NIRC Remedies Cases

7/21/2019 NIRC Remedies Cases

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NIRC Remedies

THIRD DIVISION G.R. No. 163345 COMMISSIONER OFINTERNAL REVENUE,e!i!io"e#, $ %e#s&s $ERF REALT' CORORATION, Res(o"de"!.

#om&)*+!ed -&) 4, /00

D E C I S I O N

FOR Our review on certiorari is theDecision[1] of the Court of Appeals (CA) grantingthe claim for refund of respondent !RF Realt"Corporation (!RF) for credita#le withholding ta$for the "ear 1%%&'

F+2!s

etitioner Commissioner is the head of theureau of nternal Revenue (R) whose principaldut" is to assess and collect internal revenueta$es'Respondent !RF is a domestic corporationengaged in the #usiness of leasing properties tovarious clients including the hilippine American*ife and +eneral nsurance Compan" (hilamlife)and Read,Rite hilippines (Read,Rite)'

On April 1-. 1%%/. !RF 0led its Annualncome a$ Return (R) for the "ear 1%%&showing a net ta$a#le income in the amountof 2.-34.3-5'44 and income ta$ due

of 6.654.261'44' For the "ear 1%%&. its tenants. hilamlife

and Read,Rite. withheld and su#se7uentl"remitted credita#le withholding ta$es in the totalamount of3.531.165'44'

After deducting credita#le withholdingta$es in the total amount of 3.531.165'44 fromits total income ta$ dueof 6.654.261'44. !RF showed in its 1%%& R anoverpa"ment of income ta$es in the amountof 1.6/4.54-'44'

On 8ovem#er 3. 1%%%. !RF 0led anadministrative claim with the appellate division of the R for refund of overpaid income ta$es in theamount of1.6/4.54-'44'

On Decem#er 3. 1%%%. due to the inactionof the R. !RF 0led a petition for review withthe Court of a$ Appeals (CA) see9ing for therefund of the overpaid income ta$es in theamount of 1.6/4.54-'44'

CTA Dis(osi!io"

n a Decision dated 8ovem#er 64. 6441.the CA denied the petition of !RF on theground of insu:cienc" of evidence' he CA noted that !RF did notindicate in its 1%%& R the option to either claimthe e$cess income ta$ as a refund or ta$ creditpursuant to ;ection 2%[6] (now &2) of the 8ationalnternal Revenue Code (8RC)

Further. the CA li9ewise foundthat !RF failed to present in evidence its 1%%/

annual R' t held that the failure of !RF tosignif" its option on whether to claim for refund oropt for an automatic ta$ credit and to present its1%%/ R left the Court with no wa" to determinewith certaint" whether or not!RF has applied orcredited the refunda#le amount sought for in itsadministrative and <udicial claims for refund'

!RF moved for reconsideration attaching to itsmotion its 1%%/ R' he motion was. however.denied #" the CA in its Resolution dated =arch62. 6446'

Aggrieved #" the decision of the CA. !RF 0led a petition for review with theCA under Rule -3 of the Rules of Court'

CA Dis(osi!io"

n a Decision dated >ul" 1/. 6443. the CAruled in favor of !RF. disposing as follows?

@!R!FOR!. the petition is here#"+RA8!D' he assailed Decisiondated 8ovem#er 64. 6441. andResolution of =arch 62. 6446 of theCourt of a$ Appeals are ;!A;D!' he Commissioner of nternal Revenue is ordered toR!FB8D to the petitioner theamount of 1.6/4.54-'44 ascredita#le withholding ta$ for the"ear 1%%&' ;O ORD!R!D'[3]

According to the appellate court. even if the ta$pa"er has indicated its option for refund orta$ credit in its R. it does not mean that it willautomaticall" #e entitled to either option sincethe Commissioner of nternal Revenue (CR) must#e given the opportunit" to investigate andcon0rm the veracit" of the claim' hus. there isstill a need to 0le a claim for refund'

As to the failure of !RF to present its1%%/ R. the CA o#served that there is no needto rule on its admissi#ilit" since the CA alread"

held that !RFhad complied with the re7uisitesfor appl"ing for a ta$ refund' he sole purpose of re7uiring the presentation of !RFs 1%%/ R is toverif" whether or not!RF had carried over the1%%& e$cess income ta$ claimed for refund to the"ear 1%%/' he veri0cation process is notincum#ent upon !RF rather. it is the dut" of the R to disprove the ta$pa"ers claim'

he CR 0led a motion for reconsiderationwhich was su#se7uentl" denied #" the CA' hus.this appeal to Bs under Rule -5'

Iss&es

etitioner su#mits the followingassignment?

! COBR OF A!A*; !RR!D 8+RA88+ R!;O8D!8; AR!FB8D CO8;D!R8+ !*A!R; FA*BR! O;B;A8A**E !;A*; ;C*A= FOR R!FB8D'

http://sc.judiciary.gov.ph/jurisprudence/2008/july2008/163345.htm#_ftn1








6

! COBR OF A!A*; !RR!D 8CO8;D!R8+ R!;O8D!8;A88BA* CORORA! 8CO=! AR!BR8 FOR1%%/ 8O@;A8D8+ A @A; 8O FOR=A**E OFF!R!D 8

!D!8C!'

[-]

(Bnderscoringsupplied)

O&# R&)i"*

@e rule in favor of respondent' I. Respondent substantially complied with

the requisites for claim of refund.

he CA. citing Section 10 of RevenueRegulations 6-85 and Citibank, N.A. v. Court of

Aeals.[5] determined the re7uisites for a claimfor refund. thus?

1) hat the claim for refund was0led within the two (6) "earperiod as prescri#ed under;ection 634 of the 8ationalnternal Revenue Code

6) hat the income upon which the

ta$es were withheld wereincluded in the return of therecipient

3) hat the fact of withholding is

esta#lished #" a cop" of astatement (R Form 1&-3'1)dul" issued #" the pa"or(withholding agent) to thepa"ee. showing the amountpaid and the amount of ta$withheld therefrom'[2]

@e 0nd that !RF 0led its administrativeand <udicial claims for refund on 8ovem#er 3.1%%% and Decem#er 3. 1%%%. respectivel". whichare within the two,"ear prescriptive period under;ection 634 (now 66%) of the 8ational nternal a$Code'

he CA noted that #ased on the

records. !RF presented certi0cates of credita#lewithholding ta$ at source reGecting credita#lewithholding ta$es in the amount of -.153.24-'1/withheld from !RFs rental incomeof /3.4&6.4&2'/1 (!$hi#its . C. D. !. and )' naddition. it su#mitted in evidence the =onthl"Remittance Returns of its withholding agents toprove the fact of remittance of said ta$es tothe R' Although the certi0cates of credita#lewithholding ta$ at source for 1%%& reGected atotal amount of -.153.24-'1/ corresponding to

the rental income of /3.4&6.4&2'/1. !RF isclaiming onl" the amount of3.531.165'44pertaining to a rental incomeof &4./13.4&%'44' he amount of 3.531.165'44less the income ta$ due of !RF of 6.654.261'44leaves the refunda#le amount of 1.6/4.54-'44' t is settled that 0ndings of fact of the CA areentitled to great weight and will not #e distur#edon appeal unless it is shown that the lower courtscommitted gross error in the appreciation of

facts' @e see no cogent reason not to appl" thesame principle here' II. The failure of respondent to indicate its

option in its annual ITR to avail itself of either the tax refund or tax credit is not fatal to its claim for refund.

Respondent !RF did not indicate in its1%%& R the option whether to re7uest a refundor claim the e$cess withholding ta$ as ta$ creditfor the succeeding ta$a#le "ear'

Citing ;ection &2 of the 8RC.the CR opines that such failure is fatal to !RFsclaim for refund'

@e do not agree'

n !"ila# Asset $anage#ent, %nc. v.Co##issioner of %nternal Revenue.[&] the Courthad occasion to trace the histor" of the FinalAd<ustment Return found in ;ection 2% (now &2)of the 8RC' hus?

he provision on the 0nalad<ustment return (FAR) wasoriginall" found in ;ection 2% of residential Decree (D) 8o' 115/.otherwise 9nown as the 8ationalnternal Revenue Code of 1%&&' On August 1. 1%/4. thisprovision was restated as ;ection/2 in D 1&45'

On 8ovem#er 5. 1%/5. all

prior amendments and thoseintroduced #" D 1%%- werecodi0ed into the 8ational nternalRevenue Code (8RC) of 1%/5. as aresult of which ;ection /2 wasrenum#ered as ;ection &%'

On >ul" 31. 1%/2. ;ection 6-of !$ecutive Order (!O) 8o' 3&changed all net income phrasesappearing in itle of the 8RC of 1%&& to ta$a#le income' ;ection &%of the 8RC of 1%/5. however. was

not amended'

On >ul" 65. 1%/&. !O 6&3renum#ered ;ection /2 of the 8RCas ;ection &2. which was alsorearranged to fall under Chapter of

itle of the 8RC' ;ection &%.which had earlier #een renum#ered#" D 1%%-. remained unchanged'

hus. ;ection 2% of the 8RCof 1%&& was renum#ered as;ection /2 under D 1&45 later. as

;ection &% under D 1%%- then. as;ection &2 under !O 6&3' Finall".after #eing renum#ered andreduced to the chaH of a grain.;ection 2% was repealed #" !O 3&'

;u#se7uentl". ;ection 2%

reappeared in the 8RC (or a$Code) of 1%%& as ;ection &2. whichreads?












3;ection

&2' &inal Ad'ust#ent Return' !ver"corporation lia#le tota$ under ;ection 6-shall 0le a 0nalad<ustment returncovering the total

net income for thepreceding calendaror 0scal "ear' f thesum of the 7uarterl"ta$ pa"ments madeduring the saidta$a#le "ear is note7ual to the total ta$due on the entireta$a#le net incomeof that "ear thecorporation shalleither?

(a) a" the e$cessta$ still due or

(#) e refunded thee$cess amountpaid. as thecase ma" #e'

n case the

corporation isentitled to a refundof the e$cessestimated 7uarterl"income ta$es paid.the refunda#leamount shown on its0nal ad<ustmentreturn ma" #ecredited against theestimated 7uarterl"income ta$ lia#ilitiesfor the ta$a#le7uarters of thesucceeding ta$a#le"ear'[/]

;ection &2 oHers two options? (1) 0ling for

ta$ refund and (6) availing of ta$ credit' he twooptions are alternative and the choice of oneprecludes the other' owever. in !"ila# Asset $anage#ent, %nc. v. Co##issioner of %nternalRevenue.[%] the Court ruled that failure to indicatea choice. however. will not #ar a valid re7uest fora refund. should this option #e chosen #" theta$pa"er later on' he re7uirement is onl" for thepurpose of easing ta$ administration particularl"the self,assessment and collection aspects' hus?

hese two options under ;ection&2 are alternative in nature' he

choice of one precludes theother' ndeed. in !"iliine (ank of Co##unications v. Co##issioner of %nternal Revenue. the Courtruled that a corporation mustsignif" its intention whether tore7uest a ta$ refund or claim a ta$credit #" mar9ing thecorresponding option #o$ providedin the FAR' @hile a ta$pa"er isre7uired to mar9 its choice in theform provided #" the R. this

re7uirement is onl" for the purposeof facilitating ta$ collection'

One cannot get a ta) refund and a ta) credit at the sametime for the same e$cess incometa$es paid' Failure to signif" onesintention in the FAR does not mean

outright #arring of a valid re7uestfor a refund. should one still choosethis option later on' A ta$ creditshould #e construed merel" as analternative remed" to a ta$ refundunder ;ection &2. su#<ect to priorveri0cation and approval #"respondent'

he reason for re7uiring

that a choice #e made in the FARupon its 0ling is to ease ta$administration. particularl" the self,assessment and collectionaspects' A ta$pa"er that ma9es achoice e$presses certaint" orpreference and thus demonstratesclear diligence' Conversel". ata$pa"er that ma9es no choicee$presses uncertaint" or lac9 of preference and hence showssimple negligence or plainoversight'

$ $ $ $

*"ird. there is no automaticgrant of a ta) refund' As a matterof procedure. the R should #egiven the opportunit" toinvestigate and con0rm theveracit" of a ta$pa"ers claim.#efore it grants therefund' !$ercising the option for ata$ refund or a ta$ credit doesnot iso facto confer upon ata$pa"er the right to an immediateavailment of the choicemade' 8either does it impose adut" on the government to allowta$ collection to #e at the sole

control of a ta$pa"er'

&ourt". the R ought tohave on 0le its own copies of petitioners FAR for the succeeding"ear. on the #asis of which it couldre#ut the assertion that there wasa su#se7uent credit of the e$cessincome ta$ pa"ments for theprevious "ear' ts failure to presentthis vital document to support itscontention against the grant of a ta) refundto petitioner is

certainl" fatal' &ift". the CA should have

ta9en <udicial notice of the fact of 0ling and the pendenc" of petitioners su#se7uent claim for arefund of e$cess credita#le ta$eswithheld for 1%%/' he e$istence of the claim ought to #e 9nown #"reason of its <udicialfunctions' Furthermore. it isdecisive to and will easil" resolve







-the material issue in this case'f onl" <udicial notice were ta9enearlier. the fact that there was nocarr",over of the e$cess credita#leta$es withheld for 1%%& would havealread" #een cr"stal clear'

Si)t". the a$ Code allows

the refund of ta$es to a ta$pa"erthat claims it in writing within two"ears after pa"ment of the ta$eserroneousl" received #"the R'Despite the failure of petitioner to ma9e the appropriatemar9ing in the R form. the 0lingof its written claim eHectivel"serves as an e$pression of itschoice to re7uest ata) refund.instead of a ta$ credit' o assertthat an" future claim for a ta$refund will #e instantl" hindered #"a failure to signif" ones intention inthe FAR is to render nugator" theclear provision that allows for atwo,"ear prescriptive period'

n fact. in (!%-&a#il+

Savings (ank v. CA. this Court evenordered the refund of a ta$pa"erse$cess credita#le ta$es. despite thee$press declaration in the FAR toappl" the e$cess to the succeeding"ear' @hen circumstances showthat a choice of ta$ credit has #eenmade. it should #e respected' utwhen indu#ita#le circumstancesclearl" show that another choice ata$ refund is in order. it should #egranted' echnicalities andlegalisms. however e$alted. shouldnot #e misused #" the governmentto 9eep mone" not #elonging to itand there#" enrich itself at thee$pense of its law,a#iding citiIens'

n the present case.although petitioner did not mar9the refund #o$ in its 1%%& FAR.neither did it perform an" act

indicating that it chose a ta$ credit'On the contrar". it 0ledon ;eptem#er 11. 1%%/. anadministrative claim for the refundof its e$cess ta$es withheld in1%%&' n none of its 7uarterl"returns for 1%%/ did it appl" thee$cess credita#le ta$es' Bnderthese circumstances. petitioner isentitled to a ta) refund of its 1%%&e$cess ta$ credits in the amountof 566.4%6'[14]

n this case. !RF did not mar9 the refund#o$ in its 1%%& FAR' 8either did it perform an" actindicating that it chose ta$ credit' n fact. in its1%%/ R.!RF left #lan9 the portion *ess? a$CreditJ a"ments' hat action coupled with the0ling of a claim for refund indicates that !RFopted to claim a refund'Bnder thesecircumstances. !RF is entitled to a refund of its1%%& e$cess ta$ credits in the amountof 1.6/4.54-'44'

III. The failure of respondent to present inevidence the 1998 ITR is not fatal to itsclaim for refund.

he CR ta9es the view that the CA erred inconsidering the 1%%/ R of !RF' t was notformall" oHered in evidence' ;ection 3-. Rule 136of the Revised Rules of Court states that the court

shall consider no evidence which has not #eenformall" oHered'

he reasoning is specious' !RF attached its 1%%/ R to its motion forreconsideration' he 1%%/ R is a part of therecords of the case and clearl" showed thatincome ta$es in the amount of 1.6/4.54-'44were not claimed as ta$ credit in 1%%/' n &ilinvest evelo#ent Cororation v.Co##issioner of %nternal Revenue.[11] the Courtheld that the 1%%& R attached to the motion forreconsideration is part of the records of that caseand cannot #e simpl" ignored #"the CA' =oreover. technicalities should not #eused to defeat su#stantive rights. especiall"those that have #een held as a matter of right' @e 7uote?

n the proceedings #eforethe CA. petitioner presented inevidence its letter of claim forrefund #efore the R to show thatit was made within the two,"earreglementar" period its ncome

a$ Returns for the "ears 1%%5 and1%%2 to prove its total credita#lewithholding ta$ and the fact thatthe amounts were declared as partof its gross income and severalcerti0cates of income ta$ withheldat source corresponding to theperiod of claim to prove the totalamount of the ta$es erroneousl"withheld' =ore importantl".petitioner attached its 1%%& ncome

a$ Return to its =otion forReconsideration. ma9ing the same

part of the records of thecase' he CA cannot simpl" ignorethis document'

hus. we hold that

petitioner has complied with all there7uirements to prove its claim forta$ refund' he CA. therefore. erredin den"ing the petition for review of the CAs denial of petitioners claimfor ta$ refund on the ground that itfailed to present its 1%%& ncome

a$ Return'

Te CAs #e)i+"2e o" R&)e

13/, Se2!io" 34 /6 o !e R&)eso" E%ide"2e is mis()+2ed. Tis(#o%isio" m&s! e !+e" i" !e)i*! o Re(&)i2 A2! No. 11/5,+s +me"ded, !e )+7 2#e+!i"*!e CTA, 7i2 (#o%ides !+!(#o2eedi"*s !e#ei" s+)) "o!e *o%e#"ed s!#i2!) !e2"i2+) #&)es o e%ide"2e. Mo#eo%e#, !is Co&#!







5+s e)d !ime +"d +*+i" !+!!e2"i2+)i!ies so&)d "o! e&sed !o dee+! s&s!+"!i%e#i*!s, es(e2i+)) !ose !+!+%e ee" es!+)ised +s +m+!!e# o +2!.

$ $ $ $

@e must also point out that.simpl" #" e$ercising the CRspower to e$amine and verif"petitioners claim for ta$ e$emptionas granted #" law.respondent CR could have easil"veri0ed petitioners claim #"presenting the latters 1%%& ncome

a$ Return. the original of which ithas in its 0les' owever. recordsshow that in the proceedings#efore the CA.respondent CR failed to commenton petitioners formal oHer of evidence. waived its right topresent its own evidence. andfailed to 0le itsmemorandum'8either did it 0le anopposition to petitioners motion toreconsider the CA decision towhich the 1%%& ncome a$ Returnwas appended'

hat no one shall un<ustl"

enrich oneself at the e$pense of another is a long,standing principleprevailing in our legal s"stem' hisapplies not onl" to individuals #utto the ;tate as well' n the 0eld of ta$ation where the ;tate e$actsstrict compliance upon its citiIens.the ;tate must li9ewise deal withta$pa"ers with fairness andhonest"'he harsh power of ta$ation must #e tempered withevenhandedness' ence. under theprinciple of solutio indebiti. the+overnment has to restore topetitioner the sums representing

erroneous pa"ments of ta$es'[16]

Further. @e sustain the CA that there is no

need to rule on the issue of the admissi#ilit" of the 1%%/ R since the CA ruledthat !RF alread" complied with the re7uisites of appl"ing for a ta$ refund' he veri0cation processis not incum#ent on !RF it is the dut" of the CR to verif" whether or not !RF had carriedover the 1%%& e$cess income ta$es'

8HEREFORE. the petition is DENIED forlac9 of merit'

SO ORDERED'

THIRD DIVISION COMMISSIONER OF INTERNAL G.R.No. 169560REVENUE,e!i!io"e#,$ %e#s&s $DOMINADOR MENGUITO, Res(o"de"!

#om&)*+!ed Se(!eme# 19, /00

D E C I S I O N

efore the Court is a etition for Reviewon Certiorari under Rule -5 of the Rules of Court.assailing the =arch 31. 6445 Decision[1] of the Court of Appeals (CA) which reversed and set aside the Court of

a$ Appeals (CA) April 6. 6446 Decision

[6]

and Octo#er14. 6446 Resolution[3] ordering Dominador =enguito(respondent) to pa" the Commissioner of nternalRevenue (petitioner) de0cienc" income andpercentage ta$es and delin7uenc" interest'

ased on the >oint ;tipulation of Facts andAdmissions[-] of the parties. the CA summariIed thefactual and procedural antecedents of the case. therelevant portions of which read?

etitioner Dominador =enguito

[herein respondent] is a Filipino citiIen.of legal age. married to >eanne=enguito and is engaged in therestaurant andJor cafeteria#usiness' For the "ears 1%%1. 1%%6and 1%%3. its principal place of #usiness was at +loriamaris. CCComple$. asa" Cit" and latertransferred to Kala"aan ar (CopperKettle Cafeteria ;pecialist or CKC;).DepartureArea. 8ino" A7uino nternational Airport. asa" Cit"' During the same "ears.he also operated a #ranch at Clu# >ohna". aguio Cit" carr"ing the #usinessname of Copper Kettle Cafeteria;pecialist (>oint ;tipulation of Facts andAdmissions. p' 133. CA records)'

$ $ $ $ Subsequently!IR !a"uio received informationthat #etitioner $hereinrespondent% has undeclared income from Texas Instrumentsand &lub 'ohn (ay promptin" the!IR to conduct another

investi"ation. Throu"h a letter dated 'uly )8 199* Spouses+ominador ,en"uito and 'eanne,en"uito -Spouses ,en"uitowere informed by the /ssessment +ivision of the said o0ce that they have underdeclared salestotalin" #8*)1222.93 -4xhibit 11 p. 85 !IR records. This wasfollowed by a #reliminary Ten -16+ay 7etter dated /u"ust 11 199*informin" #etitioner $hereinrespondent% that in the

investi"ation of his 1991 199)and 1995 income business and withholdin" tax case it was found out that there is still due from himthe total sum of #519561.22as deciency income and

percenta"e tax. n September ) 199* theassessment notices sub:ect of theinstant petition were issued.These were protested by ,s.


http://sc.judiciary.gov.ph/jurisprudence/2008/september2008/167560.htm#_ftn1











2 'eanne ,en"uito throu"h a letter dated September )8199* -4xhibit 1 p. 11) !IRRecords on the "round that the

6; deduction allowed on their computed "ross revenue isunrealistic. ,s. 'eanne ,en"uitorequested for a period of thirty

-56 days within which tocoordinate with the !IR re"ardin"the contested assessment. On Octo#er 14. 1%%&. R aguioreplied. informing the ;pouses=enguito that the source of assessment was not through thedisallowance of claimed e$penses #uton data received from Clu# >ohn a"and e$as nstruments hils'. nc' ;aidletter gave the spouses ten (14) da"sto present evidence (!$hi#it 15. p' 114.R Records)' In an e<ort to clear an alle"ed confusion re"ardin" &opper =ettle&afeteria Specialist -&=&S bein"a sole proprietorship owned by the Spouses and &opper =ettle&aterin" Services Inc. -&=&S Inc.bein" a corporation with whomTexas Instruments and &lub 'ohn(ay entered into a contract#etitioner $respondent% submitted to !IR !a"uio a photocopy of theS4& Re"istration of &opper =ettle&aterin" Services Inc. on ,arch)5 1999 -pp. 15>11 !IRRecords. On April 16. 1%%%. R aguio wrote aletter to ;pouses =enguito. informingthe latter that a reinvestigation orreconsideration cannot #e given duecourse #" the mere su#mission of anuncerti0ed photocop" of the Certi0cateof ncorporation' hus. it avers that theamendment issued is still valid andenforcea#le'

On =a" 62. 1%%%. etitioner[respondent] 0led the present case.pra"ing for the cancellation andwithdrawal of the de0cienc" incometa$ and percentage ta$ assessmentson account of prescription. whimsicalfactual 0ndings. violation of proceduraldue process on the issuance of assessment notices. erroneous addressof notices and multiple creditJinvestigation #" the Respondent[petitioner] of etitionerLs

[respondents] #oo9s of accounts andother related records for the same ta$"ear' nstead of 0ling an Answer. Respondent[herein petitioner] moved to dismissthe instant petition on >ul" 1. 1%%%. onthe ground of lac9 of

<urisdiction' According to Respondent[petitioner]. the assessment had long#ecome 0nal and e$ecutor" when

etitioner [respondent] failed to compl"with the letter dated Octo#er 14. 1%%&' etitioner opposed said motion on >ul"61. 1%%%. claiming that the 0naldecision on etitionerLs [respondents]protest is the April 16. 1%%% letter of the aguio Regional O:ce therefore.

the 0ling of the action within thirt" (34)da"s from receipt of the said letter wasseasona#l" 0led' =oreover. etitioner[respondent] asserted that grantingthat the April 16. 1%%% letter in7uestion could not #e construed tomean as a denial or 0nal decision of the protest. still etitionerLs[respondents] appeal was timel" 0ledsince Respondent [petitioner] issued a@arrant of Distraint andJor *ev"against the etitioner [respondent] on=a" 3. 1%%%. which warrantconstituted a 0nal decision of theRespondent [petitioner] on the protestof the ta$pa"er' On ;eptem#er 3. 1%%%. this Courtdenied RespondentLs [petitioners]L=otion to DismissL for lac9 of merit'

Respondent [petitioner] 0ledhis Answer on ;eptem#er 6-. 1%%%.raising the following ;pecial andA:rmative Defenses?

$ $ $ $ 5' nvestigationdisclosed that forta$a#le "ears 1%%1.1%%6 and 1%%3.petitioner [respondent]0led false or fraudulentincome and percentageta$ returns with intentto evade ta$ #" underdeclaring his sales' 2' he alleged

duplication of investigation of petitioner [respondent]#" the R RegionalO:ce in aguio Cit"and #" the RevenueDistrict O:ce in asa"Cit" is <usti0ed #" the0nding of fraud on thepart of the petitioner[respondent]. which isan e$ception to theprovision in the a$

Code that thee$amination andinspection of #oo9s andrecords shall #e madeonl" once in a ta$a#le"ear (;ection 635. a$Code)' At an" rate.petitioner [respondent].in a letter dated >ul"1/. 1%%-. waived hisright to the



&consolidation of saidinvestigation' *. Theaforementioned falsity or fraud wasdiscovered on /u"ust 2 199*.

The assessmentswere issued on September )199* or within ten-16 years from thediscovery of suchfalsity or fraud -Section ))5 Tax &ode. (ence theassessments havenot prescribed. 8. #etitioner?s

$respondents%alle"ation that theassessments werenot properly addressed isrendered moot and academic by hisac@nowled"ment inhis protest letter dated September )8 199*that hereceived theassessments. 9. Respondent

$petitioner%complied with the

provisions of RevenueRe"ulations Ao. 1)>82 by informin"

petitioner $respondent% of thendin"s of theinvesti"ation inletters dated 'uly )8

199* and /u"ust 11 199* prior tothe issuance of theassessments. 16. #etitioner

$respondent% did not alle"e in hisadministrative

protest that therewas a duplication of investi"ation that the assessments

have prescribedthat they were not

properly addressedor that the

provisions of RevenueRe"ulations Ao. 1)>82 were not observed. Aot havin" raised themin theadministrative level

petitioner $respondent% cannot raise the same for the rst time onappeal -/"uinaldoIndustries &orp. vs.&ommissioner of Internal Revenue

11) S&R/ 153. 11' he assessmentswere issued inaccordance with lawand regulations' 16' All presumptionsare in favor of thecorrectness of ta$assessments (CR vs'Construction Resourcesof Asia. nc'. 1-5 ;CRA2&). and the #urden toprove otherwise isupon petitioner[respondent]'[5] (!mphasis supplied)

On April 6. 6446. the CA rendered a Decision.the dispositive portion of which reads?

Accordingl". etitioner [hereinrespondent] is ORDERED to A' theRespondent [herein petitioner] theamount of 11.333.633'%-and 6.5&3.255'/6 as de0cienc"income and percentage ta$ lia#ilities.respectivel" for ta$a#le "ears 1%%1.1%%6 and 1%%3 plus 64M delin7uenc"interest from Octo#er 6. 1%%& until fullpa"ment thereof' ;O ORD!R!D'[2]

Respondent 0led a motion for reconsideration #ut theCA denied the same in its Resolution of Octo#er 14.6446'[&]

hrough a etition for Review[/] 0led with the

CA. respondent 7uestioned the CA Decision andResolution mainl" on the ground that Copper KettleCatering ;ervices. nc' (CKC;. nc') was a separate anddistinct entit" from Copper Kettle Cafeteria ;pecialist(CKC;) the sales and revenues of CKC;. nc' could not#e ascri#ed to CKC; neither ma" the ta$es due fromone. charged to the other nor the notices to #e servedon the former. coursed through the latter'[%] Respondent cited the >oint ;tipulation in whichpetitioner ac9nowledged that its (respondents)#usiness was called Copper Kettle Cafeteria ;pecialist.not Copper Kettle Catering ;ervices. nc'[14]

ased on the unrefuted[11] CA summar". theCA rendered the Decision assailed herein. thedispositive portion of which reads?

@!R!FOR!. the instant petition is+RA8!D' Reversing the assailedDecision dated April 6. 6446 andResolution dated Octo#er 14. 6446.the de0cienc" income ta$ andpercentage income ta$ assessmentsagainst petitioner in the amountsof 11.333.633'%- and 6.5&3.255'/6




















/for ta$a#le "ears 1%%1. 1%%6 and 1%%3plus the 64M delin7uenc" interestthereon are annulled'

;O ORD!R!D'[16]

etitioner 0led a motion for reconsideration #ut the CAdenied the same in its Octo#er 14. 6446 Resolution'[13]

ence. herein recourse to the Court for the reversal of the CA decision and resolution on the followinggrounds?

he Court of Appeals erred in reversingthe decision of the Court of a$ Appealsand in holding that Copper KettleCafeteria ;pecialist owned #"respondent and Copper Kettle Catering;ervices. nc' owned and managed #"respondentLs wife are not one and thesame'

he Court of Appeals erred in holdingthat respondent was denied dueprocess for failure of petitioner tovalidl" serve respondent with the post,reporting and pre,assessment noticesas re7uired #" law'

On the 0rst issue. the CA has ruled that CKC;. nc' andCKC; are one and the same corporation #ecause [t]hecontract #etween e$as nstruments and Copper Kettlewas signed #" petitioners [respondents] wife. >eanne=enguito as proprietress'[1-]

owever. the CA reversed the CA on these grounds?

Respondents [herein petitioners]allegation that Copper Kettle Catering;ervices. nc' and Copper KettleCafeteria ;pecialists are not distinctentities and that the under,declaredsalesJrevenues of Copper KettleCatering ;ervices. nc' pertain toCopper Kettle Cafeteria ;pecialist are#elied #" the evidence on record' n

the >oint ;tipulation of Facts su#mitted#efore the ta$ court. respondent[petitioner] admitted that petitioners[herein respondents] #usiness name isCopper Kettle Cafeteria ;pecialist'Also. the Certi0cation of Clu# >ohn a"and *etter dated >ul" %. 1%%& of e$asnstruments #oth addressed torespondent indicate that thesecompanies transacted with CopperKettle Catering ;ervices. nc'. ownedand managed #" >!A88! +'=!8+BO. 8O petitioner Dominador

=enguito' he alleged under,declaredsales income su#<ect of the presentassessments were shown to have #eenearned #" Copper Kettle Catering;ervices. nc' in its commercialtransaction with e$as nstruments andCamp >ohn a" 8O #" petitionersdealing with these companies' n fact.there is nothing on record which showsthat e$as nstruments and Camp >ohna" conducted #usiness relations withCopper Kettle Cafeteria ;pecialist.

owned #" herein petitioner Dominador=enguito. n the a#sence. therefore. of clear and convincing evidence showingthat Copper Kettle Cafeteria ;pecialistand Copper Kettle Catering ;ervices.nc' are one and the same. respondentcan 8O validl" impute allegedunderdeclared sales income earned #"

Copper Kettle Catering ;ervices. nc' assales income of Copper Kettle Cafeteria;pecialist'[15](!mphasis supplied)

Respondent is adamant that the CA is correct' =an"times in the past. the R had treated CKC; separatel"from CKC;. nc'? from =a" 1%%- to >une 1%%5. the Rsent audit teams to e$amine the #oo9s of account andother accounting records of CKC;. and #ased on saidaudits. respondent was held lia#le for de0cienc" ta$es.all of which he had paid'[12] =oreover. thecerti0cations[1&] issued #" Clu# >ohn a" and e$asnstruments identif" the concessionaire operatingthereinas CKC;. nc'. owned and managed #"his spouse >eanne =enguito. and notCKC;'[1/]

etitioner impugns the 0ndings of the CA.claiming that these are contradicted #" evidence onrecord consisting of a repl" to the ;eptem#er 6.1%%& assessment notice of R aguio which >eanne=enguito wrote on ;eptem#er 6/. 1%%&. to wit?

Be are in receipt of the assessmentnotice "ou have sent us.dated ;eptem#er 6. 1%%&' avingta9en hold of the same onl" nowfollowing our travel overseas wewere not able to respond immediately and manifest our

protest ' Also. with the impendingtermination of our businesses at 19th Tee &lub 'ohn (ay and at Texas Instruments 7oa@an!a"uio &ity . we have already started the transfer of our recordsand boo@s in !a"uio &ity to,anila that we will need more time toreview and sort the records that ma"

have to #e presented relative to theassessment $ $ $'[1%] (!mphasissupplied)

etitioner insists that said repl" con0rms that theassessment notice is directed against the #usinesseswhich she and her hus#and. respondent herein. ownand operate at Clu# >ohn a" and e$as nstruments.and esta#lishes that she is protesting said notice not

<ust for herself #ut also for respondent'[64]

=oreover. petitioner argues that if it were truethat CKC;. nc' and CKC; are separate and distinct

entities. respondent could have easil" produced thearticles of incorporation of CKC;. nc' instead. whatrespondent presented was merel" a photocop" of theincorporation articles'[61] @orse. petitioner adds. saiddocument was not oHered in evidence #efore the CA.#ut was presented onl" #efore the CA'[66]

etitioner further insists that CKC;. nc' andCKC; are merel" emplo"ing the 0ction of theirseparate corporate e$istence to evade pa"ment of proper ta$es that the CA saw through their plo" andrightl" disregarded their corporate individualit".



























%treating them instead as one ta$a#le entit" with thesame ta$ #ase and lia#ilit"[63] and that the CA shouldhave sustained the CA'[6-]

n eHect. petitioner would have the Courtresolve a purel" factual issue[65] of whether or not thereis su#stantial evidence that CKC;. nc' and CKC; areone and the same ta$a#le entit"'

As a general rule. the Court does not ventureinto a trial of facts in proceedings under Rule -5 of theRules of Courts. for its onl" function is to review errorsof law'[62] he Court declines to in7uire into errors in thefactual assessment of the CA. for the latters 0ndingsare conclusive. especiall" when these are s"non"mousto those of the CA'[6&] ut when the CA contradicts thefactual 0ndings of the CA. the Court deems itnecessar" to determine whether the CA was <usti0ed indoing so. for one #asic rule in ta$ation is that thefactual 0ndings of the CA. when supported #"su#stantial evidence. will not #e distur#ed on appealunless it is shown that the CA committed gross errorin its appreciation of facts'[6/]

he Court 0nds that the CA gravel" erred when itignored the su#stantial evidence on record andreversed the CA' n a num#er of cases. the Court has shredded the veilof corporate identit" and ruled that where acorporation is merel" an ad<unct. #usiness conduit oralter ego of another corporation or when the" practicefraud on our internal revenue laws.[6%] the 0ction of their separate and distinct corporate identities shall #edisregarded. and #oth entitiestreated as one ta$a#leperson. su#<ect to assessment for the same ta$a#letransaction'

he Court considers the presence of thefollowing circumstances. to wit? when the owner of onedirects and controls the operations of the other. andthe pa"ments eHected or received #" one are for theaccounts due from or pa"a#le to the other[34] or whenthe properties or products of one are all sold to theother. which in turn immediatel" sells them to thepu#lic.[31]as su#stantial evidence in support of the0nding that the two are actuall" one <uridical ta$a#lepersonalit"'

n the present case. overwhelming evidence supportsthe CA in disregarding the separate identit" of CKC;.nc' from CKC; and in treating them as one ta$a#leentit"'

First. in respondents etition for Review #eforethe CA. he e$pressl" admitted that he is engaged inrestaurant andJor cafeteria #usiness and that [i%n1991 199) and 1995 he also operated abranch at &lub 'ohn (ay !a"uio &ity with abusiness name of &opper =ettle &afeteriaSpecialist '[36] Respondent repeated such admission in

the >oint ;tipulation'[33] And then in !$hi#it 1[3-] forpetitioner. a >ul" 1/. 1%%- letter sent #" >eanne=enguito to R. aguio Cit". she stated thus?

in connection with the investigationof &opper =ettle &afeteriaSpecialist which is located at 1%th eeClu# >ohn a". aguio Cit" underletter of authorit" nos' 43%6/%&.43%6/%/. and 43%62%4 dated =a" 12.1%%-. investigating m income.#usiness. and withholding ta$es for the

"ears 1%%1. 1%%6. and 1%%3'[35] (!mphasis supplied)

>eanne =enguito signed the letter as proprietor of Copper Kettle Cafeteria ;pecialist'[32]

Related to !$hi#it 1 is petitionerLs !$hi#it 1-.which is another letter dated ;eptem#er 6/. 1%%&. inwhich >eanne =enguito protested the ;eptem#er 6.

1%%& assessment notices directed at Copper KettleCafeteria ;pecialist and referred to the latter as our#usiness at 1%th ee Clu# >ohn a" and at e$asnstruments'[3&] a9en along with the >oint ;tipulation.!$hi#its A through C and the August 3. 1%%3Certi0cation of Camp >ohn a". !$hi#its 1 and 1-.con0rm that respondent. together with his spouse

>eanne=enguito. own. operate and manage a #ranchof Copper Kettle Cafeteria ;pecialist. also called CopperKettle Catering ;ervices at Camp >ohn a"'

=oreover. in !$hi#its A to A,1.[3/] !$hi#its to

,1[3%]and !$hi#its C to C,1[-4] which are lists of concessionaires that operated in Clu# >ohn a" in1%%6. 1%%3 and 1%%1. respectivel".[-1] it appears thatthere is no outlet with the name Copper KettleCafeteria ;pecialist as claimed #" respondent' hename that appears in the lists is 1%th !! CAF!!RA(Copper Kettle. nc')' owever. in the light of thee$press admission of respondent that in 1%%1. 1%%6and 1%%3. he operated a #ranch called Copper KettleCafeteria ;pecialist in Clu# >ohn a". the entries in!$hi#its A through C could onl" mean that said #ranchrefers to 1%th ee Cafeteria (Copper Kettle. nc')' hereis no evidence presented #" respondent thatcontradicts this conclusion'

n addition. the August %. 1%%3 Certi0cation

issued #" Clu# >ohn a" that CO!R K!*!CA!R8+ ;!RC!; owned and managed #" =;'

>!A88! +' =!8+BO is a concessionaire in >ohn a"since >ul" 1%%1 up to the present and is operating theoutlet 1% !! CAF!!RA A8D ! !!AR[-6] convincingl" esta#lishes that respondentLs#ranch which he refers to as Copper Kettle Cafeteria;pecialist at Clu# >ohn a" also appears in the latterLsrecords as Copper Kettle Catering ;ervices with anoutlet called 1%th ee Cafeteria and he ee ar'

;econd. in !$hi#it /[-3] and !$hi#it !.[--] e$as

nstruments identi0ed the concessionaire operating itscanteen as Copper Kettle Catering ;ervices. nc'[-5] andJor CO!R K!*! CAF!!RA ;!CA*;;C;'[-2] t #eing settled that respondentLs CopperKettle Cafeteria ;pecialist is also 9nown as CopperKettle Catering ;ervices. and that respondent and

>eanne =enguito #oth own. manage and act asproprietors of the #usiness. !$hi#it / and !$hi#it !further esta#lish that. through said #usiness.respondent also had ta$a#le transactions with e$asnstruments' n view of the foregoing facts and circumstances. the

Articles of ncorporation of CKC;. nc' ,, a certi0ed truecop" of which respondent attached onl" to his Repl"0led with the CA[-&] ,, cannot insulate it from scrutin" of its real identit" in relation to CKC;' t is noted that saidArticles of ncorporation of CKC;. nc' was issued in1%/%. #ut documentar" evidence indicate that aftersaid date. CKC;. nc' has also assumed the nameCKC;. and vice,versa' he most concrete indication of this practice is the 1%%1 Nuarterl" ercentage a$Returns covering the #usiness nameJtrade 1%th eeCamp >ohn a"' n said returns. the ta$pa"er isidenti0ed as Copper Kettle Cafeteria ;pecialist[-/]or




























































14CKC;. not CKC;. nc' Eet. in several documents alread"cited. the purported owner of 1%th ee ar at Clu# >ohna" is CKC;. nc' All these pieces of evidence #uttress the 0nding of theCA that in 1%%1. 1%%6 and 1%%3. respondent.together with his spouse >eanne =enguito. owned andoperated outlets in Clu# >ohn a" and e$as

nstruments under the names Copper Kettle Cafeteria;pecialist or CKC; and Copper Kettle Catering ;ervicesor Copper Kettle Catering ;ervices. nc''

urning now to the second issue' n respondentLs etition for Review with the CA. he7uestioned the validit" of the Assessment 8otices.[-%] all dated ;eptem#er 6. 1%%&. issued #"R. aguio Cit" against him on the following grounds?

1' he assessment notices. #ased

on income and percentage ta$ returns0led for 1%%1. 1%%6 and 1%%3. wereissued #e"ond the three,"earprescriptive period under ;ection 643of the a$ Code[54]

6' he assessment notices wereaddressed to Copper Kettle ;pecialist.Clu# >ohn a". aguio Cit". despitenotice to petitioner that respondentLsprincipal place of #usiness was at theCC Comple$. asa" Cit"'[51]

3' he assessment notices wereissued in violation of the re7uirement of Revenue Regulations 8o' 16,/5. dated8ovem#er 6&. 1%/5. that the ta$pa"er#e issued a post,reporting notice andpre,assessment notice #efore thepreliminar" 0ndings of de0cienc" ma"ripen into a formal assessment[56]and

-' he assessment notices did notgive respondent a 15,da" period torepl" to the 0ndings of de0cienc"'[53]

he Court notes that nowhere in his etition for Reviewdid respondent den" that he received the ;eptem#er6. 1%%& assessment notices' nstead. during thetrial. respondentLs witness. =a' heresa 8alda (8alda).testi0ed that she informed the

R. aguio Cit" that there was no 8otice or letter. that we did not receive. perhaps. #ecause the" were not addressed to=r' =enguitoLs head o:ce'[5-]

he CA correctl" upheld the validit" of theassessment notices' Citing ;ection 663 of the a$ Codewhich provides that the prescriptive period for theissuance of assessment notices #ased on fraud is 14"ears. the CA ruled that the assessment noticesissued against respondent on ;eptem#er 6.1%%& were timel" #ecause petitioner discovered the

falsit" in respondentLs ta$ returns for 1%%1. 1%%6 and1%%3 onl" on Fe#ruar" 1%. 1%%&'[55] =oreover. inaccordance with ;ection 6 of Revenue Regulation 8o'16,/5. which re7uires that assessment notices #e sentto the address indicated in the ta$pa"erLs return.unless the latter gives a notice of change of address.the assessment notices in the present case were sent#" petitioner to Camp >ohn a". for this was theaddress respondent indicated in his ta$ returns'[52] Asto whether said assessment notices were actuall"received. the CA correctl" held that since respondentdid not testif" that he did not receive said notices. it

can #e presumed that the same were actuall" sent toand received #" the latter'he Court agrees with theCA in considering as hearsa" the testimon"of 8alda that respondent did not receive the notices.#ecause 8alda was not competent to testif" on thematter. as she was emplo"ed #" respondent onl" in

>une 1%%/. whereas the assessment notices were senton ;eptem#er 6. 1%%&'[5&]

Anent compliance with the re7uirements of RevenueRegulation 8o' 16,/5. the CA held?

R records show that on >ul" 6/. 1%%&.a letter was issued #" R aguio to;pouses =enguito. informing the latterof their supposed underdeclaration of sales totaling -/.&61.555'%2 andgiving them 5 da"s to communicatean" o#<ection to the results of theinvestigation (!$hi#it 11. p' /3. RRecords)' Records li9ewise reveal theissuance of a reliminar" en (14) Da"*etter on August 11. 1%%&. informingetitioner [respondent herein] that thesum of 3-.1%3.4-1'55 is due fromhim as de0cienc" income andpercentage ta$ (!$hi#it 13. p' 1&3. RRecords)' ;aid letter gave the etitioner[respondent herein] a period of ten (14)da"s to su#mit his o#<ection to theproposed assessment. eitherpersonall" or in writing. together withan" evidence he ma" want to present'

$ $ $ $

As to etitionerLs allegation that he wasgiven onl" ten (14) da"s to repl" to the0ndings of de0cienc" instead of 0fteen(15) da"s granted to a ta$pa"er underRevenue Regulations 8o' 16,/5. thisCourt #elieves that when Respondent[petitioner herein] gave the etitioner[respondent herein] on Octo#er 14.1%%& an additional period of ten (14)da"s to present documentar" evidenceor a total of twent" (64) da"s. therewas compliance with RevenueRegulations 8o' 16,/5 and the latter

was ampl" given opportunit" topresent his side $ $ $'[5/]

he CA further held that respondentwas estopped from raising procedural issues againstthe assessment notices. #ecause these were not citedin the ;eptem#er 6/. 1%%&letter,protest which hisspouse >eanne =enguito 0led with petitioner'[5%]

On appeal #" respondent.[24] the CA resolved the issue.thus?

,oreover if the taxpayer deniesever havin" received an

assessment from the !IR it isincumbent upon the latter to

prove by competent evidence that such notice was indeed received by the addressee. ere. respondent[petitioner herein] merel" alleged thatit forwarded the assessment notices topetitioner [respondent herein]' herespondent did not show an" proof of mailing. registr" receipt orac9nowledgment receipt signed #" thepetitioner [respondent herein]' Since





























11respondent $petitioner herein%has not adduced su0cient evidence that petitioner

$respondent herein% had in fact received the pre>assessment notice and post>reportin" noticerequired by law it cannot beassumed that petitioner

$respondent herein% had beenserved said notices'[21]

8o other ground was cited #" the CA for the reversal of the 0nding of the CA on the issue'

he CA is gravel" mista9en' n their etition for Review with the CA. respondente$pressl" stated that [s]ometime in ;eptem#er 1%%&.petitioner [respondent herein] received variousassessment notices. all dated 46 ;eptem#er 1%%&.issued #" R,aguio for alleged de0cienc" incomeand percentage ta$es for ta$a#le "ears ending 31Decem#er 1%%1. 1%%6 and 1%%3 $ $ $'[26] n their;eptem#er 6/. 1%%& protest to the ;eptem#er 6. 1%%&assessment notices. respondent. through his spouses

>eanne =enguito. ac9nowledged that [the"] are inreceipt of the assessment notice "ou have sent us.dated ;eptem#er 6. 1%%& $ $ $'[23]

Respondent is therefore estopped from den"ing actualreceipt of the ;eptem#er 6. 1%%& assessment notices.notwithstanding the denial of his witness 8alda' As to the address indicated on the assessment notices.respondent cannot 7uestion the same for it is the saidaddress which appears in its percentage ta$ returns'[2-] @hile respondent claims that he had earlier noti0edpetitioner of a change in his #usiness address. noevidence of such written notice was presented' Bnder;ection 11 of Revenue Regulation 8o' 16,/5.respondentLs failure to give written notice of change of address #ound him to whatever communications weresent to the address appearing in the ta$ returns for theperiod involved in the investigation'[25]

hus. what remain in 7uestion now are? whetherpetitioner issued and mailed a post,reporting noticeand a pre,assessment notice and whether respondent

actuall" received them'

here is no dou#t that petitioner failed to prove that itserved on respondent a post,reporting notice and apre,assessment notice' !$hi#it 11[22] of petitioner is amere photocop" of a >ul" 6/. 1%%& letter it sent torespondent. informing him of the initial outcome of theinvestigation into his sales. and the release of apreliminar" assessment upon completion of theinvestigation. with notice for the latter to 0le an"o#<ection within 0ve da"s from receipt of theletter' !$hi#it 13[2&] of petitioner is also a merephotocop" of an August 11. 1%%& reliminar" en (14)

Da" *etter to respondent. informing him that he had#een found to #e lia#le for de0cienc" income andpercentage ta$ and inviting him to su#mit a writteno#<ection to the proposed assessment within 14 da"sfrom receipt of notice' ut nowhere on the face of saiddocuments can #e found evidence that these weresent to and received #" respondent' 8or is thereseparate evidence. such as a registr" receipt of thenotices or a certi0cation from the ureau of osts. thatpetitioner actuall" mailed said notices'

owever. while the lac9 of a post,reporting noticeand pre,assessment notice is a deviation from there7uirements under ;ection 1[2/] and ;ection6[2%] of Revenue Regulation 8o' 16,/5. the samecannot detract from the fact that formal assessmentswere issued to and actuall" received #" respondentsin accordance with ;ection 66/ of the 8ationalnternal Revenue Code which was in eHect at the time

of assessment' t should #e emphasiIed that the stringentre7uirement that an assessment notice #esatisfactoril" proven to have #een issued and releasedor. if receipt thereof is denied. that said assessmentnotice have #een served on the ta$pa"er. [&4] appliesonl" to formal assessments prescri#ed under ;ection66/ of the 8ational nternal Revenue Code. #ut not topost,reporting notices or pre,assessment notices' heissuance of a valid formal assessment is a su#stantiveprere7uisite to ta$ collection.[&1] for it contains not onl"a computation of ta$ lia#ilities #ut also a demand forpa"ment within a prescri#ed period. there#" signalingthe time when penalties and interests #egin to accrueagainst the ta$pa"er and ena#ling the latter todetermine his remedies therefor' Due process re7uiresthat it must #e served on and received #" theta$pa"er'[&6]

A post,reporting notice and pre,assessment notice donot #ear the gravit" of a formal assessmentnotice' he post,reporting notice and pre,assessmentnotice merel" hint at the initial 0ndings of the Ragainst a ta$pa"er and invites the latter to an informalconference or clari0cator" meeting' 8either noticecontains a declaration of the ta$ lia#ilit" of theta$pa"er or a demand for pa"ment thereof' ence. thelac9 of such notices inGicts no pre<udice on theta$pa"er for as long as the latter is properl" served aformal assessment notice' n the case of respondent. aformal assessment notice was received #" him asac9nowledged in his etition for Review and >oint;tipulation and. on the #asis thereof. he 0led a protestwith the R. aguio Cit" and eventuall" a petitionwith the CA' 8HEREFORE. the petition is GRANTED' he =arch31. 6445 Decision of the Court of Appealsis REVERSED and SET ASIDE and the April 6. 6446

Decision and Octo#er 14. 6446 Resolution of the Courtof a$ Appeals are REINSTATED'SO ORDERED'

FIRST DIVISION COMMISSIONER OF INTERNAL REVENUE, e!i!io"e#, $ % e # s & s $ ENRON SU:ICO8ER CORORATION, Res(o"de"!.

romulgated? >anuar" 1%. 644%+'R' 8o' 1223/&

R E S O L U T I O N

n this petition for review on certiorari under Rule-5 of the Rules of Court. petitioner Commissionerof nternal Revenue (CR) assails the 8ovem#er6-. 644- decision[1] of the Court of Appeals (CA)annulling the formal assessment notice issued #"the CR against respondent !nron ;u#ic owerCorporation (!nron) for failure to state the legaland factual #ases for such assessment'
















http://sc.judiciary.gov.ph/jurisprudence/2009/jan2009/166387.htm#_ftn1
















16!nron. a domestic corporation registered

with the ;u#ic a" =etropolitan Authorit" as afreeport enterprise.[6] 0led its annual income ta$return for the "ear 1%%2 on April 16. 1%%&' tindicated a net loss of &.2/-.%-/' ;u#se7uentl".the ureau of nternal Revenue. through apreliminar" 0ve,da" letter.[3]informed it of aproposed assessment of an

alleged 6.//4./1&'65 de0cienc" income ta$'[-] !nron disputed the proposed de0cienc"assessment in its 0rst protest letter'[5]

On =a" 62. 1%%%. !nron received from the

CR a formal assessment notice[2] re7uiring it topa" the alleged de0cienc" income ta$of 6.//4./1&'65 for the ta$a#le "ear 1%%2'!nron protested this de0cienc" ta$ assessment'[&]

Due to the non,resolution of its protest

within the 1/4,da" period. !nron 0led a petitionfor review in the Court of a$ Appeals (CA)' targued that the de0cienc" ta$ assessmentdisregarded the provisions of ;ection 66/ of the8ational nternal Revenue Code (8RC). asamended.[/] and ;ection 3'1'- of RevenueRegulations (RR) 8o' 16,%%[%] #" not providing thelegal and factual #ases of the assessment' !nronli9ewise 7uestioned the su#stantive validit" of theassessment'[14]

n a decision dated ;eptem#er 16. 6441.

the CA granted !nrons petition and ordered thecancellation of its de0cienc" ta$ assessment forthe "ear 1%%2' he CA reasoned that theassessment notice sent to !nron failed to compl"with the re7uirements of a valid written noticeunder ;ection 66/ of the 8RC and RR 8o' 16,%%'

he CRs motion for reconsideration of the CAdecision was denied in a resolution dated8ovem#er 16. 6441'

he CR appealed the CA decision to the

CA #ut the CA a:rmed it' he CA held that theaudit wor9ing papers did not su#stantiall" compl"with ;ection 66/ of the 8RC and RR 8o' 16,%%#ecause the" failed to show the applica#ilit" of the cited law to the facts of the assessment' heCR 0led a motion for reconsideration #ut this was

deemed a#andoned when he 0led a motion fore$tension to 0le a petition for review in this Court'

he CR now argues that respondent was

informed of the legal and factual #ases of thede0cienc" assessment against it'

@e adopt in toto the 0ndings of fact of the CA.

as a:rmed #" the CA' n Co#agnie &inanciere

Sucres et enrees v. C%R,[11] we held?

@e reiterate the well,esta#lisheddoctrine that as a matter of

practice and principle. [we] will not

set aside the conclusion reached #"

an agenc". li9e the CA. especiall"

if a:rmed #" the [CA]' " the ver"

nature of its function. it has

dedicated itself to the stud" and

consideration of ta$ pro#lems and

has necessaril" developed an

e$pertise on the su#<ect. unless

there has #een an a#use or

improvident e$ercise of authorit"

on its part. which is not present

here'

he CR errs in insisting that the notice of

assessment in 7uestion complied with the

re7uirements of the 8RC and RR 8o' 16,%%'

A notice of assessment is?

[A] declaration of de0cienc" ta$es

issued to a [t]a$pa"er who fails to

respond to a re,Assessment

8otice (A8) within the prescri#ed

period of time. or whose repl" to

the A8 was found to #e without

merit' he 8otice of Assessment

shall inform the [t]a$pa"er of this

fact. and that the report of

investigation su#mitted #" the

Revenue O:cer conducting the

audit shall #e given due course'

he formal letter of demand calling

for pa"ment of the ta$pa"ers

de0cienc" ta$ or ta$es shall s!+!e

!e +2!, !e )+7, #&)es +"d

#e*&)+!io"s o# ;&#is(#&de"2e o"

7i2 !e +ssessme"! is +sed,

o!e#7ise !e o#m+) )e!!e# o

dem+"d +"d !e "o!i2e o

+ssessme"! s+)) e %oid'(emphasis supplied)[16]

;ection 66/ of the 8RC provides that the

ta$pa"er shall #e informed in writing of the lawand the facts on which the assessment is made'Otherwise. the assessment is void' o implementthe provisions of ;ection 66/ of the 8RC. RR 8o'16,%% was enacted' ;ection 3'1'- of the revenueregulation reads?

3'1'-' &or#al etter of

e#and and Assess#ent Notice. he formal letter of demandand assessment notice shall #eissued #" the Commissioner or hisdul" authoriIedrepresentative' Te )e!!e# o dem+"d 2+))i"* o# (+me"! o !e !+<(+e#s de=2ie"2 !+< o#!+<es s+)) s!+!e !e +2!s, !e)+7, #&)es +"d #e*&)+!io"s, o#

;&#is(#&de"2e o" 7i2 !e+ssessme"! is +sed,



























13o!e#7ise, !e o#m+) )e!!e# o dem+"d +"d +ssessme"! "o!i2es+)) e %oid. he same shall #esent to the ta$pa"er onl" #"registered mail or #" personaldeliver"' $$$ (emphasis supplied)

t is clear from the foregoing that a ta$pa"er must

#e informed in writing of the legal and factual

#ases of the ta$ assessment made against him'

he use of the word shall in these legal provisions

indicates the mandator" nature of the

re7uirements laid down therein' @e note the CAs

0ndings?

n [this] case. [the CR] merel"

issued a formal assessment and

indicated therein the supposed ta$.

surcharge. interest and

compromise penalt" due thereon'

he Revenue O:cers of the [the

CR] in the issuance of the Final

Assessment 8otice did not provide

!nron with the written #ases of the

law and facts on which the su#<ect

assessment is #ased' [he CR] did

not #other to e$plain how it arrivedat such an assessment' =oreso. he

failed to mention the speci0c

provision of the a$ Code or rules

and regulations which were not

complied with #" !nron'[13]

oth the CA and the CA concluded that

the de0cienc" ta$ assessment merel" itemiIed

the deductions disallowed and included these inthe gross income' t also imposed the preferential

rate of 5M on some items categoriIed #" !nron

as costs' he legal and factual #ases were.

however. not indicated'

he CR insists that an e$amination of thefacts shows that !nron was properl" apprised of its ta$ de0cienc"' During the pre,assessmentstage. the CR advised !nrons representative of the ta$ de0cienc". informed it of the proposedta$ de0cienc" assessment through a preliminar"0ve,da" letter and furnished !nron a cop" of theaudit wor9ing paper[1-] allegedl" showing in detailthe legal and factual #ases of the assessment'

he CR argues that these steps su:ced to inform!nron of the laws and facts on which thede0cienc" ta$ assessment was #ased'

@e disagree' he advice of ta$ de0cienc".

given #" the CR to an emplo"ee of !nron. as wellas the preliminar" 0ve,da" letter. were not validsu#stitutes for the mandator" notice in writing of the legal and factual #ases of the assessment'

hese steps were mere perfunctor" discharges of the CRs duties in correctl" assessing a ta$pa"er'[15] he re7uirement for issuing a preliminar" or0nal notice. as the case ma" #e. informing ata$pa"er of the e$istence of a de0cienc" ta$assessment is mar9edl" diHerent from there7uirement of what such notice must contain'

>ust #ecause the CR issued an advice. a

preliminar" letter during the pre,assessmentstage and a 0nal notice. in the order re7uired #"law. does not necessaril" mean that !nron wasinformed of the law and facts on which thede0cienc" ta$ assessment was made'

he law re7uires that the legal and factual

#ases of the assessment #e stated in the formalletter of demand and assessment notice' hus.such cannot #e presumed' Otherwise. the e$pressprovisions of Article 66/ of the 8RC and RR 8o'16,%% would #e rendered nugator"' he allegedfactual #ases in the advice. preliminar" letter andaudit wor9ing papers did not su:ce' here wasno going around the mandate of the law that thelegal and factual #ases of the assessment #estated in writing in the formal letter of demandaccompan"ing the assessment notice'

@e note that the old law merel" re7uired

that the ta$pa"er #e noti0ed of the assessmentmade #" the CR' his was changed in 1%%/ andthe ta$pa"er must now #e informed not onl" of the law #ut also of the facts on which theassessment is made'[12] ;uch amendment is in9eeping with the constitutional principle that noperson shall #e deprived of propert" without dueprocess'[1&] n view of the a#sence of a fairopportunit" for !nron to #e informed of the legaland factual #ases of the assessment against it.the assessment in 7uestion was void' @ereiterate our ruling in Re+es v. Al#anor, et al.?[1/]

eril". ta$es are the

life#lood of the +overnmentand so should #e collectedwithout unnecessar"hindrance' owever. suchcollection should #e made inaccordance with law as an"

ar#itrariness will negate thever" reason for the+overnment itself'

8HEREFORE, the petition ishere#" DENIED. he 8ovem#er 6-. 644-decision of the Court of Appeals is AFFIRMED'8o costs' SO ORDERED.

FIRST DIVISION G.R. No. 1/0>35

LUCAS G. ADAMSON, THERESE -UNE D.ADAMSON, +"d SARA S. DE LOS RE'ES,i" !ei# 2+(+2i!ies +s #eside"!,T#e+s&#e# +"d Se2#e!+# o Ad+mso"M+"+*eme"! Co#(o#+!io", e!i!io"e#s, $%e#s&s $ COURT OF AEALS +"dLI8A'8A' VIN?ONS$CHATO, i" e#2+(+2i! +s Commissio"e# o !e :&#e+&o I"!e#"+) Re%e"&e, Res(o"de"!s.

<$$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ <
















1-G.R. No. 1/4559

COMMISSIONER OF INTERNAL REVENUE,e!i!io"e#, $%e#s&s$ COURT OF AEALS,COURT OF TA@ AEALS, ADAMSONMANAGEMENT CORORATION, LUCAS G.ADAMSON, THERESE -UNE D. ADAMSON,+"d SARA

S. DE LOS RE'ES, Res(o"de"!s.

romulgated? M+ /1, /00>

D E C I S I O N efore the Court are the consolidated casesof G.R. No. 1/0>35 and G.R. No. 1/4559'

G.R. No. 1/0>35 involves a petition

for review on certiorari 0led #" petitioners*BCA; +' ADA=;O8. !R!;! >B8! D'ADA=;O8. and ;ARA ;' D! *O; R!E!;(private respondents). in their respectivecapacities as president. treasurer andsecretar" of Adamson =anagementCorporation (A=C) against then Commissionerof nternal Revenue *iwa"wa" inIons,Chato(CO==;;O8!R). under Rule -5 of theRevised Rules of Court' he" see9 to reviewand reverse the Decision promulgatedon =arch 61. 1%%5 and Resolution issuedon >ul" 2. 1%%5 of the Court of Appeals in CA,+'R' ; 8o' 35-// (*iwa"wa" inIons,Chato.et al' v' on' >udge !rna Falloran,Aliposa. etal')'

G.R. No. 1/4559 is a petition forreview on certiorari 0led #" theCommissioner. assailing the Decisiondated =arch 6%. 1%%2 of the Court of Appealsin CA,+'R' ; 8o' 35564. titled Commissionerof nternal Revenue v' Court of a$ Appeals.Adamson =anagement Corporation. *ucas +'Adamson. herese >une D' Adamson and ;ara;' de los Re"es' n the said Decision. the Courtof Appeals upheld the Resolution promulgatedon ;eptem#er 1%. 1%%- #" the Court of a$Appeals (CA) in C''A' Case 8o' 54&5(Adamson =anagement Corporation. *ucas +'Adamson. herese Adamson and ;ara de los

Re"es v' Commissioner of nternal Revenue)' he facts. as culled from the 0ndings

of the appellate court. follow? On >une 64. 1%%4. *ucas Adamson

and A=C sold 131./%& common shares of stoc9 in Adamson and Adamson. nc' (AA)to AAC olding *imited (AAC)' he shareswere valued at &.&/%.%%5'44'[1] On >une 66.1%%4. 15%.323'61 was paid as capital gainsta$ for the transaction'

On Octo#er 16. 1%%4. A=C sold

to AAC hilippines. nc' another 66%./&4common shares of stoc9in AA for 1&.&1/.324'44' A=C paid thecapital gains ta$ of 356.6-6'%2'

On Octo#er 15. 1%%3. the

Commissioner issued a 8otice of a$pa"er toA=C. *ucas +' Adamson. herese >une D'Adamson and ;ara ;' de los Re"es. informingthem of de0ciencies on their pa"ment of capital gains ta$ and alue Added a$

(A)' he notice contained a schedule forpreliminar" conference'

he events preceding G.R. No.1/0>35 are the following?

On Octo#er 66. 1%%3. the

Commissioner 0led with the Department of >ustice (DO>) her A:davit of

Complaint

[6]

against A=C. *ucas +' Adamson. herese >une D' Adamson and ;ara ;' de losRe"es for violation of ;ections -5 (a) and (d)[3]. and 114[-]. in relation to ;ection 144[5]. aspenaliIed under ;ection 655.[2] and forviolation of ;ection 653[&]. in relation to;ection 656 (#) and (d) of the 8ationalnternal Revenue Code (8RC)'[/]

A=C. *ucas +' Adamson. herese >une

D' Adamson and ;ara ;' de los Re"es 0ledwith the DO> a motion to suspend proceedingson the ground of pre<udicial 7uestion.pendenc" of a civil case with the ;upremeCourt. and pendenc" of their letter,re7uest forre,investigation with the Commissioner' Afterthe preliminar" investigation. ;tate rosecutorAlfredo ' Agcaoili found pro#a#le cause' he=otion for Reconsideration against the0ndings of pro#a#le cause was denied #" theprosecutor'

On April 6%. 1%%-. *ucas +' Adamson.

herese >une D' Adamson and ;ara ;' de losRe"es were charged #efore the Regional rialCourt (RC) of=a9ati. ranch 154 in CriminalCase 8os' %-,1/-6 to %-,1/-2' he" 0led a=otion to Dismiss or ;uspend theroceedings' he" invo9ed the grounds thatthere was "et no 0nal assessment of their ta$lia#ilit". and there were still pending relevant;upreme Court and CA cases' nitiall". thetrial court denied the motion'A =otion forReconsideration was however 0led. this timeassailing the trial courts lac9 of <urisdictionover the nature of the su#<ectcases' On August /. 1%%-. the trial courtgranted the =otion' t ruled that thecomplaints for ta$ evasion 0led #" theCommissioner should #e regarded as a

decision of the Commissioner regarding theta$ lia#ilities of *ucas +' Adamson. herese

>une D' Adamson and ;ara ;' de los Re"es.and appeala#le to the CA' t further held thatthe said cases cannot proceed independentl"of the assessment case pending #efore theCA. which has <urisdiction to determine thecivil and criminal ta$ lia#ilit" of therespondents therein'

On Octo#er 14. 1%%-. the

Commissioner 0led a etition for Review withthe Court of Appeals assailing the trial courts

dismissal of the criminal cases' ;he averredthat it was not a condition prere7uisite that aformal assessment should 0rst #e given to theprivate respondents #efore she ma" 0le theaforesaid criminal complaints againstthem' ;he argued that the criminalcomplaints for ta$ evasion ma" proceedindependentl" from the assessment casespending #efore the CA'

On =arch 61. 1%%5. the Court of

Appeals reversed the trial courts decision and

http://sc.judiciary.gov.ph/jurisprudence/2009/may2009/120935.htm#_ftn1




















15reinstated the criminal complaints' heappellate court held that, i" + 2#imi"+)(#ose2&!io" o# !+< e%+sio", +ssessme"!o !+< de=2ie"2 is "o! #e&i#ed e2+&se!e oBe"se o !+< e%+sio" is 2om()e!e o#2o"s&mm+!ed 7e" !e oBe"de# +s"o7i"*) +"d 7i))&)) =)ed + #+&d&)e"!#e!&#" 7i! i"!e"! !o e%+de !e !+<.> I!

#&)ed !+! (#i%+!e #es(o"de"!s =)ed +)se+"d #+&d&)e"! #e!&#"s 7i! i"!e"! !oe%+de !+<es, +"d +2!i"* !e#e&(o",(e!i!io"e# =)ed +" Ad+%i! o Com()+i"!7i! !e De(+#!me"! o -&s!i2e, 7i!o&!+" +22om(+"i"* +ssessme"! o !e !+<de=2ie"2 o (#i%+!e #es(o"de"!s, i"o#de# !o 2omme"2e 2#imi"+) +2!io"+*+i"s! !e )+!!e# o# !+< e%+sio".[14]

rivate respondents 0led a =otion for

Reconsideration. #ut the trial court denied themotion on >ul" 2. 1%%5' hus. the" 0led thepetition in G.R. No. 1/0>35. raising thefollowing issues?

1' @!!R OR 8O ! R!;O8D!8O8ORA*! COBR OFA!A*; !RR!D 8A*E8+ ! DOCR8! 8B8+A ' CB; (8os' *,-1%1%,6-. =a" 34. 1%/4. %&;CRA /&&) O ! CA;! AAR'

6' @!!R OR 8O A8

A;;!;;=!8 ; R!NBR!DB8D!R ! ;!CO8DCA!+ORE OF ! OFF!8;!8 ;!CO8 653 OF !8RC'

3' @!!R OR 8O

!R! @A; A A*DA;;!;;=!8 =AD! E !CO==;;O8!R 8 !CA;! A AR'

-' @!!R OR 8O

! F*8+ OF A CR=8A*CO=*A8 ;!R!; A; A8=*!D A;;!;;=!8 O8

! A *A*E OF ! AAE!R'

5' @!!R OR 8O

! F*8+ OF !CR=8A* 8FOR=AO8FOR A !A;O8 8 !

RA* COBR ; R!=ABR!!CAB;! !R! ; E! 8OA;; FOR ! CR=8A*

CAR+! OF @**FB**8!8 O !AD! !AE=!8 OF A A'

2' @!!R OR 8O

! DOCR8!; *ADDO@8 8 ! CA;!; OF

EA!; ' F*O>O (8o' *,-2%5-. >ul" 64. 1%/6. 115;CRA 6/2) A8D CR 'B8O8 ;8+ COR' (+'R'8o' 22124. =a" 61. 1%%4.

1/5 ;CRA5-&) AR! A*CA*! O

! CA;! A AR' &' @!!R OR 8O

! COBR OF AA!A*; A; >BR;DCO8O!R ! D;B! O8

@A CO8;B!; !RO!R A!; DB! FRO= ! AAE!R'

n parallel circumstances. the followingevents preceded G.R. No. 1/4559?

On Decem#er 1. 1%%3. A=C. *ucas +'

Adamson. herese >une D' Adamson and ;ara;' de los Re"es 0led a letter re7uest for re,investigation with the Commissioner of the!$aminers Findings earlier issued #" theureau of nternal Revenue (R). whichpointed out the ta$ de0ciencies'

On =arch 15. 1%%- #efore the

Commissioner could act on their letter,re7uest. A=C. *ucas +' Adamson. herese

>une D' Adamson and ;ara ;' de los Re"es0led a etition for Review with the CA' he"assailed the Commissioners 0nding of ta$evasion against them' he Commissionermoved to dismiss the petition. on the groundthat it was premature. as she had not "etissued a formal assessment of the ta$ lia#ilit"of therein petitioners' On ;eptem#er 1%.1%%-. theCA denied the =otion to Dismiss' tconsidered the criminal complaint 0led #" theCommissioner with the DO> as an impliedformal assessment. and the 0ling of thecriminal informations with the RC as a denialof petitioners protest regarding the ta$de0cienc"'

he Commissioner repaired to the

Court of Appeals on the ground thatthe CA acted with grave a#use of discretion' ;he contended that. with regard tothe protest provided under ;ection 66% of the

8RC. there must 0rst #e a formal assessmentissued #" the Commissioner. and it must #e inaccord with ;ection 2 of Revenue Regulation8o' 16,/5' ;he maintained that she had not"et issued a formal assessment of ta$ lia#ilit".and the ta$ de0cienc" amounts mentioned inher criminal complaint with the DO> weregiven onl" to show the diHerence #etween theta$ returns 0led and the audit 0ndings of therevenue e$aminer'

he Court of Appeals sustained

the CAs denial of the Commissioners =otion

to Dismiss' hus. the Commissioner 0led thepetition for review under G.R. No. 1/4559.raising the following issues?

1' @!!R OR 8O

! 8;A8 !O8;OB*D ! D;=;;!D FORFA*BR! O CO=*E @

! =A8DAORER!NBR!=!8 OF AC!RFCAO8 B8D!R







12OA A+A8; FORB=;O8+

6' @!!R OR 8O

! CR=8A* CA;! FOR A !A;O8 8 ! CA;!A AR CA8 ROC!!D@OB A8 A;;!;;=!8

3' @!!R OR 8O ! CO=*A8 F*!D @ ! D!AR=!8 OF >B;C! CA8 !CO8;RB!D A; A8 =*!DA;;!;;=!8 and

-' @!!R OR 8O

! COBR OF AA!A*; A; >BR;DCO8

O AC O8 RA!R!;O8D!8; !O8FOR R!!@ F*!D @

! ;AD COBR'

he issues in G.R. No. 1/4559 +"dG.R. No. 1/0>35 can #e compressed intothree

1. 8HETHER THE

COMMISSIONER HAS ALREAD' RENDERED ANASSESSMENT FORMALOR OTHER8ISE OF THETA@ LIA:ILIT' OF AMC,LUCAS G. ADAMSON,THERESE -UNE D.ADAMSON AND SARA S.DE LOS RE'ES

/. 8HETHER THERE IS

:ASIS FOR THE CRIMINALCASES FOR TA@ EVASIONTO ROCEED AGAINSTAMC, LUCAS G.ADAMSON, THERESE

-UNE D.ADAMSON AND SARA S.DE LOS RE'ES +"d

3. 8HETHER THE

COURT OF TA@AEALS HAS -URISDICTION TO TAECOGNI?ANCE OF :OTHTHE CIVIL AND THECRIMINAL ASECTS OFTHE TA@ LIA:ILIT' OFAMC, LUCAS G.ADAMSON, THERESE

-UNE D.ADAMSON AND SARA S.

DE LOS RE'ES.

he case of CIR %. +s2o# Re+)!, e! +).[11] is relevant' n this case. then R

Commissioner >ose B' Ong authoriIed revenue

o:cers to e$amine the #oo9s of accounts and

other accounting records of ascor Realt" and

Development Corporation (RDC) for 1%/2. 1%/&

and 1%//' his resulted in a recommendation for

the issuance of an assessment in the amounts

of &.-%/.-3-'25 and 3.415.632'35 for the "ears

1%/2 and 1%/&. respectivel"'

On =arch 1. 1%%5. the Commissioner 0led

a criminal complaint #efore the DO> againstRDC. its resident Rogelio A' Dio. and its

reasurer irginia ;' Dio. alleging evasion of ta$es

in the total amount of 14.513.2&1'44' rivate

respondents 0led an Brgent Re7uest for

ReconsiderationJReinvestigation disputing the ta$

assessment and ta$ lia#ilit"'

he Commissioner denied the urgent

re7uest for reconsiderationJreinvestigation

#ecause she had not "et issued a formal

assessment'

rivate respondents then elevated the

Decision of the Commissioner to the CA on a

petition for review' he Commissioner 0led a

=otion to Dismiss the petition on the ground that

the CA has no <urisdiction over the su#<ect

matter of the petition. as there was "et no formal

assessment issued against the petitioners' heCA denied the said motion to dismiss and

ordered the Commissioner to 0le an answer

within thirt" (34) da"s' he Commissioner did not

0le an answer nor did she move to reconsider the

resolution' nstead. the Commissioner 0led a

petition for review of the CA decision with the

Court of Appeals' he Court of Appeals upheld the

CA order' owever. this Court reversed the Court

of Appeals decision and the CA order. and

ordered the dismissal of the petition' @e held?

An assessment contains notonl" a computation of ta$ lia#ilities.#ut also a demand for pa"mentwithin a prescri#ed period' t alsosignals the time when penaltiesand interests #egin to accrueagainst the ta$pa"er' o ena#le theta$pa"er to determine his remediesthereon. due process re7uires thatit must #e served on and received#" the ta$pa"er' Accordingl". ana:davit. which was e$ecuted #"

revenue o:cers stating the ta$lia#ilities of a ta$pa"er andattached to a criminal complaintfor ta$ evasion. cannot #e deemedan assessment that can #e7uestioned #efore the Court of a$Appeals'

8either the 8RC nor therevenue regulations governing theprotest of assessments[16] provide aspeci0c de0nition or form of an







1&assessment' owever. the 8RCde0nes the speci0c functions andeHects of an assessment' oconsider the a:davit attached tothe Complaint as a properassessment is to su#vert thenature of an assessment and to seta #ad precedent that will pre<udice

innocent ta$pa"ers'

rue. as pointed out #" theprivate respondents. anassessment informs the ta$pa"erthat he or she has ta$lia#ilities' ut not all documentscoming from the R containing acomputation of the ta$ lia#ilit" can#e deemed assessments'

o start with. an assessmentmust #e sent to and received #" ata$pa"er. and must demandpa"ment of the ta$es descri#edtherein within a speci0cperiod' hus. the 8RC imposes a65 percent penalt". in addition tothe ta$ due. in case the ta$pa"erfails to pa" the de0cienc" ta$within the time prescri#ed for itspa"ment in the notice of assessment' *i9ewise. an interestof 64 percent per annum. or suchhigher rate as ma" #e prescri#ed#" rules and regulations. is to #ecollected from the date prescri#edfor its pa"ment until the fullpa"ment'[13]

he issuance of an assessmentis vital in determining the period of limitation regarding its properissuance and the period withinwhich to protest it' ;ection643[1-] of the 8RC provides thatinternal revenue ta$es must #eassessed within three "ears fromthe last da" within which to 0le thereturn' ;ection 666.[15] on the other

hand. speci0es a period of ten"ears in case a fraudulent returnwith intent to evade was su#mittedor in case of failure to 0le areturn' Also. ;ection 66/[12] of thesame law states that saidassessment ma" #e protested onl"within thirt" da"s from receiptthereof' 8ecessaril". the ta$pa"ermust #e certain that a speci0cdocument constitutes anassessment' Otherwise. confusionwould arise regarding the period

within which to ma9e anassessment or to protest the same.or whether interest and penalt"ma" accrue thereon'

t should also #e stressed thatthe said document is a notice dul"sent to the ta$pa"er' ndeed. anassessment is deemed made onl"when the collector of internalrevenue releases. mails or sendssuch notice to the ta$pa"er'[1&]

n the present case. therevenue o:cers A:davit merel"contained a computation of respondents ta$ lia#ilit"' t did notstate a demand or a period forpa"ment' @orse. it was addressedto the <ustice secretar". not to theta$pa"ers'

Respondents maintain that anassessment. in relation to ta$ation.is simpl" understood to mean?

A notice tothe eHect that theamount thereinstated is due as ta$and a demand forpa"ment thereof'[1/]

Fi$es thelia#ilit" of the

ta$pa"er andascertains the factsand furnishes thedata for the properpresentation of ta$rolls'[1%]

!ven these de0nitions fail toadvance private respondents case'

hat the R e$aminers >ointA:davit attached to the CriminalComplaint contained some detailsof the ta$ lia#ilities of private

respondents does not isofacto ma9e it an assessment' hepurpose of the >oint A:davit wasmerel" to support and su#stantiatethe Criminal Complaintfor ta$ evasion' Clearl". it was notmeant to #e a notice of the ta$ dueand a demand to the privaterespondents for pa"ment thereof'

he fact that the Complaintitself was speci0call" directed andsent to the Department of >ustice

and not to private respondentsshows that the intent of thecommissioner was to 0le a criminalcomplaint for ta$ evasion. not toissue an assessment' Although therevenue o:cers recommended theissuance of an assessment. thecommissioner opted instead to 0lea criminal casefor ta$ evasion' @hat privaterespondents received was a noticefrom the DO> that a criminal casefor ta$ evasion had #een 0led

against them. not a notice that theureau of nternal Revenue hadmade an assessment'

rivate respondents maintainthat the 0ling of a criminalcomplaint must #e preceded #" anassessment' his is incorrect.#ecause ;ection 666 of the 8RCspeci0call" states that in caseswhere a false or fraudulent returnis su#mitted or in cases of failure to

















1/0le a return such as this case.proceedings in court ma" #ecommenced /it"out anassess#ent ' Furthermore. ;ection645 of the same Code clearl"mandates that the civil andcriminal aspects of the case ma"#e pursued

simultaneousl"' n ngab v. Cusi,[64] petitioner therein sought thedismissal of the criminalComplaints for #eing premature.since his protest to the CA had not"et #een resolved' he Court heldthat such protests could not stop orsuspend the criminal action whichwas independent of the resolutionof the protest in the CA' his was#ecause the commissioner of internal revenue had. insuch ta$ evasion cases. discretionon whether to issue an assessmentor to 0le a criminal case againstthe ta$pa"er or to do #oth'

rivate respondents insist that;ection 666 should #e read inrelation to ;ection 655 of the 8RC.[61] which penaliIes failure to 0le areturn' he" add that a ta$assessment should precede acriminal indictment' @edisagree' o reiterate. said ;ection666 states that an assessment isnot necessar" #efore a criminalcharge can #e 0led'his is thegeneral rule' rivate respondentsfailed to show that the" are entitledto an e$ception' =oreover. thecriminal charge need onl" #esupported #" a ri#a facieshowingof failure to 0le a re7uiredreturn' his fact need not #eproven #" an assessment'

he issuance of an assessmentmust #e distinguished from the0ling of a complaint' efore an

assessment is issued. there is. #"practice. a pre,assessment noticesent to the ta$pa"er' he ta$pa"eris then given a chance to su#mitposition papers and documents toprove that the assessment isunwarranted' f the commissioneris unsatis0ed. an assessmentsigned #" him or her is then sent tothe ta$pa"er informing the latterspeci0call" and clearl" that anassessment has #een made againsthim or her' n contrast. the criminal

charge need not go through allthese' he criminal charge is 0leddirectl" with the DO>' hereafter.the ta$pa"er is noti0ed that acriminal case had #een 0ledagainst him. not that thecommissioner has issued anassessment' t must #e stressedthat a criminal complaint isinstituted not to demand pa"ment.#ut to penaliIe the ta$pa"er forviolation of the a$ Code'

n the cases at #ar. the Commissioner deniedthat she issued a formal assessment of theta$ lia#ilit" of A=C. *ucas +' Adamson.

herese >une D' Adamson and ;ara ;' de losRe"es' ;he admits though that she wrote therecommendation letter[66] addressed to the;ecretar" of the DO> recommending the 0ling

of criminal complaints against A=C and theaforecited persons for fraudulent returns andta$ evasion'

he 0rst issue is whether the Commissionersrecommendation letter can #e considered asa formal assessment of private respondentsta$ lia#ilit"'

n the conte$t in which it is used in the

8RC. an assessment is a written notice anddemand made #" the R on the ta$pa"er forthe settlement of a due ta$ lia#ilit" that isthere de0nitel" set and 0$ed' A writtencommunication containing a computation #" arevenue o:cer of the ta$ lia#ilit" of ata$pa"er and giving him an opportunit" tocontest or disprove the R e$aminers0ndings is not an assessment since it is "etinde0nite'[63]

@e rule that the recommendation

letter of the Commissioner cannot #econsidered a formal assessment' !ven acursor" perusal of the said letter would revealthree 9e" points?

1' t was not addressed to theta$pa"ers'

6' here was no demand madeon the ta$pa"ers to pa" the ta$lia#ilit". nor a period forpa"ment set therein'

3' he letter was never mailed or sentto the ta$pa"ers #" the Commissioner' n 0ne. the said recommendation letter

served merel" as the ri#a facie #asis for0ling criminal informations that the ta$pa"ershad violated ;ection -5 (a) and (d). and 114.in relation to ;ection 144. as penaliIed under

;ection 655. and for violation of ;ection 653.in relation to ;ection 656 %(#) and (d) of the

a$ Code'[6-]

he ne$t issue is whether the 0ling of

the criminal complaints against the privaterespondents #" the DO> is premature for lac9of a formal assessment'

;ection 62% of the 8RC (now ;ection

666 of the a$ Reform Act of 1%%&) provides?

;ec' 62%' !$ceptions as to period of

limitation of assessment andcollection of ta$es',(a) n the caseof a false or fraudulent return withintent to evade ta$ or of failure to0le a return. the ta$ ma" #eassessed. or a proceeding in courtafter the collection of such ta$ ma"#e #egun without assessment. atan" time within ten "ears after thediscover" of the falsit". fraud oromission? rovided. hat in a fraudassessment which has #ecome













1%0nal and e$ecutor". the fact of fraud shall #e <udiciall" ta9encogniIance of in the civil orcriminal action for collectionthereof

he law is clear' @hen fraudulent ta$ returns

are involved as in the cases at #ar. +(#o2eedi"* i" 2o&#! +!e# !e 2o))e2!io"o s&2 !+< m+ e e*&" 7i!o&!+ssessme"!. ere. the private respondentshad alread" 0led the capital gains ta$ returnand the A returns. and paid the ta$es the"have declared due therefrom'Bponinvestigation of the e$aminers of the R.there was a preliminar" 0nding of grossdiscrepanc" in the computation of the capitalgains ta$es due from the sale of two lots of AA shares. 0rst to AAC and then to AAChilippines. *imited' he e$aminers also foundthat the A had not #een paid for A,lia#lesale of services for the third and fourth7uarters of 1%%4' Argua#l". the grossdisparit" in the ta$es due and the amountsactuall" declared #" the private respondentsconstitutes #adges of fraud'

hus. the applica#ilit" of U"*+ %.

C&si[65] is evident to the cases at #ar' n thisseminal case. this Court ruled that there wasno need for precise computation and formalassessment in order for criminal complaints to#e 0led against him' t 7uoted =ertens *aw of Federal ncome a$ation. ol' 14. ;ec' 55A'45.p' 61. thus?

An assessment of ade0cienc" is not necessar" to acriminal prosecution for willfulattempt to defeat and evade theincome ta$' A crime is completewhen the violator has 9nowingl"and willfull" 0led a fraudulentreturn. with intent to evade anddefeat the ta$' he perpetration of the crime is grounded upon9nowledge on the part of the

ta$pa"er that he has made aninaccurate return. and thegovernments failure to discover theerror and promptl" to assess hasno connections with thecommission of the crime'

his hoar" principle still underlies ;ection 62%and related provisions of the present a$Code'

@e now go to the issue of whether the

CA has no <urisdiction to ta9e cogniIance of

#oth the criminal and civil cases here at #ar' Bnder Repu#lic Act 8o' 1165 (An Act

Creating the Court of a$ Appeals) asamended. the rulings of the Commissioner areappeala#le to the CA. thus?

;!C' &' urisdiction. he Courtof a$ Appeals shall e$ercisee$clusive appellate <urisdiction to

review #" appeal. as hereinprovided ,

(1) Decisions of the Commissioner of nternal Revenue incases involvingdisputed

assessments.refunds of internalrevenue ta$es. feesor other charges.penalties imposed inrelation thereto. orother matters arisingunder the 8ationalnternal RevenueCode or other laws orpart of lawadministered #" theureau of nternalRevenue

Repu#lic Act 8o' /-6-. titled An Act

Amending the 8ational nternal Revenue Code. As

Amended. And For Other urposes. later

e$panded the <urisdiction of the Commissioner

and. correspondingl". that of the CA. thus?

;!C' -' !o/er of t"e

Co##issioner to %nterret *a) a/s and to ecide *a) Cases' hepower to interpret the provisions of this Code and other ta$ laws shall#e under the e$clusive and original

<urisdiction of the Commissioner.su#<ect to review #" the ;ecretar"of Finance'

he power to decide disputedassessments. refunds of internalrevenue ta$es. fees or othercharges. penalties imposed in

relation thereto. or other mattersarising under this Code or otherlaws or portions thereof administered #" the ureau of nternal Revenue is vested in theCommissioner. su#<ect to thee$clusive appellate <urisdictionofthe Court of a$ Appeals'

he latest statute dealing with the

<urisdiction of the CA is Repu#lic Act 8o' %6/6'[62] t provides?

;!C' &' ;ection & of the same Act is here#"

amended to read as follows? ;ec' &' urisdiction' he CA shall

e$ercise?

(a) !$clusive appellate <urisdiction to review #" appeal.as herein provided?

(1) Decisions of theCommissioner of nternal Revenue in







64cases involvingdisputed assessments.refunds of internalrevenue ta$es. fees orother charges. penaltiesin relation thereto. orother matters arisingunder the 8ational

nternal Revenue orother laws administered#" the ureau of nternal Revenue

(6) naction #" theCommissioner of nternal Revenue incases involvingdisputed assessments.refunds of internalrevenue ta$es. fees orother charges. penaltiesin relation thereto. orother matters arisingunder the 8ationalnternal Revenue Codeor other lawsadministered #" theureau of nternalRevenue. where the8ational nternalRevenue Code providesa speci0c period of action. in which casethe inaction shall #edeemed a denial

(3) Decisions.orders or resolutions of the Regional rial Courtsin local ta$ casesoriginall" decided orresolved #" them in thee$ercise of their originalor appellate <urisdiction

$ $ $

(#) >urisdiction over casesinvolving criminal oHenses as

herein provided?(1) !$clusive

original <urisdiction overall criminal oHensesarising from violationsof the 8ational nternalRevenue Code or ariH and Customs Code andother laws administered#" the ureau of nternal Revenue or theureau of Customs? !rovided,

"o/ever . hat oHensesor felonies mentioned inthis paragraph wherethe principal amount of ta$es and fees.e$clusive of chargesand penalties. claimedis less than One millionpesos (1.444.444'44)or where there is nospeci0ed amount

claimed shall #e tried#" the regular courtsand the <urisdiction of the CA shall #eappellate' An" provisionof law or the Rules of Court to the contrar"notwithstanding. the

criminal action and thecorresponding civilaction for the recover"of civil lia#ilit" for ta$esand penalties shall at alltimes #e simultaneousl"instituted with. and

<ointl" determined inthe same proceeding #"the CA. the 0ling of thecriminal action #eingdeemed to necessaril"carr" with it the 0ling of the civil action. and noright to reserve the0lling of such civilaction separatel" fromthe criminal action will#e recogniIed'

(6) !$clusiveappellate <urisdiction incriminal oHenses?

(a) Over appeals from the <udgments. resolutions ororders of the Regional rialCourts in ta$ cases originall"decided #" them. in theirrespected territorial

<urisdiction'

(#) Over petitions forreview of the <udgments.resolutions or orders of theRegional rial Courts in thee$ercise of their appellate

<urisdiction over ta$ casesoriginall" decided #" the=etropolitan rial Courts.=unicipal rial Courts and

=unicipal Circuit rial Courtsin their respective

<urisdiction'

(c) >urisdiction over ta$collection cases as hereinprovided?

(1) !$clusive original <urisdiction in ta$collection cases involving0nal and e$ecutor"assessments for ta$es.fees. charges and

penalties? rovided.however. hat collectioncases where the principalamount of ta$es and fees.e$clusive of charges andpenalties. claimed is lessthan One million pesos(1.444.444'44) shall #etried #" the proper=unicipal rial Court.=etropolitan rial Courtand Regional rial Court'



61(6) !$clusive

appellate <urisdiction inta$ collection cases?

(a) Over appealsfrom the <udgments.resolutions or ordersof the Regional rialCourts in ta$

collection casesoriginall" decided #"them. in theirrespective territorial

<urisdiction'

(#) Over petitionsfor review of the

<udgments. resolutionsor orders of theRegional rial Courts inthe e$ercise of theirappellate <urisdictionover ta$ collectioncases originall"decided #" the=etropolitan rialCourts. =unicipal rialCourts and =unicipalCircuit rial Courts. intheir respective

<urisdiction'

hese laws have e$panded the <urisdiction of the CA' owever. the" did not change the

<urisdiction of the CA to entertain an appealonl" from a 0nal decision or assessment of the Commissioner. or in cases where theCommissioner has not acted within the periodprescri#ed #" the 8RC' n the cases at #ar.the Commissioner has not issued anassessment of the ta$ lia#ilit" of privaterespondents'

Finall". we hold that contrar" to private

respondents stance. the doctrines laid downin CIR %. U"io" Si((i"* Co. and '+es %.F)o;o are not applica#le to the cases at #ar' nthese earlier cases. the Commissioner alread"rendered an assessment of the ta$ lia#ilities

of the delin7uent ta$pa"ers. for which reasonthe Court ruled that the 0ling of the civil suitfor collection of the ta$es due was a 0naldenial of the ta$pa"ers re7uest forreconsideration of the ta$ assessment'

IN VIE8 8HEREOF, premises

considered. <udgment is rendered?

1' n +'R' 8o' 164%35.AFFR=8+ the CA decisiondated =arch 61. 1%%5.which set aside the Regional

rial Courts Order datedAugust /. 1%%-. andR!8;A8+ Criminal Case8os' %-,1/-6 to %-,1/-2 forfurther proceedings #eforethe trial court and

6' n +'R' 8o' 16-55&.

R!!R;8+ and ;!8+A;D! the Decision of theCourt of Appealsdated =arch 6%. 1%%2. and

ORD!R8+ the dismissal of C''A' Case 8o' 54&5'

8o costs' SO ORDERED.

[3] *"e N%RC of t"e !"iliines, Annotated.

12th and Revised !dition. 8olledo. >' and 8olledo.

=' (1%%3). p' -1-'

Se2!io" 45' Cororation Returns. -

(A) Re7uirements' , !ver" corporation.

su#<ect to the ta$ herein imposed. e$cept

foreign corporations not engaged in trade

or #usiness in the hilippines shall render.

in duplicate. a true and accurate 7uarterl"

income ta$ return and 0nal or ad<ustment

return in accordance with the provisions of

Chapter of this itle' he return shall #e

0led #" the president. vice,president or

other principal o:cer. and shall #e sworn

to #" such o:cer and #" the treasurer or

assistant treasurer'

$ $ $

(D) Return on Capital +ains RealiIed

from ;ale of ;hares of ;toc9' , !ver"corporation deriving capital gains from the

sale or e$change of shares of stoc9 not

traded thru a local stoc9 e$change as

prescri#ed under ;ections 6- (e) 6 A. 65

(a) (2) (C) (i). 65(#)(5)(C) (i). shall 0le a

return within thirt" (34) da"s after each

transactions and a 0nal consolidated

return of all transactions during the

ta$a#le "ear on or #efore the 0fteenth

(15th) da" of the fourth (-th) month

following the close of the ta$a#le "ear'

[-] SECTION 110. Return and !a+#ent of 2alue-

Added *a).

(A) @here to File the Return and a" the

a$' , !ver" person su#<ect to value,added

ta$ shall 0le a 7uarterl" return of his gross

sales or receipts and pa" the ta$ due

thereon to a #an9 dul" accredited #" the

Commissioner located in the revenue

district where such person is registered or

re7uired to #e registered' owever. in

cases where there are no dul" accredited

agent #an9s within the cit" or

municipalit". the return shall #e 0led and

an" amount due shall #e paid to an" dul"

accredited #an9 within the district. or to

the Revenue District O:cer. Collection

Agent or dul" authoriIed reasurer of the

cit" or municipalit" where such ta$pa"er

has his principal place of #usiness' Onl"

http://sc.judiciary.gov.ph/jurisprudence/2009/may2009/120935.htm#_ftnref3








66one consolidated return shall #e 0led #"

the ta$pa"er for all the #ranches and lines

of #usiness su#<ect to value,added ta$' f

no ta$ is pa"a#le #ecause the amount of

input ta$ and an" amount authoriIed to #e

oHset against the output ta$ is e7ual to or

is in e$cess of the output ta$ due on the

return. the ta$pa"er shall 0le the returnwith the Revenue District O:cer.

Collection Agent or authoriIed municipal

treasurer where the ta$pa"ers principal

place of #usiness is located'

() ime for 0ling of return and pa"ment

of ta$' he return shall #e 0led and the ta$

paid within 64 da"s following the end of

each 7uarter speci0call" prescri#ed for a

A,registered person under regulations to

#e promulgated #" the ;ecretar" of

Finance? rovided. however. hat an"

person whose registration is cancelled in

accordance with paragraph (e) of ;ection

14& shall 0le a return within 64 da"s from

the cancellation of such registration'

(C) nitial returns' he Commissioner ma"

prescri#e an initial ta$a#le period for an"

A,registered person for his 0rst return.

which in no case shall e$ceed 5 months'

[5]

;upra note 3 at pp' 5//,5%4'

Se2!io" 100. 2alue-Added *a) on Sale of 3oods.

-

(A) Rate and ase of a$' , here shall #elevied. assessed and collected on ever"sale. #arter or e$change of goods. a value,added ta$ e7uivalent to 14M of the grossselling price or gross value in mone" ofthe goods or properties sold. #artered ore$changed. such ta$ to #e paid #" the

seller or transferor? rovided. hat thefollowing sales #" A,registered personsshall #e su#<ect to Iero percent (4M)?(1) !$port sales and

(6) ;ales to persons or entitieswhose e$emption under speciallaws or international agreements towhich the hilippines is a signator"eHectivel" su#<ects such sales toIero rate'

!$port ;ales means the sale and shipmentor e$portation of goods fromthe hilippines to a foreign countr".irrespective of an" shipping arrangementthat ma" #e agreed upon which ma"inGuence or determine the transfer of ownership of the goods so e$ported. orforeign currenc" denominatedsales' Foreign currenc" denominatedsales. means sales to nonresidents of goods assem#led or manufactured inthe hilippines. for deliver" to residents inthe hilippines and paid for in converti#leforeign currenc" remitted through the#an9ing s"stem in the hilippines'

() ransactions Deemed ;ale' , he followingtransactions shall #e deemed sale?

(1) ransfer. use or consumption

not in the course of #usiness of

goods originall" intended for sale

or for use in the course of #usiness

(6) Distri#ution or transfer to?

(a) ;hareholders or

investors as share in the pro0ts of

the registered person or

(#) Creditors in pa"ment of

de#t

(3) Consignment of goods if actual

sale is not made within si$t" (24)da"s following the date such goods

were consigned

(-) Retirement from or cessation of

#usiness. with respect to

inventories of ta$a#le goods

e$isting as of such retirement or

cessation'

(C) Changes in or Cessation of ;tatus of a

A,registered erson' , he ta$ imposedin paragraph (a) of this ;ection shall also

appl" to goods disposed of or e$isting as

of a certain date if under circumstances to

#e prescri#ed in Regulations to #e

promulgated #" the ;ecretar" of Finance.

the status of a person as a A,registered

person changes or is terminated'

(D) Determination of the a$' ,

(1) a$ #illed as a separate item in

the invoice' f the ta$ is #illed as aseparate item in the invoice. the

ta$ shall #e #ased on the gross

selling price. e$cluding the

ta$' +ross selling price means the

total amount of mone" or its

e7uivalent which the purchaser

pa"s or is o#ligated to pa" to the

seller in consideration of the sale.

#arter or e$change of the goods.

e$cluding the value,added ta$' he

e$cise ta$. if an". on such goods orproperties shall form part of the

gross selling price'

(6) a$ not #illed separatel" or is

#illed erroneousl" in the invoice' n

case the ta$ is not #illed separatel"

or is #illed erroneousl" in the

invoice. the ta$ shall #e

determined #" multipl"ing the






63gross selling price. including th

amount intended #" the seller to

cover the ta$ or the ta$ #illed

erroneousl". #" the factor 1J11 or

such factor as ma" #e prescri#ed

#" regulations in case of persons

partiall" e$empt under special

laws'

(3) ;ales Returns. Allowances and

;ales Discounts' , he value of

goods sold and su#se7uentl"

returned or for which allowances

were granted #" a A,registered

person ma" #e deducted from the

gross sales or receipts for the

7uarter in which a refund is made

or a credit memorandum or refund

is issued' ;ales discount grantedand indicated in the invoice at the

time of sale ma" #e e$cluded from

the gross sales within the same

7uarter'

(-) Authorit" of the Commissioner

to Determine the Appropriate a$

ase' , he Commissioner shall.

#" regulations. determine the

appropriate ta$ #ase in cases

where a transaction is deemed asale. #arter or e$change of goods

under paragraph (#) hereof. or

where the gross selling price is

unreasona#l" lower than the actual

mar9et value'

[2] %d' at 1466'

Se2!io" /55' enal *ia#ilit" of Corporations' An"

corporation. association or general co,partnership

lia#le for an" of the acts or omissions penaliIedunder this Code. in addition to the penalties

imposed herein upon the responsi#le corporate

o:cers. partners or emplo"ees. shall. upon

conviction. for each act or omission #e 0ned for

not less than ten thousand pesos #ut not more

than one hundred thousand pesos'

[&] %d' at 1461'

Se2!io" /53' Attempt to evade or defeat ta$'

,, An" person who willfull" attempts in an"

manner to evade or defeat an" ta$ imposed

under this Code or the pa"ment thereof shall. in

addition to other penalties provided #" law. upon

conviction thereof. #e 0ned not more than ten

thousand pesos or imprisoned for not more than

two "ears. or #oth'

[/]%d'. pp' 1464,1461'Se2!io" /5/. +eneral provisions'

$ $ $

(#) An" person who willfull" aids or a#ets

in the commission of a crime penaliIed

herein or who causes the commission of

an" such oHense #" another. shall #e

lia#le in the same manner as the principal'

$ $ $

(d) n the case of associations.

partnerships. or corporations. the penalt"

shall #e imposed on the partner.

president. general manager. #ranch

manager. treasurer. o:cer,in,charge. and

emplo"ees responsi#le for the violation'

[13]8RC (1%%&)Se2. /05' Remedies for the Collection of Delin7uent a$es' ,, he civil remedies for thecollection of internal revenue. fees. or charges.and increment thereto resulting from delin7uenc"shall #e?

(a) " distraint of goods. chattels.or eHects. and other personalpropert" of whatever character.including stoc9s and othersecurities. de#ts. credits. #an9accounts. and interest in and rightsto personal propert". and #" lev"upon real propert" and interest inor rights to real propert" and(#) " civil or criminal action'!ither of these remedies or #othsimultaneousl" ma" #e pursued inthe discretion of the authoritiescharged with the collection of suchta$es? !rovided, "o/ever . hat theremedies of distraint and lev" shallnot #e availed of where the amountof ta$ involved is not more thanOne hundred pesos (144)'

he <udgment in the criminal case

shall not onl" impose the penalt"#ut shall also order pa"ment of theta$es su#<ect of the criminal caseas 0nall" decided #" theCommissioner'

he ureau of nternal Revenue

shall advance the amounts needed

to defra" costs of collection #"

means of civil or criminal action.

including the preservation or

transportation of personal propert"

distrained and the advertisementand sale thereof. as well as of real

propert" and improvements

thereon'

[1-] %d.

SEC. /03' !eriod of i#itation on Assess#ent

and Collection' ,, !$cept as provided in ;ection

666. internal revenue ta$es shall #e assessed














6-within three (3) "ears after the last da"

prescri#ed #" law for the 0ling of the return. and

no proceeding in court without assessment for

the collection of such ta$es shall #e #egun after

the e$piration of such period? !rovided. hat in a

case where a return is 0led #e"ond the period

prescri#ed #" law. the three (3),"ear period shall

#e counted from the da" the return was 0led' Forpurposes of this ;ection. a return 0led #efore the

last da" prescri#ed #" law for the 0ling thereof

shall #e considered as 0led on such last da"'

[15]%d.Se2. ///' 4)cetions as to !eriod of i#itation of

Assess#ent and Collection of *a)es.(a) n the case of a false or

fraudulent return with intent toevade ta$ or of failure to 0le areturn. the ta$ ma" #e assessed. ora proceeding in court for the

collection of such ta$ ma" #e 0ledwithout assessment. at an" timewithin ten (14) "ears after thediscover" of the falsit". fraud oromission? !rovided. hat in a fraudassessment which has #ecome0nal and e$ecutor". the fact of fraud shall #e <udiciall" ta9encogniIance of in the civil orcriminal action for the collectionthereof'

(#) f #efore the e$piration of the time prescri#ed in the ;ection

643 for the assessment of the ta$.#oth the Commissioner and theta$pa"er have agreed in writing toits assessment after such time. theta$ ma" #e assessed within theperiod agreed upon' he period soagreed upon ma" #e e$tended #"su#se7uent written agreementmade #efore the e$piration of theperiod previousl" agreed upon'

(c) An" internal revenue ta$which has #een assessed withinthe period of limitation as

prescri#ed in paragraph (a) hereof ma" #e collected #" distraint orlev" or #" a proceeding in courtwithin 0ve (5) "ears following theassessment of the ta$'

(d) An" internal revenue ta$.which has #een assessed withinthe period agreed upon as providedin paragraph (#) hereina#ove. ma"#e collected #" distraint or lev" or#" a proceeding in court within theperiod agreed upon writing #eforethe e$piration of the 0ve (5),"ear

period' he period so agreed uponma" #e e$tended #" su#se7uentwritten agreements made #eforethe e$piration of the periodpreviousl" agreed upon'

(e) !rovided, "o/ever . hat

nothing in the immediatel"

preceding ;ection and paragraph

(a) hereof shall #e construed to

authoriIe the e$amination and

investigation or in7uir" into an" ta$

return 0led in accordance with the

provisions of an" ta$ amnest" law

or decree'

[12]%d.Se2!io" //' !rotesting of Assess#ent ' ,, @henthe Commissioner or his dul" authoriIedrepresentative 0nds that proper ta$es should #eassessed. he shall 0rst notif" the ta$pa"er of his0ndings? !rovided, "o/ever . hat a reassessmentnotice shall not #e re7uired in the followingcases?

(a) @hen the 0nding for an"de0cienc" ta$ is the result of mathematical error in thecomputation of the ta$ asappearing on the face of the returnor

(#) @hen a discrepanc" has#een determined #etween the ta$

withheld and the amount actuall"remitted #" the withholding agentor

(c) @hen a ta$pa"er who optedto claim a refund or ta$ credit of e$cess credita#le withholding ta$for a ta$a#le period wasdetermined to have carried overand automaticall" applied thesame amount claimed against theestimated ta$ lia#ilities for theta$a#le 7uarter or 7uarters of thesucceeding ta$a#le "ear or

(d) @hen the e$cise ta$ due one$cisa#le articles has not #eenpaid or

(e) @hen an article locall"purchased or imported #" ane$empt person. such as. #ut notlimited to. vehicles. capitale7uipment. machineries and spareparts. has #een sold. traded ortransferred to non,e$empt persons'

he ta$pa"er shall #e informed in writing of thelaw and the facts on which the assessment is

made otherwise. the assessment shall #e void.

@ithin a period to #e prescri#ed #" implementing

rules and regulations. the ta$pa"er shall #e

re7uired to respond to said notice' f the ta$pa"er

fails to respond. the Commissioner or his dul"

authoriIed representative shall issue an

assessment #ased on his 0ndings'

[61] SEC /55' Failure to File Return. ;uppl" Correctand Accurate nformation. a" a$. @ithhold andRemit a$ and Refund !$cess a$es @ithheld onCompensation' ,, An" person re7uired under thisCode or #" rules and regulations promulgatedthereunder to pa" an" ta$. ma9e a return. 9eepan" record. or suppl" correct and accurate an"information. who willfull" fails to pa" such ta$.ma9e such return. 9eep such record. or suppl"correct and accurate information. or withhold orremit ta$es withheld. or refund e$cess ta$eswithheld on compensation. at the time or times









65re7uired #" law or rules and regulations shall. inaddition to other penalties provided #" law. uponconviction thereof. #e punished #" a 0ne of notless than one (1) "ear #ut not more than ten (14)"ears'

An" person who attempts to ma9e it

appear for an" reason that he or another has in

fact 0led a return or statement. or actuall" 0les areturn or statement and su#se7uentl" withdraws

the same return or statement after securing the

o:cial receiving seal or stamp of receipt of an

internal revenue o:ce wherein the same was

actuall" 0led shall. upon conviction therefor. #e

punished #" a 0ne of not less than en thousand

pesos (14.444) #ut not more than went"

thousand pesos (64.444) and suHer

imprisonment of not less than one (1) "ear #ut

not more than three (3) "ears'

FIRST DIVISION

SILAIR SINGAORE TE. LTD., e!i!io"e#,$ %e#s&s $ COMMISSIONER OF INTERNALREVENUE, Res(o"de"!.

G.R. Nos. 19133 J 19/39>

#om&)*+!ed No%eme# 14, /00

D E C I S I O N

Te C+se

C.R. Ao. 1*1585

;il9air (;ingapore) te' *td' (petitioner) 0led thisetition for Review[1] to reverse the Court of a$Appeals Decision[6] dated 64 Octo#er 6445 inC''A' Case 8o' 261& as well as the Resolutiondated 3 Fe#ruar" 6442 den"ing the =otion forReconsideration' n the assailed decision. theCourt of a$ Appeals 4n (ancdenied petitionersclaim for refund or issuance of a ta$ creditcerti0cate of -.63%.3&-'/1. representing e$cise

ta$es paid on petitioners purchase of aviation <etfuel from etron Corporation (etron) for theperiod from 1 >anuar" 1%%% to 34 >une 1%%%'

C.R. Ao. 1*)5*9

etitioner 0led this etition for Review[3] toreverse the Court of a$ Appeals Decision[-] dated5 >anuar" 6442 in C''A' Case 8o' 234/ as well asthe Resolution dated 1/ April 6442 den"ing the=otion for Reconsideration' n the assaileddecision. the Court of a$ Appeals 4n (anc deniedpetitioners claim for refund or issuance of a ta$

credit certi0cate of -./31.66-'&4. representinge$cise ta$es paid on petitioners purchase of aviation <et fuel from etron for the period from 1

>ul" 1%%% to 31 Decem#er 1%%%' On 6 August 6442. this Court issued a resolutionto consolidate #oth cases since the" involve thesame parties and the same issue. whetherpetitioner is entitled to a refund of the e$ciseta$es paid on its purchases of aviation <et fuelfrom etron'

Te F+2!s

etitioner is a foreign corporation organiIedunder the laws of ;ingapore with a hilippinerepresentative o:ce in Ce#u Cit"' t is engaged in#usiness as an on,line international carrier.operating the ;ingapore,Ce#u,;ingapore.;ingapore,Davao,Ce#u,;ingapore. and

;ingapore,Ce#u,Davao,;ingapore routes'

[5]

From 1 >anuar" 1%%% to 31 Decem#er 1%%%.petitioner purchased aviation <et fuel from etronfor use on petitioners international Gights'[2] ased on the Aviation Deliver" Receipts andnvoices presented. 3'2& per liter as e$cise(speci0c) ta$ was added to the amount paid #"petitioner on its purchases of aviation <et fuel'[&] etitioner. through its sister compan";ingapore Airlines *td'. paid -.63%.3&-'/1 from1 >anuar" 1%%% to 34 >une1%%%[/] and -./31.66-'&4 from 1 >ul" 1%%% to 31Decem#er 1%%%.[%] as e$cise ta$es for itspurchases of the aviation <et fuel from etron'etitioner. contending that it is e$empt from thepa"ment of e$cise ta$es. 0led a formal claim forrefund with the Commissioner of nternalRevenue (respondent)' etitioner claims that it is e$empt from thepa"ment of e$cise ta$ under the 1%%& 8ationalnternal Revenue Code (8RC). speci0call" ;ection135. and under Article - of the Air ransportAgreement #etween the +overnments of theRepu#lic of the hilippines and the Repu#lic of ;ingapore (Air Agreement)'[14]

;ection 135 of the 8RC provides?

;!C' 135' e!#o)e&m #od&2!sSo)d !o I"!e#"+!io"+) C+##ie#s+"d E<em(! E"!i!ies o#A*e"2ies. , etroleum productssold to the following are e$emptfrom e$cise ta$?(a) nternational carriers of hilippine or foreign registr" ontheir use or consumption outsidethe hilippines? !rovided. hat the

petroleum products sold to theseinternational carriers shall #estored in a #onded storage tan9and ma" #e disposed of onl" inaccordance with the rules andregulations to #e prescri#ed #" the;ecretar" of Finance. uponrecommendation of theCommissioner(#) !$empt entities or agenciescovered #" ta$ treaties.conventions and other internationalagreements for their use or

consumption? !rovided,"o/ever, hat the countr" of saidforeign international carrier ore$empt entities or agenciese$empts from similar ta$espetroleum products sold tohilippine carriers. entities oragencies and (c) !ntities whichare #" law e$empt from direct andindirect ta$es'[11]

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62 Article - of the Air Agreement provides?

A#!. 4$ $ $6' Fuel. lu#ricants. spare parts.regular e7uipment and aircraftstores introduced into. or ta9en on

#oard aircraft in the territor" of oneContracting art" #". or on #ehalf of. a designated airline of the otherContracting art" and intendedsolel" for use in the operation of the agreed services shall. with thee$ception of charges correspondingto the services performed. #ee$empt from the same customduties. inspection fees and otherduties or ta$es imposed in theterritor" of the 0rst Contractingart". even when these suppliesare to #e used on the parts of the

<ourne" performed over theterritor" of the Contracting art" inwhich the" are introduced into orta9en on #oard' he materialsreferred to a#ove ma" #e re7uiredto #e 9ept under customssupervision and control'[16]

etitioner contends that in realit". it paid thee$cise ta$es due on the transactions and etronmerel" remitted the pa"ment to the ureau of nternal Revenue (R)' etitioner argues that toadhere to the view that etron is the legalclaimant of the refund will ma9e petitioners rightto recover the erroneousl" paid ta$es dependentsolel" on etrons action over which petitioner hasno control' f etron fails to act or acts #elatedl".petitioners claim will #e #arred. deprivingpetitioner of its private propert"'[13]

etitioner also maintains that to hold that onl"etron can legall" claim the refund will negatethe ta$ e$emption e$pressl" granted to petitionerunder the 8RC and the Air Agreement'[1-] etitioner argues that a ta$ e$emption is apersonal privilege of the grantee. which ispetitioner in this case' etitioner further argues

that a ta$ e$emption granted to the #u"er cannot#e availed of #" the seller hence. in the presentcase. etron as seller cannot legall" claim therefund' On the other hand. if onl" the entit" thatpaid the ta$ etron in this case can claim therefund. then petitioner as the grantee of the ta$e$emption cannot en<o" its ta$ e$emption' nshort. neither petitioner nor etron can claim therefund. rendering the ta$ e$emption useless'etitioner su#mits that this is contrar" to thelanguage and intent of the 8RC and the AirAgreement'[15]

etitioner also cites this Courts Resolutionin $aceda v. $acaraig, r.,[12] 7uoting the opinionof the ;ecretar" of >ustice which states. thus?

he view which refuses to accordthe e$emption #ecause the ta$ is0rst paid #" the seller disregardsrealities and gives moreimportance to form thansu#stance' !7uit" and law alwa"se$alt su#stance over form'[1&]

etitioner #elieves that its ta$ e$emption under;ection 135 of the 8RC also includes itsentitlement to a refund from the R in an" caseof erroneous pa"ment of e$cise ta$'[1/]

Respondent claims that as e$plained in !"iliine

Acet+lene Co., %nc. v. Co##issioner of %nternalRevenue.[1%] the nature of an indirect ta$ allows

the ta$ to #e passed on to the purchaser as partof the commodit"s purchase price' owever. anindirect ta$ remains a ta$ on the seller' ence. if the #u"er happens to #e ta$ e$empt. the seller isnonetheless lia#le for the pa"ment of the ta$ asthe same is a ta$ not on the #u"er #ut on theseller'[64]

Respondent insists that in indirect ta$ation. themanufacturer or seller has the option to shift the#urden of the ta$ to the purchaser' f and whenshifted. the amount added #" the manufactureror seller #ecomes part of the purchase price of the goods' hus. the purchaser does not reall"pa" the ta$ #ut onl" the price of the commodit"and the lia#ilit" for the pa"ment of the indirectta$ remains with the manufacturer or seller'[61] ;ince the lia#ilit" for the e$cise ta$ pa"ment isimposed #" law on etron as the manufacturer of the petroleum products. an" claim for refundshould onl" #e made #" etron as the statutor"ta$pa"er'[66]

Te R&)i"* o !e Co&#! o T+< A((e+)s

C.R. Ao. 1*1585

On 64 Octo#er 6445. the Court of a$ Appeals 4n(anc (CA) ruled that the e$cise ta$ imposed onthe removal of petroleum products #" the oilcompanies is an indirect ta$'[63] Although the#urden to pa" an indirect ta$ can #e passed on tothe purchaser of the goods. the lia#ilit" to pa" theindirect ta$ remains with the manufacturer orseller'[6-] @hen the manufacturer or seller decidesto shift the #urden of the indirect ta$ to thepurchaser. the ta$ #ecomes a part of the pricetherefore. the purchaser does not reall" pa" theta$ er se #ut onl" the price of the commodit"'[65]

he CA pointed out that ;ection 134(A)(6)[62] of the 8RC provides that the lia#ilit" for thepa"ment of e$cise ta$es is imposed upon the

manufacturer or producer of the petroleumproducts' Bnder the law. the manufacturer orproducer is the ta$pa"er' he CA stated that it isonl" the ta$pa"er that ma" as9 for a refund incase of erroneous pa"ment of ta$es' Citing Cebu!ortland Ce#ent Co. v. Collector of %nternalRevenue.[6&] the CA ruled that the producer of the goods is the one entitled to claim for a refundof indirect ta$es'[6/] he CA held that since thelia#ilit" for the e$cise ta$es was placed on etronas the manufacturer of the petroleum productsand it was shown in the !$cise a$ Returns [6%] thatthe e$cise ta$es were paid #" etron. an" claim

for refund of the e$cise ta$es should onl" #emade #" etron as the ta$pa"er' his is inconsonance with the rule on strictissi#i 'uris withrespect to ta$ e$emptions' etitioner cannot #econsidered the ta$pa"er #ecause what wastransferred to petitioner was onl" the #urden andnot the lia#ilit" to pa" the e$cise ta$ onpetroleum products'[34]

he CA also considered the Aviation Fuel ;uppl"Agreement #etween petitioner and etron. whichstates?











































6& u"er shall pa" an" ta$es. fees orother charges imposed #" an"national. local or airport authorit"on the deliver". sale. inspection.storage and use of fuel. e$cept forta$es on ;ellers income and ta$eson raw material' o the e$tent

allowed. ;eller shall show theseta$es. fees and other charges asseparate items on the invoice forthe account of the u"er'[31]

owever. the CA held that even with thisprovision. the lia#ilit" for the e$cise ta$ remainedwith etron as manufacturer or producer of theaviation <et fuel'he shifting of the #urden of thee$cise ta$ to petitioner did not transformpetitioner into a ta$pa"er' ence. etron is theproper part" that can claim for refund of an"erroneous e$cise ta$ pa"ments'[36]

C.R. Ao. 1*)5*9

he CA 4n (anc held that e$cise ta$es ondomestic products are paid #" the manufactureror producer #efore removal of the products fromthe place of production' he pa"ment of an e$ciseta$. #eing an indirect ta$. can #e shifted to thepurchaser of goods #ut the statutor" lia#ilit" forsuch pa"ment is still with the seller ormanufacturer'[33] he CA cited $aceda v.$acaraig, r.?[3-]

t ma" #e useful to ma9e adistinction. for the purpose of thisdisposition. #etween a direct ta$and an indirect ta$' A direct ta$ is ata$ for which a ta$pa"er is directl"lia#le on the transaction or#usiness it is engaged in' !$amplesare custom duties and advalore# ta$es paid #" the oilcompanies to the ureau of Customs for their importation of crude oil. and the speci0c and advalore# ta$es the" pa" to theureau of nternal Revenue afterconverting the crude oil intopetroleum products'

On the other hand. indirect ta$esare ta$es primaril" paid #" personswho can shift the #urden uponsomeone else' For e$ample. thee$cise ta$ and ad valore# ta$esthat the oil companies pa" to theureau of nternal Revenue uponremoval of petroleum productsfrom its re0ner" can #e shifted toits #u"er. li9e the 8C. #" addingthem to the cash andJor sellingprice'[35]

he CA further cited !"iliine Acet+lene Co.,%nc. v. Co##issioner of %nternalRevenue[32] and Conte) Cororation v. on.Co##issioner of %nternal Revenue[3&] andconcluded that the ta$ sought to #e refunded isan e$cise ta$ on petroleum products. parta9ing of the nature of an indirect ta$'[3/]

he CA further ruled that while it is cogniIant of the e$empt status of petitioner under the 8RCand the Air Agreement. it is also aware that theright to claim for refund of ta$es erroneousl" paid

lies with the person statutoril" lia#le to pa" theta$ in accordance with ;ection 64- of the 8RC'[3%] he CA also suggested that petitioner shouldinvo9e its ta$ e$emption to etron #efore #u"ingthe petroleum products'[-4] he CA concludedthat the right to claim for the refund of the e$ciseta$es paid on the petroleum products lies withetron which paid and remitted the e$cise ta$es

to the R' Te Iss&e

etitioner su#mits this sole issue for ourconsideration? whether petitioner is the properpart" to claim a refund for the e$cise ta$es paid'[-1]

Te R&)i"* o !e Co&#!

he issue presented is not novel' n a similar caseinvolving the same parties. this Court hascategoricall" ruled that the proper part" to7uestion. or see9 a refund of an indirect ta$ is thestatutor" ta$pa"er. the person on whom the ta$is imposed #" law and who paid the same even if he shifts the #urden thereof to another'[-6] heCourt added that even if etron Corporationpassed on to ;il9air the #urden of the ta$. theadditional amount #illed to ;il9air for <et fuel isnot a ta$ #ut part of the price which ;il9air had topa" as a purchaser'[-3]

/n excise tax is an indirect tax where the

tax burdencan be shifted to the consumer but the tax

liability remains with themanufacturer or producer.

;ection 16% of the 8RC provides that e$ciseta$es refer to ta$es imposed on speci0ed goodsmanufactured or produced in the hilippines fordomestic sale or consumption or for an" otherdisposition and to things imported' he e$ciseta$es are collected from manufacturers orproducers #efore removal of the domesticproducts from the place of production' Althoughe$cise ta$es can #e considered as ta$es onproduction. the" are reall" ta$es on propert" as

the" are imposed on certain speci0ed goods'[--]

;ection 1-/(g) of the 8RC provides that thereshall #e collected on aviation <et fuel an e$ciseta$ of 3'2& per liter of volume capacit"' ;incethe ta$ imposed is #ased on volume capacit". theta$ is referred to as speci0c ta$'[-5] owever.e$cise ta$. whether classi0ed as speci0c or advalore# ta$. is #asicall" an indirect ta$ imposedon the consumption of a speci0ed list of goods orproducts' he ta$ is directl" levied on themanufacturer upon removal of the ta$a#le goodsfrom the place of production #ut in realit". the ta$

is passed on to the end consumer as part of theselling price of the goods sold'[-2]

n Co##issioner of %nternal Revenue v. !"iliineong istance Co#an+ .[-&] the Court e$plainedthe diHerence #etween a direct ta$ and anindirect ta$?

ased on the possi#ilit" of shiftingthe incidence of ta$ation. or as towho shall #ear the #urden of ta$ation. ta$es ma" #e classi0edinto either direct ta$ or indirect ta$'








































6/ n conte$t. direct ta$es are thosethat are e$acted from the ver"person who. it is intended ordesired. should pa" them the" areimpositions for which a ta$pa"er isdirectl" lia#le on the transaction or#usiness he is engaged in'

On the other hand. indirect taxesare those that are demandedin the rst instance from or are paid by one person in theexpectation and intention that he can shift the burden tosomeone else' ;tatedelsewise. indirect taxes aretaxes wherein the liability for the payment of the tax falls onone person but the burdenthereof can be shifted or

passed on to another personsuch as when the tax isimposed upon "oods beforereachin" the consumer whoultimately pays for it. Bhen theseller passes on the tax to hisbuyer he in e<ect shifts thetax burden not the liability to

pay it to the purchaser as part of the price of "oods sold or services rendered. (!mphasissupplied)

n $aceda v. $acaraig, r.. the Court speci0call"mentioned e$cise ta$ as an e$ample of anindirect ta$ where the ta$ #urden can #e shiftedto the #u"er?

On the other hand. indirect ta$esare ta$es primaril" paid #" personswho can shift the #urden uponsomeone else' For e$ample. thee$cise and ad valore# ta$es thatthe oil companies pa" to theureau of nternal Revenue uponremoval of petroleum productsfrom its re0ner" can #e shifted toits #u"er. li9e the 8C. #" adding

them to the cash andJor sellingprice'[-/]

@hen etron removes its petroleum productsfrom its re0ner" in *ima". ataan.[-%] it pa"s thee$cise ta$ due on the petroleum products thusremoved' etron. as manufacturer or producer. isthe person lia#le for the pa"ment of the e$ciseta$ as shown in the !$cise a$ Returns 0led withthe R' ;tated otherwise. etron is the ta$pa"erthat is primaril". directl" and legall" lia#le for thepa"ment of the e$cise ta$es' owever. since ane$cise ta$ is an indirect ta$. etron can transfer

to its customers the amount of the e$cise ta$paid #" treating it as part of the cost of the goodsand tac9ing it on to the selling price'As correctl" o#served #" the CA. this Court heldin !"iliine Acet+lene Co., %nc. v. Co##issioner of %nternal Revenue?

t ma" indeed #e that the economic#urden of the ta$ 0nall" falls on thepurchaser when it does the ta$#ecomes part of the price which thepurchaser must pa"'[54]

!ven if the consumers or purchasers ultimatel"pa" for the ta$. the" are not considered theta$pa"ers' he fact that etron. on whom thee$cise ta$ is imposed. can shift the ta$ #urden toits purchasers does not ma9e the latter theta$pa"ers and the former the withholding agent'etitioner. as the purchaser and end,consumer.

ultimatel" #ears the ta$ #urden. #ut this does nottransform petitioners status into a statutor"ta$pa"er'

In the refund of indirect taxes thestatutory taxpayer

is the proper party who can claim therefund.

;ection 64-(c) of the 8RC provides?

;ec' 64-' Authorit" of theCommissioner to Compromise.A#ate. and Refund or Credit a$es'

he Commissioner ma" ,$ $ $(c) Credit or refund ta$eserroneousl" or illegall" received orpenalties imposed withoutauthorit". refund the value of internal revenue stamps when the"are returned in good condition #"the purchaser. and. in hisdiscretion. redeem or changeunused stamps that have #eenrendered un0t for use and refundtheir value upon proof of destruction' No 2#edi! o# #e&"do !+<es o# (e"+)!ies s+)) e+))o7ed &")ess!e !+<(+e# =)es i" 7#i!i"*7i! !e Commissio"e# + 2)+imo# 2#edi! o# #e&"d within two(6) "ears after the pa"ment of theta$ or penalt"? !rovided,"o/ever, hat a return 0ledshowing an overpa"ment shall #econsidered as a written claim forcredit or refund' (!mphasis andunderscoring supplied)

he person entitled to claim a ta$ refund is thestatutor" ta$pa"er' ;ection 66(8) of the 8RCde0nes a ta$pa"er as an" person su#<ect to ta$'n Co##issioner of %nternal Revenue v. !rocter and 3a#ble !"il. $fg. Cor.. the Court ruled that?

A person lia#le for ta$ has #eenheld to #e a person su#<ect to ta$and properl" considered ata$pa"er' he terms lia#le for ta$and su#<ect to ta$ #oth connote alegal o#ligation or dut" to pa" a

ta$'[51]

he e$cise ta$ is due from the manufacturers of the petroleum products and is paid upon removalof the products from their re0neries' !ven #eforethe aviation <et fuel is purchased from etron. thee$cise ta$ is alread" paid #" etron' etron. #eingthe manufacturer. is the person su#<ect to ta$' nthis case. etron. which paid the e$cise ta$ uponremoval of the products from its ataan re0ner".is the person lia#le for ta$' etitioner is neither aperson lia#le for ta$ nor a person su#<ect to ta$'











6% here is also no legal dut" on the part of petitioner to pa" the e$cise ta$ hence. petitionercannot #e considered the ta$pa"er'!ven if the ta$ is shifted #" etron to itscustomers and even if the ta$ is #illed as aseparate item in the aviation deliver" receiptsand invoices issued to its customers. etronremains the ta$pa"er #ecause the e$cise ta$ is

imposed directl" on etron as the manufacturer'ence. etron. as the statutor" ta$pa"er. is theproper part" that can claim the refund of thee$cise ta$es paid to the R'

he 3eneral *er#s Conditions for Aviation &uelSul+ (;uppl" Contract) signed #etweenpetitioner (#u"er) and etron (seller) provide?

11.3 f u"er is entitled topurchase an" Fuel sold pursuant tothe Agreement free of an" ta$es.duties or charges. :&e# s+))!ime) de)i%e# !o Se))e# + %+)ide<em(!io" 2e#!i=2+!e o# s&2(&#2+se'[56] (!mphasis supplied)

his provision instructs petitioner to timel"su#mit a valid e$emption certi0cate to etron inorder that etron will not pass on the e$cise ta$to petitioner' As correctl" suggested #" theCA. petitioner should invo9e its ta$ e$emption toetron #efore #u"ing the aviation <et fuel' etron.however. remains the statutor" ta$pa"er onthose e$cise ta$es' Revenue Regulations 8o' 3,644/ (RR 3,644/)provides that su#<ect to the su#se7uent 0ling of aclaim for e$cise ta$ creditJrefund or productreplenishment. all manufacturers of articlessu#<ect to e$cise ta$ under itle of the 8RC of 1%%&. as amended. shall pa" the e$cise ta$ thatis otherwise due on ever" removal thereof fromthe place of production that is intended fore$portation or saleJdeliver" to internationalcarriers or to ta$,e$empt entitiesJagencies'[53] heDepartment of Finance and the R recogniIe theta$ e$emption granted to international carriers#ut the" consistentl" adhere to the view thatmanufacturers of articles su#<ect to e$cise ta$ are

the statutor" ta$pa"ers that are lia#le to pa" theta$. thus. the proper part" to claim an" ta$refunds'8HEREFORE. we DEN' the petition'@e AFFIRM the assailed Decisions dated 64Octo#er 6445 and 5 >anuar" 6442 and theResolutions dated 3 Fe#ruar" 6442 and 1/ April6442 of the Court of a$ Appeals in C''A' Case8os' 261& and 234/. respectivel"' SO ORDERED'

FIRST DIVISION

COMMISSIONER OF INTERNAL REVENUE,e!i!io"e#, $ %e#s&s $ FIRST E@RESS A8NSHOCOMAN', INC., Res(o"de"!.

G.R. Nos. 19/045$46#om&)*+!ed -&"e 16, /00>

D E C I S I O N

Te C+se

he Commissioner of nternal Revenue(petitioner) 0led this etition for Review[1] toreverse the Court of a$ Appeals Decision[6] dated6- =arch 6442 in the consolidated cases of C''A'! 8os' 24 and 26' n the assailed decision. theCourt of a$ Appeals (CA) !n anc partiall"reconsidered the CA First DivisionsDecision[3] dated 6- ;eptem#er 644-'

Te F+2!s On 6/ Decem#er 6441. petitioner. through ActingRegional Director Ruperto ' ;omera of RevenueRegion 2 =anila. issued the following assessmentnotices against First !$press awnshop Compan".nc' (respondent)?

a' Assessment 8o' 31,1,%/[-] for de0cienc"income ta$of 64.&16'5/ withcompromise penalt"of 3.444

#' Assessment 8o' 31,1-,444453,%/[5] forde0cienc" value,addedta$ (A)of 241.664'1/ withcompromise penalt"of 12.444

c' Assessment 8o' 31,1-,444453,%/[2] forde0cienc" documentar"stamp ta$ (D;)of 16.36/'-5 on depositon su#scription withcompromise penalt"of 6.444 and

d' Assessment 8o' 31,1,444453,%/[&] for de0cienc" D;of 26.16/'/& on pawntic9ets with compromisepenalt" of /.544'

Respondent received the assessment notices on 3 >anuar" 6446' On 1 Fe#ruar" 6446. respondent0led its written protest on the a#oveassessments' ;ince petitioner did not act on theprotest during the 1/4,da" period.[/] respondent0led a petition #efore the CA on 6/ August 6446'[%]

Respondent contended that petitioner did notconsider the supporting documents on theinterest e$penses and donations which resulted inthe de0cienc" income ta$'[14] Respondentmaintained that pawnshops are not lendinginvestors whose services are su#<ect to A.hence it was not lia#le for de0cienc" A'[11]Respondent also alleged that no de0cienc" D;was due #ecause ;ection 1/4[16] of the 8ationalnternal Revenue Code (a$ Code) does not coveran" document or transaction which relates to

respondent' Respondent also argued that theissuance of a pawn tic9et did not constitute apledge under ;ection 1%5[13]of the a$ Code'[1-]

n its Answer 0led #efore the CA. petitioneralleged that the assessment was valid andcorrect and the ta$pa"er had the #urden of proof to impugn its validit" or correctness' etitionermaintained that respondent is su#<ect to 14M A#ased on its gross receipts pursuant to Repu#licAct 8o' &&12. or the !$panded alue,Added a$*aw (!A)' etitioner also cited R Ruling 8o'




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34661,%1 which provides that pawnshop tic9ets aresu#<ect to D;' [15]

On 1 >ul" 6443. respondent paid 6&.&--'// asde0cienc" income ta$ inclusive of interest'[12]

After trial on the merits. the CA First Divisionruled. thus?

IN VIE8 OF ALL THEFOREGOING. the instant petitionis here#" ARTIALL' GRANTED'Assessment 8o' 31,1,444453,%/for de0cienc" documentar" stampta$ in the amount of ;i$t",wo

housand One undred went",!ight esos and /&J144(26.16/'/&) and Assessment 8o'31,1-,444453,%/ for de0cienc"documentar" stamp ta$ ondeposits on su#scription in theamount of welve housand hreeundred went",!ight esos and-5J144 (16.36/'-5)are CANCELLED and SET ASIDE'owever. Assessment 8o' 31,1-,444453,%/ ishere#" AFFIRMED e$cept theimposition of compromise penalt"in the a#sence of showing thatpetitioner consented thereto7S* vs. Collector, 10 SCRA 1069:4);uisite !a/ns"o e/elr+, %nc.vs. ai#e (. Santiago, et al., sura<' Accordingl" petitioner is ORDERED!o A' the de0cienc" value addedta$ in the amount of ;i$ undredOne housand wo undred went"esos and 1/J144 (241.664'1/)inclusive of de0cienc" interest forthe "ear 1%%/' n addition.petitioner is ORDERED !oA' 65M surcharge and 64Mdelin7uenc" interest er annu# from Fe#ruar" 16. 6446until full" paid pursuant to ;ections6-/ and 6-% of the 1%%& a$ Code'

SO ORDERED'[1&] (oldfacing inthe original)

oth parties 0led their =otions forReconsideration which were denied #" the CAFirst Division for lac9 of merit' hereafter. #othparties 0led their respective etitions for Reviewunder ;ection 11 of Repu#lic Act 8o' %6/6 (RA%6/6) with the CA !n anc'[1/]

On 6- =arch 6442. the CA !n anc promulgateda Decision a:rming respondents lia#ilit" to pa"

the A and ordering it to pa" D; on itspawnshop tic9ets' owever. the CA !n ancfound that respondents deposit on su#scriptionwas not su#<ect to D;'[1%]

Aggrieved #" the CA !n ancs Decision whichruled that respondents deposit on su#scriptionwas not su#<ect to D;. petitioner elevated thecase #efore this Court'

Te R&)i"* o !e Co&#! o T+< A((e+)s

On the ta$a#ilit" of deposit on su#scription. theCA. citing &irst Sout"ern !"iliines 4nterrises,%nc. v. Co##issioner of %nternal Revenue.[64] pointed out that deposit on su#scription is notsu#<ect to D; in the a#sence of proof that ane7uivalent amount of shares was su#scri#ed orissued in consideration for the deposit' !$pressedotherwise. deposit on stoc9 su#scription is not

su#<ect to D; if? (1) there is no agreement tosu#scri#e (6) there are no shares issued or an"additional su#scription in the restructuring planand (3) there is no proof that the issued sharescan #e considered as issued certi0cates of stoc9'[61]

he CA ruled that ;ection 1&5[66] of the a$ Codecontemplates a su#scription agreement' he CAe$plained that there can #e su#scription onl" withreference to shares of stoc9 which have #eenunissued. in the following cases? (a) the originalissuance from authoriIed capital stoc9 at the timeof incorporation (#) the opening. during the lifeof the corporation. of the portion of the originalauthoriIed capital stoc9 previousl" unissued or(c) the increase of authoriIed capital stoc9achieved through a formal amendment of thearticles of incorporation and registration of thearticles of incorporation with the ;ecurities and!$change Commission'[63]

he CA held that in this case. there was nosu#scription or an" contract for the ac7uisition of unissued stoc9 for /44.444 in the ta$a#le "earassessed' he +eneral nformation ;heet (+;) of respondent showed onl" a capital structureof 544.444 as ;u#scri#ed Capital ;toc9and 654.444 as aid,up Capital ;toc9 and didnot include the assessed amount' =ere relianceon the presumption that the assessment wascorrect and done in good faith was unavailingvis,,vis the evidence presented #" respondent'

hus. the CA ruled that the assessment forde0cienc" D; on deposit on su#scription has not#ecome 0nal'[6-]

Te Iss&e

etitioner su#mits this sole issue for ourconsideration? whether the CA erred on a7uestion of law in disregarding the rule on 0nalit"of assessments prescri#ed under ;ection 66/ of the a$ Code' Corollaril". petitioner raises theissue on whether respondent is lia#le topa" 16.36/'-5 as D; on deposit on su#scriptionof capital stoc9'

Te R&)i"* o !e Co&#!

etitioner contends that the CA erred indisregarding the rule on the 0nalit" of

assessments prescri#ed under ;ection 66/ of the a$ Code'[65] etitioner asserts that even if respondent 0led a protest. it did not oHerevidence to prove its claim that the deposit onsu#scription was an advance made #"respondents stoc9holders'[62] etitioner allegesthat respondents failure to su#mit supportingdocuments within 24 da"s from the 0ling of itsprotest as re7uired under ;ection 66/ of the a$Code caused the assessment of 16.36/'-5 fordeposit on su#scription to #ecome 0nal andunassaila#le' [6&]






























31 etitioner alleges that revenue o:cers areaHorded the presumption of regularit" in theperformance of their o:cial functions. since the"have the distinct opportunit". aside fromcompetence. to peruse records of theassessments' etitioner invo9es the principle that#" reason of the e$pertise of administrative

agencies over matters falling under their <urisdiction. the" are in a #etter position to pass <udgment thereon thus. their 0ndings of fact aregenerall" accorded great respect. if not 0nalit".#" the courts' ence. without the supportingdocuments to esta#lish the non,inclusion fromD; of the deposit on su#scription. petitionersassessment pursuant to ;ection 66/ of the a$Code had #ecome 0nal and unassaila#le'[6/]

Respondent. citing Standard C"artered (ank-!"iliine (ranc"es v. Co##issioner of %nternalRevenue.[6%] asserts that the su#mission of all therelevant supporting documents within the 24,da"period from 0ling of the protest is director"'Respondent claims that petitioner re7uested foradditional documents in petitioners letter dated16 =arch 6446. to wit? (1) loan agreement fromlender #an9s (6) o:cial receipts of interestpa"ments issued to respondent (3) documentar"evidence to su#stantiate donations claimed and(-) proof of pa"ment of D; on su#scription'[34] tmust #e noted that the onl" document re7uestedin connection with respondents D; assessmenton deposit on su#scription is proof of D;pa"ment' owever. respondent could not producean" proof of D; pa"ment #ecause it was notre7uired to pa" the same under the lawconsidering that the deposit on su#scription wasan advance made #" its stoc9holders for futuresu#scription. and no stoc9 certi0cates wereissued'[31] Respondent insists that petitioner couldhave issued a su#poena re7uiring respondent tosu#mit other documents to determine if the latteris lia#le for D; on deposit on su#scriptionpursuant to ;ection 5(c) of the a$ Code'[36]

Respondent argues that deposit on futuresu#scription is not su#<ect to D; under ;ection1&5 of the a$ Code' Respondent e$plains?

t must #e noted that deposits onsu#scription represent advancesmade #" the stoc9holders and arein the nature of lia#ilities for whichstoc9s ma" #e issued in the future'A#sent an" e$press agreement#etween the stoc9holders andpetitioner to convert saidadvancesJdeposits to capital stoc9.either through a su#scriptionagreement or an" other document.these deposits remain as lia#ilities

owed #" respondent to itsstoc9holders' For these deposits to#e su#<ect to D;. it is necessar"that a conversionJsu#scriptionagreement #e made #" First!$press and its stoc9holders'A#sent such conversion. no D;can #e imposed on said depositsunder ;ection 1&5 of the a$ Code'[33](Bnderscoring in the original)

Respondent contends that #" presenting its +;and 0nancial statements. it had alread"su:cientl" proved that the amount sought to #eta$ed is deposit on future su#scription. which isnot su#<ect to D;'[3-] Respondent claims that itcannot #e re7uired to su#mit proof of D;pa"ment on su#scription #ecause such pa"mentis non,e$istent' hus. the #urden of proving that

there was an agreement to su#scri#e and thatcerti0cates of stoc9 were issued for the depositon su#scription rests on petitioner and hise$aminers' Respondent states that a#sent an"proof. the de0cienc" assessment has no #asisand should #e cancelled'[35]

n the Taxability of +eposit on Stoc@

SubscriptionD; is a ta$ on documents. instruments. loanagreements. and papers evidencing theacceptance. assignment. sale or transfer of ano#ligation. right or propert" incident thereto' D;is actuall" an e$cise ta$ #ecause it is imposed onthe transaction rather than on the document'[32] D; is also levied on the e$ercise #" personsof certain privileges conferred #" law for thecreation. revision. or termination of speci0c legalrelationships through the e$ecution of speci0cinstruments'[3&] he a$ Code provisions on D;relating to shares or certi0cates of stoc9 state?

;ection 1&5' Sta# *a) on =riginal%ssue of S"ares of Stock ' , On ever"original issue. whether onorganiIation. reorganiIation or foran" lawful purpose. of shares of stoc9 #" an" association. compan"or corporation. there shall #ecollected a documentar" stamp ta$of wo pesos (6'44) on each wohundred pesos (644). or fractionalpart thereof. of the par value. of such shares of stoc9? !rovided.

hat in the case of the originalissue of shares of stoc9 without parvalue the amount of thedocumentar" stamp ta$ hereinprescri#ed shall #e #ased upon theactual consideration for the

issuance of such shares of stoc9? !rovided, furt"er . hat in thecase of stoc9 dividends. on theactual value represented #" eachshare'[3/]

;ection 1&2' Sta# *a) on Sales,

Agree#ents to Sell, $e#oranda of Sales, eliveries or *ransfer of ue-bills, Certi>cates of =bligation,or S"ares or Certi>cates of Stock ' ,On all sales. or agreements to sell.or memoranda of sales. or

deliveries. or transfer of due,#ills.certi0cates of o#ligation. or sharesor certi0cates of stoc9 in an"association. compan" orcorporation. or transfer of suchsecurities #" assignment in #lan9.or #" deliver". or #" an" paper oragreement. or memorandum orother evidences of transfer or salewhether entitling the holder in an"manner to the #ene0t of such due,#ills. certi0cates of o#ligation or


























36stoc9. or to secure the futurepa"ment of mone". or for thefuture transfer of an" due,#ill.certi0cate of o#ligation or stoc9.there shall #e collected adocumentar" stamp ta$ of Onepeso and 0ft" centavos (1'54) oneach wo hundred pesos (644). or

fractional part thereof. of the parvalue of such due,#ill. certi0cate of o#ligation or stoc9? !rovided. hatonl" one ta$ shall #e collected oneach sale or transfer of stoc9 orsecurities from one person toanother. regardless of whether ornot a certi0cate of stoc9 oro#ligation is issued. indorsed. ordelivered in pursuance of such saleor transfer? And rovided, furt"er .

hat in the case of stoc9 withoutpar value the amount of thedocumentar" stamp ta$ hereinprescri#ed shall #e e7uivalent totwent",0ve percent (65M) of thedocumentar" stamp ta$ paid uponthe original issue of said stoc9'[3%]

n ;ection 1&5 of the a$ Code. D; is imposed onthe original issue of shares of stoc9' he D;. asan e$cise ta$. is levied upon the privilege. theopportunit" and the facilit" of issuing shares of stoc9' n Co##issioner of %nternal Revenue v.Construction Resources of Asia, %nc..[-4] this Courte$plained that the D; attaches upon acceptanceof the stoc9holders su#scription in thecorporations capital stoc9 regardless of actual orconstructive deliver" of the certi0cates of stoc9'Citing !"iliine Consolidated Coconut %nd., %nc.v. Collector of %nternal Revenue.[-1] the Court held?

he documentar" stamp ta$ underthis provision of the law ma" #elevied onl" once. that is upon theoriginal issue of the certi0cate' hecrucial point therefore. in the case#efore Bs is the properinterpretation of the word issue' nother words. when is the certi0cate

of stoc9 deemed issued for thepurpose of imposing thedocumentar" stamp ta$ s it atthe time the certi0cates of stoc9are printed. at the time the" are0lled up (in whose name the stoc9srepresented in the certi0cateappear as certi0ed #" the propero:cials of the corporation). at thetime the" are released #" thecorporation. or at the time the" arein the possession (actual orconstructive) of the stoc9holders

owning them $ $ $ Ordinaril". when a corporationissues a certi0cate of stoc9(representing the ownership of stoc9s in the corporation to full"paid su#scription) the certi0cate of stoc9 can #e utiliIed for thee$ercise of the attri#utes of ownership over the stoc9s

mentioned on its face' he stoc9scan #e alienated the dividends orfruits derived therefrom can #een<o"ed. and the" can #econve"ed. pledged or encum#ered'

he certi0cate as issued #" thecorporation. irrespective of whether or not it is in the actual or

constructive possession of thestoc9holder. is considered issued#ecause it is with value and hencethe documentar" stamp ta$ must#e paid as imposed #" ;ection 616of the 8ational nternal RevenueCode. as amended'

n ;ection 1&2 of the a$ Code. D; is imposed onthe sales. agreements to sell. memoranda of sales. deliveries or transfer of shares orcerti0cates of stoc9 in an" association. compan".or corporation. or transfer of such securities #"assignment in #lan9. or #" deliver". or #" an"paper or agreement. or memorandum or otherevidences of transfer or sale whether entitling theholder in an" manner to the #ene0t of suchcerti0cates of stoc9. or to secure the futurepa"ment of mone". or for the future transfer of certi0cates of stoc9' n Co#agnie &inanciereSucres et enrees v. Co##issioner of %nternalRevenue. this Court held that under ;ection 1&2of the a$ Code. sales to secure the futuretransfer of due,#ills. certi0cates of o#ligation orcerti0cates of stoc9 are su#<ect to documentar"stamp ta$'[-6]

Revenue =emorandum Order 8o' 4/,%/ (R=O 4/,%/) provides the guidelines on the corporatestoc9 documentar" stamp ta$ program' R=O 4/,%/ states that?

1' All e$isting corporations shall0le the Corporation ;toc9 D;Declaration. and the D; Return.if applica#le 7e" DST is s!i))d&e o" !e s&s2#ied s+#eiss&ed !e 2o#(o#+!io". onor #efore the tenth da" of themonth following pu#lication of this Order'

$ $ $

3' All e$isting corporations withauthoriIation for increasedcapital stoc9 shall 0le theirCorporate ;toc9 D;Declaration. together with theD; Return. if applica#le7e"DST is d&e o" s&s2#i(!io"sm+de +!e# !e+&!o#iK+!io", on or #efore thetenth da" of the month following

the date of authoriIation'(oldfacing supplied)

R=O 4/,%/. reiterating Revenue =emorandumCircular 8o' -&,%& (R=C -&,%&). also states thatwhat is #eing ta$ed is the privilege of issuingshares of stoc9. and. therefore. the ta$es accrueat the time the shares are issued' R=C -&,%& alsode0nes issuance as the point in which thestoc9holder ac7uires and ma" e$ercise attri#utesof ownership over the stoc9s'











33As pointed out #" the CA. ;ections 1&5 and 1&2of the a$ Code contemplate a su#scriptionagreement in order for a ta$pa"er to #e lia#le topa" the D;' A su#scription contract is de0ned asan" contract for the ac7uisition of unissuedstoc9s in an e$isting corporation or a corporationstill to #e formed'[-3] A stoc9 su#scription is acontract #" which the su#scri#er agrees to ta9e a

certain num#er of shares of the capital stoc9 of acorporation. pa"ing for the same or e$pressl" orimpliedl" promising to pa" for the same'[--]

n this case. respondents ;toc9holders !7uit"section of its alance ;heet as of 31 Decem#er1%%/[-5] shows?

;OCKO*D!R; !NBE

1%%/ 1%%&

AuthoriIedCapital ;toc9

6.444.444'44

6.444.444'44

aid,up

Capital ;toc9

654.444'44 654.444'44

Deposit on;u#scription

/44.444'44

Retained!arnings

26./64'3- 64%.24&'64

8et ncome (/5/.-%/'3/)

(1-2.&/2'/2)

OA* 65-.361'%2

316./64'3-

he +; su#mitted to the ;ecurities and

!$change Commission on 31 =arch 1%%% showsthe following Capital ;tructure?[-2]

' Financial ro0le1' Capital ;tructure ?

ABORP!D , 6.444.444'44;B;CR!D , 544.444'44AD,B , 654.444'44

hese entries were e$plained #" =iguel Rosario. >r' (Rosario). respondents e$ternal auditor. duringthe hearing #efore the CA on 11 >une 6443'

Rosario testi0ed in this wise? Att"' 8apiIaN' =r' Rosario. refer "ou to the#alance sheet of First !$press forthe "ear 1%%/ particularl" theentr" of deposit on su#scription inthe amount of /44 thousand. will"ou please tell us what is (sic) thisentr" represents =r' Rosario >r'A' Tis +mo&"! o 00!o&s+"d #e(#ese"!s !e 2+se*i%e" !e s!o2o)de#s !o!e 2om(+" &! does "o!"e2ess+#i) m+de si2 (+me"!!o s&s2#ied (o#!io". Att"' 8apiIaN' 8+! is si2 !+! (+me"!s!+"ds o# =r' Rosario >r'

A' Tis (+me"! s!+"ds +s si2o# !e de(osi! o# &!&#es&s2#i(!io". Att"' 8apiIaN' @ould "ou 9now if First !$pressissued corresponding sharespertinent to the amount #eing

deposited =r' Rosario >r'A' 8o' Att"' 8apiIaN' @hat do "ou mean #" no Didthe" or the" did not =r' Rosario >r'A' Te did "o! iss&e +"s+#es e2+&se !+! is "o! !e(+me"! o s&s2#i(!io". T+!is ;&s! + me#e de(osi!. Att"' 8apiIaN' @ould "ou 9now. =r' Rosario.how much is the ;u#scri#edCapital of First !$press awnshop =r' Rosario >r'A' he ;u#scri#ed Capital of First!$press awnshop Compan". nc'for the "ear 1%%/ is 544thousand' Att"' 8apiIaN' ow a#out the aid Bp Capital =r' Rosario >r'A' he aid Bp Capital is 654thousand' Att"' 8apiIaN' Are (sic) all those 0gures appearin the #alance sheet =r' Rosario >r'A' he aid Bp Capital appearedhere #ut the ;u#scri#ed ortion

was not stated' (oldfacingsupplied)

ased on Rosarios testimon" and respondents0nancial statements as of 1%%/. there was noagreement to su#scri#e to the unissued shares'ere. the deposit on stoc9 su#scription refers toan amount of mone" received #" the corporationas a deposit with the possi#ilit" of appl"ing thesame as pa"ment for the future issuance of capital stoc9'[-&] n Co##issioner of %nternalRevenue v. Construction Resources of Asia, %nc..[-/] we held?

@e are 0rml" convinced that the+overnment stands to lose nothingin imposing the documentar"stamp ta$ onl" on those stoc9certi0cates dul" issued. or whereinthe stoc9holders can freel"e$ercise the attri#utes of ownership and with value at thetime the" are originall" issued' As#e*+#ds !ose 2e#!i=2+!es o s!o2s !em(o#+#i) s&;e2! !o















3-s&s(e"si%e 2o"di!io"s !es+)) e )i+)e o# s+id !+< o")7e" #e)e+sed #om s+id2o"di!io"s, o# !e" +"d o")!e" s+)) !e !#&) +2&i#e+" (#+2!i2+) %+)&e o# !ei#o7"e#s. (oldfacing supplied)

Clearl". the deposit on stoc9 su#scription asreGected in respondents alance ;heet as of 1%%/ is not a su#scription agreement su#<ect tothe pa"ment of D;' here is no /44.444 worthof su#scri#ed capital stoc9 that is reGected inrespondents +;' he deposit on stoc9su#scription is merel" an amount of mone"received #" a corporation with a view of appl"ingthe same as pa"ment for additional issuance of shares in the future. an event which ma" or ma"not happen' he person ma9ing a deposit onstoc9 su#scription does not have the standing of a stoc9holder and he is not entitled to dividends.voting rights or other prerogatives and attri#utesof a stoc9holder' ence. respondent is not lia#lefor the pa"ment of D; on its deposit onsu#scription for the reason that there is "et nosu#scription that creates rights and o#ligations#etween the su#scri#er and the corporation' n the Dinality of /ssessment as #rescribed

under Section ))8 of the Tax &ode ;ection 66/ of the a$ Code provides?

;!C' 66/' #o!es!i"* o Assessme"!' , @hen theCommissioner or his dul"authoriIed representative 0ndsthat proper ta$es should #eassessed. he shall 0rst notif" theta$pa"er of his0ndings? !rovided, "o/ever .

hat a preassessment noticeshall not #e re7uired in thefollowing cases? (a) @hen the 0nding for an"de0cienc" ta$ is the result of mathematical error in the

computation of the ta$ asappearing on the face of thereturn or(#) @hen a discrepanc" has #eendetermined #etween the ta$withheld and the amountactuall" remitted #" thewithholding agent or(c) @hen a ta$pa"er who optedto claim a refund or ta$ credit of e$cess credita#le withholding ta$for a ta$a#le period wasdetermined to have carried over

and automaticall" applied thesame amount claimed againstthe estimated ta$ lia#ilities forthe ta$a#le 7uarter or 7uartersof the succeeding ta$a#le "earor(d) @hen the e$cise ta$ due one$cisa#le articles has not #eenpaid or(e) @hen an article locall"purchased or imported #" ane$empt person. such as. #ut not

limited to. vehicles. capitale7uipment. machineries andspare parts. has #een sold.traded or transferred to non,e$empt persons'

he ta$pa"er shall #e informedin writing of the law and the

facts on which the assessment ismade otherwise. theassessment shall #e void' @ithin a period to #e prescri#ed#" implementing rules andregulations. the ta$pa"er shall#e re7uired to respond to saidnotice' f the ta$pa"er fails torespond. the Commissioner orhis dul" authoriIedrepresentative shall issue anassessment #ased on his0ndings' ;uch assessment ma" #eprotested administrativel" #"0ling a re7uest forreconsideration orreinvestigation within thirt" (34)da"s from receipt of theassessment in such form andmanner as ma" #e prescri#ed #"implementing rules andregulations' 8i!i" si<! 60d+s #om =)i"* o !e(#o!es!, +)) #e)e%+"!s&((o#!i"* do2&me"!s s+))+%e ee" s&mi!!edo!e#7ise, !e +ssessme"!s+)) e2ome ="+). f the protest is denied in wholeor in part. or is not acted uponwithin one hundred eight" (1/4)da"s from su#mission of documents. the ta$pa"eradversel" aHected #" thedecision or inaction ma" appealto the Court of a$ Appeals

within thirt" (34) da"s fromreceipt of the said decision. orfrom the lapse of the onehundred eight" (1/4),da" periodotherwise. the decision shall#ecome 0nal. e$ecutor" anddemanda#le' (oldfacingsupplied)

;ection 66/ of the a$ Code[-%] provides theremed" to dispute a ta$ assessment within acertain period of time' t states that anassessment ma" #e protested #" 0ling a re7uest

for reconsideration or reinvestigation within 34da"s from receipt of the assessment #" theta$pa"er' @ithin 24 da"s from 0ling of theprotest. all relevant supporting documents shallhave #een su#mitted otherwise. the assessmentshall #ecome 0nal' n this case. respondent received the ta$assessment on 3 >anuar" 6446 and it had until 6Fe#ruar" 6446 to su#mit its protest' On 1Fe#ruar" 6446. respondent su#mitted its protestand attached the +; and alance ;heet as of 31





35Decem#er 1%%/' Respondent e$plained that itreceived /44.444 as a deposit with thepossi#ilit" of appl"ing the same as pa"ment forthe future issuance of capital stoc9' @ithin 24 da"s from the 0ling of protest or until 6April 6446. respondent should su#mit relevantsupporting documents' Respondent. +%i"*

s&mi!!ed !e s&((o#!i"* do2&me"!s!o*e!e# 7i! i!s (#o!es!. did not presentadditional documents an"more' n a letter dated 16 =arch 6446. petitionerre7uested respondent to present proof of pa"ment of D; on su#scription' n a letter,repl".respondent stated that it could not produce an"proof of D; pa"ment #ecause it was notre7uired to pa" D; under the law consideringthat the deposit on su#scription was an advancemade #" its stoc9holders for future su#scription.and no stoc9 certi0cates were issued' ;ince respondent has not allegedl" su#mitted an"relevant supporting documents. petitioner nowclaims that the assessment has #ecome 0nal.e$ecutor" and demanda#le. hence. unappeala#le'@e re<ect petitioners view that the assessmenthas #ecome 0nal and unappeala#le' t cannot #esaid that respondent failed to su#mit relevantsupporting documents that would render theassessment 0nal #ecause when respondentsu#mitted its protest. respondent attached the+; and alance ;heet' Further. petitioner cannotinsist on the su#mission of proof of D; pa"ment#ecause such document does not e$ist asrespondent claims that it is not lia#le to pa". andhas not paid. the D; on the deposit onsu#scription'

he term relevant supporting documents should#e understood as those documents necessar" tosupport the legal #asis in disputing a ta$assessment as determined #" the ta$pa"er' heR can onl" inform the ta$pa"er to su#mitadditional documents' he R cannot demandwhat t"pe of supporting documents should #esu#mitted' Otherwise. a ta$pa"er will #e at themerc" of the R. which ma" re7uire the

production of documents that a ta$pa"er cannotsu#mit' After respondent su#mitted its letter,repl" statingthat it could not compl" with the presentation of the proof of D; pa"ment. no repl" was receivedfrom petitioner' ;ection 66/ states that if the protest is not actedupon within 1/4 da"s from su#mission of documents. the ta$pa"er adversel" aHected #"the inaction ma" appeal to the CA within 34da"s from the lapse of the 1/4,da" period'

Respondent. having su#mitted its supportingdocuments on the same da" the protest was 0led.had until 31 >ul" 6446 to wait for petitioners repl"to its protest' On 6/ August 6446 or within 34da"s after the lapse of the 1/4,da" periodcounted from the 0ling of the protest as thesupporting documents were simultaneousl" 0led.respondent 0led a petition #efore the CA'Respondent has complied with the re7uisites indisputing an assessment pursuant to ;ection 66/of the a$ Code' ence. the ta$ assessmentcannot #e considered as 0nal. e$ecutor" and

demanda#le' Further. respondents deposit onsu#scription is not su#<ect to the pa"ment of D;'Conse7uentl". respondent is not lia#le to pa" thede0cienc" D; of 16.36/'-5' 8HEREFORE. we DEN' the petition'@e AFFIRM the Court of a$ Appeals Decisiondated 6- =arch 6442 in the consolidated cases of

C''A' ! 8os' 24 and 26' SO ORDERED'

EN :ANC

G.R. No. L$1>4>5. No%eme# /4, 1>66.

COMMISSIONER OF INTERNALREVENUE, #etitioner , %. LILIA 'USA'GON?ALES +"d THE COURT OF TA@AEALS, Respondents.

S'LLA:US

1' AAO8 D;B!D A;;!;;=!8; A!A*FRO= A D!C;O8 !R!O8 O ! ROB+ O

! COBR OF A A!A*;' Q An actioninvolving a disputed assessment for internalrevenue ta$es falls within the e$clusive appellate

<urisdiction of the Court of a$ Appeals (;ec' &[1].Rep' Act 1165 la7uera v' RodrigueI. *,116%5.=arch 6%. 1%5/)' t is in that forum to thee$clusion of the Court of First nstance where theta$pa"er can ventilate his or her defense againstthe assessment'

6' D' D' D' 34,DAE !ROD O CO==!8C!FRO= DA! OF R!C! OF CO==;;O8!R OF8!R8A* R!!8B!; D!C;O8' Q On 8ovem#er1&. 1%5% *ilia Eusa" disputed the legalit" of theassessment of Fe#ruar" 13. 1%5/' On =arch 1-.1%24. *ilia Eusa" received the decision of theCommissioner of nternal Revenue on a disputedassessment' On April 13. 1%24 she 0led herpetition for review in the Court of a$ Appeals'!*D? he appeal was seasona#l" interposedpursuant to ;ection 11 of Repu#lic Act 1165' @ealread" ruled in ;t' ;tephens Association v'Collector of nternal Revenue (*,1163/. August61. 1%5/). that the counting of the thirt" da"swithin which to institute an appeal in the Court of

a$ Appeals should commence from the date ofreceipt of the decision of the Commissioner onthe disputed assessment. not from the date theassessment was issued' Accordingl". the thirt",da" period should #egin running from =arch 1-.1%24. the date *ilia Eusa" received theappeala#le decision' From said date to April 13.1%24. when she 0led her appeal in the Court of

a$ Appeals. is e$actl" thirt" da"s' ence. theappeal was timel"'

3' D' D' ROA! COBR @OB >BR;DCO8 O AD>BDCA! ! ;A=!' Q hesettlement court is of limited <urisdiction' Andunder the Rules (Rules &-,%6. now Rules &3,%1.Rules of Court). its authorit" relates onl" tomatters of estates and pro#ate of wills ofdeceased persons' ;aid Court has no <urisdictionto ad<udicate on 7uestions of disputed ta$assessments'

-' D' A R!BR8; FRABD 8 ! =AK8+



32 !R!OF =B; ! RO!D' Q Fraud is a7uestion of fact' he circumstances constituting itmust #e alleged and proved in the court #elow'And the 0nding of said court as to its e$istenceand non,e$istence is 0nal unless clearl" shown to#e erroneous' (ereI v' Court of a$ Appeals. *,%&3/. =a" 31. 1%5&)' As the court a 7uo foundthat no fraud was alleged and proved therein. we

see no reason to entertain the Commissionersassertion that the return was fraudulent'

5' D' D' R!NBR!=!8; OF ;B;A8A*CO=*A8C! @ ! *A@' Q A return need not#e complete in all particulars' t is su:cient if itcomplies su#stantiall" with the law' here issu#stantial compliance (1) when the return ismade in good faith and is not false or fraudulent(6) when it covers the entire period involved and(3) when it contains information as to the variousitems of income. deduction and credit with suchde0niteness as to permit the computation andassessment of the ta$' (>aco# =ertens. >r'. he*aw of Federal ncome a$ation. 1%5/ ed'. ol' 14.;ection 5&'13')

2' D' D' !;A! A8D 8!RA8C! A R!BR88 CA;! A AR 8;BFFC!8' Q a$ return 0led#" >ose ;' Eusa" was su#stantiall" defective' First.it was incomplete' t declared onl" ninet",threeparcels of land representing a#out -44 hectaresand left out ninet", two parcels covering 543hectares' ;aid huge under declaration could nothave #een the result of an oversight or mista9e';econd. the return mentioned no heir' hus. noinheritance ta$ could #e assessed' As a matter oflaw. on the #asis of the return. there would #e nooccasion for the imposition of estate andinheritance ta$es'

&' D' D' R!BR8; =AD! O8 ! @RO8+FOR= R!;CRO8 DO!; 8O RB8' Q @herethe return was made on the wrong form. the;upreme Court of the Bnited ;tates held that the0ling thereof did not start the running of theperiod of limitations' he return 0led in this casewas so de0cient. that it prevented theCommissioner from computing the ta$es due onthe estate' t was as though no return was made'

he Commissioner had to determine and assessthe ta$es on data o#tained. not from the return.#ut from other sources' @e therefore hold theview that the return in 7uestion was no return atall as re7uired in ;ection %3 of the a$ Code' fthe ta$pa"er failed to o#serve the law. ;ection336 of the 8ational nternal Revenue Code whichgrants the Commissioner 14 "ears period withinwhich to #ring an action for ta$ collection applies'As stated. the Commissioner came to 9now of theidentit" of the heirs on ;eptem#er 6-. 1%53 andthe huge under declaration in the gross estate on

>ul" 16. 1%5&' From the latter date. ;ection %- of

the a$ Code o#ligated him to ma9e a return oramend one alread" 0led #ased on his own9nowledge and information o#tained throughtestimon" or otherwise. and su#se7uentl" toassess thereon the ta$es due' he running of theperiod of limitations under ;ection 336(a) of the

a$ Code should therefore #e rec9oned from saiddate' From >ul" 16. 1%5& to Fe#ruar" 13. 1%5/.the date of the assessment now in dispute. lessthan ten "ears have elapsed' ence. prescriptiondid not a#ate the Commissioners right to issuesaid assessment'

/' D' D' AAE!R; @**8+8!;; O AE 8OAR O RA;! D!F!8;!; A+A8; ! A*!+A*E' Q Commissioner contends that *ilia

Eusa" is estopped from raising the defense ofprescription #ecause she failed to raise the samein her answer to the motion for allowance ofclaim and for the pa"ment of ta$es 0led in the

settlement court' eld? he Court of First nstanceacting as a settlement court is not the propertri#unal to pass upon such defense. therefore itwould #e futile to raise it therein' =oreover. the

a$ Code does not #ar the right to contest thelegalit" of the ta$ after a ta$pa"er pa"s it' Bnder;ection 342 thereof. he can pa" the ta$ and claima refund therefor' A fortiori his willingness to pa"the ta$ is no waiver to raise defenses against theta$s legalit"'

D E C I S I O N

=atias Eusa". a resident of ototan. loilo. diedintestate on =a" 13. 1%-/. leaving two heirs.namel". >ose ;' Eusa". a legitimate child. and *ilia

Eusa" +onIales. an ac9nowledged natural child'ntestate proceedings for the settlement of hisestate were instituted in the Court of Firstnstance of loilo (;pecial roceedings 8o' -5%)'

>ose ;' Eusa" was therein appointedadministrator'

On =a" 11. 1%-% >ose ;' Eusa" 0led with theureau of nternal Revenue an estate andinheritance ta$ return declaring therein thefollowing properties?

ersonal properties?

ala" 2.---'44

Cara#aos 1.444'44 &.---'44

Real properties? Capital. &-) parcels)

Con<ugal 1%) arcels) assessed at 1&%.&24'44

QQQQQ

otal gross estate 1/&.64-'44

QQQQQ

he return mentioned no heir'

Bpon investigation however the ureau ofnternal Revenue found the following properties?

ersonal properties?

ala" 2.---'44

Cara#aos 1.544'44

ac9ard Automo#ile 6.444'44

6 Aparadors 544'44 14.---'44

QQQQ

Real properties?

Capital. 65 parcels assessed /&.&15'36



3&1J6 of Con<ugal. 134 parcels assessed at161.-65'44 QQQQQ QQQQQ64%.1-4'36

QQQQQ otal 61%.5/-'36

he fair mar9et value of the real properties was

computed #" increasing the assessed value #"fort" percent'

ased on the a#ove 0ndings. the ureau ofnternal Revenue assessed on Octo#er 6%. 1%53estate and inheritance ta$es in the sums of2./-%'&/ and 12.%&4'23. respectivel"'

On >anuar" 65. 1%55 the ureau of nternalRevenue increased the assessment to /.665'/%as estate ta$ and 66.11&'14 as inheritance ta$plus delin7uenc" interest and demandedpa"ment thereof on or #efore Fe#ruar" 6/. 1%55'=eanwhile. on Fe#ruar" 12. 1%55. the Court ofFirst nstance of loilo re7uired >ose ;' Eusa" toshow proof of pa"ment of said estate andinheritance ta$es'

On =arch 3. 1%55 >ose ;' Eusa" re7uested ane$tension of time within which to pa" the ta$' eposted a suret" #ond to guarantee pa"ment ofthe ta$es in 7uestion within one "ear' heCommissioner of nternal Revenue howeverdenied the re7uest' hen he issued a warrant ofdistraint and lev" which he transmitted to the=unicipal reasurer of ototan for e$ecution' hiswarrant was not enforced #ecause all thepersonal properties su#<ect to distraint werelocated in loilo Cit"'

On =a" 64. 1%55 the rovincial reasurer of loilore7uested the R rovincial Revenue O:cer tofurnish him copies of the assessment notices tosupport a motion for pa"ment of ta$es which therovincial Fiscal would 0le in ;pecial roceedings8o' -5% #efore the Court of First nstance of loilo'

he papers re7uested were sent #" theCommissioner of nternal Revenue to therovincial Revenue O:cer of loilo to #etransmitted to the rovincial reasurer' he

records do not however show whether therovincial Fiscal 0led a claim with the Court ofFirst nstance for the ta$es due'

On =a" 34. 1%52 the commissioner appointed #"the Court of First nstance for the purpose.su#mitted a recommended pro<ect of partitionwhich listed the following properties?chanro#1esvirtual 1aw li#rar"

ersonal properties?

uic9 ;edan /.144'44

ac9ard car 6.444'44

Aparadors 544'44

Cash in an9 (8) /./5/'-2

ala" 2.---'44

Cara#aos 1.544'44 6&.-46'-2

QQQQ

Real properties? *and. 1&- parcels

assessed at 36-.&%&'61

uildings -.544'44 36%.6%&'61

QQQQ QQQQ

otal 352.2%%'2&

=ore than a "ear later particularl" on >ul" 16.1%5&. an agent of the ureau of nternal Revenueapprised the Commissioner of nternal Revenue of the e$istence of said recommended pro<ect ofpartition' @hereupon. the nternal RevenueCommissioner caused the estate of =atias Eusa"to #e reinvestigated for estate and inheritanceta$ lia#ilit"' Accordingl". on Fe#ruar" 13. 1%5/ heissued the following assessment?

!state ta$ 12.6-2'4-

5M surcharge -11'6%

Delin7uenc" interest 11./2/'%4

Compromise 8o notice of death 15'44

*ate pa"ment -4'44 55'44

QQQ QQQQ

otal 6/.5/1'63

QQQQ

nheritance a$ 3/.1&/'16

5M surcharge 1.145'/2

Delin7uenc" interest 6/./4/'&5

Compromise for late pa"ment 54'44

QQQQ

otal 2%.1-6'&3

QQQQ

otal estate and inheritance ta$es %&.&63'%2

QQQQ

*i9e in previous assessments. the fail mar9etvalue of the real properties was arrived at #"adding -4M to the assessed value'

n view of the demise of >ose ;' Eusa". saidassessment was sent to his widow. =rs' Florenciaiccio da' de Eusa". who succeeded him in theadministration of the estate of =atias Eusa"'

8o pa"ment having #een made despite repeateddemands. the Commissioner of nternal Revenue0led a proof of claim for the estate andinheritance ta$es due and a motion for itsallowance with the settlement court invo9ingpriorit" of lien pursuant to ;ection 315 of the a$Code'



3/

On >une 1. 1%5%. *ilia Eusa". through her counsel.Ramon +onIaleI. 0led an answer to the proof ofclaim alleging non,receipt of the assessment ofFe#ruar" 13. 1%5/. the e$istence of twoadministrators. namel". Florencia iccio da' de

Eusa" who administered two,thirds of the estate.and *ilia Eusa". who administered the remaining

one,third. and her willingness to pa" the ta$escorresponding to her share. and pra"ing fordeferment of the resolution on the motion for thepa"ment of ta$es until after a new assessmentcorresponding to her share was issued'

On 8ovem#er 1&. 1%5% *ilia Eusa" disputed thelegalit" of the assessment dated Fe#ruar" 13.1%5/' ;he claimed that the right to ma9e thesame had prescri#ed inasmuch as more than 0ve"ears had elapsed since the 0ling of the estateand inheritance ta$ return on =a" 11. 1%-%' ;hetherefore re7uested that the assessment #edeclared invalid and without force and eHect' hisre7uest was re<ected #" the Commissioner in hisletter dated >anuar" 64. 1%24. received #" *ilia

Eusa" on =arch 1-. 1%24. for the reasons.namel". (1) that the right to assess the ta$es in7uestion has not #een lost #" prescription sincethe return which did not name the heirs cannot#e considered a true and complete returnsu:cient to start the running of the period oflimitations of 0ve "ears under ;ection 331 of the

a$ Code and pursuant to ;ection 336 of thesame Code he has ten "ears within which toma9e the assessment counted from the discover"on ;eptem#er 6-. 1%53 of the identit" of theheirs and (6) that the estates administratorwaived the defense of prescription when he 0leda suret" #ond on =arch 3. 1%55 to guaranteepa"ment of the ta$es in 7uestion and when here7uested postponement of the pa"ment of theta$es pending determination of who the heirs are#" the settlement court'

On April 13. 1%24 *ilia Eusa" 0led a petition forreview in the Court of a$ Appeals assailing thelegalit" of the assessment dated Fe#ruar" 13.1%5/' After hearing the parties. said courtdeclared the right of the Commissioner of nternal

Revenue to assess the estate and inheritanceta$es in 7uestion to have prescri#ed andrendered the following <udgment?

S@!R!FOR!. the decision of respondentassessing against the estate of the late =atias

Eusa" estate and inheritance ta$es is here#"reversed' 8o' costs'S

he Commissioner of nternal Revenue appealedto this Court and raises the following issues?

1' @as the petition for review 0led in the Court of

a$ Appeals within the 34,da" period provided forin ;ection 11 of Repu#lic Act 1165

6' Could the Court of a$ Appeals ta9e cogniIanceof *ilia Eusa"s appeal despite the pendenc" ofthe Sroof of ClaimS and S=otion for Allowance ofClaim and for an Order of a"ment of a$esS 0led#" the Commissioner of nternal Revenue in;pecial roceedings 8o' -5% #efore the Court ofFirst nstance of loilo

3' as the right of the Commissioner of nternal

Revenue to assess the estate and inheritanceta$es in 7uestion prescri#ed

On 8ovem#er 1&. 1%5% *ilia Eusa" disputed thelegalit" of the assessment of Fe#ruar" 13. 1%5/'On =arch 1-. 1%24 she received the decision ofthe Commissioner of nternal Revenue on thedisputed assessment' On April 13. 1%24 she 0led

her petition for review in the Court of a$Appeals' ;aid Court correctl" held that the appealwas seasona#l" interposed pursuant to ;ection11 of Repu#lic Act 1165' @e alread" ruled in ;t';tephens Association v' Collector of nternalRevenue. 1 that the counting of the thirt" da"swithin which to institute an appeal in the Court of

a$ Appeals should commence from the date ofreceipt of the decision of the Commissioner onthe disputed assessment. not from the date theassessment was issued'

Accordingl". the thirt",da" period should #eginrunning from =arch 1-. 1%24. the date *ilia Eusa"received the appeala#le decision' From said dateto April 13. 1%24. when she 0led her appeal in theCourt of a$ Appeals. is e$actl" thirt" da"s'ence. the appeal was timel"'

8e$t. the Commissioner attac9s the <urisdiction of the Court of a$ Appeals to ta9e cogniIance of*ilia Eusa"s appeal on the ground of lis pendens'e maintains that the pendenc" of his motion forallowance of claim and for order of pa"ment ofta$es in the Court of First nstance of loilo wouldpreclude the Court of a$ Appeals from ac7uiring

<urisdiction over *ilia Eusa"s Appeal' hiscontention lac9s merit'

*ilia Eusa"s cause see9s to resist the legalit" ofthe assessment in 7uestion' ;hould she maintainit in the settlement court or should she elevateher cause to the Court of a$ Appeals @e sa".she acted correctl" #" appealing to the lattercourt' An action involving a disputed assessmentfor internal revenue ta$es falls within thee$clusive appellate <urisdiction of the Court of a$Appeals' 6 t is in that forum. to the e$clusion ofthe Court of First nstance. 3 where she couldventilate her defenses against the assessment'

=oreover. the settlement court. where theCommissioner would wish *ilia Eusa" to contestthe assessment is of limited <urisdiction' Andunder the Rules. - its authorit" relates onl" tomatters having to do with the settlement ofestates and pro#ate of wills of deceased persons'5 ;aid court has no <urisdiction to ad<udicate thecontentions in 7uestion. which Q assuming the"do not come e$clusivel" under the a$ CourtscogniIance Q must #e su#mitted to the Court ofFirst nstance in the e$ercise of its general

>urisdiction' 2

@e now come to the issue of prescription' *ilia Eusa" claims that since the latest assessmentwas issued onl" on Fe#ruar" 13. 1%5/ or eight"ears. nine months and two da"s from the 0lingof the estate and inheritance ta$ return. theCommissioners right to ma9e it has e$pired' ;hewould rest her stand on ;ection 331 of the a$Code which limits the right of the Commissionerto assess the ta$ within 0ve "ears from the 0lingof the return'



3% he Commissioner claims that fraud attended the0ling of the return that this #eing so. ;ection336(a) of the a$ Code would appl"' & t ma" #ewell to note that the assessment letter itself(!$hi#it 66) did not impute fraud in the returnwith intent to evade pa"ment of the ta$'recisel". no surcharge for fraud was imposed' nhis answer to the petition for review 0led #" *ilia

Eusa" in the Court of a$ Appeals. theCommissioner alleged no fraud' nstead. he#roached the insu:cienc" of the return as #arringthe commencement of the running of the statuteof limitations' e raised the point of fraud for the0rst time in the proceedings. onl" in hismemorandum 0led with the a$ Court su#se7uentto resting his case' ;aid Court re<ected the plea of fraud for lac9 of allegation and proof. and ruledthat the return. although not accurate. wassu:cient to start the period of prescription'

Fraud is a 7uestion of fact' / he circumstancesconstituting it must #e alleged and proved in thecourt #elow' % And the 0nding of said court as toits e$istence and none$istence is 0nal unlessclearl" shown to #e erroneous' 14 As the court a7uo found that no fraud was alleged and provedtherein. we see no reason to entertain theCommissioners assertion that the return wasfraudulent'

he conclusion. however. that the return 0led #" >ose ;' Eusa" was su:cient to commence therunning of the prescriptive period. under ;ection331 of the a$ Code rests on no solid ground'

aragraph (a) of ;ection %3 of the a$ Code liststhe re7uirements of a valid return' t states?

S(a) Re7uirements' Q n all cases of inheritanceor transfers su#<ect to either the estate ta$ or theinheritance ta$. or #oth. or where. though e$emptfrom #oth ta$es. the gross value of the estatee$ceeds three thousand pesos. the e$ecutor.administrator. or an"one of the heirs. as the casema" #e. shall 0le a return under oath in duplicate.setting forth (1) the value of the gross estate ofthe decedent at the time of his death. or. in caseof a nonresident not a citiIen of the hilippines.

or that part of his gross estate situated in thehilippines (6) the deductions allowed from grossestate in determining net estate as de0ned insection eight",nine (3) such part of suchinformation as ma" at the time #e ascertaina#leand such supplemental data as ma" #e necessar"to esta#lish the correct ta$es'S

A return need not #e complete in all particulars' tis su:cient if it complies su#stantiall" with thelaw' here is su#stantial compliance (1) when thereturn is made in good faith and is not false orfraudulent (6) when it covers the entire period

involved and (3) when it contains information asto the various items of income. deduction andcredit with such de0niteness as to permit thecomputation and assessment of the ta$' 11

here is no 7uestion that the estate andinheritance ta$ return 0led #" >ose ;' Eusa" wassu#stantiall" defective'

First. it was incomplete' t declared onl" ninet",three parcels of land representing a#out -44hectares and left out ninet",two parcels covering

543 hectares' ;aid huge under declaration couldnot have #een the result of an oversight ormista9e' As found in *,113&/. supra note &. >ose;' Eusa" ver" well 9new of the e$istence of theomitted properties' erhaps his motive in underdeclaring the inventor" of properties attached tothe return was to deprive *ilia Eusa" frominheriting her legal share in the hereditar" estate.

#ut certainl" not #ecause he honestl" #elievedthat the" did not form part of the gross estate'

;econd. the return mentioned no heir' hus. noinheritance ta$ could #e assessed' As a matter oflaw. on the #asis of the return. there would #e nooccasion for the imposition of estate andinheritance ta$es' @hen there is no heir Q thereturn showed none Q the intestate estate isescheated to the ;tate' 16 he ;tate ta$es notitself'

n a case where the return was made on thewrong form. the ;upreme Court of the Bnited;tates held that the 0ling thereof did not start therunning of the period of limitations' 13 hereason is that the return su#mitted did notcontain the necessar" information re7uired in thecorrect form' n this <urisdiction. however. the;upreme Court refrained from appl"ing the saidruling of the Bnited ;tates ;upreme Court inCollector of nternal Revenue v' Central AIucarerade arlac. *,11&24,21. >ul" 31. 1%5/. on theground that the return was complete in itselfalthough inaccurate' o our mind. it would notma9e much diHerence where a return is made onthe correct form prescri#ed #" the ureau ofnternal Revenue if the data therein re7uired arenot supplied #" the ta$pa"er' >ust the same. thenecessar" information for the assessment of theta$ would #e missing'

he return 0led in this case was so de0cient thatit prevented the Commissioner from computingthe ta$es due on the estate' t was as though noreturn was made' he Commissioner had todetermine and assess the ta$es on data o#tained.not from the return. #ut from other sources' @etherefore hold the view that the return in7uestion was no return at all as re7uired in

;ection %3 of the a$ Code'

he law imposes upon the ta$pa"er the #urden of suppl"ing #" the return the information uponwhich an assessment would #e #ased' 1- isdut" complied with. the ta$pa"er is not #ound todo an"thing more than to wait for theCommissioner to assess the ta$' owever. he isnot re7uired to wait forever' ;ection 331 of the

a$ Code gives the Commissioner 0ve "earswithin which to ma9e his assessment' 15 !$cept.of course. if the ta$pa"er failed to o#serve thelaw. in which case ;ection 336 of the same Code

grants the Commissioner a longer period' 8on,o#servance consists in 0ling a false or fraudulentreturn with intent to evade the ta$ or in 0ling noreturn at all'

Accordingl". for purposes of determining whetheror not the Commissioners assessment ofFe#ruar" 13. 1%5/ is #arred #" prescription.;ection 336 (a) which is an e$ception to ;ection331 of the a$ Code 0nds application' 12 @e7uote ;ection 336(a)



-4S;!C' 336' !$ception as to period of limitations of assessment and collection of ta$es' Q (a) n thecase of a false or fraudulent return with intent toevade ta$ or of a failure to 0le a return. the ta$ma" #e assessed. or a proceeding in court for thecollection of such ta$ ma" #e #egun withoutassessment. at an" time within ten "ears afterthe discover" of the falsit". fraud or omission'S

As stated. the Commissioner came to 9now of theidentit" of the heirs on ;eptem#er 6-. 1%53 andthe huge under declaration in the gross estateson >ul" 16. 1%5&' From the latter date. ;ection %-of the a$ Code o#ligated him to ma9e a return oramend one alread" 0led #ased on his own9nowledge and information o#tained throughtestimon" or otherwise. and su#se7uentl" toassess thereon the ta$es due' he running of theperiod of limitations under ;ection 336(a) of the

a$ Code should therefore #e rec9oned from saiddate for. as aforesaid. it is from that time that theCommissioner was e$pected #" law to ma9e hisreturn and assess the ta$ due thereon' From >ul"16. 1%5& to Fe#ruar" 13. 1%5/. the date of theassessment now in dispute. less than ten "earshave elapsed' ence. prescription did not a#atethe Commissioners right to issue saidassessment'

Anent the Commissioners contention that *ilia Eusa" is estopped from raising the defense ofprescription #ecause she failed to raise the samein her answer to the motion for allowance ofclaim and the pa"ment of ta$es 0led in thesettlement court (Court of First nstance of loilo).su:ce it to state that it would #e un<ust to theta$pa"er if @e were to sustain such a view' heCourt of First nstance acting as a settlementcourt is not the proper tri#unal to pass upon suchdefense. therefore it would #e #ut futile to raise ittherein' =oreover. the a$ Code does not #ar theright to contest the legalit" of the ta$ after ata$pa"er pa"s it' Bnder ;ection 342 thereof. hecan pa" the ta$ and claim a refund therefore' Afortiori his willingness to pa" the ta$ is no waiverto raise defenses against the ta$s legalit"'

@!R!FOR!. the <udgment appealed from is set

aside and another entered a:rming theassessment of the Commissioner of nternalRevenue dated Fe#ruar" 13. 1%5/' *ilia Eusa"+onIales. as administratri$ of the intestate estateof =atias Eusa". is here#" ordered to pa" thesums of 12.6-2'4- and 3%.1&/'16 as estateand inheritance ta$es. respectivel". plus interestand surcharge for delin7uenc" in accordance with;ection 141 of the 8ational nternal RevenueCode. without pre<udice to reim#ursement fromher co,administratri$. Florencia iccio da' de

Eusa" for the latters corresponding ta$ lia#ilit"'8o costs' ;o ordered'

R!;O*BO8

O8 =OO8 FOR R!CO8;D!RAO8

April 6-. 1%2&

Respondent *ilia Eusa" +onIales see9sreconsideration of our decision holding her lia#lefor the pa"ment of %&.&63'%2 as estate andinheritance ta$es plus delin7uenc" penalties as

administratri$ of the intestate estate of =atias Eusa"' he grounds raised #" her deserve thise$tended resolution'

Firstl". movant maintains that the issue ofwhether or not the estate and inheritance ta$return 0led #" >ose Eusa" on =a" 13. 1%-% wassu:cient to start the running of the statute of

limitations on assessment. was neither raised inthe Court of a$ Appeals nor assigned as error#efore this Court' he records in the Court of a$Appeals however show the contrar"' aragraph 6of the answer 0led #" the Commission of nternalRevenue states?

S6' hat he li9ewise admits. as alleged inparagraph 1 thereof having received the letter ofthe petitioner dated 8ovem#er 6&. 1%5% (Anne$SAS of the etition for Review). contesting theassessment of estate and inheritance ta$es leviedagainst the ntestate !state of the late =atias

Eusa". ;pecial roceedings 8o' -5%. Court of Firstnstance of loilo. on the ground that the saidassessment has alread" prescri#ed. #utspeci0call" denies the allegations that theassessments have alread" prescri#ed. the truthof the matter #eing that the returns 0led on =a"11. 1%-% cannot #e considered as a true. andcomplete return su:cient to start the running ofthe period of 0ve (5) "ears prescri#ed in ;ec' 331of the a$ CodeS

his point was discussed in the memorandum ofthe Commissioner of nternal Revenue. thus?

Sn the estate and inheritance ta$ return 0led #" >ose ;' Eusa" (!$hi#its T 1. pp' 1-,64. ''R'records) the net value of the estate of thedeceased was claimed to #e 643.35-'44 and noinheritance ta$ was shown as the heirs were notindicated' n the 0nal computation of the estate#" an e$aminer of the respondent. the net estatewas found to #e worth -14.51/'3/ (p' 145. ''R'records) or a#out more than twice the originalamount declared in the return' n the su#se7uentinvestigation of this case. it was also determinedthat the heirs of the deceased were >ose ;' Eusa".a legitimate son. and *ilia Eusa". an

ac9nowledged natural child. (petitioner herein)'

SBnder the circumstances. we #elieve the return0led on =a" 11. 1%-% was false or fraudulent inthe sense that the value of the properties wereunder declared and that the said return was alsoincomplete as the heirs to the estate were notspeci0ed' nasmuch as the respondent was notfurnished ade7uate data upon which to #ase anassessment. the said return cannot #e considereda true and complete return su:cient to start therunning of the period of limitations of 0ve (5)"ears prescri#ed in ;ection 331 of the a$ Code'S

n the lower court the defense of theCommissioner of nternal Revenue against *ilia

Eusa" +onIales plea of prescription. centered onthe insu:cienc" and fraudulence or falsit" of thereturn 0led #" >ose Eusa"' he Court of a$Appeals overruled the Commissioner of nternalRevenue' ;aid of a$ Code?

She provision of ;ection 336 (a) of the a$ Codecannot #e invo9ed in this case as it was neitheralleged in respondents answer. nor proved



-1during the hearing that the return was false orfraudulent with intent to evade the pa"ment ofta$' =oreover. the failure of respondent to chargefraud and impose the penalt" thereof in theassessments made in 1%53. 1%55 and 1%52 is anelo7uent demonstration that the 0ling ofpetitioners transfer ta$ return was not attended#" falsit" or fraud with intent to evade ta$'

) ) )

Sut respondent urges upon us that the 0ling ofthe return did not start the running of the 0ve (5)"ear period for the reason that the return did notdisclose the heirs of the deceased =atias. Eusa".and contained inade7uate data regarding thevalue of the estate' @e #elieve that these mereomissions do not re7uire additional returns for thesame' Altho incomplete for #eing de0cient onthese matters. the return cannot #e regard as acase of failure to 0le a return where want of goodfaith and intent to evade the ta$ on the part ofpetitioner are not charged' t served as asu:cient notice of the Commissioner of nternalRevenue to ma9e his assessment and start therunning of the period of limitation' n thisconnection. it must #e #orne in mind that theCommissioner is not con0ned to the ta$pa"ersreturn in ma9ing assessment of the ta$. and forhis purpose he ma" secure additional informationfrom other sources' As was done in the case at#ar. he sends investigators to e$amine theta$pa"ers records and other pertinent data' isassessment is #ased upon the facts uncovered #"the investigation (Collector v' Central AIucarerade arlac. +'R' 8os' *,11&24 and *,11&21. >ul" 31.1%5/)'

SFurthermore. the failure to state the heirs in thereturn can #e attri#uted to the then unsettledconGict raging #efore the pro#ate court as to whoare the heirs of the estate' ;uch failure could nothave #een a deli#erate attempt to mislead thegovernment in the assessment of the correctta$es'S

n his appeal. the Commissioner of nternalRevenue assigned as third error of the Court of

a$ Appeals the 0nding that the assessment in7uestion was Smade #e"ond the 0ve,"earstatutor" period provided in ;ection 336(a) of the

a$ Code.S and that the right of the Commissionerof nternal Revenue to assess the estate andinheritance ta$es has alread" prescri#ed' osustain his side. the Commissioner ventilated inhis #rief. fraud in the 0ling of the return. a#senceof certain data from the return which preventedhim from assessing thereon the ta$ due and thependenc" in this Court of *,113&- entitledSntestate !state of the late Eusa" +onIalesSwhich allegedl" had the eHect of suspending the

running of the period of limitations onassessment'

Clearl". therefore. it would #e incorrect to sa"that the 7uestion of whether or not the return0led #" >ose Eusa" was su:cient to start therunning of the statute of limitations to assess thecorresponding ta$. was not raised #" theCommissioner in the Court of a$ Appeals and inthis Court'

;econd' =ovant contends that contrar" to Our

ruling. the return 0led #" >ose Eusa" wassu:cient to start the statute of limitations onassessment' nasmuch as this 7uestion wasampl" discussed in Our decision sought to #ereconsidered. and no new argument wasadvanced. @e deem it unnecessar" to pass uponthe same' here is no reason for an" change onOur stand on this point'

hird' =ovant insists that since she administersonl" one,third of the estate of =atias Eusa". sheshould not #e lia#le for the whole ta$' And shesuggests that @e hold the intestate estate of=atias Eusa" lia#le for said ta$es. one,third to #epaid #" *ilia Eusa" +onIales and two,thirds to #epaid #" Florencia ' da' de Eusa"'

he foregoing suggestion to re7uire pa"ment oftwo,thirds of the totals ta$es #" Florencia ' da'de Eusa" is not accepta#le. for she (Florencia 'da' de Eusa") is not a part" in this case'

t should #e pointed out that *ilia Eusa" +onIalesappealed the whole assessment to the Court of

a$ Appeals' hereupon. the Commissioner ofnternal Revenue 7uestioned her legal capacit" toinstitute the appeal on the ground that sheadministered onl" one, third of the estate of=atias Eusa"' n opposition. she espoused theview. which was sustained #" the a$ Court. thatin co,administration. the administratrices areregarded as one person and the acts of one ofthem in relation to the regular administration ofthe estate are deemed to #e the acts of allhence. each administratri$ can represent thewhole estate' n advancing such proposition. *ilia

Eusa" +onIales represented the whole estate andhoped to #ene0t from the favora#le outcome ofthe case' For the same reason that sherepresented her co, administratri$ and the wholeestate of =atias Eusa". she ris9ed #eing orderedto pa" the whole assessment. should theassessment #e sustained'

er change of stand adopted in the motion forreconsideration to the eHect that she should #emade lia#le for onl" one,third of the total ta$.would negate her aforesaid proposition #efore the

Court of a$ Appeals' ;he is now estopped fromden"ing lia#ilit" for the whole ta$'

At an" rate. estate and inheritance ta$es aresatis0ed from the estate and are to #e paid #"the e$ecutor or administrator' 1 @here there aretwo or more e$ecutors. all of them are severall"lia#le for the pa"ment of the estate ta$' 6 heinheritance ta$. although charged against theaccount of each #ene0ciar". should #e paid #"the e$ecutor or administrator' 3 Failure to pa" theestate and inheritance ta$es #efore distri#ution of the estate would su#<ect the e$ecutor or

administrator to criminal lia#ilit" under ;ection14&(c) of the a$ Code'

t is immaterial therefore that *ilia Eusa"+onIales administers onl" one,third of the estateand will receive as her share onl" said portion. forher right to the estate comes after ta$es' - As anadministratri$. she is lia#le for the entire estateta$' As an heir. she is lia#le for the entireinheritance ta$ although her lia#ilit" would note$ceed the amount of her share in the estate' 5

he entire inheritance ta$ which amounts to



-63%.1&/'16 e$cluding penalties is o#viousl" muchless than her distri#utive share'

=otion for reconsideration denied'

FIRST DIVISION

G.R. NO. 164> -&"e 16, /006

RI?AL COMMERCIAL :ANINGCORORATION, e!i!io"e#, %.COMMISSIONER OF INTERNAL REVENUE,Res(o"de"!.

D E C I S I O N

his is a etition for Review under Rule -5 of theRules of Court assailing the Decision1 of the Court

of a$ Appeals (CA) 4n (anc dated >une &. 6445in C''A' ! 8o' 54 which a:rmed the Resolutionsof the CA ;econd Division dated =a" 3.644-6 and 8ovem#er 5. 644-3 in C''A' Case 8o'2-&5 den"ing petitionerLs etition for Relief from

>udgment and the =otion for Reconsiderationthereof. respectivel"'

he undisputed facts are as follows?

On >ul" 5. 6441. petitioner RiIal Commercialan9ing Corporation received a Formal *etter ofDemand dated =a" 65. 6441 from the

respondent Commissioner of nternal Revenue forits ta$ lia#ilities particularl" for +ross Onshore a$in the amount of 53.%%/.-6/'6% andDocumentar" ;tamp a$ for its ;pecial ;avingslacements in the amount of -2.&1&.%56'&2. forthe ta$a#le "ear 1%%&'-

On >ul" 64. 6441. petitioner 0led a protestletterJre7uest for reconsiderationJreinvestigationpursuant to ;ection 66/ of the 8ational nternalRevenue Code of 1%%& (8RC)'5

As the protest was not acted upon #" the

respondent. petitioner 0led on April 34. 6446 aetition for Review with the CA for thecancellation of the assessments which wasdoc9eted as C''A' Case 8o' 2-&5'2

On >ul" 15. 6443. respondent 0led a motion toresolve 0rst the issue of CALs <urisdiction.& whichwas granted #" the CA in a Resolution dated;eptem#er 14. 6443'/ he etition for Review wasdismissed #ecause it was 0led #e"ond the 34,da"period following the lapse of 1/4 da"s frompetitionerLs su#mission of documents in supportof its protest. as provided under ;ection 66/ of

the 8RC and ;ection 11 of R'A' 8o' 1165.otherwise 9nown as the a/ Creating t"e Courtof *a) Aeals'

etitioner did not 0le a motion for reconsiderationor an appeal to the CA 4n (anc from thedismissal of its etition for Review ' Conse7uentl".the ;eptem#er 14. 6443 Resolution #ecame 0naland e$ecutor" on Octo#er 1. 6443 and !ntr" of

>udgment was made on Decem#er 1.6443'% hereafter. respondent sent a Demand

*etter to petitioner for the pa"ment of thede0cienc" ta$ assessments'

On Fe#ruar" 64. 644-. petitioner 0led a !etitionfor Relief fro# udg#ent 14 on the ground ofe$cusa#le negligence of its counselLs secretar"who allegedl" mis0led and lost the ;eptem#er 14.6443 Resolution' he CA ;econd Division set the

case for hearing on April 6. 644-11

during whichpetitionerLs counsel was present'16 Respondent0led an Opposition13 while petitioner su#mitted its=anifestation and Counter,=otion'1-

On =a" 3. 644-. the CA ;econd Divisionrendered a Resolution15 den"ing petitionerLsetition for Relief from >udgment'

etitionerLs motion for reconsideration wasdenied in a Resolution dated 8ovem#er 5.644-.12 hence it 0led a etition for Review withthe CA 4n (anc. doc9eted as C''A' ! 8o' 54.

which a:rmed the assailed Resolutions of theCA ;econd Division in a Decision dated >une &.6445'

ence. this etition for Review #ased on thefollowing grounds?

'

! O8ORA*! CA A8D CA 4N (ANC +RA!*E!RR!D 8 D!8E8+ !O8!RL; !O8 FORR!*!F. @OB FR; AFFORD8+ !

OORB8E O ADDBC! !D!8C! O!;A*; ! FACBA* A**!+AO8;CO8;B8+ ; A**!+!D !CB;A*!8!+*+!8C!. 8 C*!AR O*AO8 OF!O8!RL; A;C R+ O DB! ROC!;;'

'

CO8;D!R8+ A ! ;B>!C A;;!;;=!8.8;OFAR A; 8O*!; A**!+!D D!FC!8CEDOCB=!8ARE ;A= A!; O8 ;!CA*;A8+; ACCOB8;. ; A8 ;;B! AFF!C8+ A**=!=!R; OF ! A8K8+ 8DB;RE.

!O8!R. *K! A** O!R A8K;. ;OB*D !AFFORD!D A8 !NBA* OORB8E O FB**E*+A! ! ;;B!. A8D A! ! CA;!D!!R=8!D A;!D O8 ; =!R;. RA!R

A8 O8 A =!R! !C8CA*E'1&

Relief from <udgment under Rule 3/ of the Rulesof Court is a legal remed" that is allowed onl" ine$ceptional cases where#" a part" see9s to setaside a <udgment rendered against him #" a courtwhenever he was un<ustl" deprived of a hearingor was prevented from ta9ing an appeal. in eithercase. #ecause of fraud. accident. mista9e or

e$cusa#le neglect'1/

etitioner argues that it was denied due processwhen it was not given the opportunit" to #e heardto prove that its failure to 0le a motion forreconsideration or appeal from the dismissal of itsetition for Review was due to the failure of itsemplo"ee to forward the cop" of the ;eptem#er14. 6443 Resolution which constitutes e$cusa#lenegligence'

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-3etitionerLs argument lac9s merit'

t is #asic that as long as a part" is given theopportunit" to defend his interests in due course.he would have no reason to complain. for it is thisopportunit" to #e heard that ma9es up theessence of due process'1% n (atongbakal v.

?afra.64 the Court held that?

here is no 7uestion that the Sessence of dueprocess is a hearing #efore conviction and #eforean impartial and disinterested tri#unalS #ut dueprocess as a constitutional precept does not.alwa"s and in all situations. re7uire a trial,t"peproceeding' he essence of due process is to #efound in the reasona#le opportunit" to #e heardand su#mit an" evidence one ma" have insupport of oneLs defense' To e e+#d does"o! o") me+" %e#+) +#*&me"!s i" 2o&#!o"e m+ e e+#d +)so !#o&* ()e+di"*s.8e#e o((o#!&"i! !o e e+#d, ei!e#

!#o&* o#+) +#*&me"!s o# ()e+di"*s, is+22o#ded, !e#e is "o de"i+) o (#o2ed&#+)d&e (#o2ess. (4#"asis sulied)'

As correctl" pointed #" the O:ce of the ;olicitor+eneral (O;+). the CA ;econd Division set thecase for hearing on April 6. 644- after the 0ling#" the petitioner of its petition for relief from

<udgment' etitionerLs counsel was present on thescheduled hearing and in fact orall" argued itspetition'

=oreover. after the CA ;econd Division

dismissed the petition for relief from <udgment ina Resolution dated =a" 3. 644-. petitioner 0led amotion for reconsideration and the court furtherre7uired #oth parties to 0le their respectivememorandum' ndeed. petitioner was not deniedits da" in court considering the opportunitiesgiven to argue its claim'

Relief cannot #e granted on the Gims" e$cusethat the failure to appeal was due to the neglectof petitionerLs counsel'61 Otherwise. all that alosing part" would do to salvage his case would#e to invo9e neglect or mista9e of his counsel as

a ground for reversing or setting aside theadverse <udgment. there#" putting no end tolitigation'66

8egligence to #e Se$cusa#leS must #e one whichordinar" diligence and prudence could not haveguarded against and #" reason of which therights of an aggrieved part" have pro#a#l" #eenimpaired'63etitionerLs former counselLs omissioncould hardl" #e characteriIed as e$cusa#le. muchless unavoida#le'

he Court has repeatedl" admonished law"ers toadopt a s"stem where#" the" can alwa"s receivepromptl" <udicial notices and pleadings intendedfor them'6- Apparentl". petitionerLs counsel wasnot onl" remiss in compl"ing with this admonition#ut he also failed to chec9 periodicall". as an actof prudence and diligence. the status of thepending case #efore the CA ;econd Division' hefact that counsel allegedl" had not renewed theemplo"ment of his secretar". there#" ma9ing thelatter no longer attentive or focused on her wor9.did not relieve him of his responsi#ilities to his

client' t is a pro#lem personal to him whichshould not in an" manner interfere with hisprofessional commitments'

n e$ceptional cases. when the mista9e of counselis so palpa#le that it amounts to grossnegligence. this Court aHords a part" a secondopportunit" to vindicate his right' ut this

opportunit" is unavailing in the case at #ar.especiall" since petitioner had s7uandered thevarious opportunities availa#le to it at thediHerent stages of this case' u#lic interestdemands an end to ever" litigation and a #elatedeHort to reopen a case that has alread" attained0nalit" will serve no purpose other than to dela"the administration of <ustice'65

;ince petitionerLs ground for relief is not well,ta9en. it follows that the assailed <udgmentstands'

Assuming e) gratia argu#enti that thenegligence of petitionerLs counsel is e$cusa#le.still the petition must fail' As aptl" o#served #"the O;+. even if the petition for relief from

<udgment would #e granted. petitioner will notfare an" #etter if the case were to #e returned tothe CA ;econd Division since its action for thecancellation of its assessments had alread"prescri#ed'62

etitioner protested the assessments pursuant to;ection 66/ of the 8RC. which provides?

;!C' 66/' !rotesting of Assess#ent ' , $ $ $'

$ $ $ $

@ithin a period to #e prescri#ed #" implementingrules and regulations. the ta$pa"er shall #ere7uired to respond to said notice' f the ta$pa"erfails to respond. the Commissioner or his dul"authoriIed representative shall issue anassessment #ased on his 0ndings'

;uch assessment ma" #e protested

administrativel" #" 0ling a re7uest forreconsideration or reinvestigation within thirt"(34) da"s from receipt of the assessment in suchform and manner as ma" #e prescri#ed #"implementing rules and regulations' @ithin si$t"(24) da"s from 0ling of the protest. all relevantsupporting documents shall have #eensu#mitted otherwise. the assessment shall#ecome 0nal'

I !e (#o!es! is de"ied i" 7o)e o# i" (+#!,o# is "o! +2!ed &(o" 7i!i" o"e &"d#edei*! 10 d+s #om s&missio" o

do2&me"!s, !e !+<(+e# +d%e#se) +Be2!ed !e de2isio" o# i"+2!io" m+ +((e+) !o!e Co&#! o T+< A((e+)s 7i!i" 30 d+s#om #e2ei(! o !e s+id de2isio", o# #om!e )+(se o !e o"e &"d#ed ei*! 10$d+ (e#iod o!e#7ise !e de2isio" s+))e2ome ="+), e<e2&!o# +"ddem+"d+)e. (4#"asis sulied)'

he CA ;econd Division held?



















--Following the periods provided for in theaforementioned laws. from >ul" 64. 6441. that is.the date of petitionerLs 0ling of protest. it haduntil ;eptem#er 1/. 6441 to su#mit relevantdocuments and from ;eptem#er 1/. 6441. theCommissioner had until =arch 1&. 6446 to issuehis decision' As admitted #" petitioner. theprotest remained unacted #" the Commissioner

of nternal Revenue' herefore. it had until April12. 6446 within which to elevate the case to thiscourt' hus. when petitioner 0led its etition forReview on April 34. 6446. the same is outside thethirt" (34) period'6&

As provided in ;ection 66/. the failure of ata$pa"er to appeal from an assessment on timerendered the assessment 0nal. e$ecutor" anddemanda#le' Conse7uentl". petitioner isprecluded from disputing the correctness of theassessment'

n @er Co#an+, td. v. Court of *a) Aeals.6/ the Court held that while the right toappeal a decision of the Commissioner to theCourt of a$ Appeals is merel" a statutor"remed". nevertheless the re7uirement that itmust #e #rought within 34 da"s is <urisdictional' f a statutor" remed" provides as a conditionprecedent that the action to enforce it must #ecommenced within a prescri#ed time. suchre7uirement is <urisdictional and failure to compl"therewith ma" #e raised in a motion to dismiss'

n 0ne. the failure to compl" with the 34,da"

statutor" period would #ar the appeal anddeprive the Court of a$ Appeals of its <urisdictionto entertain and determine the correctness of theassessment'6%

@!R!FOR!. in view of the foregoing. theDecision of the Court of a$ Appeals 4n(anc dated >une &. 6445 in C''A' ! 8o' 54a:rming the Resolutions of the Court of a$Appeals ;econd Division dated =a" 3. 644- and8ovem#er 5. 644- in C''A' Case 8o' 2-&5den"ing petitionerLs etition for Relief from

>udgment and =otion for Reconsideration.

respectivel". is AFFR=!D'

SO ORDERED.

THIRD DIVISION

G.R. NO. 164> A(#i) /4, /009

RI?AL COMMERCIAL :ANINGCORORATION, #etitioner , v. COMMISSIONER OF INTERNAL REVENUE, Respondent .

R E S O L U T I O N

For resolution is petitionerLs =otion forReconsideration of our Decision1 dated >une 12.6442 a:rming the Decision of the Court of a$Appeals 4n (anc dated >une &. 6445 in C''A' !8o' 54. which a:rmed the Resolutions of the

Court of a$ Appeals ;econd Division dated =a"3. 644- and 8ovem#er 5. 644- in C''A' Case 8o'2-&5. den"ing petitionerLs etition for Relief from

>udgment and =otion for Reconsideration.respectivel"'

etitioner reiterates its claim that its formercounselLs failure to 0le etition for Review with

the Court of a$ Appeals within the period set #";ection 66/ of the 8ational nternal RevenueCode of 1%%& (8RC) was e$cusa#le and raisedthe following issues for resolution?

A'

! D!8A* OF !O8!RL; !O8 FORR!*!F FRO= >BD+=!8 @** R!;B* 8 !D!8A* OF ;B;A8! >B;C! O !O8!R.CO8RARE O !;A*;!D D!C;O8; OF ;O8ORA*! COBR !CAB;! ! A;;!;;=!8;OB+ O ! CA8C!**!D A; A*R!ADE

R!;CR!D , A FAC 8O D!8!D E !R!;O8D!8 8 ; A8;@!R'

'

CO8RARE O ; O8ORA*! COBRL;D!C;O8. A8D FO**O@8+ ! *A;CO8AD!C;O8. A; @!** A; ! 6445 R!;!D RB*!;OF ! COBR OF A A!A*;. !O8!R

=!*E F*!D ; !O8 FOR R!!@ !FOR! ! COBR OF A A!A*; B;. ! COBROF A A!A*; AD >BR;DCO8 O!R !CA;!'

C'

CO8;D!R8+ A ! ;B>!C A;;!;;=!88O*!; A8 8DB;RE ;;B!. A ;. AD!FC!8CE A;;!;;=!8 FOR DOCB=!8ARE;A= A O8 ;!CA* ;A8+; ACCOB8; A8D+RO;; O8;OR! A. !O8!R 8 !8!R!; OF ;B;A8! >B;C! A8DB8FOR=E OF AAO8. ;OB*D ! A**O@!D

O FB**E *+A! ! ;;B! !FOR! !COBR OF A A!A*;'6

etitionerLs motion for reconsideration is deniedfor lac9 of merit'

Other than the issue of prescription. which israised herein for the 0rst time. the issuespresented are a mere rehash of petitionerLsprevious arguments. all of which have #eenconsidered and found without merit in ourDecision dated >une 12. 6442'

etitioner maintains that its counselLs neglect innot 0ling the etition for Review within the

reglementar" period was e$cusa#le' t allegesthat the counselLs secretar" misplaced theResolution hence the counsel was not aware of itsissuance and that it had #ecome 0nal ande$ecutor"'

@e are not persuaded'

n our Decision. we held that?




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-5Relief cannot #e granted on the Gims" e$cusethat the failure to appeal was due to the neglectof petitionerLs counsel' Otherwise. all that a losingpart" would do to salvage his case would #e toinvo9e neglect or mista9e of his counsel as aground for reversing or setting aside the adverse

<udgment. there#" putting no end to litigation'

8egligence to #e Se$cusa#leS must #e one whichordinar" diligence and prudence could not haveguarded against and #" reason of which therights of an aggrieved part" have pro#a#l" #eenimpaired' etitionerLs former counselLs omissioncould hardl" #e characteriIed as e$cusa#le. muchless unavoida#le'

he Court has repeatedl" admonished law"ers toadopt a s"stem where#" the" can alwa"s receivepromptl" <udicial notices and pleadings intendedfor them' Apparentl". petitionerLs counsel was notonl" remiss in compl"ing with this admonition #ut

he also failed to chec9 periodicall". as an act ofprudence and diligence. the status of the pendingcase #efore the CA ;econd Division' he factthat counsel allegedl" had not renewed theemplo"ment of his secretar". there#" ma9ing thelatter no longer attentive or focused on her wor9.did not relieve him of his responsi#ilities to hisclient' t is a pro#lem personal to him whichshould not in an" manner interfere with hisprofessional commitments'3

etitioner also argues that. in the interest ofsu#stantial <ustice. the instant case should #e re,

opened considering that it was allegedl" notaccorded its da" in court when the Court of a$Appeals dismissed its etition for Review for late0ling' t claims that rules of procedure areintended to help secure. not override. su#stantial

<ustice'

etitionerLs arguments fail to persuade us'

As correctl" o#served #" the Court of a$ Appealsin its Decision dated >une &. 6445?

f indeed there was negligence. this is o#viousl"on the part of petitionerLs own counsel whoseprudence in handling the case fell short of thatre7uired under the circumstances' e was wellaware of the motion 0led #" the respondent forthe Court to resolve 0rst the issue of this CourtLs

<urisdiction on >ul" 15. 6443. that a hearing wasconducted thereon on August 15. 6443 where#oth counsels were present and at said hearingthe motion was su#mitted for resolution'etitionerLs counsel apparentl" did not showenthusiasm in the case he was handling as heshould have #een vigilant of the outcome of saidmotion and #e prepared for the necessar" actionto ta9e whatever the outcome ma" have #een';uch 9ind of negligence cannot supportpetitionerLs claim for relief from <udgment'

esides. ta$ assessments #" ta$ e$aminers arepresumed correct and made in good faith. and allpresumptions are in favor of the correctness of ata$ assessment unless proven otherwise'- Also.petitionerLs failure to 0le a etition for Reviewwith the Court of a$ Appeals within the statutor"period rendered the disputed assessment 0nal.

e$ecutor" and demanda#le. there#" precluding itfrom interposing the defenses of legalit" orvalidit" of the assessment and prescription of the+overnmentLs right to assess'5

he Court of a$ Appeals is a court of special <urisdiction and can onl" ta9e cogniIance of suchmatters as are clearl" within its <urisdiction'

;ection & of Repu#lic Act (R'A') 8o' %6/6.amending R'A' 8o' 1165. otherwise 9nown asthe a/ Creating t"e Court of *a) Aeals.provides?

;ec' &' urisdiction. , he CA shall e$ercise?

(a) !$clusive appellate <urisdiction to review #"appeal. as herein provided?

(1) Decisions of the Commissioner of nternalRevenue in cases involving disputedassessments. refunds of internal revenue ta$es.

fees or other charges. penalties in relationthereto. or other matters arising under the8ational nternal Revenue or other lawsadministered #" the ureau of nternal Revenue

(6) naction #" the Commissioner of nternalRevenue in cases involving disputedassessments. refunds of internal revenue ta$es.fees or other charges. penalties in relationthereto. or other matters arising under the8ational nternal Revenue Code or other lawsadministered #" the ureau of nternal Revenue.where the 8ational nternal Revenue Codeprovides a speci0c period of action. in which casethe inaction shall #e deemed a denial

Also. ;ection 3. Rule - and ;ection 3(a). Rule / ofthe Revised Rules of the Court of a$Appeals2 state?

RULE 4 -&#isdi2!io" o !e Co&#!

$ $ $

;!CO8 3' Cases @ithin the >urisdiction of theCourt in Divisions' , he Court in Divisions shalle$ercise?

(a) !$clusive original or appellate <urisdiction toreview #" appeal the following?

(1) Decisions of the Commissioner of nternalRevenue in cases involving disputedassessments. refunds of internal revenue ta$es.fees or other charges. penalties in relationthereto. or other matters arising under the8ational nternal Revenue Code or other lawsadministered #" the ureau of nternal Revenue

(6) naction #" the Commissioner of nternalRevenue in cases involving disputedassessments. refunds of internal revenue ta$es.fees or other charges. penalties in relationthereto. or other matters arising under the8ational nternal Revenue Code or other lawsadministered #" the ureau of nternal Revenue.where the 8ational nternal Revenue Code orother applica#le law provides a speci0c period for











-2action? rovided. that in case of disputedassessments. the inaction of the Commissioner of nternal Revenue within the one hundred eight"da",period under ;ection 66/ of the 8ationalnternal Revenue Code shall #e deemed a denialfor purposes of allowing the ta$pa"er to appealhis case to the Court and does not necessaril"constitute a formal decision of the Commissioner

of nternal Revenue on the ta$ case rovided.further. that should the ta$pa"er opt to await the0nal decision of the Commissioner of nternalRevenue on the disputed assessments #e"ondthe one hundred eight" da",perioda#ovementioned. the ta$pa"er ma" appeal such0nal decision to the Court under ;ection 3(a).Rule / of these Rules and rovided. still further.that in the case of claims for refund of ta$eserroneousl" or illegall" collected. the ta$pa"ermust 0le a etition for Review with the Court priorto the e$piration of the two,"ear period under;ection 66% of the 8ational nternal RevenueCode

$ $ $

RULE #o2ed&#e i" Ci%i) C+ses

$ $ $

;!CO8 3' @ho =a" Appeal eriod to Fileetition' , (a) A part" adversel" aHected #" adecision. ruling or the inaction of theCommissioner of nternal Revenue on disputed

assessments or claims for refund of internalrevenue ta$es. or #" a decision or ruling of theCommissioner of Customs. the ;ecretar" ofFinance. the ;ecretar" of rade and ndustr". the;ecretar" of Agriculture. or a Regional rial Courtin the e$ercise of its original <urisdiction ma"appeal to the Court #" etition for Review 0ledwithin thirt" da"s after receipt of a cop" of suchdecision or ruling. or e$piration of the period 0$ed#" law for the Commissioner of nternal Revenueto act on the disputed assessments' n case ofinaction of the Commissioner of nternal Revenueon claims for refund of internal revenue ta$es

erroneousl" or illegall" collected. the ta$pa"ermust 0le a etition for Review within the two,"earperiod prescri#ed #" law from pa"ment orcollection of the ta$es' (n)

From the foregoing. it is clear that the <urisdictionof the Court of a$ Appeals has #een e$panded toinclude not onl" decisions or rulings #ut inactionas well of the Commissioner of nternal Revenue'

he decisions. rulings or inaction of theCommissioner are necessar" in order to vest theCourt of a$ Appeals with <urisdiction to entertainthe appeal. provided it is 0led within 34 da"s

after the receipt of such decision or ruling. orwithin 34 da"s after the e$piration of the 1/4,da"period 0$ed #" law for the Commissioner to acton the disputed assessments' his 34,da" periodwithin which to 0le an appeal is <urisdictional andfailure to compl" therewith would #ar the appealand deprive the Court of a$ Appeals of its

<urisdiction to entertain and determine thecorrectness of the assessments' ;uch period isnot merel" director" #ut mandator" and it is#e"ond the power of the courts to e$tend thesame'&

n case the Commissioner failed to act on thedisputed assessment within the 1/4,da" periodfrom date of su#mission of documents. ata$pa"er can either? 1) 0le a etition for Reviewwith the Court of a$ Appeals within 34 da"s afterthe e$piration of the 1/4,da" period or 6) awaitthe 0nal decision of the Commissioner on thedisputed assessments and appeal such 0nal

decision to the Court of a$ Appeals within 34da"s after receipt of a cop" of such decision'owever. these options are mutuall" e$clusive.and resort to one #ars the application of theother'

n the instant case. the Commissioner failed toact on the disputed assessment within 1/4 da"sfrom date of su#mission of documents' hus.petitioner opted to 0le a etition for Review#efore the Court of a$ Appeals' Bnfortunatel".the etition for Review was 0led out oftime. i.e., it was 0led more than 34 da"s after the

lapse of the 1/4,da" period' Conse7uentl". it wasdismissed #" the Court of a$ Appeals for late0ling' etitioner did not 0le a motion forreconsideration or ma9e an appeal hence. thedisputed assessment #ecame 0nal. demanda#leand e$ecutor"'

ased on the foregoing. petitioner can not nowclaim that the disputed assessment is not "et0nal as it remained unacted upon #" theCommissioner that it can still await the 0naldecision of the Commissioner and thereafterappeal the same to the Court of a$ Appeals' his

legal maneuver cannot #e countenanced' Afteravailing the 0rst option. i.e., 0ling a etition forReview which was however 0led out of time.petitioner can not successfull" resort to thesecond option. i.e., awaiting the 0nal decision ofthe Commissioner and appealing the same to theCourt of a$ Appeals. on the prete$t that there is"et no 0nal decision on the disputed assessment#ecause of the CommissionerLs inaction'

*astl". we note that petitioner is raising the issueof prescription for the 0rst time in the instantmotion for reconsideration' Although the same

was raised in the etition for Review. it wasdismissed for late 0ling' 8o motion forreconsideration was 0led hence the disputedassessment #ecame 0nal. demanda#le ande$ecutor"' hereafter. petitioner 0led with theCourt of a$ Appeals a petition for relief from

<udgment' owever. it failed to raise the issue ofprescription therein' After its petition for relieffrom <udgment was denied #" the Court of a$Appeals for lac9 of merit. petitioner 0led aetition for Review #efore this Court withoutraising the issue of prescription' t is onl" in theinstant motion for reconsideration that petitioner

raised the issue of prescription which is notallowed' he rule is well,settled that points of law.theories. issues and arguments not ade7uatel"#rought to the attention of the lower court neednot #e considered #" the reviewing court as the"cannot #e raised for the 0rst time onappeal./ much more in a motion forreconsideration as in this case. #ecause thiswould #e oHensive to the #asic rules of fair pla".

<ustice and due process'% his last ditch eHort toshift to a new theor" and raise a new matter in










-&the hope of a favora#le result is a perniciouspractice that has consistentl" #een re<ected'

8HEREFORE. in view of the foregoing.petitionerLs motion for reconsiderationis DENIED'

SO ORDERED.

EN :ANC

G.R. No. 155

FORT :ONIFACIO DEVELOMENTCORORATION, e!i!io"e#, $ %e#s&s $COMMISSIONER OF INTERNAL REVENUE,REGIONAL DIRECTOR, REVENUE REGION NO., +"d CHIEF, ASSESSMENT DIVISIONREVENUE REGION NO. , :IR, Res(o"de"!s.

#om&)*+!ed A(#i) /, /00> G.R. No. 19060

FORT :ONIFACIO DEVELOMENTCORORATION, e!i!io"e#, %e#s&s $COMMISSIONER OF INTERNAL REVENUE+"d REVENUE DISTRICT OFFICER, REVENUEDISTRICT NO. 44, TAGUIG +"d ATEROS,:UREAU OF INTERNAL REVENUE,Res(o"de"!s.

D E C I S I O N

he value,added ta$ (A) s"stem was 0rst

introduced in the hilippines on 1 >anuar" 1%//.

with the ta$ imposa#le on an" person who. in the

course of trade or #usiness. sells. #arters or

e$changes goods. renders services. or engages in

similar transactions and an" person who imports

goods'[1] he 0rst A law is found in !$ecutive

Order 8o' 6&3 (!'O' 6&3). which amended several

provisions of the then 8ational nternal Revenue

Code of 1%/2 (Old 8RC)' !'O' 8o' 6&3 li9ewiseaccommodated the potential #urdens of the shift

to the A s"stem #" allowing newl" lia#le A,

registered persons to avail of a transitional input

ta$ credit. as provided for in ;ection 145 of the

old 8RC. as amended #" !'O' 8o' 6&3' ;aid

;ection 145 is 7uoted. thus?

;!C' 145' *ransitional inut ta) credits. A person who #ecomes

lia#le to value,added ta$ or an"person who elects to #e a A,registered person shall. su#<ect tothe 0ling of an inventor" asprescri#ed #" regulations. #eallowed input ta$ on his #eginninginventor" of goods. materials andsupplies e7uivalent to /M of thevalue of such inventor" or the actualvalue,added ta$ paid on such goods.materials and supplies. whichever is

higher. which shall #e credita#leagainst the output ta$'[6]

here are other measures contained in

!'O' 8o' 6&3 which were similarl" intended toease the shift to the A s"stem' hese measuresalso too9 the form of transitional input ta$eswhich can #e credited against output ta$. [3] and

are found in ;ection 65 of !'O' 8o' 6&3. thesection entitled ransitor" rovisions' ;aidtransitor" provisions. which were neverincorporated in the Old 8RC. read?

;ec' 65. *ransitor+

rovisions' (a) All A,registered

persons shall #e allowed transitional

input ta$es which can #e credited

against output ta$ in the same

manner as provided in ;ections 14-

of the 8ational nternal RevenueCode as follows?

1) he #alance of the

deferred sales ta$ credit

account as of Decem#er 31.

1%/& which are accounted for in

accordance with regulations

prescri#ed therefor

6) A presumptive input ta$

e7uivalent to /M of the value of

the inventor" as of Decem#er

31. 1%/& of materials and

supplies which are not for sale.

the ta$ on which was not ta9en

up or claimed as deferred sales

ta$ credit and

3) A presumptive input ta$

e7uivalent to /M of the value of

the inventor" as of Decem#er

31. 1%/& as goods for sale. the

ta$ on which was not ta9en upor claimed as deferred sales ta$

credit'

a$ credit prescri#ed in

paragraphs (6) and (3) a#ove shall

#e allowed onl" to a A,registered

person who 0les an inventor" of the

goods referred to in said paragraphs

as provided in regulations'

(#) An" unused ta$ credit

certi0cate issued prior to >anuar" 1.

1%// for e$cess ta$ credits which

are applica#le against advance

sales ta$ shall #e surrendered to.

and replaced #" the Commissioner

with new ta$ credit certi0cates

which can #e used in pa"ment for

value,added ta$ lia#ilities'

http://sc.judiciary.gov.ph/jurisprudence/2009/april2009/158885_170680.htm#_ftn1








-/(c) An" person alread" engaged

in #usiness whose gross sales or

receipts for a 16,month period from

;eptem#er 1. 1%/2 to August 1.

1%/&. e$ceed the amount

of644.444'44. or an" person who

has #een in #usiness for less than

16 months as of August 1. 1%/& #ute$pects his gross sales or receipts

to e$ceed 644.444 on or #efore

Decem#er 31. 1%/&. shall appl" for

registration on or #efore Octo#er

6%. 1%/&'[-]

On 1 >anuar" 1%%2. Repu#lic Act (Rep' Act)

8o' &&12 too9 eHect'[5] t amended provisions of the Old 8RC principall" #" restructuring the As"stem' t was under Rep' Act 8o' &&12 that A

was imposed for the 0rst time on the sale of realproperties' his was accomplished #" amending;ection 144 of the 8RC to include real propertiesamong the goods or properties. the sale. #arter ore$change of which is made su#<ect to A' herelevant portions of ;ection 144. as amended #"Rep' Act 8o' &&12. thus read?

;ec' 144' alue,added,ta$ on saleof goods or properties'

(a) Rate and #ase of ta$' here shall #e levied. assessedand collected on ever" sale. #arteror e$change of goods orproperties. a value,added ta$e7uivalent to 14M of the grossselling price or gross value inmone" of the goods. or propertiessold. #artered or e$changed. suchta$ to #e paid #" the seller ortransferor'

(1) he term Lgoods orpropertiesL shall mean alltangi#le and intangi#leo#<ects which arecapa#le of pecuniar"estimation and shallinclude?

(A) Real properties heldprimaril" for sale tocustomers or held forlease in the ordinar"course of trade or#usiness $$$[2]

he provisions of ;ection 145 of the 8RC.on the transitional input ta$ credit. had remained

intact despite the enactment of Rep' Act 8o'&&12' ;aid provisions would however #eamended following the passage of the new8ational nternal Revenue Code of 1%%& (8ew8RC). also o:ciall" 9nown as Rep Act 8o' /-6-'

he section on the transitional input ta$ creditwas renum#ered from ;ection 145 of the Old8RC to ;ection 111(A) of the 8ew 8RC' he newamendments on the transitional input ta$ creditare relativel" minor. hardl" material to the case

at #ar' he" are highlighted #elow for eas"reference?

Se2!io"

111. *ransitional!resu#tive %nut

*a) Credits. ,

(A) *ransitional %nut *a)

Credits. , A person who #ecomes

lia#le to value,added ta$ or an"

person who elects to #e a A,

registered person shall. su#<ect to

the 0ling of an inventor" +22o#di"*

!o #&)es +"d #e*&)+!io"s

(#es2#ied !e Se2#e!+# o

="+"2e, &(o" #e2omme"d+!io"

o !e Commissio"e#. #e allowed

input ta$ on his #eginning inventor"of goods. materials and supplies

e7uivalent for eight percent (/M) of

the value of such inventor" or the

actual value,added ta$ paid on such

goods. materials and supplies.

whichever is higher. which shall #e

credita#le against the output ta$'[&] (!mphasis supplied)'

Rep' Act 8o' /-6- also made part of the 8RC. forthe 0rst time. the concept of presumptive inputta$ credits. with ;ection 111(#) of the 8ew 8RCproviding as follows?

() !resu#tive %nut *a) Credits. ,

(1) ersons or 0rms engaged

in the processing of sardines.

mac9erel and mil9. and in

manufacturing re0ned sugar

and coo9ing oil. shall #e

allowed a presumptive inputta$. credita#le against the

output ta$. e7uivalent to one

and one,half percent (1

1J6M) of the gross value in

mone" of their purchases of

primar" agricultural products

which are used as inputs to

their production'

As used in this ;u#section.

the term LprocessingL shall

mean pasteuriIation.

canning and activities which

through ph"sical or chemical

process alter the e$terior

te$ture or form or inner

su#stance of a product in

such manner as to prepare it

for special use to which it

could not have #een put in

its original form or condition'












-%

(6) u#lic wor9s contractors

shall #e allowed a

presumptive input ta$

e7uivalent to one and one,

half percent (1 1J6M) of the

contract price with respect togovernment contracts onl" in

lieu of actual input ta$es

therefrom'[/]

@hat we have e$plained a#ove are the statutor"antecedents that underlie the present petitionsfor review' @e now turn to the factualantecedents'

%. etitioner Fort onifacio DevelopmentCorporation (FDC) is engaged in thedevelopment and sale of real propert"' On /Fe#ruar" 1%%5. FDC ac7uired #" wa" of salefrom the national government. a vast tract of landthat formerl" formed part of the Fort onifacio militar" reservation. located inwhat is nowthe Fortonifacio +lo#al Cit" (+lo#al Cit")in aguig Cit"'[%] ;ince the sale was consummatedprior to the enactment of Rep' Act 8o' &&12. noA was paid thereon' FDC then proceeded todevelop the tract of land. and from Octo#er. 1%22

onwards it has #een selling lots located inthe +lo#al Cit" to interested #u"ers'[14]

Following the eHectivit" of Rep' Act 8o'

&&12. real estate transactions such as thoseregularl" engaged in #" FDC have since #eenmade su#<ect to A' As the vendor. FDC fromthereon has #ecome o#liged to remit to theureau of nternal Revenue (R) output Apa"ments it received from the sale of itsproperties to the ureau of nternal Revenue(R)' FDC li9ewise invo9ed its right to avail of the transitional input ta$ credit and accordingl"

su#mitted an inventor" list of real properties itowned. with a total #oo9 valueof &1.66&.543.644'44'[11]

On 1- Octo#er 1%%2. FDC e$ecuted in

favor of =etro aci0c Corporation two (6)contracts to sell. separatel" conve"ing two (6)parcels of land within the +lo#al Cit" inconsideration of the purchase pricesat 1.562.6%/.%-%'44 and &/5.44%.41/'44. #othpa"a#le in installments'[16] For the fourth 7uarterof 1%%2. FDC earned a totalof 3.-%/.///.&13'24 from the sale of its lots. on

which the output A pa"a#le to the Rwas 31/.4/4.&%6'1-' n the conte$t of remittingits output A pa"ments to the R. FDC paid atotal of 62%.3-4.-2%'-5 and utiliIed(a) 6/.-13.&/3'44 representing a portion of itsthen total transitionalJpresumptive input ta$credit of 5.2%/.644.652'44. which petitionerallocated for the two (6) lots sold to =etro aci0cand (#) its regular input ta$ creditof 64.362.53%'2% on the purchase of goods andservices'[13]

etween >ul" and Octo#er 1%%&. FDCsent two (6) letters to the R re7uestingappropriate action on whether its use of itspresumptive input A on its land inventor". tothe e$tent of 6/.-13.&/3'44 in partial pa"mentof its output A for the fourth 7uarter of 1%%2.was in order' After investigating the matter. theR recommended that the claimed presumptive

input ta$ credit #e disallowed'

[1-]

Conse7uentl".the R issued to FDC a re,Assessment 8otice(A8) dated 63 Decem#er 1%%& for de0cienc" Afor the -th 7uarter of 1%%2' his was followed #" aletter of respondent Commissioner of nternalRevenue (CR).[15] addressed to and received #"FDC on 5 =arch 1%%/. disallowing thepresumptive input ta$ credit arising from the landinventor" on the #asis of Revenue Regulation &,%5 (RR &,%5) and Revenue =emorandum Circular3,%2 (R=C 3,%2)' ;ection -'145,1 of RR &,%5provided the #asis in main for the CRs opinion.the section reading. thus?

;ec' -'145,1' *ransitional

inut ta) on beginning inventories' a$pa"ers who #ecame A,registered persons upon eHectivit"of RA 8o' &&12 who have e$ceededthe minimum turnoverof 544.444'44 or who voluntaril"register even if their turnover doesnot e$ceed 544.444'44 shall #eentitled to a presumptive input ta$on the inventor" on hand as of Decem#er 31. 1%%5 on thefollowing? (a) goods purchased forresale in their present condition (#)materials purchased for furtherprocessing. #ut which have not "etundergone processing (c) goodswhich have #een manufactured #"the ta$pa"er (d) goods in processand supplies. all of which are forsale or for use in the course of theta$pa"ers trade or #usiness as aA,registered person'

owever. in the case of real

estate dealers. the #asis of the

presumptive input ta$ shall #e theimprovements. such as #uildings.roads. drainage s"stems. and othersimilar structures. constructed on orafter the eHectivit" of !O 6&3(>anuar" 1. 1%//)'

he transitional input ta$

shall #e /M of the value of theinventor" or actual A paid.whichever is higher. which amountma" #e allowed as ta$ credit againstthe output ta$ of the A,registered

person'

he CR li9ewise cited from the ransitor"rovisions of RR &,%5. particularl" the following?

(a) resumptive nput a$

Credits ,

$$$

(iii) For real estate dealers.the presumptive input ta$ of /M of




















54the #oo9 value of improvementson or after >anuar" 1. 1%// (theeHectivit" of !'O' 6&3) shall #eallowed'

For purposes of su#,

paragraphs (i). (ii) and (iii) a#ove.an inventor" as of Decem#er 31.

1%%5 of such goods or propertiesand improvements showing the7uantit". description and amount0led with the RDO not later than

>anuAr" 31. 1%%2'

$$$ Conse7uentl". FDC received an

Assessment 8otice in the amountof -5.1//.&4/'4/. representing de0cienc" Afor the -th 7uarter of 1%%2. including surcharge.interest and penalt"' After respondent RegionalDirector denied FDCs motion forreconsiderationJprotest. FDC 0led a petition forreview with the Court of a$ Appeals (CA).doc9eted as C''A' Case 8o' 5225'[12] On 11August 6444. the CA rendered a decisiona:rming the assessment made #" therespondents'[1&] FDC assailed the CA decisionthrough a petition for review 0led with the Courtof Appeals. doc9eted as CA,+'R' ; 8o' 24-&&'On 15 8ovem#er 6446. the Court of Appealsrendered a decision a:rming the CA decision.#ut removing the surcharge. interests andpenalties. thus reducing the amount dueto 6/.-13.&/3'44'[1/] From said decision. FDC0led a petition for review with this Court. the 0rstof the two petitions now #efore us. see9ing thereversal of the CA decision dated 11 August6444 and a pronouncement that FDC is entitledto the transitionalJpresumptive input ta$ credit of 6/.-13.&/3'44' his petition has #een doc9etedas G.R. No. 155'

he second petition. which is doc9eted

as G.R. No. 19060. involves the same partiesand legal issues. #ut concerns the claim of FDCthat it is entitled to claim a similartransitionalJpresumptive input ta$ credit. this

time for the third 7uarter of 1%%&' A #rief recitalof the anteceding facts underl"ing this secondclaim is in order'

For the third 7uarter of 1%%&. FDC

derived the total amount of 3.5%1.&62.36/'11from its sales and lease of lots. on which theoutput A pa"a#le to the Rwas 35%.1&6.236'/1'[1%] Accordingl". FDC madecash pa"ments totaling 3-&.&-1.2%5'&- andutiliIed its regular input ta$ creditof 1%.&-3.525'&3 on purchases of goods andservices'[64] On 11 =a" 1%%%. FDC 0led with the

R a claim for refund of the amountof 3-&.&-1.2%5'&- which it had paid as A forthe third 7uarter of 1%%&'[61] 8o action was ta9enon the refund claim. leading FDC to 0le apetition for review with the CA. doc9eted as CACase 8o' 5%62' BtiliIing the same valuation[66] of /M of the total #oo9 value of its #eginninginventor" of real properties(or &1.66&.543.644'44) FDC argued that itsinput ta$ credit was more than enough to oHsetthe A paid #" it for the third 7uarter of 1%%&' [63]

On 1& Octo#er 6444. the CA promulgatedits decision[6-] in CA Case 8o' 5%62. den"ing theclaim for refund' FDC then 0led a petition forreview with the Court of Appeals. doc9eted as CA,+'R' ; 8o' 2151&' On 3 Octo#er 6443. the Courtof Appeals rendered a decision[65] a:rming the

<udgment of the CA' As a result. FDC 0led itssecond petition. doc9eted as +'R' 8o' 1&42/4'

%%.

he two petitions were dul"consolidated[62] and called for oral argumenton 1/ April 6442' During the oral arguments. theparties were directed to discuss the followingissues?

1' n determining

the 14M value,added ta$in ;ection 144 of the [Old8RC] on the sale of realproperties #" real estatedealers. is the /Mtransitional input ta$credit in ;ection 145applied onl" to theimprovements on the realpropert" or is it applied onthe value of the entirereal propert"

6' Are ;ection

-'145'1 and paragraph (a)() of the ransitor"rovisions of RevenueRegulations 8o' &,%5 validin limiting the /Mtransitional input ta$ tothe improvements on thereal propert"

@hile the two issues are lin9ed. the main

issue is evidentl" whether ;ection 145 of the Old8RC ma" #e interpreted in such a wa" as torestrict its application in the case of real estatedealers onl" to the improvements on the realpropert" #elonging to their #eginning inventor".and not the entire real propert" itself' here

would #e no controvers" #efore us if the Old 8RChad itself supplied that limitation. "et the law istellingl" silent in that regard' RR &,%5. whichimposes such restrictions on real estate dealers.is discordant with the Old 8RC. so it is alleged'

%%%.

On its face. there is nothing in ;ection 145 of theOld 8RC that prohi#its the inclusion of realproperties. together with the improvementsthereon. in the #eginning inventor" of goods.materials and supplies. #ased on which inventor"

the transitional input ta$ credit is computed' tcan #e conceded that when it was drafted ;ection145 could not have possi#l" contemplatedconcerns speci0c to real properties. as real estatetransactions were not originall" su#<ect to A' Atthe same time. when transactions on realproperties were 0nall" made su#<ect to A#eginning with Rep' Act 8o' &&12. nocorresponding amendment was adopted asregards ;ection 145 to provide for a diHerentiatedtreatment in the application of the transitional





























51input ta$ credit with respect to real properties orreal estate dealers' t was ;ection 144 of the Old 8RC. as amended#" Rep' Act 8o' &&12. which made real estatetransactions su#<ect to A for the 0rst time' riorto the amendment. ;ection 144 had imposed theA on ever" sale. #arter or e$change of goods.

without however specif"ing the 9ind of propertiesthat fall within or under the generic class goodssu#<ect to the ta$'

Rep' Act 8o' &&12. which signi0cantl" isalso 9nown as the !$panded alue,Added

a$ (!A) law. e$panded the coverage of the A#" amending ;ection 144 of the Old 8RC inseveral respects. some of which we willenumerate' &irst . it made ever" sale. #arter ore$change of goods o# (#o(e#!ies su#<ect to A'[6&] Second. it generall" de0ned goods orproperties as all tangi#le and intangi#le o#<ectswhich are capa#le of pecuniar" estimation'[6/] *"ird. it included a non,e$clusive enumerationof various o#<ects that fall under the class goodsor properties su#<ect to A. including [r]ealproperties held primaril" for sale to customers orheld for lease in the ordinar" course of trade or#usiness'[6%]

From these amendments to ;ection 144. is

there an" diHerentiated A treatment on realproperties or real estate dealers that would <ustif"the suggested limitations on the application of the transitional input ta$ on them @e see none'

Rep' Act 8o' &&12 clari0es that it is the

real properties held primaril" for sale tocustomers or held for lease in the ordinar" courseof trade or #usiness that are su#<ect to the A.and not when the real estate transactions areengaged in #" persons who do not sell or leaseproperties in the ordinar" course of trade or#usiness' t is clear that those regularl" engagedin the real estate #usiness are accorded the sametreatment as the merchants of other goods orproperties availa#le in the mar9et' n the samewa" that a milliner considers hats as his goodsand a rancher considers cattle as his goods. a

real estate dealer holds real propert". whether ornot it contains improvements. as his goods'

ad ;ection 144 itself supplied an"

diHerentiation #etween the treatment of realproperties or real estate dealers and thetreatment of the transactions involving othercommercial goods. then such diHering treatmentwould have constituted the statutor" #asis for theCR to engage in such diHerentiation which saidrespondent did see9 to accomplish in this casethrough ;ection -'145,1 of RR &,%5' Eet theamendments introduced #" Rep' Act 8o' &&12 to

;ection 144. coupled with the fact that the saidlaw left ;ection 145 intact. reveal the lac9 of an"legislative intention to ma9e persons or entities inthe real estate #usiness su#<ect to a Atreatment diHerent from those engaged in thesale of other goods or properties or in an" othercommercial trade or #usiness'

f the plain te$t of Rep' Act 8o' &&12 fails

to suppl" an" apparent <usti0cation for limitingthe #eginning inventor" of real estate dealersonl" to the improvements on their properties.

how then were the CR and the courts a ;uo a#leto <ustif" such a view

%2.

he fact alone that the denial of FDCsclaims is in accord with ;ection -'145,1 of RR &,%5 does not. of course. put this in7uir" to rest' f

;ection -'145,1 is itself incongruent to Rep' Act8o' &&12. the incongruence cannot #" itself <ustif" the denial of the claims' @e need toin7uire into the rationale #ehind ;ection -'145,1.as well as the 7uestion whether the interpretationof the law em#odied therein is validated #" thelaw itself'

he CA. in its rulings. proceeded from a

thesis which is not readil" apparent from thete$ts of the laws we have cited' he transitionalinput ta$ credit is conditioned on the priorpa"ment of sales ta$es or the A. so the CAo#served' he introduction of the A through!'O' 8o' 6&3 and its su#se7uent e$pansionthrough Rep' Act 8o' &&12 su#<ected variouspersons to the ta$ for the ver" 0rst time. leavingthem una#le to claim the input ta$ credit #asedon their purchases #efore the" #ecame su#<ect tothe A' ence. the transitional input ta$ creditwas designed to alleviate that relativel"ini7uitous loss' +iven that rationale. according tothe CA. it would #e improper to allow FDC.which had ac7uired its properties through a ta$,free purchase. to claim the transitional input ta$credit' he CA added that ;ection 145'-'1 of RR&,%5 is consonant with its perceived rationale#ehind the transitional input ta$ credit since thematerials used for the construction of improvements would have most li9el" involvedthe pa"ment of A on their purchase'

Concededl". this theor" of the CA hassome sense. e$travagantl" e$trapolated as it isthough from the seeming silence on the part of the provisions of the law' Eet ultimatel". thetheor" is woefull" limited in perspective'

t is correct. as pointed out #" the CA.

that upon the shift from sales ta$es to A in

1%/& newl",A registered people would have#een pre<udiced #" the ina#ilit" to credit againstthe output A their pa"ments #" wa" of salesta$ on their e$isting stoc9s in trade' Eet thatine7uit" was precisel" addressed #" a transitor"provision in !'O' 8o' 6&3 found in ;ection 65thereof' he provision authoriIed A,registeredpersons to invo9e a presumptive input ta$e7uivalent to /M of the value of the inventor" asof Decem#er 31. 1%/& of materials and supplieswhich are not for sale. the ta$ on which was notta9en up or claimed as deferred sales ta$ credit.and a similar presumptive input ta$ e7uivalent to

/M of the value of the inventor" as of Decem#er31. 1%/& of goods for sale. the ta$ on which wasnot ta9en up or claimed as deferred sales ta$credit'[34]

;ection 65 of !'O' 8o' 6&3 perfectl"

remedies the pro#lem assumed #" the CA as the#asis for the introduction of transitional input ta$credit in 1%/&' f the core purpose of the ta$credit is onl". as hinted #" the CA. to allow forsome mode of accreditation of previousl",paidsales ta$es. then ;ection 65 alone would have











56su:ced' Eet !'O' 8o' 6&3 amended the Old 8RCitself #" providing for the transitional input ta$credit under ;ection 145. there#" assuring thatthe ta$ credit would endure long after the lastgoods made su#<ect to sales ta$ have #eenconsumed'

f indeed the transitional input ta$ credit is

integrall" related to previousl" paid sales ta$es.the purported causal lin9 #etween those twowould have #een nonetheless e$tinguished longago' Eet Congress has reenacted the transitionalinput ta$ credit several times that fact simpl"#elies the a#sence of an" relationship #etweensuch ta$ credit and the long,a#olished salesta$es' O#viousl" then. the purpose #ehind thetransitional input ta$ credit is not con0ned to thetransition from sales ta$ to A'

here is hardl" an" constricted de0nitionof StransitionalS that will limit its possi#lemeaning to the shift from the sales ta$ regime tothe A regime' ndeed. it could also allude to thetransition one undergoes from not #eing a A,registered person to #ecoming a A,registeredperson' ;uch transition does not ta9e placemerel" #" operation of law. !'O' 8o' 6&3 or Rep'Act 8o' &&12 in particular' t could also occurwhen one decides to start a #usiness' ;ection 145states that the transitional input ta$ credits#ecome availa#le either to (1) a person who#ecomes lia#le to A or (6) an" person 7oe)e2!s !o e VAT$#e*is!e#ed' he clearlanguage of the law entitles new trades or#usinesses to avail of the ta$ credit once the"#ecome A,registered' he transitional input ta$credit. whether under the Old 8RC or the 8ew8RC. ma" #e claimed #" a newl",A registeredperson such as when a #usiness as it commencesoperations' f we view the matter from theperspective of a starting entrepreneur. greaterclarit" emerges on the continued utilit" of thetransitional input ta$ credit'

Following the theor" of the CA. the newenterprise should #e a#le to claim the transitionalinput ta$ credit #ecause it has presuma#l" paidta$es. A in particular. in the purchase of thegoods. materials and supplies in its #eginning

inventor"' Conse7uentl". as the CA held #elow. if the new enterprise has not paid A in itspurchases of such goods. materials and supplies.then it should not #e a#le to claim the ta$ credit'owever. it is not alwa"s true that the ac7uisitionof such goods. materials and supplies entail thepa"ment of ta$es on the part of the new#usiness' n fact. this could occur as a matter of course #" virtue of the operation of variousprovisions of the 8RC. and not onl" on account of a speciall" legislated e$emption'

*et us cite a few e$amples drawn from the

8ew 8RC' f the goods or properties are notac7uired from a person in the course of trade or#usiness. the transaction would not #e su#<ect toA under ;ection 145'[31] he sale would #esu#<ect to capital gains ta$es under ;ection6-(D).[36] #ut since capital gains is a ta$ onpassive income it is the seller. not the #u"er. whogenerall" would shoulder the ta$' f the goods or properties are ac7uired throughdonation. the ac7uisition would not #e su#<ect toA #ut to donors ta$ under ;ection %/ instead'

[33] t is the donor who would #e lia#le to pa" thedonors ta$.[3-] and the donation would #e e$emptif the donors total net gifts during the calendar"ear does not e$ceed144.444'44'[35]

f the goods or properties are ac7uired throughtestate or intestate succession. the transferwould not #e su#<ect to A #ut lia#le instead for

estate ta$ under itle of the 8ew 8RC'

[32]

f thenet estate does not e$ceed 644.444'44. noestate ta$ would #e assessed'[3&]

he interpretation proHered #" the CA

would e$clude goods and properties which areac7uired through sale not in the ordinar" courseof trade or #usiness. donation or throughsuccession. from the #eginning inventor" onwhich the transitional input ta$ credit is #ased'

his prospect all #ut highlights the ultimatea#surdit" of the respondentsL position' Again.nothing in the Old 8RC (or even the 8ew 8RC)spea9s of such a possi#ilit" or 7uali0es theprevious pa"ment of A or an" other ta$es onthe goods. materials and supplies as a pre,re7uisite for inclusion in the #eginning inventor"'

t is apparent that the transitional input

ta$ credit operates to #ene0t newl" A,registered persons. whether or not the"previousl" paid ta$es in the ac7uisition of their#eginning inventor" of goods. materials andsupplies' During that period of transition fromnon,A to A status. the transitional input ta$credit serves to alleviate the impact of the A onthe ta$pa"er' At the ver" #eginning. the A,registered ta$pa"er is o#liged to remit asigni0cant portion of the income it derived fromits sales as output A' he transitional input ta$credit mitigates this initial diminution of theta$pa"ers income #" aHording the opportunit" tooHset the losses incurred through the remittanceof the output A at a stage when the person is"et una#le to credit input A pa"ments'

here is another point that weighs against

the CAs interpretation' Bnder ;ection 145 of theOld 8RC. the rate of the transitional input ta$credit is /M of the value of such inventor" o# the

actual value,added ta$ paid on such goods.materials and supplies. whichever is higher' [3/] f indeed the transitional input ta$ credit ispremised on the previous pa"ment of A. then itdoes not ma9e sense to aHord the ta$pa"er the#ene0t of such credit #ased on /M of the value of such inventor" should the same prove higherthan the actual A paid' his intent that the CAalluded to could have #een implemented withease had the legislature shared such intent #"providing the actual A paid as the sole #asis forthe rate of the transitional input ta$ credit'

he CA harped on the circumstance thatFDC was e$cused from pa"ing an" ta$ on thepurchase of its properties from the nationalgovernment. even claiming that to allow thetransitional input ta$ credit is Stantamount togiving an undeserved #onus to real estate dealerssimilarl" situated as [FDC] which the+overnment cannot aHord to provide'S Eet the ta$laws in 7uestion. and all ta$ laws in general. aredesigned to enforce uniform ta$ treatment topersons or classes of persons who shareminimum legislated standards' he common





















53standard for the application of the transitionalinput ta$ credit. as enacted #" !'O' 8o' 6&3 andall su#se7uent ta$ laws which reinforced orreintegrated the ta$ credit. is simpl" that theta$pa"er in 7uestion has #ecome lia#le to A orhas elected to #e a A,registered person' !'O'8o' 6&3 and the su#se7uent ta$ laws are alldecidedl" neutral and accommodating in

ascertaining who should #e entitled to the ta$credit. and it #ehooves the CR and the CA toadopt a similarl" <udicious perspective'

%2.

+iven the fatal Gaws in the theor" oHered#" the CA as supposedl" underl"ing thetransitional input ta$ credit. is there an" other#asis to <ustif" the limitations imposed #" the CRthrough RR &,%5 @e discern nothing more' Asseen in our discussion. there is no logic thatcoheres with either !'O' 8o' 6&3 or Rep' Act 8o'&&12 which supports the restriction imposed onreal estate #ro9ers and their a#ilit" to claim thetransitional input ta$ credit #ased on the value of their real properties' n addition. the ver" idea of e$cluding the real properties itself from the#eginning inventor" simpl" runs counter to whatthe transitional input ta$ credit see9s toaccomplish for persons engaged in the sale of goods. whether or not such goods ta9e the formof real properties or more mundane commodities'

Bnder ;ection 145. the #eginninginventor" of goods forms part of the valuation of the transitional input ta$ credit' +oods. ascommonl" understood in the #usiness sense.refers to the product which the A,registeredperson oHers for sale to the pu#lic' @ith respectto real estate dealers. it is the real propertiesthemselves which constitute their goods' ;uchreal properties are the operating assets of thereal estate dealer'

;ection -'144,1 of RR 8o' &,%5 itself includes in its enumeration of goods or propertiessuch real properties held primaril" for sale tocustomers or held for lease in the ordinar" courseof trade or #usiness' ;aid de0nition was ta9en

from the ver" statutor" language of ;ection 144of the Old 8RC' " limiting the de0nition of goods to improvements in ;ection -'145,1. theR not onl" contravened the de0nition of goodsas provided in the Old 8RC. #ut also thede0nition which the same revenue regulationitself has provided'

he Court of a$ Appeals claimed thatunder ;ection 145 of the Old 8RC the #asis forthe inventor" of goods. materials and suppliesupon which the transitional input A would #e#ased shall #e left to regulation #" the

appropriate administrative authorit"' his is#ased on the phrase 0ling of an inventor" asprescri#ed #" regulations found in ;ection 145'8onetheless. ;ection 145 does include theparticular properties to #e included in theinventor". namel" goods. materials and supplies't is 7uestiona#le whether the CR has the powerto actuall" rede0ne the concept of goods. as shedid when she e$cluded real properties from theclass of goods which real estate companies in the#usiness of selling real properties ma" include intheir inventor"' he authorit" to prescri#e

regulations can pertain to more technicalmatters. such as how to appraise the value of theinventor" or what papers need to #e 0led toproperl" itemiIe the contents of such inventor"'ut such authorit" cannot go as far as to amend;ection 145 itself. which the Commissioner hadunfortunatel" accomplished in this case'

t is of course a$iomatic that a rule orregulation must #ear upon. and #e consistent

with. the provisions of the ena#ling statute if such

rule or regulation is to #e valid'[3%] n case of

conGict #etween a statute and an administrative

order. the former must prevail'[-4] ndeed. the CR

has no power to limit the meaning and coverage

of the term goods in ;ection 145 of the Old 8RC

a#sent statutor" authorit" or #asis to ma9e and

<ustif" such limitation' A contrar" conclusion

would mean the CR could ver" well moot the law

or arrogate legislative authorit" unto himself #"

retaining sole discretion to provide the de0nitionand scope of the term goods'

2.

At this <uncture. we turn to some of the pointsraised in the dissent of the esteemed >usticeAntonio ' Carpio'

he dissent adopts the CAs thesis that the

transitional input ta$ credit applies onl" whenta$es were previousl" paid on the properties inthe #eginning inventor"' ad the dissenting viewwon. it would have introduced a new re7uisite tothe application of the transitional input ta$ creditand re7uired the ta$pa"er to suppl" proof that ithad previousl" paid ta$es on the ac7uisition of goods. materials and supplies comprising its#eginning inventor"' @e have su:cientl"re#utted this thesis. #ut the dissent adds a twistto the argument #" using the term presumptiveinput ta$ credit to impl" that the transitionalinput ta$ credit involves a (#es&m(!io" that

there was a previous pa"ment of ta$es'*et us clarif" the distinction #etween thepresumptive input ta$ credit and the transitionalinput ta$ credit' As with the transitional input ta$credit. the presumptive input ta$ credit iscredita#le against the output A' t necessaril"has come into e$istence in our ta$ structure onl"after the introduction of the A' As 7uotedearlier.[-1] !'O' 8o' 6&3 provided for a presumptiveinput ta$ credit as one of the transitor" measuresin the shift from sales ta$es to A. #ut suchpresumptive input ta$ credit was neverintegrated in the 8RC itself' t was onl" in 1%%&.

or eleven "ears after the A was 0rst introduced.that the presumptive input ta$ credit was 0rstincorporated in the 8RC. more particularl" in;ection 111() of the 8ew 8RC' As #orne out #"the te$t of the provision.[-6] it is plain that thepresumptive input ta$ credit is highl" limited inapplication as it ma" #e claimed onl" #" personsor 0rms engaged in the processing of sardines.mac9erel and mil9. and in manufacturing re0nedsugar and coo9ing oil[-3] and pu#lic wor9scontractors'[--]
















5-Clearl". for more than a decade now. the termpresumptive input ta$ credit has contemplated aparticularl" idios"ncratic ta$ credit far divorcedfrom its original usage in the transitor" provisionsof !'O' 8o' 6&3' here is utterl" no sense then inlatching on to the term as having an" signi0cantmeaning for the purpose of the cases at #ar'

he dissent. in arguing for the eHectivit"of ;ection -'145,1 of RR &,%5. ratiocinates in thismanner? (1) ;ection -'145,1 0nds #asis in ;ection145 of the Old 8RC. which provides that theinput ta$ is allowed on the #eginning inventor" of goods. materials and supplies (6) input ta$esmust have #een paid on such goods. materialsand supplies (3) unli9e real propert" itself. theimprovements thereon were alread" su#<ect toA even prior to the passage of Rep' Act 8o'&&12 (-) since no A was paid on the realpropert" prior to the passage of Rep' Act 8o'&&12. it could not form part of the #eginninginventor" of goods. materials and supplies'

his chain of premises have alread" #een

de#un9ed' t is apparent that the dissent #elievesthat onl" those goods. materials and supplies onwhich input A was paid could form the #asis of valuation of the input ta$ credit' hus. if the A,registered person ac7uired all the goods.materials and supplies of the #eginning inventor"through a sale not in the ordinar" course of tradeor #usiness. or through succession or donation.said person would #e una#le to receive atransitional input ta$ credit' Eet even RR &,%5.which imposes the restriction onl" on real estatedealers permits such other persons who o#tainedtheir #eginning inventor" through ta$,free meansto claim the transitional input ta$ credit' hedissent thus #etra"s a view that is even moreradical and more misaligned with the language of the law than that e$pressed #" the CR'

2%.

A 0nal o#servation' ;ection -'145'1 of RR

8o' &,%5. insofar as it disallows real estate

dealers from including the value of their realproperties in the #eginning inventor" of goods.materials and supplies. has in fact alread" #eenrepealed' he oHending provisions were deletedwith the enactment of Revenue Regulation 8o' 2,%& (RR 2,%&) dated 6 >anuar" 1%%&. whichamended RR &,%5'[-5] he repeal of the #asis forthe present assessments #" RR 2,%& onl"

highlights the continuing a#surdit" of the positionof the R towards FDC' FDC points out that while the

transactions involved in +'R' 8o' 15///5 too9place during the eHectivit" of RR &,%5. thetransactions involved in +'R' 8o' 1&42/4 in facttoo9 place after RR 8o' 2,%& had ta9en eHect'ndeed. the assessments su#<ect of +'R' 8o'1&42/4 were for the third 7uarter of 1%%&. orseveral months after the eHectivit" of RR 2,%&'

hat fact provides additional reason to sustainFDCs claim for refund of its 1%%& hird NuarterA pa"ments' 8evertheless. since the assailedrestrictions implemented #" RR &,%5 were notsanctioned #" law in the 0rst place there is nolonger need to dwell on such fact' 8HEREFORE. the petitions are GRANTED' heassailed decisions of the Court of a$ Appeals andthe Court of Appeals are REVERSED and SETASIDE' Respondents are here#" (1) restrainedfrom collecting from petitioner the amountof 6/.-13.&/3'44 representing the transitionalinput ta$ credit due it for the fourth 7uarter of 1%%2 and (6) directed to refund to petitioner theamount of 3-&.&-1.2%5'&- paid as output Afor the third 7uarter of 1%%& in light of thepersisting transitional input ta$ credit availa#le topetitioner for the said 7uarter. or to issue a ta$credit corresponding to such amount' 8opronouncement as to costs' ;O ORD!R!D'



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