rule 37 of the Rules of Court. The CTA held that under such rule, failure to present evidence already existing at the time of trial does not warrant the grant of a new trial because such evidence is not newly discovered but is more in the nature of forgotten evidence which is not excusable.[49]

On this point, we agree with the dissenting opinion of CTA Presiding Judge Ernesto D. Acosta who stated that:

The reason advanced by the Petitionerthat they thought the presentation by the Manager of Petron Corporation of a duly notarized certification (supporting the schedules of invoices), coupled with testimonies of witness, Mrs. Sylvia Osorio of Petron Corporation, are enough to prove their case could easily fall under the phrase mistake or excusable negligence as a ground for new trial under Sec. 1(a) of Rule 37 andnot under the phrase newly discovered evidence as stated in our said resolution. The denial of this motion is too harsh considering that this case is only civil in nature, govern (sic) merely by the rule on preponderance of evidence.[50]

Sec. 1, Rule 37 of the Rules of Court provides as follows:

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration.--- Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or

(b) Newly discovered evidence, which could not, with reasonable diligence, have discovered and produced at the trial, and which if presented would probably alter the result.

It is true that petitioner could not move for new trial on the basis of newly discovered evidence because in order to have a new trial on the basis of newly discovered evidence, it must be proved that: (a) the evidence was discovered after the trial; (b) such evidence could not have been discovered and produced at the trial with reasonable diligence; (c) it is material, not merely cumulative, corroborative or impeaching; and (d) it is of such weight

that, if admitted, will probably change the judgment.[51] This does not mean however, that petitioner is altogether barred from having a new trial. As pointed out by Judge Acosta, the reasons put forth by petitioner could fall under mistake or excusable negligence.

The mistake that is allowable in Rule 37 is one which ordinary prudence could not have guarded against.[52] Negligence to be excusable must also be one which ordinary diligence and prudence could not have guarded against and by reason of which the rights of an aggrieved party have probably been impaired.[53] The test of excusable negligence is whether a party has acted with ordinary prudence while transacting important business.[54]

In this case, it cannot be said that petitioner did not act with ordinary prudence in claiming its refund with the CTA, in light of its previous cases with the CTA which did not require invoices and the non-mandatory nature of CTA Circular No. 1-95.

Respondent also argues that petitioners motion for new trial was filed out of time and should therefore be dismissed in view of Sec. 1, Rule 37 and Sec. 4, Rule 43 of the Rules of Court.

Sec. 1, Rule 37 provides that:

Section 1. Grounds of and period for filing motion for new trial or reconsideration.--- Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial

and Sec. 4, Rule 43 holds that:

Section 4. Period of appeal. --- The appeal shall be taken within fifteen (15) days from notice of the award, judgment, final order or resolution, or from the date of its last publication, if publication is required by law for its effectivity, or of the denial of petitioners motion for new trial or reconsideration duly filed in accordance with the governing law of the court or agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion and the payment of the full amount of the docket fee before the expiration of the reglementary period, the Court of Appeals may grant an additional period of fifteen (15) days only within which to file the petition for review. No further extension shall be granted except for the most compelling reason and in no case to exceed fifteen (15) days.

It is borne by the records however that in its first motion for reconsideration duly filed on time, petitioner had already prayed that it be allowed to present and offer the pieces of evidence deemed lacking by the CTA in its Decision dated August 11, 1998.[55] Thus, while it named its

pleading as a Motion for New Trial only in its motion dated January 25, 1999, petitioner should not be deemed to have moved for new trial only at such time.

We reiterate the fundamental principle that technical rules of procedure are not ends in themselves but are primarily designed to aid in the administration of justice.[56] And in cases before tax courts, Rules of Court applies only by analogy or in a suppletory character and whenever practicable and convenient shall be liberally construed in order to promote its objective of securing a just, speedy and inexpensive disposition of every action and proceeding.[57] The quest for orderly presentation of issues is not an absolute.[58] It should not bar the courts from considering undisputed facts to arrive at a just determination of a controversy.[59] This is because, after all, the paramount consideration remains the ascertainment of truth.[60]Section 8 of R.A. No. 1125 creating the CTA also expressly provides that it shall not be governed strictly by technical rules of evidence.[61]

Since it is not disputed that petitioner is entitled to tax exemption, it should not be precluded from presenting evidence to substantiate the amount of refund it is claiming on mere technicality especially in this case, where the failure to present invoices at the first instance was adequately explained by petitioner.

As we pronounced in BPI-Family Savings Bank, Inc. vs. Court of Appeals:[62]

Technicalities and legalisms, however exalted, should not be misused by the government to keep money not belonging to it and thereby enrich itself at the expense of its law-abiding citizens. If the State expects its taxpayers to observe fairness and honesty in paying their taxes, so must it apply the same standard against itself in refunding excess payments of such taxes. Indeed, the State must lead by its own example of honor, dignity and uprightness.[63]

WHEREFORE, the petition is GRANTED. The assailed resolution is SET ASIDE and the case REMANDED to the Court of Tax Appeals for the reception of evidence, particularly invoices supporting the schedules of petroleum products sold and delivered to petitioner by Petron and the corresponding certification of an independent Certified Public Accountant, for the proper and immediate determination of the amount to be refunded to petitioner.

SO ORDERED.

Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

EN BANC

[G.R. No. L-9408. October 31, 1956.]

EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, Respondents.

D E C I S I O N

BAUTISTA ANGELO, J.:

On March 31, 1952, Petitioner filed his income tax return for 1951 with the treasurer of Bacolod City wherein he claimed, among other things, the amount of P12,837.65 as a deductible item from his gross income pursuant to General Circular No. V-123 issued by the Collector of Internal Revenue. This circular was issued pursuant to certain rules laid down by the Secretary of Finance On the basis of said return, an assessment notice demanding the payment of P9,419 was sent toPetitioner, who paid the tax in monthly installments, the last payment having been made on January 2, 1953.

Meanwhile, on August 30, 1952, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his general Circular No. V- 123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible in the year of actual loss or destruction of said property. As a consequence, the amount of P12,837.65 was disallowed as a deduction from the gross income ofPetitioner for 1951 and the Collector of Internal Revenue demanded from him the payment of the sum of P3,546 as deficiency income tax for said year. When the petition for reconsideration filed by Petitioner was denied, he filed a petition for review with the Court of Tax Appeals. In due time, this court rendered decision affirming the assessment made by Respondent Collector of Internal Revenue. This is an appeal from said decision.

It appears that Petitioner claimed in his 1951 income tax return the deduction of the sum of P12,837.65 as a loss consisting in a portion of his war damage claim which had been duly approved by the Philippine War Damage Commission under the Philippine Rehabilitation Act of 1946 but which was not paid and never has been paid pursuant to a notice served upon him by said Commission that said part of his claim will not be paid until the United States Congress should make further appropriation. He claims that said amount of P12,837.65 represents a “business asset” within the meaning of said Act which he is entitled to deduct as a loss in his return for 1951. This claim is untenable.

To begin with, assuming that said a mount represents a portion of the 75% of his war damage claim which was not paid, the same would not be deductible as a loss in 1951 because, according to Petitioner, the last installment he received from the War Damage Commission, together with the notice that no further payment would be made on his claim, was in 1950. In the circumstance, said amount would at most be a proper deduction from his 1950 gross income. In the second place, said amount cannot be considered as a “business asset” which can be deducted as a loss in contemplation of law because its collection is not enforceable as a matter of right, but is dependent merely upon the generosity and magnanimity of the U. S. government. Note that, as of the end of 1945, there was absolutely no law under which Petitioner could claim compensation for the destruction of his properties during the battle for the liberation of the Philippines. And under the Philippine Rehabilitation Act of 1946, the payments of claims by the War Damage Commission merely depended upon its discretion to be exercised in the manner it may see fit, but the non-payment of which cannot give rise to any enforceable right, for, under said Act, “All findings of the Commission concerning the amount of loss or damage sustained, the cause of such loss or damage, the persons to whom compensation pursuant to this title is payable, and the value of the property lost or damaged, shall be conclusive and shall not be reviewable by any court”. (section 113).

It is true that under the authority of section 338 of the National Internal Revenue Code the Secretary of Finance, in the exercise of his administrative powers, caused the issuance of General Circular No. V-123 as an implementation or interpretative regulation of section 30 of the same Code, under which the amount of P12,837.65 was allowed to be deducted “in the year the last installment was received with notice that no further payment would be made until the United States Congress makes further appropriation therefor”, but such circular was found later to be wrong and was revoked. Thus, when doubts arose as to the soundness or validity of such circular, the Secretary of Finance sought the advice of the Secretary of Justice who, accordingly, gave his opinion the pertinent portion of which reads as follows:chanroblesvirtuallawlibrary

“Yet it might be argued that war losses were not included as deductions for the year when they were sustained because the taxpayers had prospects that losses would be compensated for by the United States Government; chan roblesvirtualawlibrarythat since only uncompensated losses are deductible, they had to wait until after the determination by the Philippine War Damage Commission as to the compensability in part or in whole of their war losses so that they could exclude from the deductions those compensated for by the said Commission; chan roblesvirtualawlibraryand that, of necessity, such determination could be complete only much later than in the year when the loss was sustained. This contention falls to the ground when it is considered that the Philippine Rehabilitation Act which authorized the payment by the United States Government

of war losses suffered by property owners in the Philippines was passed only on August 30, 1946, long after the losses were sustained. It cannot be said therefore, that the property owners had any conclusive assurance during the years said losses were sustained, that the compensation was to be paid therefor. Whatever assurance they could have had, could have been based only on some information less reliable and less conclusive than the passage of the Act itself. Hence, as diligent property owners, they should adopt the safest alternative by considering such losses deductible during the year when they were sustained.”

In line with this opinion, the Secretary of Finance, through the Collector of Internal Revenue, issued General Circular No. V-139 which not only revoked and declared void his previous Circular No. V — 123 but laid down the rule that losses of property which occurred during the period of World War II from fires, storms, shipwreck or other casualty, or from robbery, theft, or embezzlement are deductible for income tax purposes in the year of actual destruction of said property. We can hardly argue against this opinion. Since we have already stated that the amount claimed does not represent a “business asset” that may be deducted as a loss in 1951, it is clear that the loss of the corresponding asset or property could only be deducted in the year it was actually sustained. This is in line with section 30 (d) of the National Internal Revenue Code which prescribes that losses sustained are allowable as deduction only within the corresponding taxable year.

Petitioner’s contention that during the last war and as a consequence of enemy occupation in the Philippines “there was no taxable year” within the meaning of our internal revenue laws because during that period they were unenforceable, is without merit. It is well known that our internal revenue laws are not political in nature and as such were continued in force during the period of enemy occupation and in effect were actually enforced by the occupation government. As a matter of fact, income tax returns were filed during that period and income tax payment were effected and considered valid and legal. Such tax laws are deemed to be the laws of the occupied territory and not of the occupying enemy.

“Furthermore, it is a legal maxim, that excepting that of a political nature, ‘Law once established continues until changed by some competent legislative power. It is not changed merely by change of sovereignty.’ (Joseph H. Beale, Cases on Conflict of Laws, III, Summary section 9, citing Commonwealth vs. Chapman, 13 Met., 68.) As the same author says, in his Treatise on the Conflict of Laws (Cambridge, 1916, section 131):chanroblesvirtuallawlibrary ‘There can be no break or interregnun in law. From the time the law comes into existence with the first-felt corporateness of a primitive people it must last until the final disappearance of human society. Once created, it persists until a change takes place, and when changed it continues in such changed condition until the next change and so

forever. Conquest or colonization is impotent to bring law to an end; chan roblesvirtualawlibraryinspite of change of constitution, the law continues unchanged until the new sovereign by legislative act creates a change.’“ (Co Kim Chan vs. Valdes Tan Keh and Dizon, 75 Phil., 113, 142-143.)

It is likewise contended that the power to pass upon the validity of General Circular No. V-123 is vested exclusively in our courts in view of the principle of separation of powers and, therefore, the Secretary of Finance acted without valid authority in revoking it and approving in lieu thereof General Circular No. V-139. It cannot be denied, however, that the Secretary of Finance is vested with authority to revoke, repeal or abrogate the acts or previous rulings of his predecessor in office because the construction of a statute by those administering it is not binding on their successors if thereafter the latter become satisfied that a different construction should be given. [Association of Clerical Employees vs. Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109 A.L.R., 345.]

“When the Commissioner determined in 1937 that the Petitioner was not exempt and never had been, it was his duty to determine, assess and collect the tax due for all years not barred by the statutes of limitation. The conclusion reached and announced by his predecessor in 1924 was not binding upon him. It did not exempt the Petitioner from tax, This same point was decided in this way in Stanford University Bookstore, 29 B. T. A., 1280; chan roblesvirtualawlibraryaffd., 83 Fed. (2d) 710.” (Southern Maryland Agricultural Fair Association vs. Commissioner of Internal Revenue, 40 B. T. A., 549, 554).

With regard to the contention that General Circular No. V-139 cannot be given retroactive effect because that would affect and obliterate the vested right acquired by Petitioner under the previous circular, suffice it to say that General Circular No. V-123, having been issued on a wrong construction of the law, cannot give rise to a vested right that can be invoked by a taxpayer. The reason is obvious:chanroblesvirtuallawlibrary a vested right cannot spring from a wrong interpretation. This is too clear to require elaboration.

“It seems too clear for serious argument that an administrative officer cannot change a law enacted by Congress. A regulation that is merely an interpretation of the statute when once determined to have been erroneous becomes nullity. An erroneous construction of the law by the Treasury Department or the collector of internal revenue does not preclude or estop the government from collecting a tax which is legally due.” (Ben Stocker, et al., 12 B. T. A., 1351.)

“Art. 2254. — No vested or acquired right can arise from acts or omissions which are against the law or which infringe upon the rights of others.” (Article 2254, New Civil Code.)

Wherefore, the decision appealed from is affirmed Without pronouncement as to costs.

Paras, C.J., Padilla, Montemayor, Labrador, Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-11527           November 25, 1958

THE COLLECTOR OF INTERNAL REVENUE, petitioner, vs.SUYOC CONSOLIDATED MINING COMPANY, ET AL., respondents.

Office of the Solicitor General Ambrosio Padilla and Solicitor Sumilang V. Bernardo for petitioner.Ohnick, Velilla and Balongkita for respondents.

BAUTISTA ANGELO, J.:

Suyoc Consolidated Mining Company, a mining corporation operating before the war, was unable to file in 1942 its income tax return for the year 1941 due to the last war. After liberation, Congress enacted Commonwealth Act No. 722 which extended the filing of tax returns for 1941 up to December 31, 1945. Its records having been lost or destroyed, the company requested the Collector of Internal Revenue to grant it an extension of time to file its return, which was granted until February 15, 1946, and the company was authorized to file its return for 1941 on the basis of the best evidence obtainable.

The company filed three income tax returns for the calendar year ending December 31, 1941. On February 12, 1946, it filed a tentative return as it had not yet completely reconstructed its records. On November 28, 1946, it filed a second final return on the basis of the records it has been able to reconstruct at that time. On February 6, 1947, it filed its third amended final return on the basis of the available records which to that date it had been able to reconstruct.

On the basis of the second final return filed by the company on November 28, 1946, the Collector assessed against it the sum of P28,289.96 as income tax for 1941, plus P1,414.50 as 5 per cent surcharge and P3,894.80 as 1 per cent monthly interest from March 1, 1946 to February 28, 1947, or a total of P33,099.26. The assessment was made on February 11, 1947. On February 21, 1947, the company asked for an extension of at least one year from February 28, 1947 within which to pay the amount assessed, reserving its right to question the correctness of the assessment. The Collector granted an extension of only three months from March 20, 1947.

The company failed to pay the tax within the period granted to it and so the Collector sent to it a letter on November 28, 1950 demanding payment of the tax due as assessed, plus surcharge and interest up to December 31, 1950. On April 6, 1951, the company asked for a reconsideration and reinvestigation of the assessment, which was granted, the case being assigned to another examiner, but the Collector made another assessment against the company in the sum of P33,829.66. This new assessment was made on March 7, 1952. On April 18, 1952, the Collector revised this last assessment and required the company to pay the sum of P28,289.96 as income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30, 1952 and P40 as compromise.

After several other negotiations conducted at the request of respondent, including an appeal to the Conference Staff created to act on such matters in the Bureau of Internal Revenue, the assessment was finally reduced by the Collector to P24,438.96, without surcharge and interest, and of this new assessment the company was notified on July 28, 1955. Within the reglementary period, the company filed with the Court of Tax Appeals a petition for review of this assessment made on July 26, 1955 on the main ground that the right of the Government to collect the tax has already prescribed. After the case was heard, the court rendered its decision upholding this defense and, accordingly, it set aside the ruling of the Collector of Internal Revenue. The Collector interposed the present petition for review.

Under the law, an internal revenue tax shall be assessed within five years after the return is filed by the taxpayer and no proceeding in court for its collection shall be begun after the expiration of such period (Section 331, National Internal Revenue Code). The law also provides that where an assessment of internal revenue tax is made within the above period, such tax may be collected by distraint or levy or by a proceeding in court but only if the same is begun (1) within five years after assessment or (2) within the period that may be agreed upon in writing between the Collector and the taxpayer before the expiration of the 5-year period [Section 332 (c), Idem.].

It appears that the first assessment made against respondent based on its second final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment respondent requested for at least one year within which to pay the amount assessed although it reserved its right to question the correctness of the assessment before actual payment. Petitioner granted an extension of only three months. When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling which is now being questioned after a protracted negotiation on the ground that the collection of the tax has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income, tax liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is fundamental and unquestioned. 'He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect "this is your own act, and therefore you are not damnified." ' "(R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, "The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].

The following authorities cited in the brief of the Solicitor General are in point:

The petitioner makes the point that by the Revenue Act of May 29, 1928 (chap. 852, 45 Stat. at L. 791, 875, sec. 609, U.S.C. title 26, sec. 2609), a credit against a liability in respect of any taxable year shall be "void" if it has been made against a liability barred by limitation. The aim of that provision, as we view it, was to invalidate such a credit if made by the Commissioner of his own motion without the taxpayer's approval or with approval failing short of inducement or request. Cf. Stange vs. United States, 282 U. S. 270, 75 L. ed. 335, 51 S. Ct. 145, supra; Revenue Act of 1928, sec. 506 (b) (c), chap. 852, 45 Stat. at L. 791, 870, 871, U.S.C. title 26, see. 1062a. If nothing more than this appeared, there was to be no exercise in invitum of governmental power. But the aim of the statute suggests a restraint upon its meaning. To know whether liability has been barred by limitation it will not do to refer to the flight of time alone. The limitation may have been postponed by force of a simple waiver, which must then be made in adherence to the statutory forms, or so we now assume. It may have been postponed by deliberate persuasion to withhold official action. We think it an unreasonable construction that would view the prohibition of the statute as over-riding the doctrine of estoppel (Randon vs. Tobey, 11 How. 493, 519, 13 L. ed. 784, 795) and invalidating a credit made at the taxpayer's request. Here at the time of the request, the liability was still alive, unaffected as yet by any statutory bar. The request in its fair meaning reached forward into the future and prayed for the postponement of collection till the audits for later years had been completed in the usual course. This having been done, the suspended collection might be effected by credit or by distraint or by other methods prescribed by law.

Congress surely did not mean that a credit was to be void if made by the Government in response to such prayer.

The applicable principle is fundamental and unquestioned. "He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect "this is your own act, and therefore you are not damnified," ' " Dolan vs. Rogers, 149 N. Y. 489, 491, 44 N.E. 167, and Imperator Realty Co. vs. Tull, 228 N. Y. 447, 457, 127 N.E. 263, quoting West vs. Blakeway, 2 Mann. & G. 729, 751, 133 Eng. Reprint, 940, 949. Sometimes the resulting disability has been characterized as an estoppel, sometimes as a waiver. The label counts for little. Enough for present purposes that the disability has its roots in a principle more nearly ultimate than either waiver or estoppel, the principle that no one shall be permitted to found any claim upon his own inequity or take advantage of his own wrong. Imperator Realty Co. vs. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A suit may not be built on an omission induced by him who sues. Swain vs. Seamens, 9 Wall. 254, 274, 19 L. ed. 554, 560; United States vs. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson vs. Poor, 147 N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. vs. Societe des Ateliers (1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H. Stearns Co. vs. U.S., supra; Emphasis supplied.)

. . . It is admitted that these assessments were timely made in August 1923. Upon the making of the assessment the Commissioner sought to make collection, which likewise was at a time when the statute had not ran on collection, but the authorized representative of the Lattimores strenuously objected to the collection and urged the Commissioner to withhold collection, pending adjustment of the controversy between them and the Commissioner. The Commissioner yielded to their request and postponed collection until August 19, 1926, which was after the statute had run on collection. In the meantime, further claims for refund and protests were filed, conferences were held and consideration was given to the settlement of the controversy, and the matter was not finally disposed of until 1926, when the statute had run on collection. The procedure carried out was that requested by plaintiffs, and they cannot now be heard to say that the collection was not timely. R. H. Stearns Company vs. United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647. (Lattimore vs. U.S., 12 F. Supp. 895, 91.)

Wherefore, the decision appealed from is reversed.

The decision of the Collector of Internal Revenue rendered on July 26, 1955 is hereby affirmed. No costs.

Paras, C. J., Bengzon, Labrador, Concepcion, Reyes, J. B. L. and Endencia, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. Nos. 141104 & 148763             June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.

Petitioner corporation is engaged in the business of mining, production, and sale of various mineral products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its principal place of business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August 1990.1

G.R. No. 141104

Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It alleged that it likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a "zero-rated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue (respondent Commissioner) to refund/credit petitioner corporation with the amount of P26,030,460.00, representing the input VAT it had paid for the first quarter of 1992. The respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner corporation for failure to state a cause of action. After due trial, the CTA promulgated its Decision4 on 24 November 1997 with the following disposition –

WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the ground of prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.

The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5 dated 15 April 1998.

When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner corporation was also denied by the Court of Appeals in its Resolution,7 dated 14 December 1999.

Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assigning the following errors committed by the Court of Appeals –

I

THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY.

II

THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL DEFECT.

III

THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN.

IV

THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8

G.R. No. 148763

G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.

Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and on its zero-rated sales, the details of which are presented as follows –

Date of Application Period Covered Amount Applied For

21 August 1990 2nd Quarter, 1990 P 54,014,722.04

21 November 1990 3rd Quarter, 1990 75,304,774.77

19 February 1991 4th Quarter, 1990 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA the following petitions for review –

Date Filed Period Covered CTA Case No.

20 July 1992 2nd Quarter, 1990

9 October 1992 3rd Quarter, 1990

14 January 1993 4th Quarter, 1990

which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive periods for filing the same had expired. In a Resolution,10 dated 15 January 1998, the CTA denied the motion for reconsideration of petitioner corporation since the latter presented no new matter not already discussed in the court's prior Decision. In the same Resolution, the CTA also denied the alternative prayer of petitioner corporation for a new trial since it did not fall under any of the grounds cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of merits required by Section 2 of the same Rule.

Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision,11 finding that although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution,12 dated 27 June 2001, the appellate court denied the motion for reconsideration of petitioner corporation, finding no cogent reason to reverse its previous Decision.

Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues –

A.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR

FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE INSTANT CLAIM.

B.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.

There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of this Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating of its sales, the burden of proving that the buyer companies were not just BOI-registered but also exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before the CTA so it could be given the opportunity to present the required evidence.

Prescription

The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as amended, which provided that –

SEC. 106. Refunds or tax credits of input tax. – x x x.

(b) Zero-rated or effectively zero-rated sales. – Any person, except those covered by paragraph (a) above, whose sales are zero-rated may, within two years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the extent that such input tax has not been applied against output tax.

x x x x

(e) Period within which refund of input taxes may be made by the Commissioner. – The Commissioner shall refund input taxes within 60 days from the date the application for refund was filed with him or his duly authorized representative. No refund of input taxes shall be allowed unless the VAT-registered person files an application for refund within the period prescribed in paragraphs (a), (b) and (c) as the case may be.

By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter when such sales were made.

Petitioner contends, however, that the said two-year prescriptive period should be counted, not from the close of the quarter when the zero-rated sales were made, but from the date of filing of the quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section 110(b) of the Tax Code of 1977, as amended, quoted as follows –

SEC. 110. Return and payment of value-added tax. – x x x.

(b) Time for filing of return and payment of tax. – The return shall be filed and the tax paid within 20 days following the end of each quarter specifically prescribed for a VAT-registered person under regulations to be promulgated by the Secretary of Finance: Provided, however, That any person whose registration is cancelled in accordance with paragraph (e) of Section 107 shall file a return within 20 days from the cancellation of such registration.

It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for recovery of corporate income tax erroneously or illegally paid under Section 23013 of the Tax Code of 1977, as amended, was to be counted from the filing of the final adjustment return. This Court already set out in ACCRA Investments Corporation v. Court of Appeals,14 the rationale for such a rule, thus –

Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final

adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund.

Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent Commissioner who failed to take any action thereon and considering further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court manifestly committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim for refund was barred by prescription.

It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.

In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further expounded on the same matter –

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under the circumstances to lay down a categorical pronouncement on the question as to when the two-year prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case.

Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the other provisions of the Tax Code in order to give effect the legislative intent and to avoid an application of the law which may lead to inconvenience and

absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause of the statute must be expounded by reference to each other in order to arrive at the effect contemplated by the legislature. The intention of the legislator must be ascertained from the whole text of the law and every part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]).

Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of the Tax Code should be harmonized with each other.

x x x x

Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should

be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax.

In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section 292) of the National Internal Revenue Code should be counted from the date of the final payment. This ruling is reiterated in Commissioner of Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was paid on installment, the computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last installment.

In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15,1982, TMX Sales, Inc. is not yet barred by prescription.

The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at bar involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales.

It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year. However, it is also equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much input VAT16 the taxpayer may apply against its output VAT;17how much output VAT it is due to pay for the quarter or how much excess input VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as refund/credit. It should be recalled that not only may a VAT-registered taxpayer directly apply against his output VAT due the input VAT it had paid on its importation or local purchases of goods and services during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to the succeeding quarters for application against its future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit certificate covering the amount of such input VAT.18 Hence, even in the absence of a final adjustment return, the determination of any output VAT payable

necessarily requires that the VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into consideration the input VAT which are creditable for the present quarter or had been carried over from the previous quarters.

Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities – information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the taxable quarter/s concerned.

Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously collected national internal revenue tax, consists of monetary amounts which are currently in the hands of the government but must rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer must be given equal opportunity for filing and pursuing its claim.

For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return and payment of the tax due which, according to the law then existing, should be made within 20 days from the end of each quarter. Having established thus, the relevant dates in the instant cases are summarized and reproduced below –

Period Covered Date of Filing(Return w/ BIR)

Date of Filing(Application w/ BIR)

2nd Quarter, 1990 20 July 1990 21 August 1990

3rd Quarter, 1990 18 October 1990 21 November 1990

4th Quarter, 1990 20 January 1991 19 February 1991

1st Quarter, 1992 20 April 1992

The above table readily shows that the administrative and judicial claims of petitioner corporation for refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within the prescriptive period.

However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner corporation filed in time its judicial claim with the CTA, there is no showing that it had previously filed an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an application for refund with respondent Commissioner within the two-year prescriptive period. The application of petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly received the same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations –

This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on account of the fact that it does not bear the BIR stamp showing the date when such application was filed together with the signature or initial of the receiving officer of respondent's Bureau. Worse still, it does not show the date of application and the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's authorized filer.

A review of the records reveal that the original of the aforecited application was lost during the time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made to prove that petitioner exerted efforts to recover the original copy, but to no avail. Despite this, however, We observe that petitioner completely failed to establish the missing dates and signatures abovementioned. On this score, said application has no probative value in demonstrating the fact of its filing within two years after the [filing of the VAT return for the quarter] when petitioner's sales of goods were made as prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner failed to file an application for refund in due form and within the legal period set by law at the administrative level. Hence, the case at bar has failed to satisfy the requirement on the prior filing of an application for refund with the respondent before the commencement of a judicial claim for refund,

as prescribed under Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not granting petitioner's judicial claim.

As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also whether petitioner corporation actually filed such administrative claim in the first place. For failing to prove that it had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of 1992, within the period prescribed by law, then the case instituted by petitioner corporation with the CTA for the refund/credit of the very same tax cannot prosper.

Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision subjected the following sales made by VAT-registered persons to 0% VAT –

(1) Export sales; and

(2) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate.

"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, or foreign currency denominated sales. "Foreign currency denominated sales", means sales to nonresidents of goods assembled or manufactured in the Philippines, for delivery to residents in the Philippines and paid for in convertible foreign currency remitted through the banking system in the Philippines.

These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or services related to such zero-rated sale shall be available as tax credit or refund.20

Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS), both of which are registered not only with the BOI, but also with the then Export Processing Zone Authority (EPZA).21

The contentious provisions of Revenue Regulations No. 2-88 read –

SEC. 2. Zero-rating. – (a) Sales of raw materials to BOI-registered exporters. – Sales of raw materials to export-oriented BOI-registered enterprises whose export sales, under rules and regulations of the Board of Investments, exceed seventy percent (70%) of total annual production, shall be subject to zero-rate under the following conditions:

"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zero-rating for each and every separate buyer, in accordance with Section 8(d) of Revenue Regulations No. 5-87. The application should be accompanied with a favorable recommendation from the Board of Investments."

"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or repacking of his own registered export product;

"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax credits on their zero-rated purchases;

(b) Sales of raw materials to foreign buyer. – Sales of raw materials to a nonresident foreign buyer for delivery to a resident local export-oriented BOI-registered enterprise to be used in manufacturing, processing or repacking of the said buyer's goods and paid for in foreign currency, inwardly remitted in accordance with Central Bank rules and regulations shall be subject to zero-rate.

It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that Section 2 of Revenue Regulations No. 2-88

should be applied in the cases at bar; and to be entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that more than 70% of the total annual production of these corporations are actually exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented corporations registered with it.

While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds that its application must be limited and placed in the proper context. Note that Section 2 of Revenue Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOI-registered enterprises whose export sales, under BOI rules and regulations, should exceed seventy percent (70%) of their total annual production.

Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the EPZA and located within an export-processing zone. Petitioner corporation does not claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-oriented BOI-registered corporations, but rather, on the basis that the sales were made to EPZA-registered enterprises operating within export processing zones. Although sales to export-oriented BOI-registered enterprises and sales to EPZA-registered enterprises located within export processing zones were both deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT distinction must be made between these two types of sales because each may have different substantiation requirements.

The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, or foreign currency denominated sales." Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 - which, in the years concerned (i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition of export sales, as quoted below:

"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of

credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer or to an export trader that subsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales whenactually exported by the latter, as evidenced by landing certificates of similar commercial documents: Provided, further, That without actual exportation the following shall be considered constructively exportedfor purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of registered export trader may include commission income; and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales. (Underscoring ours.)

The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the sales of export products to another producer or to an export trader, provided that the export products are actually exported. For purposes of VAT zero-rating, such producer or export trader must be registered with the BOI and is required to actually export more than 70% of its annual production.

Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers constructive exportation as export sales. Among other types of constructive exportation specifically identified by the said provision are sales to export processing zones. Sales to export processing zones are

subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of goods or merchandise brought into the export processing zones. Of particular relevance herein is paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction."

Such tax treatment of goods brought into the export processing zones are only consistent with the Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According to the Destination Principle,22 goods and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine23 mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports.

Plainly, sales to enterprises operating within the export processing zones are export sales, which, under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.

The distinction made by this Court in the preceding paragraphs between the zero-rated sales to export-oriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises operating within export processing zones is actually supported by subsequent development in tax laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the BIR defined with more precision what are zero-rated export sales –

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in

accordance with the rules and regulations of the Bangko Sentral ng Pilipinas(BSP);

(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;

Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented enterprise upon accreditation as such under the provisions of the Export Development Act (R.A. 7844) and its implementing rules and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.

The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which are subject to 0% VAT.

This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied to the applications for refund/credit of input VAT filed by petitioner corporation since it based its applications on the zero-rating of export sales to enterprises registered with the EPZA and located within export processing zones.

Sufficiency of evidence

There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is the function of the BIR to assess these documents with purposeful dispatch.28 It therefore falls upon herein petitioner corporation to first establish that its sales qualify for VAT zero-rating under the existing laws (legal basis), and then to present sufficient evidence that said sales were actually made and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).

It would initially appear that the applications for refund/credit filed by petitioner corporation cover only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the Central Bank of the Philippines (CBP).

This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient legal bases.

As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises operating within export processing zones and registered with the EPZA, since such export sales were deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom petitioner corporation sold its products, were operating inside an export processing zone and duly registered with EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in the case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or locally purchased to the extent that such input VAT has not been applied against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to 199131 was already affirmed by this Court in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it ruled that –

At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the Central Bank shall be

considered export and therefore shall be subject to the export and premium duties. In coming out with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are considered constructive exports. x x x.

This Court now comes to the question of whether petitioner corporation has sufficiently established the factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner corporation has failed, both in the administrative and judicial level.

Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of Revenue Regulations No. 5-87, which provided as follows –

SECTION 16. Refunds or tax credits of input tax. –

x x x x

(c) Claims for tax credits/refunds. – Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The original copy of the said invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following documents shall be attached whenever applicable:

x x x x

"3. Effectively zero-rated sale of goods and services.

"i) photo copy of approved application for zero-rate if filing for the first time.

"ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered.

"iii) evidence of actual receipt of goods or services.

"4. Purchase of capital goods.

"i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of value-added tax paid and description of the capital equipment locally purchased.

"ii) with respect to capital equipment imported, the photo copy of import entry document for internal revenue tax purposes and the confirmation receipt issued by the Bureau of Customs for the payment of the value-added tax.

"5. In applicable cases,

where the applicant's zero-rated transactions are regulated by certain government agencies, a statement therefrom showing the amount and description of sale of goods and services, name of persons or entities (except in case of exports) to whom the goods or services were sold, and date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services, and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the aforementioned transactions, the following formula shall be used to determine the creditable or refundable input tax for zero-rated sale:

Amount of Zero-rated SaleTotal Sales

XTotal Amount of Input Taxes

=Amount Creditable/Refundable

In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents, such as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full below –

In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account for marking, identification and comparison with

the originals thereof need not be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices, vouchers or other documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for verification and comparison in case doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of evidence.

Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the said Circular was issued, then petitioner corporation must have complied therewith during the course of the trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-rated sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this Court emphasized the importance of complying with the substantiation requirements for claiming refund/credit of input VAT on zero-rated sales, to wit –

For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered entity and that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by purchase invoices or official receipts.

This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the requirements in claiming tax credits/refunds.

x x x x

Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before it are litigatedde novo, party litigants should prove every minute aspect of their cases. No evidentiary value can be given the purchase invoices or receipts submitted to

the BIR as the rules on documentary evidence require that these documents must be formally offered before the CTA.

This Court thus notes with approval the following findings of the CTA:

x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso fact mean that [the seller] is entitled to the amount of refund sought as it is required by law to present evidence showing the input taxes it paid during the year in question. What is being claimed in the instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or other documents showing the input value added tax on the purchase of goods and services.

x x x

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration. (Emphasis and italics supplied)

A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.

These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quantity of goods sold and their selling price, and taken collectively are the best means to prove the input VAT payments.36

Although the foregoing decision focused only on the proof required for the applicant for refund/credit to establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence of actual receipt of goods or services.

Also worth noting in the same decision is the weight given by this Court to the certification by the independent certified public accountant (CPA), thus –

Respondent contends, however, that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers' invoices or receipts which were examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its claims.

There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT payments.

x x x x

The circular, in the interest of speedy administration of justice, was promulgated to avoid the time-consuming procedure of presenting, identifying and marking of documents before the Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices andsubmitting the same to the court after the independent CPA shall have examined and compared them with the originals. Without presenting these pre-marked documents as evidence – from which the summary and schedules were based, the court cannot verify

the authenticity and veracity of the independent auditor's conclusions.

There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of input VAT.

x x x x

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in themselves but are primarily intended as tools in the administration of justice, the presentation of the purchase receipts and/or invoices is not mere procedural technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of the respondent's claims.

The records further show that respondent miserably failed to substantiate its claims for input VAT refund for the first semester of 1991. Except for the summary and schedules of input VAT payments prepared by respondent itself, no other evidence was adduced in support of its claim.

As for respondent's claim for input VAT refund for the second semester of 1991, it employed the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that:

We have examined the information shown below concerning the input tax payments made by the Makati Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination included inspection of the pertinent suppliers' invoices and official receipts and such other auditing procedures as we considered necessary in the circumstances. x x x

As the certification merely stated that it used "auditing procedures considered necessary" and not auditing procedures which are in accordance with generally accepted auditing principles and standards, and that the examination was made on "input tax

payments by the Manila Mining Corporation," without specifying that the said input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of the respondent's input VAT payments for the second semester.37

As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-rated sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive period for the filing of the application for refund/credit thereof. This bars the grant of the application for refund/credit, whether administratively or judicially, by express mandate of Section 106(e) of the same Code.

Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation still failed to present together with its application the required supporting documents, whether before the BIR or the CTA. As the Court of Appeals ruled –

In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to substantiate its claim for tax refunds. Thus:

"We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations No. 2-88 in determining compliance with the documentary requirements for a successful refund or issuance of tax credit. Unmentioned is the applicable and specific amendment later introduced by Revenue Regulations No. 3-88 dated April 7, 1988 (issued barely after two months from the promulgation of Revenue Regulations No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations No. 5-87 on refunds or tax credits of input tax. x x x.

x x x x

"A thorough examination of the evidence submitted by the petitioner before this court reveals outright the failure to satisfy documentary requirements laid down under the

above-cited regulations. Specifically, petitioner was not able to present the following documents, to wit:

"a) sales invoices or receipts;

"b) purchase invoices or receipts;

"c) evidence of actual receipt of goods;

"d) BOI statement showing the amount and description of sale of goods, etc.

"e) original or attested copies of invoice or receipt on capital equipment locally purchased; and

"f) photocopy of import entry document and confirmation receipt on imported capital equipment.

"There is the need to examine the sales invoices or receipts in order to ascertain the actual amount or quantity of goods sold and their selling price. Without them, this Court cannot verify the correctness of petitioner's claim inasmuch as the regulations require that the input taxes being sought for refund should be limited to the portion that is directly and entirely attributable to the particular zero-rated transaction. In this instance, the best evidence of such transaction are the said sales invoices or receipts.

"Also, even if sales invoices are produced, there is the further need to submit evidence that such goods were actually received by the buyer, in this case, by CBP, Philp[h]os and PASAR.

x x x x

"Lastly, this Court cannot determine whether there were actual local and imported purchase of capital goods as well as domestic purchase of non-capital goods without the required purchase invoice or receipt, as the case may be, and confirmation receipts.

"There is, thus, the imperative need to submit before this Court the original or attested photocopies of petitioner's invoices or receipts, confirmation receipts and import entry documents in order that a full ascertainment of the claimed amount may be achieved.

"Petitioner should have taken the foresight to introduce in evidence all of the missing documentsabovementioned. Cases filed before this Court are litigated de novo. This means that party litigants should endeavor to prove at the first instance every minute aspect of their cases strictly in accordance with the Rules of Court, most especially on documentary evidence." (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).

There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-destructive", as it finds comfort in the very SGV's stand, as follows:

"It is our understanding that the above procedure are sufficient for the purpose of the Company. We make no presentation regarding the sufficiency of these procedures for such purpose. We did not compare the total of the input tax claimed each quarter against the pertinent VAT returns and books of accounts. The above procedures do not constitute an audit made in accordance with generally accepted auditing standards. Accordingly, we do not express an opinion on the company's claim for input VAT refund or credit. Had we performed additional procedures, or had we made an audit in accordance with generally accepted auditing standards, other matters might have

come to our attention that we would have accordingly reported on."

The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed each quarter against the VAT returns and books of accounts."38

Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found that petitioner corporation failed to sufficiently establish its claims. Already disregarding the declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence submitted in accordance with the requirements under Revenue Regulations No. 3-88 –

The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec. 245 of the National Internal Revenue Code, which recognized his power to "promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code." Thus, it is incumbent upon a taxpayer intending to file a claim for refund of input VATs or the issuance of a tax credit certificate with the BIR x x x to prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the same evidence should be presented in support of an action to recover taxes which have been paid.

x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and the dates and amounts of the same, nor any evidence of actual receipt by the said buyers of the mineral products. It merely presented receipts of purchases from suppliers on which input VATs were allegedly paid. Thus, the Court of Tax Appeals correctly denied the claims for refund of input VATs or the issuance of tax credit certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to reviewing or revising errors of law; findings of fact of the latter are conclusive.40 This Court is not a trier of facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence presented.41

The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts."42

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales in the amount it had declared in its returns; whether all the input VAT subject of its applications for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input VAT against its output VAT liabilities, are all questions of fact which could only be answered after reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and which this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under Rule 45 of the revised Rules of Court.

Granting that there are exceptions to the general rule, when this Court looked into questions of fact under particular circumstances,43 none of these exist in the instant cases. The Court of Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its non-compliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the substantiation requirements under Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the evidentiary requirements mandated by other relevant regulations.

Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening of its cases or holding of new trial before the CTA for the reception of additional evidence, may be granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its

favor, consistent with the policy that rules of procedure be liberally construed in pursuance of substantive justice.

This Court, however, cannot grant the prayer of petitioner corporation.

An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides –

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. – Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial, and which if presented would probably alter the result.

Within the same period, the aggrieved party may also move fore reconsideration upon the grounds that the damages awarded are excessive, that the evidence is insufficient to justify the decision or final order, or that the decision or final order is contrary to law.

In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to adduce the necessary evidence should be construed as excusable negligence or mistake which should constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was rendered unnecessary by the presentation of unrebutted evidence indicating that respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated." 44 The CTA denied such motion on the ground that it was not accompanied by an affidavit of merit as required by Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed the denial of the motion, but apart from this technical defect, it also found that there was no justification to grant the same.

On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases and/or holding of new trial based on the technicality that said motion was unaccompanied by an affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and incorporated in the motion itself; and this will be deemed a substantial compliance with the formal requirements of the law, provided, of course, that the movant, or other individual with personal knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for new trial into an affidavit.45 The motion of petitioner corporation was prepared and verified by its counsel, and since the ground for the motion was premised on said counsel's excusable negligence or mistake, then the obvious conclusion is that he had personal knowledge of the facts relating to such negligence or mistake. Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases and/or holding of new trial was in substantial compliance with the formal requirements of the revised Rules of Court.

Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the re-opening of its cases and/or holding of new trial.

In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998, by the CTA in another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of input VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296, earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing export documents.

The rule that the grant or denial of motions for new trial rests on the discretion of the trial court,47 may likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof.48

That the CTA granted the motion for re-opening of one case for the presentation of additional evidence and, yet, deny a similar motion in another case filed by the same party, does not necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases involve identical parties, the causes of action and the evidence to support the same can very well be different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting of actual export sales, to Mitsubishi Metal Corporation in

Tokyo, Japan. The CTA took into account the presentation by petitioner corporation of inward remittances of its export sales for the quarter involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales to the said foreign corporation, and its application for refund. In contrast, the present Petitions involve the claims of petitioner corporation for refund/credit of the input VAT on its purchases of capital goods and on its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990 and first quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation for refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting variances as to the evidence required to support them.

Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to present evidence "is applicable pro hac vice   or in this occasion only  as it is the finding of [the CTA] that petitioner [corporation] has established a few of the aforementioned material points regarding the possible existence of the export documents together with the prior and succeeding returns for the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its ruling in CTA Case No. 5296, when these cases do not involve the exact same circumstances that compelled it to grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.

Finally, assuming for the sake of argument that the non-presentation of the required documents was due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of new trial.

Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask for the reversal of the court's ruling.49

As elucidated by this Court in another case,50 the general rule is that the client is bound by the action of his counsel in the conduct of his case and he cannot therefore complain that the result of the litigation might have been

otherwise had his counsel proceeded differently. It has been held time and again that blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If such were to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as a new counsel could be employed to allege and show that the prior counsel had not been sufficiently diligent, experienced or learned.

Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988, had been in effect more than two years prior to the filing by petitioner corporation of its earliest application for refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995, after petitioner corporation had filed its Petitions before the CTA, but still during the pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner corporation does not allege ignorance of the foregoing administrative regulation and tax court circular, only that he no longer deemed it necessary to present the documents required therein because of the presentation of alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a judgment call made by the counsel as to which evidence to present in support of his client's cause, later proved to be unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of the required documentary evidence was due to the excusable mistake of its counsel, a ground under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred to in the said rule, must be a mistake of fact, not of law, which relates to the case.52 In the present case, the supposed mistake made by the counsel of petitioner corporation is one of law, for it was grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended, did not apply to his client's cases and that there was no need to comply with the documentary requirements set forth therein. And although the counsel of petitioner corporation advocated an erroneous legal position, the effects thereof, which did not amount to a deprivation of his client's right to be heard, must bind petitioner corporation. The question is not whether petitioner corporation succeeded in establishing its interests, but whether it had the opportunity to present its side.53

Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is not a refuge for the

obstinate.54 Ordinary prudence in these cases would have dictated the presentation of all available evidence that would have supported the claims for refund/credit of input VAT of petitioner corporation. Without sound legal basis, counsel for petitioner corporation concluded that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its client's claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their failure, nay, refusal, to comply with the appropriate administrative regulations and tax court circular in pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a span of more than two years. It is also evident in the failure of petitioner corporation to address the issue and to present additional evidence despite being given the opportunity to do so by the Court of Appeals. As pointed out by the appellate court, in its Decision, dated 15 September 2000, in CA-G.R. SP No. 46718 –

x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.55

Summary

Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of 1992, for not being established and substantiated by appropriate and sufficient evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or holding of new trial since the non-presentation of the required documentary evidence before the BIR and the CTA by its counsel does not constitute excusable negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the Decisions, dated 6 July 1999 and 15 September

2000, of the Court of Appeals in CA-G.R. SP Nos. 47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 184823               October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.AICHI FORGING COMPANY OF ASIA, INC., Respondent.

D E C I S I O N

DEL CASTILLO, J.:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process as non-observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim.

This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to set aside the July 30, 2008 Decision1 and the October 6, 2008 Resolution2 of the Court of Tax Appeals (CTA) En Banc.

Factual Antecedents

Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the Republic of the Philippines, is engaged in the manufacturing, producing, and processing of steel and its by-

products.3 It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity4 and its products, "close impression die steel forgings" and "tool and dies," are registered with the Board of Investments (BOI) as a pioneer status.5

On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.6

Proceedings before the Second Division of the CTA

On even date, respondent filed a Petition for Review7 with the CTA for the refund/credit of the same input VAT. The case was docketed as CTA Case No. 7065 and was raffled to the Second Division of the CTA.

In the Petition for Review, respondent alleged that for the period July 1, 2002 to September 30, 2002, it generated and recorded zero-rated sales in the amount of P131,791,399.00,8 which was paid pursuant to Section 106(A) (2) (a) (1), (2) and (3) of the National Internal Revenue Code of 1997 (NIRC);9 that for the said period, it incurred and paid input VAT amounting to P3,912,088.14 from purchases and importation attributable to its zero-rated sales;10and that in its application for refund/credit filed with the DOF One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it only claimed the amount of P3,891,123.82.11

In response, petitioner filed his Answer12 raising the following special and affirmative defenses, to wit:

4. Petitioner’s alleged claim for refund is subject to administrative investigation by the Bureau;

5. Petitioner must prove that it paid VAT input taxes for the period in question;

6. Petitioner must prove that its sales are export sales contemplated under Sections 106(A) (2) (a), and 108(B) (1) of the Tax Code of 1997;

7. Petitioner must prove that the claim was filed within the two (2) year period prescribed in Section 229 of the Tax Code;

8. In an action for refund, the burden of proof is on the taxpayer to establish its right to refund, and failure to sustain the burden is fatal to the claim for refund; and

9. Claims for refund are construed strictly against the claimant for the same partake of the nature of exemption from taxation.13

Trial ensued, after which, on January 4, 2008, the Second Division of the CTA rendered a Decision partially granting respondent’s claim for refund/credit. Pertinent portions of the Decision read:

For a VAT registered entity whose sales are zero-rated, to validly claim a refund, Section 112 (A) of the NIRC of 1997, as amended, provides:

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

Pursuant to the above provision, petitioner must comply with the following requisites: (1) the taxpayer is engaged in sales which are zero-rated or effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must be filed within two years after the close of the taxable quarter when such sales were made; and (4) the creditable input tax due or paid must be attributable to such sales, except the transitional input tax, to the extent that such input tax has not been applied against the output tax.

The Court finds that the first three requirements have been complied [with] by petitioner.

With regard to the first requisite, the evidence presented by petitioner, such as the Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK-394" and "LL") shows that it is engaged in sales which are zero-rated.

The second requisite has likewise been complied with. The Certificate of Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR proves that petitioner is a registered VAT taxpayer.

In compliance with the third requisite, petitioner filed its administrative claim for refund on September 30, 2004 (Exhibit "N") and the present Petition for Review on September 30, 2004, both within the two (2) year prescriptive period from the close of the taxable quarter when the sales were made, which is from September 30, 2002.

As regards, the fourth requirement, the Court finds that there are some documents and claims of petitioner that are baseless and have not been satisfactorily substantiated.

x x x x

In sum, petitioner has sufficiently proved that it is entitled to a refund or issuance of a tax credit certificate representing unutilized excess input VAT payments for the period July 1, 2002 to September 30, 2002, which are attributable to its zero-rated sales for the same period, but in the reduced amount of P3,239,119.25, computed as follows:

Amount of Claimed Input VAT P 3,891,123.82Less:

Exceptions as found by the ICPA 41,020.37

Net Creditable Input VAT P 3,850,103.45Less:

Output VAT Due 610,984.20Excess Creditable Input VAT P 3,239,119.25

WHEREFORE, premises considered, the present Petition for Review is PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner [in] the reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS (P3,239,119.25), representing the unutilized input VAT incurred for the months of July to September 2002.

SO ORDERED.14

Dissatisfied with the above-quoted Decision, petitioner filed a Motion for Partial Reconsideration,15 insisting that the administrative and the judicial

claims were filed beyond the two-year period to claim a tax refund/credit provided for under Sections 112(A) and 229 of the NIRC. He reasoned that since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.16 He cited as basis Article 13 of the Civil Code,17 which provides that when the law speaks of a year, it is equivalent to 365 days. In addition, petitioner argued that the simultaneous filing of the administrative and the judicial claims contravenes Sections 112 and 229 of the NIRC.18 According to the petitioner, a prior filing of an administrative claim is a "condition precedent"19 before a judicial claim can be filed. He explained that the rationale of such requirement rests not only on the doctrine of exhaustion of administrative remedies but also on the fact that the CTA is an appellate body which exercises the power of judicial review over administrative actions of the BIR. 20

The Second Division of the CTA, however, denied petitioner’s Motion for Partial Reconsideration for lack of merit. Petitioner thus elevated the matter to the CTA En Banc via a Petition for Review.21

Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Division’s Decision allowing the partial tax refund/credit in favor of respondent. However, as to the reckoning point for counting the two-year period, the CTA En Banc ruled:

Petitioner argues that the administrative and judicial claims were filed beyond the period allowed by law and hence, the honorable Court has no jurisdiction over the same. In addition, petitioner further contends that respondent's filing of the administrative and judicial [claims] effectively eliminates the authority of the honorable Court to exercise jurisdiction over the judicial claim.

We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:

SEC. 114. Return and Payment of Value-added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable

quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

[x x x x ]

Based on the above-stated provision, a taxpayer has twenty five (25) days from the close of each taxable quarter within which to file a quarterly return of the amount of his gross sales or receipts. In the case at bar, the taxable quarter involved was for the period of July 1, 2002 to September 30, 2002. Applying Section 114 of the 1997 NIRC, respondent has until October 25, 2002 within which to file its quarterly return for its gross sales or receipts [with] which it complied when it filed its VAT Quarterly Return on October 20, 2002.

In relation to this, the reckoning of the two-year period provided under Section 229 of the 1997 NIRC should start from the payment of tax subject claim for refund. As stated above, respondent filed its VAT Return for the taxable third quarter of 2002 on October 20, 2002. Thus, respondent's administrative and judicial claims for refund filed on September 30, 2004 were filed on time because AICHI has until October 20, 2004 within which to file its claim for refund.

In addition, We do not agree with the petitioner's contention that the 1997 NIRC requires the previous filing of an administrative claim for refund prior to the judicial claim. This should not be the case as the law does not prohibit the simultaneous filing of the administrative and judicial claims for refund. What is controlling is that both claims for refund must be filed within the two-year prescriptive period.

In sum, the Court En Banc finds no cogent justification to disturb the findings and conclusion spelled out in the assailed January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division. What the instant petition seeks is for the Court En Banc to view and appreciate the evidence in their own perspective of things, which unfortunately had already been considered and passed upon.

WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the January 4, 2008 Decision and March 13, 2008 Resolution of the CTA Second Division in CTA Case No. 7065 entitled, "AICHI Forging Company of Asia, Inc. petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED.22

Petitioner sought reconsideration but the CTA En Banc denied23 his Motion for Reconsideration.

Issue

Hence, the present recourse where petitioner interposes the issue of whether respondent’s judicial and administrative claims for tax refund/credit were filed within the two-year prescriptive period provided in Sections 112(A) and 229 of

the NIRC.24

Petitioner’s Arguments

Petitioner maintains that respondent’s administrative and judicial claims for tax refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC.25 He posits that pursuant to Article 13 of the Civil Code,26 since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.27

Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the start of the two-year period as the said provision pertains to the compliance requirements in the payment of VAT.28 He asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically provides for the period within which a claim for tax refund/ credit should be made.29

Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA were filed on the same day.30 He opines that the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim.31 He insists that such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact that the CTA is an appellate body exercising judicial review over administrative actions of the CIR.32

Respondent’s Arguments

For its part, respondent claims that it is entitled to a refund/credit of its unutilized input VAT for the period July 1, 2002 to September 30, 2002 as a matter of right because it has substantially complied with all the requirements provided by law.33 Respondent likewise defends the CTA En Banc in applying Section 114(A) of the NIRC in computing the prescriptive period for the claim for tax refund/credit. Respondent believes that Section 112(A) of the NIRC must be read together with Section 114(A) of the same Code.34

As to the alleged simultaneous filing of its administrative and judicial claims, respondent contends that it first filed an administrative claim with the One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF before it filed a judicial claim with the CTA.35 To prove this, respondent points out that its Claimant Information Sheet No. 4970236 and BIR Form No. 1914 for the third quarter of 2002,37 which were filed with the DOF, were attached as Annexes "M" and "N," respectively, to the Petition for Review filed with the CTA.38 Respondent further contends that the non-observance of the 120-day period given to the CIR to act on the claim for tax refund/credit in Section 112(D) is not fatal because what is important is that both claims are filed within the two-year prescriptive period.39 In support thereof, respondent cites Commissioner of Internal Revenue v. Victorias Milling Co., Inc.40 where it was ruled that "[i]f, however, the [CIR] takes time in deciding the claim, and the period of two years is about to end, the suit or proceeding must be started in the [CTA] before the end of the two-year period without awaiting the decision of the [CIR]."41 Lastly, respondent argues that even if the period had already lapsed, it may be suspended for reasons of equity considering that it is not a jurisdictional requirement.42

Our Ruling

The petition has merit.

Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made

In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, which states:

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: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales. (Emphasis supplied.)

The CTA En Banc, on the other hand, took into consideration Sections 114 and 229 of the NIRC, which read:

SEC. 114. Return and Payment of Value-Added Tax. –

(A) In General. – Every person liable to pay the value-added tax imposed under this Title shall file a quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration: Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of business or head office and all branches.

x x x x

SEC. 229. Recovery of tax erroneously or illegally collected. –

No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively

or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied.)

Hence, the CTA En Banc ruled that the reckoning of the two-year period for filing a claim for refund/credit of unutilized input VAT should start from the date of payment of tax and not from the close of the taxable quarter when the sales were made.43

The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved in Commissioner of Internal Revenue v. Mirant Pagbilao Corporation,44 where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes."45 We explained that:

The above proviso [Section 112 (A) of the NIRC] clearly provides in no uncertain terms that unutilized input VAT payments not otherwise used for any internal revenue tax due the taxpayer must be claimed within two years reckoned from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not. As the CA aptly puts it, albeit it erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period commences from the close of the taxable quarter when the sales were made and not from the time the input VAT was paid nor from the time the official receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input VAT a year after the pertinent transaction, said taxpayer only has a year to file a claim for refund or tax credit of the unutilized creditable input VAT. The reckoning frame would always be the end of the quarter when the pertinent sales or transaction was made, regardless when the input VAT was paid. Be that as it may, and given that the last creditable input VAT due for the period covering the progress billing of September 6, 1996 is the third quarter of

1996 ending on September 30, 1996, any claim for unutilized creditable input VAT refund or tax credit for said quarter prescribed two years after September 30, 1996 or, to be precise, on September 30, 1998. Consequently, MPC’s claim for refund or tax credit filed on December 10, 1999 had already prescribed.

Reckoning for prescriptive period underSecs. 204(C) and 229 of the NIRC inapplicable

To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or 229 of the NIRC which, for the purpose of refund, prescribes a different starting point for the two-year prescriptive limit for the filing of a claim therefor. Secs. 204(C) and 229 respectively provide:

Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. – The Commissioner may –

x x x x

(c) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction. No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

x x x x

Sec. 229. Recovery of Tax Erroneously or Illegally Collected. – No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid.

Notably, the above provisions also set a two-year prescriptive period, reckoned from date of payment of the tax or penalty, for the filing of a claim of refund or tax credit. Notably too, both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.

MPC’s creditable input VAT not erroneously paid

For perspective, under Sec. 105 of the NIRC, creditable input VAT is an indirect tax which can be shifted or passed on to the buyer, transferee, or lessee of the goods, properties, or services of the taxpayer. The fact that the subsequent sale or transaction involves a wholly-tax exempt client, resulting in a zero-rated or effectively zero-rated transaction, does not, standing alone, deprive the taxpayer of its right to a refund for any unutilized creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle does not enter the equation.

x x x x

Considering the foregoing discussion, it is clear that Sec. 112 (A) of the NIRC, providing a two-year prescriptive period reckoned from the close of the taxable quarter when the relevant sales or transactions were made pertaining to the creditable input VAT, applies to the instant case, and not to the other actions which refer to erroneous payment of taxes.46 (Emphasis supplied.)

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made.

The administrative claim was timely filed

Bearing this in mind, we shall now proceed to determine whether the administrative claim was timely filed.

Relying on Article 13 of the Civil Code,47 which provides that a year is equivalent to 365 days, and taking into account the fact that the year 2004 was a leap year, petitioner submits that the two-year period to file a claim for tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired on September 29, 2004.48

We do not agree.

In Commissioner of Internal Revenue v. Primetown Property Group, Inc.,49 we said that as between the Civil Code, which provides that a year is equivalent to 365 days, and the Administrative Code of 1987, which states that a year is composed of 12 calendar months, it is the latter that must prevail following the legal maxim, Lex posteriori derogat priori.50 Thus:

Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the Administrative Code of 1987 deal with the same subject matter – the computation of legal periods. Under the Civil Code, a year is equivalent to 365 days whether it be a regular year or a leap year. Under the Administrative Code of 1987, however, a year is composed of 12 calendar months. Needless to state, under the Administrative Code of 1987, the number of days is irrelevant.

There obviously exists a manifest incompatibility in the manner of

computing legal periods under the Civil Code and the Administrative Code of 1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being the more recent law, governs the computation of legal periods. Lex posteriori derogat priori.

Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987 to this case, the two-year prescriptive period (reckoned from the time respondent filed its final adjusted return on April 14, 1998) consisted of 24 calendar months, computed as follows:

Year 1 1st calendar month April 15, 1998 to May 14, 1998

2nd calendar month May 15, 1998 to June 14, 1998

3rd calendar month June 15, 1998 to July 14, 1998

4th calendar month July 15, 1998 to August 14, 1998

5th calendar month August 15, 1998 to September 14, 1998

6th calendar month September 15, 1998 to October 14, 1998

7th calendar month October 15, 1998 to November 14, 1998

8th calendar month November 15, 1998 to December 14, 1998

9th calendar month December 15, 1998 to January 14, 1999

10th calendar month January 15, 1999 to February 14, 1999

11th calendar month February 15, 1999 to March 14, 1999

12th calendar month March 15, 1999 to April 14, 1999

Year 2 13th calendar month April 15, 1999 to May 14, 1999

14th calendar month May 15, 1999 to June 14, 1999

15th calendar month June 15, 1999 to July 14, 1999

16th calendar month July 15, 1999 to August 14, 1999

17th calendar month August 15, 1999 to September 14, 1999

18th calendar month September 15, 1999 to October 14, 1999

19th calendar month October 15, 1999 to November 14, 1999

20th calendar month November 15, 1999 to December 14, 1999

21st calendar month December 15, 1999 to January 14, 2000

22nd calendar month January 15, 2000 to February 14, 2000

23rd calendar month February 15, 2000 to March 14, 2000

24th calendar month March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14, 2000) was filed on the last day of the 24th calendar month from the day respondent filed its final adjusted return. Hence, it was filed within the reglementary period.51

Applying this to the present case, the two-year period to file a claim for tax refund/credit for the period July 1, 2002 to September 30, 2002 expired on

September 30, 2004. Hence, respondent’s administrative claim was timely filed.

The filing of the judicial claim was premature

However, notwithstanding the timely filing of the administrative claim, we

are constrained to deny respondent’s claim for tax refund/credit for having been filed in violation of Section 112(D) of the NIRC, which provides that:

SEC. 112. Refunds or Tax Credits of Input Tax. –

x x x x

(D) 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 Subsections (A) and (B) 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.)

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 period52 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.

With regard to Commissioner of Internal Revenue v. Victorias Milling, Co., Inc.53 relied upon by respondent, we find the same inapplicable as the tax provision involved in that case is Section 306, now Section 229 of the NIRC. And as already discussed, Section 229 does not apply to refunds/credits of input VAT, such as the instant case.

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.

WHEREFORE, the Petition is hereby GRANTED. The assailed July 30, 2008 Decision and the October 6, 2008 Resolution of the Court of Tax Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals Second Division is DIRECTED to dismiss CTA Case No. 7065 for having been prematurely filed.

SO ORDERED.

MARIANO C. DEL CASTILLOAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 191498               January 15, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.

D E C I S I O N

SERENO, CJ:

This Rule 45 Petition1 requires this Court to address the question of timeliness with respect to petitioner's administrative and judicial claims for refund and credit of accumulated unutilized input Value Added Tax (VAT) under Section 112(A) and Section 112(D) of the 1997 Tax Code. Petitioner Mindanao II Geothermal Partnership (Mindanao II) assails the Decision2 and Resolution3 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En Banc Case No. 448, affirming the Decision in CTA Case No. 7507 of the CTA Second Division.4 The latter ordered the refund or issuance of a tax credit certificate in the amount of P6,791,845.24 representing unutilized input VAT incurred for the second, third, and fourth quarters of taxable year 2004 in favor of herein respondent, Mindanao II.

FACTS

Mindanao II is a partnership registered with the Securities and Exchange Commission.5 It is engaged in the business of power generation and sale of electricity to the National Power Corporation (NAPOCOR)6 and is accredited by the Department of Energy.7

Mindanao II filed its Quarterly VAT Returns for the second, third and fourth quarters of taxable year 2004 on the following dates:8

Date filedQuarter Taxable Year

Original Amended

26 July 2004 12 July 2005 2nd 2004

22 October 2004 12 July 2005 3rd 2004

25 January 2005 12 July 2005 4th 2004

On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue (BIR) an application for the refund or credit of accumulated unutilized creditable input taxes.9 In support of the administrative claim for refund or credit, Mindanao II alleged, among others, that it is registered with the BIR as a value-added taxpayer10 and all its sales are zero-rated under the EPIRA law.11 It further stated that for the second, third, and fourth quarters of taxable year 2004, it paid input VAT in the aggregate amount of P7,167,005.84, which were directly attributable to the zero-rated sales. The input taxes had not been applied against output tax.

Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006, to act on the claim. The administrative claim, however, remained unresolved on 3 February 2006.

Under the same provision, Mindanao II could treat the inaction of the CIR as a denial of its claim, in which case, the former would have 30 days to file an appeal to the CTA, that is, on 5 March 2006. Mindanao II, however, did not file an appeal within the 30-day period.

Apparently, Mindanao II believed that a judicial claim must be filed within the two-year prescriptive period provided under Section 112(A) and that such time frame was to be reckoned from the filing of its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, that is, from 26 July 2004, 22 October 2004, and 25 January 2005, respectively. Thus, on 21 July 2006, Mindanao II, claiming inaction on the part of the CIR and that the two-year prescriptive period was about to expire, filed a Petition for Review with the CTA docketed as CTA Case No. 6133.12

On 8 June 2007, while the application for refund or credit of unutilized input VAT of Mindanao II was pending before the CTA Second Division, this Court promulgated Atlas Consolidated Mining and Development Corporation v. CIR13 (Atlas). Atlas held that the two-year prescriptive period for the filing of a claim for an input VAT refund or credit is to be reckoned from the date of filing of the corresponding quarterly VAT return and payment of the tax.

On 12 August 2008, the CTA Second Division rendered a Decision14 ordering the CIR to grant a refund or a tax credit certificate, but only in the reduced amount of P6,791,845.24, representing unutilized input VAT incurred for the second, third and fourth quarters of taxable year 2004.15

In support of its ruling, the CTA Second Division held that Mindanao II complied with the twin requisites for VAT zero-rating under the EPIRA law: first, it is a generation company, and second, it derived sales from power generation. It also ruled that Mindanao II satisfied the requirements for the grant of a refund/credit under Section 112 of the Tax Code: (1) there must be zero-rated or effectively zero-rated sales; (2) input taxes must have been incurred or paid; (3) the creditable input tax due or paid must be attributable to zero-rated sales or effectively zero-rated sales; (4) the input VAT payments must not have been applied against any output liability; and (5) the claim must be filed within the two-year prescriptive period.16

As to the second requisite, however, the input tax claim to the extent of P375,160.60 corresponding to purchases of services from Mitsubishi Corporation was disallowed, since it was not substantiated by official receipts.17

As regards to the fifth requirement in section 112 of the Tax Code, the tax court, citing Atlas, counted from 26 July 2004, 22 October 2004, and 25 January 2005 – the dates when Mindanao II filed its Quarterly VAT Returns for the second, third, and fourth quarters of taxable year 2004, respectively – and determined that both the administrative claim filed on 6 October 2005 and the judicial claim filed on 21 July 2006 fell within the two-year prescriptive period.18

On 1 September 2008, the CIR filed a Motion for Partial Reconsideration,19 pointing out that prescription had already set in, since the appeal to the CTA was filed only on 21 July 2006, which was way beyond the last day to appeal – 5 March 2006.20 As legal basis for this argument, the CIR relied on Section 112(D) of the 1997 Tax Code.21

Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant Pagbilao Corporation (Mirant).22 Mirant fixed the reckoning date of the two-year prescriptive period for the application for refund or credit of unutilized input VAT at the close of the taxable quarter when the relevant sales were made , as stated in Section 112(A).23

On 3 December 2008, the CTA Second Division denied the CIR’s Motion for Partial Reconsideration.24 The tax court stood by its reliance on Atlas25 and on its finding that both the administrative and judicial claims of Mindanao II were timely filed.26

On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a Petition for Review.27 Apart from the contention that the judicial claim of Mindanao II was filed beyond the 30-day period fixed by Section 112(D) of the 1997 Tax Code,28 the CIR argued that Mindanao II erroneously fixed 26 July 2004, the date when the return for the second quarter was filed, as the date from which to reckon the two-year prescriptive period for filing an application for refund or credit of unutilized input VAT under Section 112(A). As the two-year prescriptive period ended on 30 June 2006, the Petition for Review of Mindanao II was filed out of time on 21 July 2006.29 The CIR invoked the recently promulgated Mirant to support this theory.

On 11 November 2009, the CTA En Banc rendered its Decision denying the CIR’s Petition for Review.30 On the question whether the application for refund was timely filed, it held that the CTA Second Division correctly applied the Atlas ruling.31 It reasoned that Atlas remained to be the controlling doctrine. Mirant was a new doctrine and, as such, the latter should not apply retroactively to Mindanao II who had relied on the old doctrine of Atlas and had acted on the faith thereof.32

As to the issue of compliance with the 30-day period for appeal to the CTA, the CTA En Banc held that this was a requirement only when the CIR actually denies the taxpayer’s claim. But in cases of CIR inaction, the 30-day period is not a mandatory requirement; the judicial claim is seasonably filed as long as it is filed after the lapse of the 120-day waiting period but within two years from the date of filing of the return.33

The CIR filed a Motion for Partial Reconsideration34 of the Decision, but it was denied for lack of merit.35

Dissatisfied, the CIR filed this Rule 45 Petition, raising the following arguments in support of its appeal:

I.

THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE COGNIZANCE OF THE CASE.

II.

THE COURT A QUO’S RELIANCE ON THE RULING IN ATLAS IS MISPLACED.36

ISSUES

The resolution of this case hinges on the question of compliance with the following time requirements for the grant of a claim for refund or credit of unutilized input VAT: (1) the two-year prescriptive period for filing an application for refund or credit of unutilized input VAT; and (2) the 120+30 day period for filing an appeal with the CTA.

THE COURT’S RULING

We deny Mindanao II’s claim for refund or credit of unutilized input VAT on the ground that its judicial claims were filed out of time, even as we hold that its application for refund was filed on time.

I.

MINDANAO II’S APPLICATION FORREFUND WAS FILED ON TIME

We find no error in the conclusion of the tax courts that the application for refund or credit of unutilized input VAT was timely filed. The problem lies with their bases for the conclusion as to: (1) what should be filed within the prescriptive period; and (2) the date from which to reckon the prescriptive period.

We thus take a different route to reach the same conclusion, initially focusing our discussion on what should be filed within the two-year prescriptive period.

A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive Period

Section 112(A) provides:

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: Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods or properties or services, and the amount of creditable input tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be allocated proportionately on the basis of the volume of sales.

Both the CTA Second Division and CTA En Banc decisions held that the phrase "apply for the issuance of a tax credit certificate or refund" in Section 112(A) is construed to refer to both the administrative claim filed with the CIR and the judicial claim filed with the CTA. This view, however, has no legal basis.

In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc. (Aichi), we dispelled the misconception that both the administrative and judicial claims must be filed within the two-year prescriptive period:37

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. (Emphasis supplied)

The message of Aichi is clear: it is only the administrative claim that must be filed within the two-year prescriptive period; the judicial claim need not fall within the two-year prescriptive period.

Having disposed of this question, we proceed to the date for reckoning the prescriptive period under Section 112(A).

B. Reckoning Date is the Close of the Taxable Quarter When the Relevant Sales Were Made.

The other flaw in the reasoning of the tax courts is their reliance on the Atlas ruling, which fixed the reckoning point to the date of filing the return and payment of the tax.

The CIR’s Stand

The CIR’s stand is that Atlas is not applicable to the case at hand as it involves Section 230 of the 1977 Tax Code, which contemplates recovery of tax payments erroneously or illegally collected. On the other hand, this case deals with claims for tax refund or credit of unutilized input VAT for the second, third, and fourth quarters of 2004, which are covered by Section 112 of the 1977 Tax Code.38

The CIR further contends that Mindanao II cannot claim good faith reliance on the Atlas doctrine since the case was decided only on 8 June 2007, two years after Mindanao II filed its claim for refund or credit with the CIR and one year after it filed a Petition for Review with the CTA on 21 July 2006.39

In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that should apply to this case despite the fact that the latter was promulgated on 12 September 2008, after Mindanao II had filed its administrative claim in 2005.40 It argues that Mirant can be applied retroactively to this case, since the decision merely interprets Section 112, a provision that was already effective when Mindanao II filed its claims for tax refund or credit.

The Taxpayer’s Defense

On the other hand, Mindanao II counters that Atlas, decided by the Third Division of this Court, could not have been superseded by Mirant, a Second Division Decision of this Court. A doctrine laid down by the Supreme Court in a Division may be modified or reversed only through a decision of the Court sitting en banc.41

Mindanao II further contends that when it filed its Petition for Review, the prevailing rule in the CTA reckons the two-year prescriptive period from the date of the filing of the VAT return.42 Finally, after building its case on Atlas, Mindanao II assails the CIR’s reliance on the Mirant doctrine stating that it cannot be applied retroactively to this case, lest it violate the rock-solid rule that a judicial ruling cannot be given retroactive effect if it will impair vested rights.43

Section 112(A) is the Applicable Rule

The issue posed is not novel. In the recent case of Commissioner of Internal Revenue v. San Roque Power Corporation44 (San Roque), this Court resolved the threshold question of when to reckon the two-year prescriptive period for filing an administrative claim for refund or credit of unutilized input VAT under the 1997 Tax Code in view of our pronouncements in Atlas and Mirant. In that case, we delineated the scope and effectivity of the Atlas and Mirant doctrines as follows:

The Atlas doctrine, which held that claims for refund or credit of input VAT must comply with the two-year prescriptive period under Section 229, should be effective only from its promulgation on 8 June 2007 until its abandonment on 12 September 2008 in Mirant. The Atlas doctrine was limited to the reckoning of the two-year prescriptive period from the date of payment of the output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for claiming refund or credit of input VAT should be governed by Section 112(A) following the verba legis rule. The Mirant ruling, which abandoned the Atlas doctrine, adopted the verba legis rule, thus applying Section 112(A) in

computing the two-year prescriptive period in claiming refund or credit of input VAT. (Emphases supplied)

Furthermore, San Roque distinguished between Section 112 and Section 229 of the 1997 Tax Code:

The input VAT is not "excessively" collected as understood under Section 229 because at the time the input VAT is collected the amount paid is correct and proper. The input VAT is a tax liability of, and legally paid by, a VAT-registered seller of goods, properties or services used as input by another VAT-registered person in the sale of his own goods, properties, or services. This tax liability is true even if the seller passes on the input VAT to the buyer as part of the purchase price. The second VAT-registered person, who is not legally liable for the input VAT, is the one who applies the input VAT as credit for his own output VAT. If the input VAT is in fact "excessively" collected as understood under Section 229, then it is the first VAT-registered person — the taxpayer who is legally liable and who is deemed to have legally paid for the input VAT — who can ask for a tax refund or credit under Section 229 as an ordinary refund or credit outside of the VAT System. In such event, the second VAT-registered taxpayer will have no input VAT to offset against his own output VAT.

In a claim for refund or credit of "excess" input VAT under Section 110(B) and Section 112(A), the input VAT is not "excessively" collected as understood under Section 229. At the time of payment of the input VAT the amount paid is the correct and proper amount. Under the VAT System, there is no claim or issue that the input VAT is "excessively" collected, that is, that the input VAT paid is more than what is legally due. The person legally liable for the input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input VAT. The term "excess" input VAT simply means that the input VAT available as credit exceeds the output VAT, not that the input VAT is excessively collected because it is more than what is legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of the input VAT as "excessively" collected under Section 229.

Under Section 229, the prescriptive period for filing a judicial claim for refund is two years from the date of payment of the tax "erroneously, . . . illegally, . . . excessively or in any manner wrongfully collected." The prescriptive period is reckoned from the date the person liable for the tax pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within two years from his date of payment. Only the

person legally liable to pay the tax can file the judicial claim for refund. The person to whom the tax is passed on as part of the purchase price has no personality to file the judicial claim under Section 229.

Under Section 110(B) and Section 112(A), the prescriptive period for filing a judicial claim for "excess" input VAT is two years from the close of the taxable quarter when the sale was made by the person legally liable to pay the output VAT. This prescriptive period has no relation to the date of payment of the "excess" input VAT. The "excess" input VAT may have been paid for more than two years but this does not bar the filing of a judicial claim for "excess" VAT under Section 112(A), which has a different reckoning period from Section 229. Moreover, the person claiming the refund or credit of the input VAT is not the person who legally paid the input VAT. Such person seeking the VAT refund or credit does not claim that the input VAT was "excessively" collected from him, or that he paid an input VAT that is more than what is legally due. He is not the taxpayer who legally paid the input VAT.

As its name implies, the Value-Added Tax system is a tax on the value added by the taxpayer in the chain of transactions. For simplicity and efficiency in tax collection, the VAT is imposed not just on the value added by the taxpayer, but on the entire selling price of his goods, properties or services. However, the taxpayer is allowed a refund or credit on the VAT previously paid by those who sold him the inputs for his goods, properties, or services. The net effect is that the taxpayer pays the VAT only on the value that he adds to the goods, properties, or services that he actually sells.

Under Section 110(B), a taxpayer can apply his input VAT only against his output VAT. The only exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under the law, like companies generating power through renewable sources of energy. Thus, a non zero-rated VAT-registered taxpayer who has no output VAT because he has no sales cannot claim a tax refund or credit of his unused input VAT under the VAT System. Even if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund or credit of his "excess" input VAT under the VAT System. He can only carry-over and apply his "excess" input VAT against his future output VAT. If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a refund or credit for such "excess" input VAT whether or not he has output VAT. The VAT System does not allow such refund or credit. Such "excess" input VAT is not an "excessively" collected tax under Section 229. The "excess" input VAT is a correctly and properly collected tax. However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax imposed only on the value added by the taxpayer. If the input VAT is in fact "excessively" collected

under Section 229, then it is the person legally liable to pay the input VAT, not the person to whom the tax was passed on as part of the purchase price and claiming credit for the input VAT under the VAT System, who can file the judicial claim under Section 229.

Any suggestion that the "excess" input VAT under the VAT System is an "excessively" collected tax under Section 229 may lead taxpayers to file a claim for refund or credit for such "excess" input VAT under Section 229 as an ordinary tax refund or credit outside of the VAT System. Under Section 229, mere payment of a tax beyond what is legally due can be claimed as a refund or credit. There is no requirement under Section 229 for an output VAT or subsequent sale of goods, properties, or services using materials subject to input VAT.

From the plain text of Section 229, it is clear that what can be refunded or credited is a tax that is "erroneously . . . illegally, . . . excessively or in any manner wrongfully collected." In short, there must be a wrongful payment because what is paid, or part of it, is not legally due. As the Court held in Mirant, Section 229 should "apply only to instances of erroneous payment or illegal collection of internal revenue taxes." Erroneous or wrongful payment includes excessive payment because they all refer to payment of taxes not legally due. Under the VAT System, there is no claim or issue that the "excess" input VAT is "excessively or in any manner wrongfully collected." In fact, if the "excess" input VAT is an "excessively" collected tax under Section 229, then the taxpayer claiming to apply such "excessively" collected input VAT to offset his output VAT may have no legal basis to make such offsetting. The person legally liable to pay the input VAT can claim a refund or credit for such "excessively" collected tax, and thus there will no longer be any "excess" input VAT. This will upend the present VAT System as we know it.45

Two things are clear from the above quoted San Roque disquisitions. First, when it comes to recovery of unutilized input VAT, Section 112, and not Section 229 of the 1997 Tax Code, is the governing law. Second, prior to 8 June 2007, the applicable rule is neither Atlas nor Mirant, but Section 112(A).

We present the rules laid down by San Roque in determining the proper reckoning date of the two-year prescriptive period through the following timeline:

Thus, the task at hand is to determine the applicable period for this case.

In this case, Mindanao II filed its administrative claims for refund or credit for the second, third and fourth quarters of 2004 on 6 October 2005. The case thus falls within the first period as indicated in the above timeline. In other words, it is covered by the rule prior to the advent of either Atlas or Mirant.

Accordingly, the proper reckoning date in this case, as provided by Section 112(A) of the 1997 Tax Code, is the close of the taxable quarter when the relevant sales were made.

C. The Administrative Claims Were Timely Filed

We sum up our conclusions so far: (1) it is only the administrative claim that must be filed within the two-year prescriptive period; and (2) the two-year prescriptive period begins to run from the close of the taxable quarter when the relevant sales were made.

Bearing these in mind, we now proceed to determine whether Mindanao II's administrative claims for the second, third, and fourth quarters of 2004 were timely filed.

Second Quarter

Since the zero-rated sales were made in the second quarter of 2004, the date of reckoning the two-year prescriptive period is the close of the second quarter, which is on 30 June 2004. Applying Section 112(A), Mindanao II had two years from 30 June 2004, or until 30 June 2006 to file an administrative claim with the CIR. Mindanao II filed its administrative claim on 6 October 2005, which is within the two-year prescriptive period. The administrative claim for the second quarter of 2004 was thus timely filed. For clarity, we present the rules laid down by San Roque in determining the proper reckoning date of the two-year prescriptive period through the following timeline:

Third Quarter

As regards the claim for the third quarter of 2004, the two-year prescriptive period started to run on 30 September 2004, the close of the taxable quarter. It ended on 30 September 2006, pursuant to Section 112(A) of the 1997 Tax Code. Mindanao II filed its administrative claim on 6 October 2005. Thus, since the administrative claim was filed well within the two-year prescriptive period, the administrative claim for the third quarter of 2004 was timely filed. (See timeline below)

Fourth Quarter

Here, the two-year prescriptive period is counted starting from the close of the fourth quarter which is on 31 December 2004. The last day of the prescriptive period for filing an application for tax refund/credit with the CIR was on 31 December 2006. Mindanao II filed its administrative claim with the CIR on 6 October 2005. Hence, the claims were filed on time, pursuant to Section 112(A) of the 1997 Tax Code. (See timeline below)

II.

MINDANAO II’S JUDICIAL CLAIMS WERE FILED OUT OF TIME

Notwithstanding the timely filing of the administrative claims, we find that the CTA En Banc erred in holding that Mindanao II’s judicial claims were timely filed.

A. 30-Day Period Also Applies to Appeals from Inaction

Section 112(D) of the 1997 Tax Code states the time requirements for filing a judicial claim for refund or tax credit of input VAT:

(D) 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) and (B) 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. (Emphases supplied)

Section 112(D) speaks of two periods: the period of 120 days, which serves as a waiting period to give time for the CIR to act on the administrative claim for refund or credit, and the period of 30 days, which refers to the period for interposing an appeal with the CTA. It is with the 30-day period that there is an issue in this case.

The CTA En Banc’s holding is that, since the word "or" – a disjunctive term that signifies dissociation and independence of one thing from another – is used in Section 112(D), the taxpayer is given two options: 1) file an appeal within 30 days from the CIR’s denial of the administrative claim; or 2) file an appeal with the CTA after expiration of the 120-day period, in which case the 30-day appeal period does not apply. The judicial claim is seasonably filed so long as it is filed after the lapse of the 120-day waiting period but before the lapse of the two-year prescriptive period under Section 112(A).46

We do not agree.

The 30-day period applies not only to instances of actual denial by the CIR of the claim for refund or tax credit, but to cases of inaction by the CIR as well. This is the correct interpretation of the law, as held in San Roque:47

Section 112(C)48 also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:

x x x 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.

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not act on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period. (Emphasis supplied)

The San Roque pronouncement is clear. The taxpayer can file the appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.

B. The Judicial Claim Was Belatedly Filed

In this case, the facts are not up for debate. Mindanao II filed its administrative claim for refund or credit for the second, third, and fourth

quarters of 2004 on 6 October 2005. The CIR, therefore, had a period of 120 days, or until 3 February 2006, to act on the claim. The CIR, however, failed to do so. Mindanao II then could treat the inaction as a denial and appeal it to the CTA within 30 days from 3 February 2006, or until 5 March 2006.

Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138 days after the lapse of the 30-day period on 5 March 2006. The judicial claim was therefore filed late. (See timeline below.)

C. The 30-Day Period to Appeal is Mandatory and Jurisdictional

However, what is up for debate is the nature of the 30-day time requirement. The CIR posits that it is mandatory. Mindanao II contends that the requirement of judicial recourse within 30 days is only directory and permissive, as indicated by the use of the word "may" in Section 112(D).49

The answer is found in San Roque. There, we declared that the 30-day period to appeal is both mandatory and jurisdictional:

Section 112(C) also expressly grants the taxpayer a 30-day period to appeal to the CTA the decision or inaction of the Commissioner, thus:

x x x 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)

This law is clear, plain, and unequivocal. Following the well-settled verba legis doctrine, this law should be applied exactly as worded since it is clear, plain, and unequivocal. As this law states, the taxpayer may, if he wishes, appeal the decision of the Commissioner to the CTA within 30 days from receipt of the Commissioner's decision, or if the Commissioner does not act

on the taxpayer's claim within the 120-day period, the taxpayer may appeal to the CTA within 30 days from the expiration of the 120-day period.

x x x x

Section 112(A) and (C) must be interpreted according to its clear, plain, and unequivocal language. The taxpayer can file his administrative claim for refund or credit at anytime within the two-year prescriptive period. If he files his claim on the last day of the two-year prescriptive period, his claim is still filed on time. The Commissioner will have 120 days from such filing to decide the claim. If the Commissioner decides the claim on the 120th day, or does not decide it on that day, the taxpayer still has 30 days to file his judicial claim with the CTA. This is not only the plain meaning but also the only logical interpretation of Section 112(A) and (C).

x x x x

When Section 112(C) states that "the taxpayer affected may, within thirty (30) days from 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," the law does not make the 120+30 day periods optional just because the law uses the word " may." The word "may" simply means that the taxpayer may or may not appeal the decision of the Commissioner within 30 days from receipt of the decision, or within 30 days from the expiration of the 120-day period. x x x.50

D. Exception to the mandatory and jurisdictional nature of the 120+30 day period not applicable

Nevertheless, San Roque provides an exception to the mandatory and jurisdictional nature of the 120+30 day period ─ BIR Ruling No. DA-489-03 dated 10 December 2003. The BIR ruling declares that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."

Although Mindanao II has not invoked the BIR ruling, we deem it prudent as well as necessary to dwell on this issue to determine whether this case falls under the exception.

For this question, we come back to San Roque, which provides that BIR Ruling No. DA-489-03 is a general interpretative rule; thus, taxpayers can rely on it from the time of its issuance on 10 December 2003 until its reversal

by this Court in Aichi on 6 October 2010, when the 120+30 day periods were held to be mandatory and jurisdictional. The Court reasoned as follows:

Taxpayers should not be prejudiced by an erroneous interpretation by the Commissioner, particularly on a difficult question of law. The abandonment of the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the prescriptive periods for input VAT tax refund or credit is a difficult question of law. The abandonment of the Atlas doctrine did not result in Atlas, or other taxpayers similarly situated, being made to return the tax refund or credit they received or could have received under Atlas prior to its abandonment. This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith or misrepresentation, the reversal by this Court of a general interpretative rule issued by the Commissioner, like the reversal of a specific BIR ruling under Section 246, should also apply prospectively. x x x.

x x x x

Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general interpretative rule applicable to all taxpayers or a specific ruling applicable only to a particular taxpayer.

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.51

Thus, in San Roque, the Court applied this exception to Taganito Mining Corporation (Taganito), one of the taxpayers in San Roque. Taganito filed its judicial claim on 14 February 2007, after the BIR ruling took effect on 10 December 2003 and before the promulgation of Mirant. The Court stated:

Taganito, however, filed its judicial claim with the CTA on 14 February 2007, after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. Truly, Taganito can claim that in filing its judicial claim prematurely without waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA-489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03, which shields the filing of its judicial claim from the vice of prematurity.52

San Roque was also careful to point out that the BIR ruling does not retroactively apply to premature judicial claims filed before the issuance of the BIR ruling:

However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for four reasons: first, it is admittedly an erroneous interpretation of the law; second, prior to its issuance, the BIR held that the 120-day period was mandatory and jurisdictional, which is the correct interpretation of the law; third, prior to its issuance, no taxpayer can claim that it was misled by the BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund or credit, like a claim for tax exemption, is strictly construed against the taxpayer.53

Thus, San Roque held that taxpayer San Roque Power Corporation, could not seek refuge in the BIR ruling as it jumped the gun when it filed its judicial claim on 10 April 2003, prior to the issuance of the BIR ruling on 10 December 2003.1âwphi1 The Court stated:

San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03 because it filed its judicial claim prematurely on 10 April 2003, before the issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat, San Roque cannot claim that it was misled by the BIR into filing its judicial claim prematurely because BIR Ruling No. DA-489-03 was issued only after San Roque filed its judicial claim. At the time San Roque filed its judicial claim, the law as applied and administered by the BIR was that the Commissioner had 120 days to act on administrative claims. This was in fact the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03. Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03 or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.54

San Roque likewise ruled out the application of the BIR ruling to cases of late filing. The Court held that the BIR ruling, as an exception to the mandatory and jurisdictional nature of the 120+30 day periods, is limited to premature filing and does not extend to late filing of a judicial claim. Thus, the Court found that since Philex Mining Corporation, the other party in the

consolidated case San Roque, filed its claim 426 days after the lapse of the 30-day period, it could not avail itself of the benefit of the BIR ruling:

Philex’s situation is not a case of premature filing of its judicial claim but of late filing, indeed

Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a judicial claim, which means non-exhaustion of the 120-day period for the Commissioner to act on an administrative claim. Philex cannot claim the benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial claim prematurely but filed it long after the lapse of the 30-day period following the expiration of the 120-day period. In fact, Philex filed its judicial claim 426 days after the lapse of the 30-day period.55

We sum up the rules established by San Roque on the mandatory and jurisdictional nature of the 30-day period to appeal through the following timeline:

Bearing in mind the foregoing rules for the timely filing of a judicial claim for refund or credit of unutilized input VAT, we rule on the present case of Mindanao II as follows:

We find that Mindanao II’s situation is similar to that of Philex in San Roque.

As mentioned above, Mindanao II filed its judicial claim with the CTA on 21 July 2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003, but before its reversal on 5 October 2010. However, while the BIR ruling was in effect when Mindanao II filed its judicial claim, the rule cannot be properly invoked. The BIR ruling, as discussed earlier, contemplates premature filing. The situation of Mindanao II is one of late filing. To repeat, its judicial claim was filed on 21 July 2006 – long after 5 March 2006, the last day of the 30-day period for appeal. In fact, it filed its

judicial claim 138 days after the lapse of the 30-day period. (See timeline below)

E. Undersigned dissented in San Roque to the retroactive application of the mandatory and jurisdictional nature of the 120+30 day period.

It is worthy to note that in San Roque, this ponente registered her dissent to the retroactive application of the mandatory and jurisdictional nature of the 120+30 day period provided under Section 112(D) of the Tax Code which, in her view, is unfair to taxpayers. It has been the view of this ponente that the mandatory nature of 120+30 day period must be completely applied prospectively or, at the earliest, only upon the finality of Aichi in order to create stability and consistency in our tax laws. Nevertheless, this ponente is mindful of the fact that judicial precedents cannot be ignored. Hence, the majority view expressed in San Roque must be applied.

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT

The lessons of this case may be summed up as follows:

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi) 2. The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. (San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of

unutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque)

B. 120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.

3. As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)

SUMMARY AND CONCLUSION

In sum, our finding is that the three administrative claims for the refund or credit of unutilized input VAT were all timely filed, while the corresponding judicial claims were belatedly filed.

The foregoing considered, the CT A lost jurisdiction over Mindanao Il’s claims for refund or credit.1âwphi1 The CTA EB erred in granting these claims.

WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals En Banc Decision dated 11 November 2009 and Resolution dated 3 March 2010 of the in CTA EB Case No. 448 (CTA Case No. 7507) are hereby REVERSED and SET ASIDE. A new ruling is entered DENYING respondent s claim for a tax refund or credit ofP6,791,845.24.

SO ORDERED.

MARIA LOURDES P. A. SERENOChief Justice, Chairperson

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 96322 December 20, 1991

ACCRA INVESTMENTS CORPORATION, petitioner, vs.THE HONORABLE COURT OF APPEALS, COMMISSIONER OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

 

GUTIERREZ, JR., J.:p

This petition for review on certiorari presents the issue of whether or not the petitioner corporation is barred from recovering the amount of P82,751.91 representing overpaid taxes for the taxable year 1981.

The petitioner corporation is a domestic corporation engaged in the business of real estate investment and management consultancy.

On April 15, 1982, the petitioner corporation filed with the Bureau of Internal Revenue its annual corporate income tax return for the calendar year ending December 31, 1981 reporting a net loss of P2,957,142.00 (Exhibits "B", "B-1" to "B-10"). In the said return, the petitioner corporation declared as creditable all taxes withheld at source by various withholding agents, as follows:

Withholding Agent Amount Withheld

a) Malayan Insurance Co., Inc. P1,429.97

(Exh. "C")

b) Angara Concepcion Regala

& Cruz Law Offices P73,588.00

(Exh. "D")

c) MJ Development Corp. P 1,155.00 (Exh. "E")

d) Philippine Global Communications,

Inc. (Exh. "F") 6,578.94

TOTAL P82,751.91

(CTA Decision, p. 4; Records, p. 10)

The withholding agents aforestated paid and remitted the above amounts representing taxes on rental, commission and consultancy income of the petitioner corporation to the Bureau of Internal Revenue from February to December 1981.

In a letter dated December 29, 1983 addressed to the respondent Commissioner of Internal Revenue (Exh. "G"), the petitioner corporation filed a claim for refund inasmuch as it had no tax liability against which to credit the amounts withheld.

Pending action of the respondent Commissioner on its claim for refund, the petitioner corporation, on April 13, 1984, filed a petition for review with the respondent Court of Tax Appeals (CTA) asking for the refund of the amounts withheld as overpaid income taxes.

On January 27, 1988, the respondent CTA dismissed the petition for review after a finding that the two-year period within which the petitioner corporation's claim for refund should have been filed had already prescribed

pursuant to Section 292 of the National Internal Revenue Code of 1977, as amended.

Acting on the petitioner corporation's motion for reconsideration, the respondent CTA in its resolution dated September 27, 1988 denied the same for having been filed out of time. It ruled that the reckoning date for purposes of counting the two-year prescriptive period within which the petitioner corporation could file a claim for refund was December 31, 1981 when the taxes withheld at source were paid and remitted to the Bureau of Internal Revenue by its withholding agents, not April 15, 1982, the date when the petitioner corporation filed its final adjustment return.

On January 14, 1989, the petitioner corporation filed with us its petition for review which we referred to the respondent appellate court in our resolution dated February 15, 1990 for proper determination and disposition.

On May 28, 1990, the respondent appellate court affirmed the decision of the respondent CTA opining that the two-year prescriptive period in question commences "from the date of payment of the tax" as provided under Section 292 of the Tax Code of 1977 (now Sec. 230 of the National Internal Revenue Code of 1986), i.e., "from the end of the tax year when a taxpayer is deemed to have paid all taxes withheld at source", and not "from the date of the filing of the income tax return" as posited by the petitioner corporation (CA Decision, pp. 3-5; Rollo, pp. 27-29).

Its motion for reconsideration with the respondent appellate court having been denied in a resolution dated November 20, 1990, the petitioner corporation (ACCRAIN) elevated this case to us presenting as main arguments, to wit:

I

ACCRAIN'S JUDICIAL ACTION FOR RECOVERY OF CREDITABLE TAXES ERRONEOUSLY WITHHELD AT SOURCE WAS FILED ON TIME.

II

THE RECKONING DATE FOR THE COMMENCEMENT OF THE TWO-YEAR PRESCRIPTIVE PERIOD IS 15 APRIL 1982. ACCORDINGLY, THE 13 APRIL 1984 ACTION OFACCRAIN FOR THE RECOVERY OF TAXES

ERRONEOUSLY WITHHELD AT SOURCE IN 1981 IS NOT BARRED AND ACCRAIN IS ENTITLED TO THE REFUND OF P82,751.91 OF SUCH TAXES. (Rollo, p. 116)

We find merit in the petitioner corporation's postures.

Crucial in our resolution of the instant case is the interpretation of the phraseology "from the date of payment of the tax" in the context of Section 230 (formerly sec. 292) of the National Internal Revenue Code of 1986, as amended, which provides that:

Sec. 230. Recovery of tax erroneously or illegally collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall begin after the expiration of two years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, that the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears to have been erroneously paid. (Emphasis supplied)

The respondent appellate court citing the case of Gibbs v. Commissioner of Internal Revenue (155 SCRA 318 [1965]), construed the phrase "from the date of payment" as to be reckoned from "the end of the tax year" when the petitioner corporation was deemed to have paid its tax liabilities in question under the withholding tax system. (CA Decision, pp. 4-5; Rollo, pp. 28-29)

The respondent appellate court in this case has misapplied jurisprudential law. In the Gibbs case, supra, cited by the Court of Appeals, we have clearly stated that:

Payment is a mode of extinguishing obligations (Art. 1231, Civil Code) and it means not only the delivery of money but also the performance, in any other manner, of an obligation (id., Art. 1231). A taxpayer, resident or non-resident, does so not really to deposit an amount to the Commissioner of Internal Revenue, but, in truth, to perform and extinguish his tax obligation for the year concerned. In other words, he is paying his tax liabilities for that year. Consequently, a taxpayer whose income is withheld at source will be deemed to have paid his tax liability end of the tax year. It is from twhen the same falls due at the his latter date then, or when thtwo-year prescriptive period under Section 306 (now pae tax liability falls due, that the rt of Section 230) of the Revenue Code starts to run with respect to payments effected through the withholding tax system. ... (At p. 325; Emphasis supplied)

The aforequoted ruling presents two alternative reckoning dates, i.e., (1) the end of the tax year; and (2) when the tax liability falls due. In the instant case, it is undisputed that the petitioner corporation's withholding agents had paid the corresponding taxes withheld at source to the Bureau of Internal Revenue from February to December 1981. In having applied the first alternative date - "the end of the tax year" in order to determine whether or not the petitioner corporation's claim for refund had been seasonably filed, the respondent appellate court failed to appreciate properly the attending circumstances of this case.

The petitioner corporation is not claiming a refund of overpaid withholding taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the refundable or creditable amount determined upon the petitioner corporation's filing of the its final adjustment tax return on or before 15 April 1982 when its tax liability for the year 1981 fell due. The distinction is essential in the resolution of this case for it spells the difference between being barred by prescription and entitlement to a refund.

Under Section 49 of the National Internal Revenue Code of 1986, as amended, it is explicitly provided that:

Sec. 49. Payment and assessment of income tax for individuals and corporations.

(a) Payment of tax — (1) In general. —- The total amount of tax imposed by this Title shall be paid by the person subject thereto at the time the return is filed. ...

Section 70, subparagraph (b) of the same Code states when the income tax return with respect to taxpayers like the petitioner corporation must be filed. Thus:

Sec. 70 (b) Time of filing the income return - The corporate quarterly declaration shall be filed within sixty (60) days following the close of each of the first three quarters of the taxable year. The final adjustment return shall be filed on or before the 15th day of the 4th month following the close of the fiscal year, as the case may be. The petitioner corporation's taxable year is on a calendar year basis, hence, with respect to the 1981 taxable year, ACCRAIN had until 15 April 1982 within which to file its final adjustment return. The petitioner corporation duly complied with this requirement. On the basis of the corporate income tax return which ACCRAIN filed on 15 April 1982, it reported a net loss of P2,957,142.00. Consequently, as reflected thereon, the petitioner corporation, after due computation, had no tax liability for the year 1981. Had there been any, payment thereof would have been due at the time the return was filed pursuant to subparagraph (c) of the aforementioned codal provision which reads:

Sec. 70 (c) - Time payment of the income tax - The income tax due on the corporate quarterly returns and the final income tax returns computed in accordance with Sections 68 and 69 shall be paid at the time the declaration or return is filed asprescribed by the Commissioner of Internal Revenue. If we were to uphold the respondent appellate court in making the "date of payment" coincide with the "end of the taxable year," the petitioner corporation at the end of the 1981 taxable year was in no position then to determine whether it was liable or not for the payment of its 1981 income tax.

Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued by the Bureau of Internal Revenue requires that:

Section 8. Claims for tax credit or refund — Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement, duly issued by the payor to the payee (BIR Form No. 1743-A) showing the amount paid and the amount of tax withheld therefrom.

The term "return" in the case of domestic corporations like ACCRAIN refers to the final adjustment return as mentioned in Section 69 of the Tax Code of 1986, as amended, which partly reads:

Sec. 69. Final Adjustment Return - Every corporation liable to tax under Section 24 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year the corporation shall either:

(a) Pay the excess tax still due; or

(b) Be refunded the excess amount paid, as the case may be.

Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case ofCommissioner of Internal Revenue v. Asia Australia Express, Ltd. (G. R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent Commissioner who failed to take any action thereon and considering further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to

reiterate its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court manifestly committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim for refund was barred by prescription.

It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982.

WHEREFORE, in view of the foregoing, the petition is GRANTED. The decision of the Court of Appeals dated May 28, 1990 and its resolution of November 20, 1990 are hereby REVERSED and SET ASIDE. The respondent Commissioner of Internal Revenue is directed to refund to the petitioner corporation the amount of P82,751.91.

SO ORDERED.

Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Baguio City

SECOND DIVISION

G.R. No. 179260               April 2, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs.TEAM [PHILIPPINES] OPERATIONS CORPORATION [formerly MIRANT (PHILS) OPERATIONS CORPORATION], Respondent.

D E C I S I O N

PEREZ, J.:

Before the Court is a Petition for Review on Certiorari seeking to reverse and set aside the 19 June 2007 Decision1 and the 13 August 2007 Resolution2 of the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 224 which affirmed in toto the Decision and Resolution dated 4 August 2006 and 8 November 2006, respectively, of the First Division of the CTA (CTA in Division)3 in C.T.A. Case No. 6623, granting Team (Philippines) Operations Corporation’s (respondent) claim for refund in the amount of P69,562,412.00 representing unutilized tax credits for taxable period ending 31 December 2001.

The Facts

The factual antecedents of the case are undisputed:

Petitioner is the duly appointed Commissioner of Internal Revenue, charged with the duty of enforcing the provisions of the National Internal Revenue Code (NIRC), including the power to decide and approve administrative claims for refund.

Respondent, on the other hand, is a corporation duly organized and existing under and virtue of the laws of the Republic of the Philippines, with its principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao, Quezon Province. It is primarily engaged in the business of designing, constructing, erecting, assembling, commissioning, operating, maintaining, rehabilitating and managing gas turbine and other power generating plants and related facilities for the conversion into electricity of coal, distillate and other fuels provided by and under contract with the Government of the Republic of the Philippines, or any subdivision, instrumentality or agency thereof, or any government owned or controlled corporations or other entity engaged in the development, supply or distribution of energy.

On 30 April 2001, respondent secured from the Securities and Exchange Commission (SEC) its Certificate of Filing of Amended Articles of Incorporation, reflecting its change of name from Southern Energy Asia-Pacific Operations (Phils.), Inc. to Mirant (Philippines) Operations Corporation. Prior to its use of the name Southern Energy Asia-Pacific Operations (Phils.), Inc., respondent operated under the corporate names CEPA Operations (Philippines) Corporation, CEPA Tileman Project Management Corporation and Hopewell Tileman Project Management Corporation. The changes in respondent’s corporate name from CEPA Operations (Philippines) Corp. to Southern Energy Asia-Pacific Operations (Phils.) Inc., from CEPA Tileman Project Management Corporation to CEPA Operations (Philippines) Corp. and from Hopewell Tileman Project

Management Corporation to CEPA Tileman Project Management Corp., were approved by the SEC on 24 November 2000, 21 November 1997 and 29 July 1994, respectively.

Under its original corporate name, Hopewell Tileman Project Management Corp., respondent was registered with the Bureau of Internal Revenue (BIR) with Tax Identification No. 003-057-796 as shown by its original BIR Certificate of Registration issued on 29 March 1994.

In line with its primary purpose, respondent entered into Operating and Management Agreements with Mirant Pagbilao Corporation (MPC) [formerly Southern Energy Quezon, Inc.] and Mirant Sual Corporation (MSC) [formerly Southern Energy Pangasinan, Inc.] to provide MPC and MSC with operation and maintenance services in connection with the operation, construction and commissioning of the coal-fired thermal power stations situated in Pagbilao, Quezon and Sual, Pangasinan, respectively. Payments received by respondent from MPC and MSC relative to the said agreements were allegedly subjected to creditable withholding taxes.

On 15 April 2002, respondent filed its 2001 income tax return with the BIR, reporting an income tax overpayment in the amount of P69,562,412.00 arising from unutilized creditable taxes withheld during the year, detailed as follows:4

Sales/Revenues P922,569,303.00

Less: Cost of Sales/Services 938,543,252.00

Gross Income from Operation (P15,973,949.00)

Add: Non-Operating & Other Income 74,995,982.00

Total Gross Income P 59,022,033.00

Less: Deductions 59,022,033.00

Taxable Income -

Tax Rate 32%

Income Tax NIL

Less: Tax Credits/PaymentsCreditable Tax Withheld for theFirst Three Quarters

Creditable Tax Withheld for the P 27,784,217.00

Fourth Quarter 41,778,195.00

Total Tax Credits/Payments P 69,652,412.00

Tax Payable/(Overpayment) ( P 69,562,412.00)

Respondent marked the appropriate box manifesting its intent to have the above overpayment refunded.

On 19 March 2003, pursuant to Section 76 in relation to Section 204 of the NIRC of 1997, as amended, respondent filed with the BIR, a letter requesting for the refund or issuance of a tax credit certificate corresponding to its reported unutilized creditable withholding taxes for taxable year 2001 in the amount ofP69,562,412.00.

Thereafter, on 27 March 2003, respondent filed a Petition for Review before the CTA, in order to toll the running of the two-year prescriptive period provided under Section 229 of the NIRC of 1997, as amended, which was docketed as C.T.A. Case No. 6623.

The Ruling of the CTA in Division

In a Decision dated 4 August 2006,5 the CTA in Division granted respondent’s Petition and ordered petitioner to refund or issue a tax credit certificate in favor of the former the entire amount of P69,562,412.00, representing its unutilized tax credits for the taxable year ended 31 December 2001.

The CTA in Division based its ruling on the numerous documentary evidence presented by respondent during the proceedings, such as its Income Tax Returns (ITRs) for taxable years 2001 and 2002, various Certificates of Creditable Tax Withheld at Source for taxable year 2001 duly issued to it by its withholding agents, and Report of the Commissioned Independent Certified Public Accountant dated 15 March 2004, among others. The court a quo reasoned that respondent has indeed established its entitlement to a refund/tax credit of its excess creditable withholding taxes in compliance with the following basic requirements: (1) that the claim for refund (or issuance of a tax credit certificate) was filed within the two-year prescriptive period prescribed under Section 204(C), in relation to Section 229 of the NIRC of 1997, as amended; (2) that the fact of withholding is established by a copy of a statement duly issued by the payor (withholding agent) to the payee,

showing the amount paid and the amount of tax withheld therefrom; and (3) that the income upon which the taxes were withheld was included in the return of the recipient.6

Subsequently, on 8 November 2006, the CTA in Division denied petitioner’s Motion for Reconsideration for lack of merit.7

Aggrieved, petitioner appealed to the CTA En Banc by filing a Petition for Review pursuant to Section 18 of Republic Act (RA) No. 1125, as amended by RA No. 92828 on 6 December 2006, docketed as CTA EB No. 224.

The Ruling of the CTA En Banc

The CTA En Banc affirmed in toto both the aforesaid Decision and Resolution rendered by the CTA in Division in CTA Case No. 6623, pronouncing that there was no cogent reason to disturb the findings and conclusion spelled out therein. It revealed that what the petition seeks to accomplish was for the CTA En Banc to view and appreciate the evidence in another perspective, which unfortunately had already been considered and passed upon correctly by the CTA in Division.

Upon denial of petitioner’s Motion for Reconsideration of the 19 June 2007 Decision9 of the CTA En Banc, it filed this Petition for Review on Certiorari before this Court seeking the reversal of the aforementioned Decision and the 13 August 2007 Resolution10 rendered in CTA EB No. 224. Petitioner11 relies on the sole ground that the CTA En Banc gravely erred on a question of law in affirming the CTA in Division’s ruling which ordered a refund or issuance of tax credit certificate in favor of respondent despite the fact that it is not supported by the evidence on record.12

The Issue and Our Ruling

The core issue for the Court’s resolution is whether or not respondent has established its entitlement for the refund or issuance of a tax credit certificate in its favor the entire amount of P69,562,412.00 representing its unutilized tax credits for taxable year ended 31 December 2001, pursuant to the applicable provisions of the NIRC of 1997, as amended.

This is not novel.

In order to be entitled to a refund claim or issuance of a tax credit certificate representing any excess or unutilized creditable withholding tax, it must be

shown that the claimant has complied with the essential basic conditions set forth under pertinent provisions of law and existing jurisprudential declarations.

In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,13 this Court had previously articulated that there are three essential conditions for the grant of a claim for refund of creditable withholding income tax, to wit: (1) the claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of payment of the tax;14 (2) it is shown on the return of the recipient that the income payment received was declared as part of the gross income;15 and (3) the fact of withholding is established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom.

The first condition is pursuant to Sections 204(C) and 229 of the NIRC of 1997, as amended, viz:

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. — The Commissioner may –

x x x x

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority, refund the value of internal revenue stamps when they are returned in good condition by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use and refund their value upon proof of destruction.

No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing with the Commissioner a claim for credit or refund within two (2) years after the payment of the tax or penalty: Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. (Emphasis supplied)

x x x x

SEC. 229. Recovery of Tax Erroneously or Illegally Collected. — No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly

filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment: Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid. (Emphasis supplied)

The second and third conditions are anchored on Section 2.58.3(B) of Revenue Regulations No. 2-98,16 which states:

Sec. 2.58.3.Claim for Tax Credit or Refund

x x x x

(B) Claims for tax credit or refund of any creditable income tax which was deducted and withheld on income payments shall be given due course only when it is shown that the income payment has been declared as part of the gross income and the fact of withholding is established by a copy of the withholding tax statement duly issued by the payor to the payee showing the amount paid and the amount of tax withheld therefrom. (Emphasis supplied)

In addition to the abovementioned requisites, the NIRC of 1997, as amended, likewise provides for the strict observance of the concept of the irrevocability rule,17 the focal provision of which is Section 76 thereof, quoted hereunder for easy reference:

SEC. 76. Final Adjustment Return. — Every corporation liable to tax under Section 27 shall file a final adjustment return covering the total taxable income for the preceding calendar or fiscal year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or

(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. (Emphasis supplied)

Applying the foregoing discussion to the present case, we find that respondent had indeed complied with the abovementioned requirements.

Here, it is undisputed that the claim for refund was filed within the two-year prescriptive period prescribed under Section 22918 of the NIRC of 1997, as amended. Respondent filed19 its income tax return for taxable year 2001 on 15 April 2002. Counting from said date, it indeed had until 14 April 200420 within which to file its claim for refund or issuance of tax credit certificate in its favor both administratively and judicially. Thus, petitioner’s administrative claim and petition for review filed on 19 March 2003 and 27 March 2003, respectively, fell within the abovementioned prescriptive period.

Likewise, respondent was able to present various certificates of creditable tax withheld at source from its payors, MPC and MSC, for taxable year 2001, showing creditable withholding taxes in the aggregate amount ofP70,805,771.42 (although the refund claim was only P69,562,412.00).21 Moreover, as determined by the CTA in Division, respondent declared the income related to the claimed creditable withholding taxes of P69,562,412.00 on its return.22

Lastly, in compliance with Section 76 of the NIRC of 1997, as amended, respondent opted to be refunded of its unutilized tax credit (as evidenced by the "x" mark in the appropriate box of its 2001 income tax return), and the same was not carried over in its 2002 income tax return; therefore, the entire amount of P69,562,412.00 may be a proper subject of a claim for refund/tax credit certificate.23

It is apt to restate here the hornbook doctrine that the findings and conclusions of the CTA are accorded the highest respect and will not be

lightly set aside. The CTA, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject unless there has been an abusive or improvident exercise of authority.24

Consequently, its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Its findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.25

The Court in this case agrees with the conclusion of the CTA in Division and subsequent affirmation of the CTA En Banc that respondent complied with all the requirements for the refund of its unutilized creditable withholding taxes for taxable period ending 31 December 2001. We adopt the factual and legal findings as follows:

On the first ground, [petitioner] argues that [respondent] failed to present the various withholding agents/payors to testify on the validity of the contents of the Certificates of Creditable Tax Withheld at Source ("certificates"). Thus, the certificates presented by [respondent] are not valid. And even assuming that the certificates are valid, this Court cannot entertain the claim for refund/tax credit certificates because the certificates were not submitted to [petitioner].

[Petitioner’s] arguments are untenable since the certificates presented (Exhibits "R", "S", "T", "U", "V", "W", and "X") were duly signed and prepared under penalties of perjury, the figures appearing therein are presumed to be true and correct. Thus, the testimony of the various agents/payors need not be presented to validate the authenticity of the certificates.

In addition, that [respondent] did not submit the certificates to the [petitioner] is of no moment. The administrative and judicial claim for refund and/or tax credit certificates must be filed within the two-year prescriptive period starting from the date of payment of the tax (Section 229, NIRC). In the instant case, [respondent] filed its judicial claim (after filing its administrative claim) precisely to preserve its right to claim. Otherwise, [respondent's] right to the claim would have been barred. Considering that this [c]ourt had jurisdiction over the claim, frespondent] rightfully presented the certificates before this [c]ourt. Besides, any records that [petitioner] may have on the

administrative claim would eventually be transmitted to this [c]ourt under Section S(b), Rule 6 of the Revised Rules of the Court of (Tax) Appeals.

As for the second ground, this [ c ]ourt finds [petitioner's] contention unmeritorious.1âwphi1 The requirements for claiming a tax refund/tax credit certificates had been laid down in Citibank N.A. vs. Court of Appeals, G.R. No. 107434, October 10, 1997. Nowhere in the case cited is proof of actual remittance of the withheld taxes to the [petitioner] required before the taxpayer may claim for a tax refund/tax credit certificates.26 (Emphasis supplied)

In the same vein, this Court finds no abusive or improvident exercise of authority on the part of the CT A in Division. Since there is no showing of gross error or abuse on the part of the CT A in Division, and its findings are supported by substantial evidence which were thoroughly considered during the trial, there is no cogent reason to disturb its findings and conclusions.

All told, respondent complied with all the legal requirements and it is entitled, as it opted, to a refund of its excess creditable withholding tax for the taxable year 2001 in the amount of P69,562,412.00.

WHEREFORE, the petition is hereby DENIED for lack of merit. Accordingly, the Decision dated 19 June 2007 and Resolution dated 13 August 2007 of the CTA En Banc are hereby AFFIRMED. No costs.

SO ORDERED.

JOSE PORTUGAL PEREZAssociate Justice

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-13656             January 31, 1962

COLLECTOR OF INTERNAL REVENUE, (now Commissioner), petitioner, vs.ALBERTO D. BENIPAYO, respondent.

Office of the Solicitor General for petitioner.Carlos J. Antiporda for respondent.

DIZON, J.:

This is an appeal taken by the Collector of Internal Revenue from the decision of the Court of Tax Appeals dated January 23, 1948, reversing the one rendered by the former, thereby relieving respondent Alberto D. Benipayo from the payment of the deficiency amusement tax assessed against him in the total amount of P12,093.45.

Respondent is the owner and operator of the Lucena Theater located in the municipality of Lucena, Quezon. On October 3, 1953 Internal Revenue Agent Romeo de Guia investigated respondent's amusement tax liability in connection with the operation of said theater during the period from August, 1952 to September, 1953. On October 15, 1953 De Guia submitted his report to the Provincial Revenue Agent to the effect that respondent had disproportionately issued tax-free 20-centavo children's tickets. His finding was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena Theater was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period in question, the proportion is reversed - three children to one adult. From this he concluded that respondent must have fraudulently sold two tax-free 20-centavo tickets, in order to avoid payment of the amusement tax prescribed in Section 260 of the National Internal Revenue Code. Based on the average ratio between adult and children attendance in the past years, Examiner de Guia recommended a deficiency amusement tax assessment against respondent in the sum of P11,193.45, inclusive of 25% surcharge, plus a suggested compromise penalty of P900.00 for violation of section 260 of the National Internal Revenue Code, or a total sum of P12,093.45 covering the period from August, 1952 to September, 1953 inclusive. On July 14, 1954, petitioner issued a deficiency amusement tax assessment against respondent, demanding from the latter the payment of the total sum of P12,152.93 within thirty days from receipt thereof. On August 16, 1954, respondent filed the corresponding protest with the Conference Staff of the Bureau of Internal Revenue. After due hearing, the Conference Staff submitted to petitioner Collector of Internal Revenue its finding to the effect that the "meager reports of these fieldmen (Examiner de Guia and the

Provincial Revenue Agent of Quezon) are mere presumptions and conclusions, devoid of findings of the fact of the alleged fraudulent practices of the herein taxpayer". In view thereof, and as recommended by the Conference Staff, petitioner referred the case back to the Provincial Revenue Agent of Quezon for further investigation. The report submitted by Provincial Revenue Officer H.I. Bernardo after this last investigation partly reads as follows:.

The returns from July 1 to July 11, showed that 31.43% of the entire audience of 12,754 consisted of adults, the remaining 68.57% of children. During this said period due, perhaps, to the absence of agents in the premises, subject taxpayer was able to manipulate the issuance of tickets in the way and manner alleged in Asst. De Guia's indorsement report mentioned above. But during the period from July 14 to July 24, 1955, when agents of this Office supervised in the sales of admission tickets the sales for adults soared upwards to 76% while that for children dropped correspondingly to 24%.

It is opined without fear of contradiction that the ratio of three (3) adults to every one (1) child in the audience or a proportion of 75:25 as reckoned in Asst. De Guia's indorsement report to this Office's new findings of a proportion of 76:24, represents and conveys the true picture of the situation under the law of averages, provided that the film being shown is not a children's show. There is no hard and fast rule in this regard, but this findings would seem to admit no contradiction.

Please note that the new findings of this Office is not a direct proof of what has transpired during the period investigated by Asst. De Guia and now pending before the Conference Staff", . . (Exh. 3, BIR Record, p. 137-138).

After considering said report, the Conference Staff of the Bureau of Internal Revenue recommended to the Collector of Internal Revenue the issuance of the deficiency amusement tax assessment in question.

The only issue in this appeal is whether or not there is sufficient evidence in the record showing that respondent, during the period under review, sold and issued to his adult customers two tax-free 20-centavo children's tickets, instead of one 40-centavo ticket for each adult customer; to cheat or defraud the Government. On this question the Court of Tax Appeals said the following in the appealed decision:.

To our mind, the appealed decision has no factual basis and must be reversed. An assessment fixes and determines the tax liability of a taxpayer. As soon as it is served, an obligation arises on the part of the taxpayer concerned to pay the amount assessed and demanded. Hence, assessments should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. Assumingarguendo that the average ratio of adults and children patronizing the Lucena Theater from 1949 to 1951 was 3 to 1, the same does not give rise to the inference that the same conditions existed during the years in question (1952 and 1953). The fact that almost the same ratio existed during the month of July, 1955 does not provide a sufficient inference on the conditions in 1952 and 1953. . .

In order to stand the test of judicial scrutiny, the assessment must be based on actual facts. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption that the circumstances in 1952 and 1953 are presumed to be the same as those existing in 1949 to 1951 and July 1955. In the case under consideration there are no substantial facts to support the assessment in question. ...

A review of the records has not disclosed anything sufficient to justify a reversal of the above finding made by the Court of Tax Appeals. It should be borne in mind that to sustain the deficiency tax assessed against respondent would amount, in effect, to a finding that he had, for a considerable period of time, cheated and defrauded the government by selling to each adult patron two children's tax-free tickets instead of one ticket subject to the amusement tax provided for in Section 260 of the National Internal Revenue Code. Fraud is a serious charge and, to be sustained, it must be supported by clear and convincing proof which, in the present case, is lacking.

The claim that respondent admitted having resorted to the anomalous practice already mentioned is not entirely correct. What respondent appears to have admitted was that during a certain limited period he had adopted a sort of rebate system applicable to cases where adults and children came in groups and were al anomalous practice already mentioned is not entirely correct. What respondent appears to have admitted was that during a certain limited period he had adopted a sort of rebate ystem applicable to cases where adults and children came in group and were all charged 20 centavo admission tickets. This practice was, however, discontinued when he was informed by the Bureau of Internal Revenue that it was not in accordance with law.

WHEREFORE, the appealed judgment is hereby affirmed with costs.

Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes and De Leon, JJ., concur.Bengzon, C.J., took no part.

FIRST DIVISION  OCEANIC WIRELESS NETWORK, G.R. No. 148380INC., Petitioner, Present: DAVIDE, JR., C.J. (Chairman),QUISUMBING,YNARES-SANTIAGO,- versus - CARPIO, andAZCUNA, JJ.  COMMISSIONER OF INTERNAL Promulgated:REVENUE, THE COURT OFTAX APPEALS, and THE COURT December 9, 2005OF APPEALS,

Respondents.x-----------------------------------------------------------------------------------------x  

DECISION AZCUNA, J.:

 This is a Petition for Review on Certiorari seeking to reverse and set aside the Decision of the Court of Appeals dated October 31, 2000, and its Resolution dated May 3, 2001, in Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue docketed as CA-G.R. SP No. 35581, upholding the Decision of the Court of Tax

Appeals dismissing the Petition for Review in CTA Case No. 4668 for lack of jurisdiction. Petitioner Oceanic Wireless Network, Inc. challenges the authority of the Chief of the Accounts Receivable and Billing Division of the Bureau of Internal Revenue (BIR) National Office to decide and/or act with finality on behalf of the Commissioner of Internal Revenue (CIR) on protests against disputed tax deficiency assessments.  The facts of the case are as follows: 

 

On March 17, 1988, petitioner received from the Bureau of Internal

Revenue (BIR) deficiency tax assessments for the taxable year

1984 in the total amount ofP8,644,998.71, broken down as follows: Kind of Tax Assessment No. Amount Deficiency Income Tax FAR-4-1984-88-001130 P8,381,354.00Penalties for late payment FAR-4-1984-88-001131 3,000.00of income and failure tofile quarterly returnsDeficiency Contractors FAR-4-1984-88-001132 29,849.06TaxDeficiency Fixed Tax FAR-4--88-001133 12,083.65Deficiency Franchise Tax FAR-484-88-001134 ___227,712.00T o t a l -------- P8,644,998.71  

Petitioner filed its protest against the tax assessments and requested a reconsideration or cancellation of the same in a letter to the BIR Commissioner dated April 12, 1988. Acting in behalf of the BIR Commissioner, then Chief of the BIR Accounts Receivable and Billing Division, Mr. Severino B. Buot, reiterated the tax assessments while denying petitioners request for reinvestigation in a letter [1] dated January 24, 1991, thus:

 Note: Your request for re-investigation has been denied for failure to submit the necessary supporting papers as per endorsement letter from the office of the Special Operation Service dated 12-12-90.

  

Said letter likewise requested petitioner to pay the total amount

of P8,644,998.71 within ten (10) days from receipt thereof,

otherwise the case shall be referred to the Collection Enforcement

Division of the BIR National Office for the issuance of a warrant of

distraint and levy without further notice.

 Upon petitioners failure to pay the subject tax assessments within the prescribed period, the Assistant Commissioner for Collection, acting for the Commissioner of Internal Revenue, issued the corresponding warrants of distraint and/or levy and garnishment.

These were served on petitioner on October 10, 1991 and October 17, 1991, respectively.[2]

 

On November 8, 1991, petitioner filed a Petition for Review with

the Court of Tax Appeals (CTA) to contest the issuance of the

warrants to enforce the collection of the tax assessments. This was

docketed as CTA Case No. 4668.

The CTA dismissed the petition for lack of jurisdiction in a decision

dated September 16, 1994, declaring that said petition was filed

beyond the thirty (30)-day period reckoned from the time when the

demand letter of January 24, 1991 by the Chief of the BIR Accounts

Receivable and Billing Division was presumably received by

petitioner, i.e., within a reasonable time from said date in the

regular course of mail pursuant to Section 2(v) of Rule 131 of the

Rules of Court.[3]

 

The decision cited Surigao Electric Co., Inc. v. Court of Tax

Appeals[4] wherein this Court considered a mere demand letter sent

to the taxpayer after his protest of the assessment notice as the

final decision of the Commissioner of Internal Revenue on the

protest. Hence, the filing of the petition on November 8, 1991 was

held clearly beyond the reglementary period.[5]

 

The court a quo likewise stated that the finality of the

denial of the protest by petitioner against the tax deficiency

assessments was bolstered by the subsequent issuance of the

warrants of distraint and/or levy and garnishment to enforce the

collection of the deficiency taxes. The issuance was not barred by

prescription because the mere filing of the letter of protest by

petitioner which was given due course by the Bureau of Internal

Revenue suspended the running of the prescription period as

expressly provided under the then Section 224 of the Tax Code:

 SEC. 224. Suspension of Running of the

Statute of Limitations. The running of the Statute of Limitations provided in Section 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return files upon which a tax is being assessed or collected: Provided, That if the taxpayer inform the Commissioner of any change of address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could located;

and when the taxpayer is out of the Philippines. [6] (Underscoring supplied.)

 

 

Petitioner filed a Motion for Reconsideration arguing that the

demand letter of January 24, 1991 cannot be considered as the

final decision of the Commissioner of Internal Revenue on its

protest because the same was signed by a mere subordinate and

not by the Commissioner himself.[7]

 

With the denial of its motion for reconsideration, petitioner

consequently filed a Petition for Review with the Court of Appeals

contending that there was no final decision to speak of because

the Commissioner had yet to make a personal determination as

regards the merits of petitioners case.[8]

 

The Court of Appeals denied the petition in a decision

dated October 31, 2000, the dispositive portion of which reads:

 

 WHEREFORE, the petition is DISMISSED for

lack of merit. SO ORDERED. 

 

Petitioners Motion for Reconsideration was likewise denied in a

resolution dated May 3, 2001.

 

Hence, this petition with the following assignment of errors:[9]

 I

THE HONORABLE RESPONDENT CA ERRED IN FINDING THAT THE DEMAND LETTER ISSUED BY THE (THEN) ACCOUNTS RECEIVABLE/BILLING DIVISION OF THE BIR NATIONAL OFFICE WAS THE FINAL DECISION OF THE RESPONDENT CIR ON THE DISPUTED ASSESSMENTS, AND HENCE CONSTITUTED THE DECISION APPEALABLE TO THE HONORABLE RESPONDENT CTA; AND, 

IITHE HONORABLE RESPONDENT CA ERRED

IN DECLARING THAT THE DENIAL OF THE PROTEST OF THE SUBJECT ALLEGED DEFICIENCY TAX ASSESSMENTS HAD LONG BECOME FINAL AND EXECUTORY FOR FAILURE OF THE PETITIONER TO INSTITUTE THE APPEAL FROM THE DEMAND LETTER OF THE CHIEF OF THE ACCOUNTS RECEIVABLE/BILLING DIVISION, BIR NATIONAL OFFICE, TO THE HONORABLE RESPONDENT CTA, WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF.

 

 

Thus, the main issue is whether or not a demand letter for tax

deficiency assessments issued and signed by a subordinate officer

who was acting in behalf of the Commissioner of Internal Revenue,

is deemed final and executory and subject to an appeal to the

Court of Tax Appeals.

 

We rule in the affirmative.

A demand letter for payment of delinquent taxes may be

considered a decision on a disputed or protested assessment. The

determination on whether or not a demand letter is final is

conditioned upon the language used or the tenor of the letter

being sent to the taxpayer.

 

We laid down the rule that the Commissioner of Internal

Revenue should always indicate to the taxpayer in clear and

unequivocal language what constitutes his final determination of

the disputed assessment, thus:

 . . . we deem it appropriate to state that

the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by Sections 7 and 11 of Republic Act No. 1125, as amended. On the basis of his statement indubitably showing that the Commissioners communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be

able to determine when his right to appeal to the tax court accrues. The rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment and, consequently, the collection of the amount demanded as taxes by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action.[10]

 

In this case, the letter of demand dated January 24, 1991,

unquestionably constitutes the final action taken by the Bureau of

Internal Revenue on petitioners request for reconsideration when it

reiterated the tax deficiency assessments due from petitioner, and

requested its payment. Failure to do so would result in the

issuance of a warrant of distraint and levy to enforce its collection

without further notice.[11] In addition, the letter contained a

notation indicating that petitioners request for reconsideration had

been denied for lack of supporting documents.

 

The above conclusion finds support in Commissioner of

Internal Revenue v. Ayala Securities Corporation,[12] where we held:

 The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the reconsideration or respondent corporationsprotest of the assessment made by the petitioner, considering that the said letter was in itself a reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961. This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the disputed assessmentThis being so, the said letter amounted to a decision on a disputed or protested assessment, and, there, the court a quo did not err in taking cognizance of this case.

 

Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals,[13] and

in CIR v. Union Shipping Corporation,[14] we held:. . . In this letter, the commissioner not only

in effect demanded that the petitioner pay the amount of P11,533.53 but also gave warning that in the event it failed to pay, the said commissioner would be constrained to enforce the collection thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement regarding the resort to legal remedies, unmistakably indicated the final nature of the determination made by the commissioner of the petitioners deficiency franchise tax liability.

 

 

The demand letter received by petitioner verily signified a

character of finality. Therefore, it was tantamount to a rejection of

the request for reconsideration. As correctly held by the Court of

Tax Appeals, while the denial of the protest was in the form of a

demand letter, the notation in the said letter making reference to

the protest filed by petitioner clearly shows the intention of the

respondent to make it as [his] final decision.[15]

 

This now brings us to the crux of the matter as to whether said

demand letter indeed attained finality despite the fact that it was

issued and signed by the Chief of the Accounts Receivable and

Billing Division instead of the BIR Commissioner.

 

The general rule is that the Commissioner of Internal

Revenue may delegate any power vested upon him by law to

Division Chiefs or to officials of higher rank. He cannot, however,

delegate the four powers granted to him under the National

Internal Revenue Code (NIRC) enumerated in Section 7.

 

As amended by Republic Act No. 8424, Section 7 of the

Code authorizes the BIR Commissioner to delegate the powers

vested in him under the pertinent provisions of the Code to any

subordinate official with the rank equivalent to a division chief or

higher, except the following: (a)               The power to recommend the

promulgation of rules and regulations by the Secretary of Finance;

 (b)               The power to issue rulings of first

impression or to reverse, revoke or modify any existing ruling of the Bureau;

 (c) The power to compromise or abate under

Section 204(A) and (B) of this Code, any tax deficiency: Provided, however, that assessments issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and

 (d)                    The power to assign or reassign

internal revenue officers to establishments where articles subject to excise tax are produced or kept.

 

It is clear from the above provision that the act of issuance

of the demand letter by the Chief of the Accounts Receivable and

Billing Division does not fall under any of the exceptions that have

been mentioned as non-delegable.

Section 6 of the Code further provides:

 SEC. 6. Power of the Commissioner to Make

Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement.

 (A)                           Examination of Returns

and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorized representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax; Provided, however, That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer.

 The tax or any deficiency tax so assessed

shall be paid upon notice and demand from the Commissioner or from his duly authorized representative. . . . (Emphasis supplied)

 

Thus, the authority to make tax assessments may be delegated to

subordinate officers. Said assessment has the same force and

effect as that issued by the Commissioner himself, if not reviewed

or revised by the latter such as in this case.[16]

 

A request for reconsideration must be made within thirty

(30) days from the taxpayers receipt of the tax deficiency

assessment, otherwise, the decision becomes final, unappealable

and therefore, demandable. A tax assessment that has become

final, executory and enforceable for failure of the taxpayer to assail

the same as provided in Section 228 can no longer be contested,

thus:

 SEC. 228. Protesting of

Assessment. When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findingsSuch assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final.

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

 

Here, petitioner failed to avail of its right to bring the

matter before the Court of Tax Appeals within the reglementary

period upon the receipt of the demand letter reiterating the

assessed delinquent taxes and denying its request for

reconsideration which constituted the final determination by the

Bureau of Internal Revenue on petitioners protest. Being a final

disposition by said agency, the same would have been a proper

subject for appeal to the Court of Tax Appeals.

 

The rule is that for the Court of Tax Appeals to acquire

jurisdiction, an assessment must first be disputed by the taxpayer

and ruled upon by the Commissioner of Internal Revenue to

warrant a decision from which a petition for review may be taken

to the Court of Tax Appeals. Where an adverse ruling has been

rendered by the Commissioner of Internal Revenue with reference

to a disputed assessment or a claim for refund or credit, the

taxpayer may appeal the same within thirty (30) days after receipt

thereof.[17]

We agree with the factual findings of the Court of Tax

Appeals that the demand letter may be presumed to have been

duly directed, mailed and was received by petitioner in the regular

course of the mail in the absence of evidence to the contrary. This

is in accordance with Section 2(v), Rule 131 of the Rules of Court,

and in this case, since the period to appeal has commenced to run

from the time the letter of demand was presumably received by

petitioner within a reasonable time after January 24, 1991, the

period of thirty (30) days to appeal the adverse decision on the

request for reconsideration had already lapsed when the petition

was filed with the Court of Tax Appeals only on November 8, 1991.

Hence, the Court of Tax Appeals properly dismissed the petition as

the tax delinquency assessment had long become final and

executory.

 

WHEREFORE, premises considered, the Decision of the Court of

Appeals dated October 31, 2000 and its Resolution dated May 3,

2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED. The petition

is accordingly DENIED for lack of merit.

 

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 125704 August 28, 1998

PHILEX MINING CORPORATION, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and THE COURT OF TAX APPEALS,respondents.

 

ROMERO, J.:

Petitioner Philex Mining Corp. assails the decision of the Court of Appeals promulgated on April 8, 1996 in CA-G.R. SP No. 36975 1 affirming the Court of Tax Appeals decision in CTA Case No. 4872 dated March 16, 1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Sections 248 and 249 of the Tax Code of 1977.

The facts show that on August 5, 1992, the BIR sent a letter to Philex asking it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52 computed as follows:

PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST TOTAL EXCISE

TAX DUE

2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16 19,517,021.91

3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09 21,721,845.60

4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72 26,889,937.88

————— ————— —————— ——————

47,312,353.94 11,828,088.48 8,988,362.97 68,128,805.39

————— ————— —————— ——————

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82 30,887,982.25

2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18 24,805,194.88

————— ————— —————— ——————

43,013,541.70 10,753,385.43 1,926,250.00 55,693,177.13

————— ————— —————— ——————

90,325,895.64 22,581,473.91 10,914,612.97 123,821,982.52 3

========= ========= ========= =========

In a letter dated August 20, 1992, 4 Philex protested the demand for payment of the tax liabilities stating that it has pending claims for VAT input credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of P119,977,037.02 plus interest. Therefore these claims for tax credit/refund should be applied against the tax liabilities, citing our ruling inCommissioner of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5

In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in Philex's position. Since these pending claims have not yet been established or determined with certainty, it follows that no legal compensation can take place. Hence, the BIR reiterated its demand that Philex settle the amount plus interest within 30 days from the receipt of the letter.

In view of the BIR's denial of the offsetting of Philex's claim for VAT input credit/refund against its excise tax obligation, Philex raised the issue to the Court of Tax Appeals on November 6, 1992. 7 In the course of the proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount of P13,144,313.88 which, applied to the total tax liabilities of Philex of P123,821,982.52; effectively lowered the latter's tax obligation to P110,677,688.52.

Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay the remaining balance of P110,677,688.52 plus interest, elucidating its reason, to wit:

Thus, for legal compensation to take place, both obligations must be liquidated and demandable. "Liquidated" debts are those where the exact amount has already been determined (PARAS, Civil Code of the Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In the instant case, the claims of the Petitioner for VAT refund is still pending litigation, and still has to be determined by this Court (C.T.A. Case No. 4707). A fortiori, the liquidated debt of the Petitioner to the government cannot, therefore, be set-off against the unliquidated claim which Petitioner conceived to exist in its favor (see Compañia General de Tabacos vs. French and Unson, No. 14027, November 8, 1918, 39 Phil. 34). 8

Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to set-off on compensation since claim for taxes is not a debt or contract." 9 The dispositive portion of the CTA decision 10 provides:

In all the foregoing, this Petition for Review is hereby DENIED for lack of merit and Petitioner is hereby ORDERED to PAY the Respondent the amount of P110,677,668.52 representing excise tax liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992 plus 20% annual interest from August 6, 1994 until fully paid pursuant to Section 248 and 249 of the Tax Code, as amended.

Aggrieved with the decision, Philex appealed the case before the Court of Appeals docketed as CA-GR. CV No. 36975. 11 Nonetheless, on April 8, 1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation. The pertinent portion of which reads: 12

WHEREFORE, the appeal by way of petition for review is hereby DISMISSED and the decision dated March 16, 1995 is AFFIRMED.

Philex filed a motion for reconsideration which was, nevertheless, denied in a Resolution dated July 11, 1996. 13

However, a few days after the denial of its motion for reconsideration, Philex was able to obtain its VAT input credit/refund not only for the taxable year 1989 to 1991 but also for 1992 and 1994, computed as follows: 14

Period Covered Tax Credit Date

By Claims For Certificate of

VAT refund/credit Number Issue Amount

1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01

1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61

1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46

1992 (1st-3rd Quarter) 007755 23 July 1996 P36,501,147.95

In view of the grant of its VAT input credit/refund, Philex now contends that the same should, ipso jure, off-set its excise tax liabilities 15 since both had already become "due and demandable, as well as fully liquidated;" 16 hence, legal compensation can properly take place.

We see no merit in this contention.

In several instances prior to the instant case, we have already made the pronouncement that taxes cannot be subject to compensation for the simple reason that the government and the taxpayer are not creditors and debtors of each other. 17 There is a material distinction between a tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to the Government in its sovereign capacity. 18 We find no cogent reason to deviate from the aforementioned distinction.

Prescinding from this premise, in Francia v. Intermediate Appellate Court, 19 we categorically held that taxes cannot be subject to set-off or compensation, thus:

We have consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an

amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

The ruling in Francia has been applied to the subsequent case of Caltex Philippines, Inc. v. Commission on Audit,20 which reiterated that:

. . . a taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off.

Further, Philex's reliance on our holding in Commissioner of Internal Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending refund may be set off against an existing tax liability even though the refund has not yet been approved by the Commissioner, 21 is no longer without any support in statutory law.

It is important to note, that the premise of our ruling in the aforementioned case was anchored on Section 51 (d) of the National Revenue Code of 1939. However, when the National Internal Revenue Code of 1977 was enacted, the same provision upon which the Itogon-Suyoc pronouncement was based was omitted. 22 Accordingly, the doctrine enunciated in Itogon-Suyoc cannot be invoked by Philex.

Despite the foregoing rulings clearly adverse to Philex's position, it asserts that the imposition of surcharge and interest for the non-payment of the excise taxes within the time prescribed was unjustified. Philex posits the theory that it had no obligation to pay the excise tax liabilities within the prescribed period since, after all, it still has pending claims for VAT input credit/refund with BIR. 23

We fail to see the logic of Philex's claim for this is an outright disregard of the basic principle in tax law that taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. 24 Evidently, to countenance Philex's whimsical reason would render ineffective our tax collection system. Too simplistic, it finds no support in law or in jurisprudence.

To be sure, we cannot allow Philex to refuse the payment of its tax liabilities on the ground that it has a pending tax claim for refund or credit against the government which has not yet been granted. It must be noted that a distinguishing feature of a tax is that it is compulsory rather than a matter of bargain. 25 Hence, a tax does not depend upon the consent of the taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the defense that it still has a pending claim for refund or credit, this would adversely affect the government revenue system. A taxpayer cannot refuse to pay his taxes when they fall due simply because he has a claim against the government or that the collection of the tax is contingent on the result of the lawsuit it filed against the government. 27 Moreover, Philex's theory that would automatically apply its VAT input credit/refund against its tax liabilities can easily give rise to confusion and abuse, depriving the government of authority over the manner by which taxpayers credit and offset their tax liabilities.

Corollarily, the fact that Philex has pending claims for VAT input claim/refund with the government is immaterial for the imposition of charges and penalties prescribed under Section 248 and 249 of the Tax Code of 1977. The payment of the surcharge is mandatory and the BIR is not vested with any authority to waive the collection thereof. 28 The same cannot be condoned for flimsy reasons, 29 similar to the one advanced by Philex in justifying its non-payment of its tax liabilities.

Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National Internal Revenue Code of 1977, which requires the refund of input taxes within 60 days, 31 when it took five years for the latter to grant its tax claim for VAT input credit/refund. 32

In this regard, we agree with Philex. While there is no dispute that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund, 33 however, once the claimant has submitted all the required documents it is the function of the BIR to assess these documents with purposeful dispatch. After all, since taxpayers owe honestly to government it is but just that government render fair service to the taxpayers. 34

In the instant case, the VAT input taxes were paid between 1989 to 1991 but the refund of these erroneously paid taxes was only granted in 1996. Obviously, had the BIR been more diligent and judicious with their duty, it could have granted the refund earlier. We need not remind the BIR that simple justice requires the speedy refund of wrongly-held taxes. 35 Fair dealing and nothing less, is expected by the taxpayer from the BIR in the

latter's discharge of its function. As aptly held inRoxas v. Court of Tax Appeals: 36

The power of taxation is sometimes called also the power to destroy. Therefore it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the "hen that lays the golden egg" And, in order to maintain the general public's trust and confidence in the Government this power must be used justly and not treacherously.

Despite our concern with the lethargic manner by which the BIR handled Philex's tax claim, it is a settled rule that in the performance of governmental function, the State is not bound by the neglect of its agents and officers. Nowhere is this more true than in the field of taxation. 37 Again, while we understand Philex's predicament, it must be stressed that the same is not a valid reason for the non-payment of its tax liabilities.

To be sure, this is not to state that the taxpayer is devoid of remedy against public servants or employees, especially BIR examiners who, in investigating tax claims are seen to drag their feet needlessly. First, if the BIR takes time in acting upon the taxpayer's claim for refund, the latter can seek judicial remedy before the Court of Tax Appeals in the manner prescribed by law. 38 Second, if the inaction can be characterized as willful neglect of duty, then recourse under the Civil Code and the Tax Code can also be availed of.

Art. 27 of the Civil Code provides:

Art. 27. Any person suffering material or moral loss because a public servant or employee refuses or neglects, without just cause, to perform his official duty may file an action for damages and other relief against the latter, without prejudice to any disciplinary action that may be taken.

More importantly, Section 269 (c) of the National Internal Revenue Act of 1997 states:

xxx xxx xxx

(c) Wilfully neglecting to give receipts, as by law required for any sum collected in the performance of duty or wilfully neglecting to perform, any other duties enjoyed by law.

Simply put, both provisions abhor official inaction, willful neglect and unreasonable delay in the performance of official duties. 39 In no uncertain terms must we stress that every public employee or servant must strive to render service to the people with utmost diligence and efficiency. Insolence and delay have no place in government service. The BIR, being the government collecting arm, must and should do no less. It simply cannot be apathetic and laggard in rendering service to the taxpayer if it wishes to remain true to its mission of hastening the country's development. We take judicial notice of the taxpayer's generally negative perception towards the BIR; hence, it is up to the latter to prove its detractors wrong.

In sum, while we can never condone the BIR's apparent callousness in performing its duties, still, the same cannot justify Philex's non-payment of its tax liabilities. The adage "no one should take the law into his own hands" should have guided Philex's action.

WHEREFORE, in view of the foregoing, the instant petition is hereby DISMISSED. The assailed decision of the Court of Appeals dated April 8, 1996 is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Kapunan and Purisima, JJ., concur.