Tax 2 Remedies Digests Ko

TAX 2 – PROF LAFORTEZA CASE DIGESTS TOPIC: REMEDIES

16: EMILIO S. LIM, SR. V. CAOctober 18, 1990; C.J. Fernan; G.R. L-48134-37

DOCTRINE: Prescriptive Period to File Criminal Case Under NIRC SECTION 281: 5 years from failure to pay tax after notice and demand.

NATURE: Petition for Review on Certiorari

FACTS: Spouses Lim were engaged in the dealership of various household appliances.

The NBI conducted a raid on Oct. 5, 1959 on their: 1.) Business Address: No. 336 Nueva Street, Manila;

and 2.) 111 12th Street, Quezon City.

Seized from the Lim couple were business and accounting records which served as bases for an investigation undertaken by the BIR.

On Sept. 30, 1964, Senior Revenue Examiner Raphael S. Daet submitted a memorandum that the income tax returns filed by the spouses Lim for 1958 and 1959 were false or fraudulent.

Assessment should be: P835, 127.

Acting Commissioner Benjamin M. Tabios informed the couple that there deficiency income taxes are P922, 913.04.

On April 10, 1965, spouses requested an re-investigation.

BIR expressed willingness on the following conditions:1.) written waiver of the defense of prescription under

the statute of limitations;2.) depositing ½ of the assessment and securing the

other ½ with a surety bond.

Spouses Lim refused to comply with the conditions and reiterated his request.

BIR rendered a final decision holding that there was no cause for reversal of the assessment against the Lim couple.

The final notice and demand for payment was served through their daughter in law on July 3, 1968 for the amount of P1,237,190.55 including interest, surcharges and penalty for late payment.

BIR referred the matter to the Manila’s Fiscal’s Office for investigation and prosecution.

4 criminal informations were filed against petitioners. violation of NIRC SECTION 45 violation of NIRC SECTION 51

RTC Manila found petitioners guilty.

CA affirmed RTC. 23 days later Antonio Lim, Sr. died.

ISSUE/S: 1.) WON the offenses prescribe after 5 years (Lim) or

10 years (government’s position)?

2.) WON the prescriptive period commenced to run from 1965 date of 1st assessment or discovery (accdg to Lim spouses) or from final notice on 1968 (government)?

3.) WON the RTC had jurisdiction over the tax collection case?

4.) WON the death of Emilio S. Lim, Sr. extinguished his civil liabilities?

HELD:1.) 5 years – but the government instituted the case

within the prescriptive period.

NIRC

SECTION 73. PENALTY FOR FAILURE TO FILE RETURN OR TO PAY TAX. – Anyone liable to pay the tax, to make a return or to supply information required under this code, who refuses or neglects to pay such tax, to make such return or to supply such information at the time or times herein specified in each year, shall be punished by a fine of not more than P2,000 or by imprisonment for not more than 6 months, or both.

Any individual or any officer of any corporation, or general co-partnership…, required by law to make, render, sign or verify any return or to supply any information, who makes any false or fraudulent return or statement with intent to defeat or evade the assessment required by this Code to be made, shall be punished by a fine not exceeding P4,000 or by imprisonment for not exceeding 1 year, or both.

SECTION 354. PRESCRIPTION FOR VIOLATIONS OF ANY PROVISIONS OF THIS CODE. – All violations of any provision of this Code shall prescribe after 5 years.

Prescription shall run from the day of the commission of the violation of the law, and if the same not be known at the time, from the discovery thereof AND the institution of judicial proceeding for its investigation and punishment.

The presumption shall be interrupted when proceedings are instituted against the guilty persons and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy.

The term of prescription shall not run when the offender is absent from the Philippines.

2.) Commenced from the date of the final notice.

MARY ANN JOY R. LEE 1


In criminal cases, statutes of limitations are acts of grace, a surrendering by the sovereign of its right to prosecute.

They receive strict construction in favor of the Government and limitations in such cases will not be presumed in the absence of clear legislation.

3.) No, because the criminal case was instituted on June 23, 1970 and PD 69 which mandates RTC to order payment of the taxes took effect only on Jan. 1, 1973. It has no retroactive application.

The law applicable was SECTION 316 which does not sanction such imposition.

4.) Regarding the liability of Emilio S. Lim, Sr. – extinguished by his death in accordance ith SECTION 89 of the RPC; but the fine imposed in the 4 criminal cases is affirmed in the case of petitioner Antonia Sun Lim in accordance with NIRC SECTION 73.

DISPOSITION: CA AFFIRMED with Modifications.

NOTES:

J. GUTTIERREZ, JR. CONCURRING OPINION

– suggested an amendment of the law because the wording makes: Date of discovery – meaningless; because the discovery and institution of judicial proceedings are conjunctive.

17: COMMISSIONER OF INTERNAL REVENUE, et. al. V. CA, RTC, FORTUNE TOBACCO, LUCIO TAN,

etc.J. Kapunan; June 4, 1996; GR No. 119322

NATURE: Petition for Review on Certiorari

FACTS: On June 1, 1993, the President created a Task Force: 1.) to investigate the tax liabilities of manufacturers

engaged in tax evasion schemes such as: selling

products through dummy marketing corporations to avoid payment of correct internal revenue tax;

2.) to collect from them any tax liabilities discovered from such investigation, and

3.) to file the necessary criminal actions against those who may have violated the NIRC.

Task Force Composition:1. Commissioner of Internal Revenue (CIR) –

Chairman;2. Representative of the DOJ;3. Representative of the Executive Secretary.

CIR assessed against Fortune deficiency in the amount of P7, 685, 942, 221. 66 for the year 1992:

1. Income Tax – evasion in the amount of P723,773,759.79

BIR Taxable Income: P1,282,959,399.25Fortune declared only: P 183,613,408.00

- In violation of SECTION 45 of the Tax Code

2. Ad Valorem Tax1 - evasion in the amount of P5,792,479,816.24

- In violation of SECTION 127, in relation to SECTION 142, as amended by RA 6956.

3. VAT – evasion in the amount of P1,169,688,645.63

BIR Findings of VAT sales: P 16,158,575,035.00Fortune VAT Returns only: P 11,929,322,334.52

- In violation of SECTION 110, in relation to SECTION 100 of the Tax Code.

On Sept. 7, 1993, CIR filed a criminal complaint for tax evasion with the DOJ against Fortune Tobacco Corp., its corporate officers, 9 other corporations, and their respective corporate officers.

The Task Force found that Fortune made fictitious and simulated sales to non-existing “ghost wholesale buyers”.

Fortune Tobacco filed M.T.D. and Motion to Suspend, grounds:

1 On July 1, 1993 CIR issued a Revenue Memorandum Circular reclassifying:1.) “Hope”2.) “More”3.) “Champion”As cigarettes of foreign brands subject to a higher rate of tax.

On August 3, 1993, Fortune Tobacco Corporation (Fortune) questioned the validity of the reclassification of the brands as violative of 1.) Due process2.) Equal Protection of Law

CTA enjoined the enforcement of the reclassification - “of doubtful legality.”MARY ANN JOY R. LEE 2


(1.) The CIR follows a pattern of prosecution against Fortune Tobacco in violation of their right to due process and equal protection of the laws;

(2.) CIR and CTA still has to determine Fortune’s tax liability for 1992 – without any tax liability, there can be no tax evasion;

(3.) D.O.J. has no jurisdiction – should be C.T.A.;(4.) The Complaint is not supported by any evidence.

The Task Force -(a.) treated the M.T.D. and the Motion to Suspend as

counter-affidavits;(b.) denied reconsideration;(c.) denied suspension of investigation;(d.) denied motion to inhibit the investigating state

prosecutors;(e.) denied motion to require submission by BIR of

certain documents such as the “Daily Manufacturer’s Sworn Statements” allegedly the basis of CIR’s conclusion that Fortune’s tax declarations were false and fraudulent.

Fortune filed a petition for certiorari and prohibition with prayer for preliminary injunction in the RTC, QC.

Fortune claims that Assistant City Prosecutor Baraquia cannot conduct the preliminary investigation in an impartial manner because he was a former classmate of Presidential Legal Counsel Antonio T. Carpio.

Task Force filed M.T.D. grounds:(a.) Lack of jurisdiction of RTC to enjoin criminal

prosecution under preliminary investigation;(b.) Criminal Prosecution for Tax Fraud can proceed

independently of Criminal or Administrative Action;(c.) There is no Prejudicial Question to justify the

suspension of the prelim investigation;(d.) Private respondents’ right to due process was not

violated;(e.) Selective prosecution is not a valid defense in this

jurisdiction.

RTC:- granted the prayer for writ of preliminary injuction

to stop the preliminary investigation in the D.O.J. Revenue Cases Task Force.

- Held that there is nothing on record in the preliminary investigation which supports the allegations of fraudulent declarations

- held that there is a prejudicial legal question that should first be settled before any criminal complaint for tax evasion can be initiated – the issue of the basis of respondents’ tax liability: Whether its SECTION 127 (b.) of the NIRC as contended by the B.I.R.; ORSECTION 142 (c.) contended by private respondents

Same process with the BIR’s assessment for fraudulent tax evasion for the years 1990 & 1991

C.I.R. and D.O.J. Prosecutors filed in the SC a petition for certiorari and prohibition with prayer for preliminary injunction against the RTC orders.

SC referred the matter to the CA.

CA:- dismissed the petition

- Certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or fact.

- Errors of courts acting within its jurisdictions are mere errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari.

- The RTC orders are merely interlocutory and review by the CA is inappropriate until final judgment is rendered, absent a showing of grave abuse of discretion on the part of the issuing court.

- Petitioners should have

(1.) filed an Answer as ordained in the RULES OF COURT

RULE 16: MOTION TO DISMISS

SECTION 4. TIME TO PLEAD. – If the motion is denied, the movant shall file his answer within the balance of the period prescribed by RULE 11 to which he was entitled at the time of serving his motion, but not less than 5 days in any event, computed from his receipt of the notice of denial.

If the pleading is ordered to be amended, he shall file his answer within the period prescribed by RULE 11, counted from service of the amended pleading, unless the court provides a longer period.

In connection with:

RULE 11: WHEN TO FILE RESPONSIVE PLEADINGS

(2.) Then proceed to trial in order that thereafter the case may be decided on the merits by the respondent court.

(3.) If the decision is adverse to them – appeal the decision.

- Certiorari and prohibition are remedies narrow in scope and inflexible in character.

They are not general utility tools in the legal workshop.

Their function is limited to correction of defects of jurisdiction solely,



not to be used to any other purpose such as to cure errors in proceedings or to correct erroneous conclusions of law or fact.

- RTC is still to try the case and decide it on the merits.

ISSUE/S: WON CA correctly ruled that RTC QC did not commit grave abuse of discretion amounting to lack of jurisdiction in issuing 4 orders directing the issuance of writs of preliminary injunction restraining petitioner prosecutors (C.I.R., D.O.J. Task Force, etc.) from continuing with the preliminary investigation of the criminal complaints against private respondents (Fortune Tobacco Corp., etc.)

HELD: Yes. The Petition is Bereft of Merit.

RATIO: Grave abuse of discretion – means such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction.

The abuse of discretion must be patent and gross as to amount to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law as where the power is exercised in an arbitrary and despotic manner by reason of passion and hostility.

NIRC:

SECTION 127.

(b.) DETERMINATION OF GROSS SELLING PRICE OF GOODS SUBJECT TO AD VALOREM TAX. - - Unless otherwise provided, the price, excluding the VAT, at which the goods are sold at wholesale in the place of production or through their sales agents to the public shall constitute the Gross Selling Price.

If the manufacturer also sells or allows such goods to be sold at wholesale price in another establishment of which he is the owner or in the profits at which he has an interest, the wholesale price in such establishment shall constitute the Gross Selling Price.

Should such price be less than the costs of manufacture plus expenses incurred until the goods are finally sold, then a proportionate margin of profit, not less than 10% of such manufacturing costs and expenses, shall be added to constitute the Gross Selling Price.

Lays down the rule in determining the Gross Selling Price of Goods subject to Ad Valorem Tax.

The Ad Valorem Tax should be based on the “correct” price excluding the VAT, at which goods are sold at wholesale in the place of production.

For purposes of determining the “Manufacturer’s Registered Wholesale Price” a cigarette manufacturer is required to file a Manufacturer’s Declaration (BIR Form No. 31.03) for each brand of cigarette manufactured, stating:

(a.) Materials;(b.) Labor;(c.) Overhead;(d.) Tax Burden;(e.) Wholesale Price by the Case.2

SECTION 142.

(c.) CIGARETTES PACKED IN TWENTIES. -- There shall be levied, assessed and collected on cigarette packed in twenties an ad valorem tax at the rates prescribed below based on the manufacturer’s registered wholesale price:

(1.) On locally manufactured cigarettes bearing a foreign brand, 55%: Provided, that the rate shall apply regardless of whether or not the right to use or title to the foreign brand was sold or transferred by its owner to the local manufacturer.

- Whenever it has to be determined WON a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern.

(2.) On other locally manufactured cigarettes, 45%.

Duly registered or existing brands of cigarettes packed in twenties shall not be allowed to be packed in 30s.

When the existing registered wholesale price, including tax, of cigarettes packed in 20s does not exceed P4 per pack, the rate shall be 20%.

xxx xxx xxx

The purpose of registration of the Wholesale Price is to ensure the payment of correct taxes by the manufacturers of cigarettes through close supervision, monitoring and checking of the business operations of the cigarette companies.

BIR and National Tobacco Administration (NTA) intensely supervise this industry.

Revenue Enforcement Officers are detailed on a 24-hour basis in the premises of the manufacturer to secure the production and removal of finished products.

2 Actually I still do not agree because even if they state a wholesale price – the statement did not require a specific profit margin or amount or percentage for the company –

example: Registered Wholesale Price is P5/ pack, Costs of Production is P4.50/ pack = P0.50 profit / pack declared;

But if the real Whole Sale Price si P7/ pack = then the actual profit is P2.50 / pack.MARY ANN JOY R. LEE 4


Composite Mobile Teams conduct counter-security on the business operations as well as the performance of the Revenue Enforcement Officers detailed thereat.

The amount of ad valorem tax payments together with the Payment Order and Confirmation Receipt Nos. must be indicated in the sales and delivery invoices and together with the Manufacturer’s Sworn Declarations on

(a.) the quantity of raw materials used during the day’s operations;

(b.) the total quantity produced according to brand;

(c.) the corresponding quantity removed during the day,

(d.) the corresponding wholesale price thereof, and

(e.) the VAT paid thereon

must be presented to the corresponding BIR representative for authentication before removal.

If every step in the production of cigarettes was closely monitored and supervised by the BIR personnel specifically assigned to Fortune’s premises, and

considering that the Manufacturer’s Sworn Declarations on the data required to be submitted by the manufacturer were scrutinized and verified by the BIR and,

further, since the manufacturer’s wholesale price was duly approved by the BIR,

then it is presumed that such Registered Wholesale Price is the same as, or approximates “the price excluding the VAT, at which the goods are sold at wholesale in the place of production,”

otherwise the BIR would not have approved the registered wholesale price of the goods for purposes of imposing the ad valorem tax due.

It was precipitate and premature to conclude that private respondents made fraudulent returns or willfully attempted to evade payment of taxes due.

“Willful” – means “premeditated; malicious; done with intent or with bad motive or purpose, or with indifference to the natural consequence . . . ”

“Fraud” – in its general sense, “is deemed to comprise anything calculated to deceive, including all acts, omissions, and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage taken of another.

Fraud cannot be presumed.

If there was fraud or willful attempt to evade payment of ad valorem taxes by private respondents through the manipulation of the registered wholesale price of the cigarettes, it must have been with the connivance or cooperation of certain BIR officials and employees who supervised and monitored Fortune’s production activities to see to it that the correct taxes were paid.3

There is no allegation, much less evidence, of BIR personnel’s malfeasance.

Presumption that the BIR personnel performed their duties in the regular course in ensuing the correct taxes were paid by Fortune.

SC upheld the view of the RTC and CA that before private respondents could be prosecuted for tax evasion – the tax due should first be established.

Until and unless the BIR has made a final determination of what is supposed to be the correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution.

Under SECTION 229 of the Tax Code, the taxpayer has the right to move for reconsideration of the assessment issued by the CIR within 30 days from receipt of the assessment;

And if the MFR is denied, it may appeal to the CA within 30 days from receipt of the CIR’s decision.

Here, the CIR has not resolved the MFR up to the present!

CIR cites Ungad V. Cusi - that the lack of a final determination of Fortune’s exact or correct tax liability is not a bar to criminal prosecution.

Qualified by the Court with the ff. statement quoted from Guzik V. US:

“the crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat a part or all of the tax.”

3 (please see dissent – I agree with dissent that even if BIR officials connived with Fortune, the Government is not estopped to file criminal complaints for fraudulent tax

evasion against Fortune!)



SC – there must be a prima facie showing of willful attempt to evade taxes.4

SC DISAGREES with CIR contention that private respondents’ recourse to the trial court by way of special civil action of certiorari and prohibition was improper because:

(a.) the proceedings before the state prosecutors (preliminary injunction) was far from terminated;

(b.) it is only after the submission of private respondents’ counter-affidavits that the prosecutors will determine WON there is enough evidence to file in court criminal charges for fraudulent tax evasion against private respondents; and

(c.) the proper procedure is to allow the prosecutors to conduct and finish the preliminary investigation and to render a resolution, after which the aggrieved party can appeal the resolution to the Secretary of Justice.

GENERAL RULE: Criminal Prosecutions cannot be enjoined.

EXCEPTIONS, citing Brocka V. Enrile:(a.) To afford adequate protection to the constitutional

rights of the accused (Hernandez V. Albano);

(b.) When necessary for the orderly administration of justice or to avoid oppression or multiplicity of actions (Dimayuga, et. al. V. Fernandez; Hernandez V. Albano; Fortun V. Labang, et. al.);

(c.) When there is a prejudicial question which is sub judice (De Leon V. Mabanag);

(d.) When the acts of the officer are without or in excess of authority (Planas V. Gil);

(e.) Where the prosecution is under an invalid law, ordinance or regulation (Young V. Rafferty; Yu Cong Eng V. Trinidad);

(f.) When double jeopardy is clearly apparent (Sangalang V. People and Alvendia);

(g.) Where the court had no jurisdiction over the offense (Lopez V. City Judge);

(h.) Where it is a case of persecution rather than prosecution (Rustia V. Ocampo);

(i.) Where the charges are manifestly false and motivated by the lust for vengeance (Recto V. Castelo, cited in Rano V. Alvenia; Cf. Guingona et. al. V. City Fiscal); and

(j.) When there is clearly no prima facie case against the accused and a motion to quash on that ground has been denied (Salonga V. Pane);

(k.) to prevent a threatened unlawful arrest (Ocampo IV V. Ombudsman).

SC held in this case that the writs of preliminary injunction were properly issued by the RTC, to afford private respondents adequate protection of their constitutional rights;

to avoid oppression;

there was a prejudicial question;

that the complaint of the CIR is not supported by any evidence to serve as an adequate basis for the issuance of the subpoena to them and put them to their defense.

There are factual and legal bases for the assailed orders.

RULE 112: PRELIMINARY INVESTIGATION

SECTION 3. PROCEDURE. – Except as provided for in SECTION 7 hereof, no complaint or information for an offense cognizable by the RTC shall be filed without a preliminary investigation having been first conducted in the ff. manner:

(a.) The complaint shall state the known address of the respondents and be accompanied by affidavits of the complainant and his witnesses as well as other supporting documents, in such number of copies as there are respondents, plus 2 copies for the official file.

- The said affidavits shall be sworn to before any fiscal, state prosecutor, or government official authorized to administer oath, or, in their absence or unavailability, a notary public, who must certify that he personally examined the affiants and that he is satisfied that they voluntarily executed and understood their affidavits.

(b.) Within 10 days after the filing of the complaint, the investigating officer shall either dismiss the same if he finds no ground to continue with the inquiry, or issue a subpoena to the respondent, attaching thereto a copy of the complaint, affidavits and other supporting documents.

- Within 10 days from receipt thereof, the respondent shall submit counter-affidavits and other supporting documents.

4 I disagree because intention is a mental state (mens rea) which has to be proven by other evidence.

So if the BIR is not allowed in a proper hearing to adduce evidence to prove this “intention” “to defraud” all criminal complaints of similar nature against other similarly tax evading companies will also be killed at preliminary investigation stage pa lang - - will not proceed or prosper anymore.

Corruption is not only in the Government but is worse in the Private Sector – by persons who do not pay taxes or do not pay “correct” taxes.



- He shall have the right to examine all other evidence submitted by the complainant.

(c.) Such counter-affidavits and other supporting documents submitted by the respondent shall also be sworn to and certified as prescribed in paragraph (a.) hereof and copies thereof shall be furnished by him to the complainant.

(d.) If the respondent cannot be subpoenaed, or if subpoenaed, does not submit counter-affidavits within the 10 day period, the investigating panel shall base his resolution on the evidence presented by the complainant.

(e.) If the investigating officer believes that there are matters to be clarified, he may set a hearing to propound clarificatory questions to the parties or their witnesses, during which the parties shall be afforded an opportunity to be present but without the right to examine or cross-examine.

- If the parties so desire, they may submit questions to the investigating officer which the latter may propound to the parties or witnesses concerned.

(f.) Thereafter, the investigation shall be deemed concluded, and the investigating officer shall resolve the case within 10 days therefrom.

- Upon the evidence thus adduced, the investigating officer shall determine WON there is sufficient ground to hold the respondent for trial.

As found by CA there was obvious haste by which the subpoenas were issued to private respondents, hence without the investigating prosecutors being afforded material time to examine and study the voluminous documents appended to the complaint for them to determine if preliminary investigation should be conducted.

- These also justify private respondents’ misgivings regarding the objectivity and neutrality of the prosecutors.

SC upheld the RTC and CA finding that the non-production by CIR of the “Daily Manufacturers Sworn Statements” amounts to a showing of lack of evidence which warrants that the prosecutors should have dismissed the complaint outright.

Citing Borja V. Moreno – it was held that the act of the investigator in proceeding with the hearing without 1st

acting on the respondents’ M.T.D. is a manifest disregard of the requirement of due process.

SC held that the denial of the motion to produce the “Daily Manufacturers Sworn Statements” by other cigarette companies, as sought by private respondents, to show that these companies which had paid the ad valorem taxes on the same basis and in the same manner as Fortune were not similarly criminally charged indicates that only Fortune was singled out for prosecution. (I don’t agree)

DISPOSITION: Petition DISMISSED.

NOTES:

J. BELLOSILLO CONCURRING AND DISSENTING:

Concur in: finding that RTC did not commit grave abuse of discretion in issuing injunctive writs

The only issue before the SC is the propriety of the ancillary or provisional remedy.

RTC granted the writs of preliminary injunction upon finding, after hearing for the purpose, that private respondents sufficiently established that “they are entitled to certain constitutional rights and that these rights have been violated,”

RTC enumerated their reasons:

1st: inspite of the motion of Fortune, CIR failed to present the “Daily Manufacturer’s Sworn Statements” submitted to the BIR by the Taxpayer;

2nd: the proper application of SECTION 142 (c.) of the NIRC is a prejudicial question which must first be resolved by the CTA to determine whether a tax liability which is an essential element of tax evasion exists before criminal proceedings may be pursued;

3rd: BIR has not yet made a final determination of the tax liability of private respondents; and

4th: the precipitate issuance by the prosecutors of subpoenas to private respondents 1 day after the filing of the complaint consisting of about 600 pages; and their hasty denial of private respondents’ 135 page MTD, after a recess of only 20 minutes, show that the private respondents’ constitutional rights may have been violated.

Other traces of discrimination, malice and partiality found by the RTC–

1.) Announcement by the PCGG that it would take over the various corporations associated with respondent Lucio C. Tan;

2.) The creation of the Task Force on Revenue Cases among the functions of which is to “investigate the tax liabilities of manufacturers that engage in well-known tax evasion schemes, such as selling products through dummy marketing companies to evade the payment of the



correct internal revenue taxes,” the very charge against respondent Tan;

3.) the reclassification of Fortune’s best selling cigarettes as foreign brands without notice and hearing;

4.) the singling out of private respondents as subjects of a complaint for tax evasion when other cigarette manufacturers have been using the same basis in paying taxes;

5.) the failure of the CIR to wait for the expiration of the 30 day period she herself gave to private respondents to pay the supposed tax deficiencies before the filing f the complaint.

Issuance of the writ of preliminary injunction as an ancillary or preventive remedy to secure the rights of a party in a pending case rests upon the sound discretion of the court hearing it.

The exercise of sound discretion by the RTC in injunctive matters should not be interfered with except in case of manifest abuse.

The RTC injunctive writs are merely orders to preserve the status quo until the merits of the case can be heard.

The hearing on the application for issuance of a writ of preliminary injunction is separate and distinct from the trial on the merits of the main case.

The quantum of evidence required for one is different from that of the other so it does not necessarily follow that if the court grants and issued the temporary writ applied for the same court will not have to rule in favor of the petition for prohibition and ipso facto make the provisional injunction permanent.

RULE 58, SECTION 7. A wide latitude is given to the RTC.

The conflicting claims in an application for a provisional writ more often than not involves a factual determination which is the function of the SC, or even the respondent CA.

Both parties were given sufficient time and opportunity by the RTC to present their respective pieces of evidence as well as arguments in support of their positions.

To permanently enjoin the RTC from proceeding in any manner in the Civil Cases and allow the preliminary investigation of the complaints docketed with the D.O.J. to resume until their final conclusion and completion would go against the prevailing rule that courts should avoid issuing a writ of preliminary injunction which would in effect dispose of the main case without trial.

The main case should be allowed to proceed according to due process.

Balancing on the scales the power of the State to tax and its inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights of a citizen to due process of law and equal protection fo the laws on the other.

The scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill of Rights of the Constitution.

While “taxes are the lifeblood of the government,” the power to tax has its limits, inspite of all its plenitude.

Commissioner of Internal Revenue V. Algue, Inc.

Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.

On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself.

It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved.

xxx xxx xxx

It is said that taxes are what we pay for civilized society.

Without taxes, the government would be paralyzed for the lack of the motive power to activate and operate it.

Hence, despite the natural reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is able must contribute his share in the running of the government.

The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values.

This symbiotic relationship is the rationale of taxation and should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of power.

But even as we concede the invevitably and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure.



If it is not, then the taxpayer

Due to the overzealousness in collecting taxes from private respondents and to some accident of immediate overwhelming interest which distressingly impassions and distorts judgment, the State has unwittingly ignored the citizens’ constitutional rights.

Thus even the rule that injunction will not lie to prevent a criminal prosecution has admitted exceptions, which were enumerated in Brocka V. Enrile and in Ocampo IV V. Ombudsman.

Courts should not hesitate to invoke the constitutional guarantees to give adequate protection to the citizens when faced with the enormous powers of the State, even when what is in issue are only provisional remedies.

In days of great pressure, it is alluring to take

short cuts by borrowing dictatorial techniques.

But when we do, we set in motion an arbitrary or subversive influence by our own design which destroys us from within.

Let not the present case dangerously sway toward that trend.

Dissent in: finding of “selective prosecution” of private respondents

There is no showing that CIR is not going after others who may be suspected of being big trax evaders and that only private respondents are being prosecuted, or even merely investigated, for tax evasion.

Assuming ex hypothesi that other corporate manufacturers are guilty of using similar schemes for tax evasion, the proper remedy is not the dismissal of the complaints against private respondents, but the prosecution of other similar evaders.

In the absence of willful or malicious prosecution, or so-called “Selective Prosecution,” the choice on whom to prosecute ahead of the others belongs legitimately, and rightly so, to the public prosecutors.

J. PADILLA DISSENTING:

DISCUSSION: CA discussed that special civil action for certiorari and prohibition are improper to cure errors in proceedings or correct erroneous conclusions of law or fact.

Errors of courts acting within its jurisdictions are mere errors of judgment which are reviewable by timely appeal and not by a special civil action of certiorari.

This is applicable to the private respondents when they resorted to the remedy of certiorari and prohibition with application for preliminary injunction with the RTC to stop the preliminary investigation conducted by the D.O.J. Task Force.

Note: The Proceedings before the investigators are far from terminated.

In fact the private respondents were merely subpoenaed and asked to submit counter-affidavits.

When there M.T.D. was denied, they resorted to the courts for redress.

The proper procedure should have been an appeal from such an adverse resolution to the Secretary of Justice.

As a corollary, the RTC should have desisted from entertaining private respondents’ original petition for certiorari and prohibition with prayer for preliminary injunction because a court order to stop a preliminary investigation is an act of interference with the investigating officers’ discretion, absent any showing of grave abuse of discretion on the part of the latter in conducting such preliminary investigation.

The Rule is settled that the fiscal (prosecutor) cannot be prohibited from conducting and finishing his preliminary investigation.

The private respondents’ petition in the RTC was clearly premature.

- does not fall within any of the exceptions when prohibition lies to stop a preliminary investigation.

Majority Decision clearly constitutes an untenable usurpation of: (1.) the primary duty and function of the prosecutors to

conduct the preliminary investigation of a criminal offense; and

(2.) the power of the Secretary of Justice to review the resolution of said prosecutors.

Citing Guingona,

“As a GENERAL RULE, an injunction will not be granted to restrain a criminal prosecution.”

With more reason will injunction not lie when the case is still at the preliminary investigation stage.



This Court should not usurp the primary function of the City Fiscal to conduct the preliminary investigation of the estafa charge and of the petitioner’s counter-charge for perjury, which was consolidated with the estafa charge.

The City Fiscal’s office should be allowed to finish its investigation and make its factual findings.

This Court should not conduct the Preliminary Investigation.

It is not a trier of facts.

PRELIMINARY ISSUES:

1. Fortune alleges violations of their rights to due process and equal protection of the laws.

Private respondents were given the opportunity be heard - to file their counter-affidavits to refute the allegations in the BIR complaints, together with their supporting documents.

It is only after submission of counter-affidavits that the investigators will determine WON there is enough evidence to file in court criminal charges for fraudulent tax evasion against private respondents or to dismiss the BIR complaints.

Even the CA admitted that the BIR 1st complaint signed by the CIR consisted of 14 pages supported by an annex consisting of 17 pages in the form of a joint affidavit of 8 Revenue Officers, to which were attached voluminous documents as annexes which, when put together, constituted a formidable network of evidence tending to show fraudulent tax evasion on the part of the private respondents.

2. There is no selective prosecution nor violation of Equal protection of the laws as the Sol Gen pointed out, more than 1,000 criminal cases for tax evasion have been filed in Metro Manila alone.

Private respondents are not being singled out.

They failed to substantiate this allegation of “selective prosecution.

Assuming arguendo that other corporate manufacturers are guilty of using similar schemes for tax evasion, allegedly used by respondents, the Sol. Gen. correctly points out that the remedy IS NOT dismissal of the complaints, BUT investigation and prosecution of the other similar violators.

3. Private Respondents’ allegations that the Assistant QC Prosecutor lacks impartiality, are so unsubstantiated, imaginary, speculative and indeed puerile.

4. Rule: City and state prosecutors are authorized to conduct preliminary investigation of criminal offenses under the NIRC.

Jurisdiction over said Criminal Offenses are with the RTC.

5. Issue of WON the evidence submitted by petitioners is sufficient to warrant the filing of criminal informations for fraudulent tax evasion is prematurely raised.

To argue, as private respondents do, that 1 piece of evidence, i.e. the “Daily Manufacturer’s Sworn Statements” should be produced at a particular stage of investigation, in order to determine the probably guilt of the accused, is to dictate to the investigating officers the procedure by which evidence should be presented and examined.

Further, “a preliminary investigation is not the occasion for the full and exhaustive display of the parties’ evidence; it is for the presentation of such evidence only as may engender a well grounded belief that an offense has been committed and that the accused is probably guilty thereof…”

The Preliminary Investigation has not yet been terminated.

The proper procedure then should be to allow the investigators, who undeniably have jurisdiction, to conduct and finish the preliminary investigation and to render a resolution.

The party aggrieved by said resolution can then appeal it to the Secretary of Justice, as required by the settled doctrine of exhaustion of administrative remedies.

What special qualification or privilege do private respondents have to exempt them from the operation of this principle and entitle them to immediate judicial relief from the respondent RTC?

6. CA and RTC maintain that a previous assessment of the correct amount of taxes due is necessary before private respondents may be charged criminally for fraudulent tax evasion.

This view is not supported by law and jurisprudence.

The lack of a final determination of Fortune’s exact or correct tax liability is NOT a bar to criminal prosecution for fraudulent tax evasion.

NIRC does not require such computation and assessment prior to criminal prosecution for fraudulent tax evasion.

SC earlier ruled – “An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax.

A crime is complete when the violator has knowingly and willfully filed a fraudulent return with intent to evade and defeat the tax.



The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government’s failure to discover the error and promptly to assess has no connections with the commission of the crime.”

Under the Ungab doctrine - the filing of a criminal complaint for fraudulent tax evasion would be proper even without a previous assessment of the correct tax.

Involved the filing of a fraudulent income tax return because the defendant failed to report his income derived from the sale of banana saplings.

Case at bar: fraudulent concealment of actual price of products sold through declaration of registered wholesale prices lower than the actual wholesale prices.

Both cases involved fraudulent schemes to evade payment to the Government of correct taxes.

“The petitioner also claims that the filing of the informations was precipitate and premature since the CIR has not yet resolved his protests against the assessment of the Revenue District Offier; and that he was denied recourse to the C.T.A.

The contention is without merit.

What is involved here is not the collection of taxes where the assessment of the CIR may be reviewed by the CTA, but a criminal prosecution for violations of the NIRC which is within the cognizance of CFI.

While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the code.

The contention is made, and is hereby rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges preferred.

The crime is complete when the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and defeat a part or all of the tax.”

The ruling is undisputably on all fours with, and conclusive to the case at bar.

There, SC denied the prayer of therein petitioner to quash informations for tax evasion that had already been filed in court.

Despite the fact that the prosecutors in Ungab had already found probably cause to try therein

petitioner for tax evasion, there was no finding by the Court of any violation of any of petitioner’s constitutional rights.

The Ungab Doctrine is good law.

How can there now be a violation of private respondents’ constitutional rights upon a requirement by the investigators that private respondents submit their counter-affidavits?

7. The validity of the BIR RMC 37-93 which reclassified cigarette brands “Hope” “More” and “Champion” manufactured by Fortune to a 10% increase in ad valorem taxes is irrelevant to the issue of fraudulent tax evasion involved in this case.

It is not a prejudicial question because any decision regarding the RMC will not affect private respondents’ criminal liability for fraudulent tax evasion for the ff. reasons:

a. The RMC pertains to ad valorem taxes of Fortune’s named brands after July 1, 1993; the Fraudulent Tax Evasion in the present case pertains to 1990, 1991, and 1992.

b. The Fraudulent Scheme allegedly utilized by Fortune and its dummies, as described in the BIR Complaints, was actually a “built-in” tax evasion device already in place even before the assailed RMC was issued.

The scheme is particularly designed to result in the underpayment of ad valorem, value-added, and income taxes regardless of the rate applied by the government on the cigarette products.

8. The 2 provisions of the NIRC are both applicable in determining the tax due.

SECTION 127 (b.) – provides for the method of determining the Gross Wholesale Price to be registered with the BIR;

SECTION 142 (c.) – provides the rate of ad valorem tax to be paid, expressed as a percentage of the registered Gross Selling Price.

These provisions do not involve a prejudicial question because they are not determinative of private respondents’ criminal liability, if any.

Fortune is accused of selling at lower registered wholesale prices its cigarette brands through dummy entities in the profits of which it has a controlling interest.

The Government through BIR allege that respondent Fortune has purposely made use of such dummy entities to under declare the Gross Wholesale Price and evade payment of higher but legally correct taxes.



9. Payment of ad valorem and other taxes based on the wholesale price registered with the BIR presupposes and naturally assumes that the registered wholesale price correspond to the actual wholesale prices at which the manufacturer sells the products.

Fortune’s claim that they based their liability on the wholesale price registered with BIR cannot absolve Fortune and its officers of criminal liability.

10. Private respondents contend that – 1st: Registration with the BIR of the wholesale

prices;2nd: Corresponding close supervision and

monitoring by BIR officials of the business operations of cigarette companies, ensure payment of correct taxes.

The argument is baseless.

The procedure is not a guarantee against fraudulent schemes resorted to by tax-evading individuals or entities.

It only indicates that taxpayers bent on evading payment of taxes would explore more creative devices or mechanisms in order to defraud the Government of its sources of income even under its very nose.

It is precisely to avoid and detect cases like this that the President issued a Memorandum on June 1, 1993 creating a Task Force to investigate tax liabilities of manufacturers engaged in tax evasion schemes.

The Manufacturer’s Declaration which is the basis for determining the “Manufacturer’s Registered Wholesale Price”, even if verified by Revenue Officers and approved by the CIR, does not necessarily reflect the actual wholesale price at which the cigarettes are sold.

This is why Manufacturers are Still Required to file other documents, like the “Daily Manufacturer’s Sworn Statements” in order to assist in determining WON correct taxes have been paid.

Even if BIR Officials may have verified Fortune’s BIR registered wholesale price for its products – the same DOES NOT ESTOP NOR PRECLUDE the Government from filing criminal complaints for FRAUDULENT TAX EVASION based on evidence subsequently gathered to the effect that such BIR registered wholesale prices were a mis-declaration or under-declaration of the actual wholesale price.

It is hornbook law that the Government is not bound or estopped by the mistakes, inadvertence, and what more, connivance of its officials and employees with fraudulent schemes to defraud the Government.

Even on the assumption that official duty of BIR officials and employees has been regularly

performed, the allegations in the complaints are clear enough in that private respondents allegedly made use of schemes to make it appear that respondent Fortune’s tax liabilities are far less than what they should be actually liable for under the law.

The very nature of the offense for which respondents are being investigated, certainly makes regularity/ irregularity in the performance of official duties irrelevant.

The difference between Fortune’s BIR-reported wholesale prices to its “dummy” entities

And the actual wholesale prices at which its “dummies” sell Fortune’s products thus constitute the amounts for which Fortune should actually incur tax liabilities but for which it allegedly never paid taxes because of the operation of the tax evasion scheme.

Private respondents has not shown that there exist exceptional grounds removing them from the general rule that preliminary investigations of criminal offenses and criminal prosecutions cannot be stayed or enjoined by the courts.

11. RTC’s ruling that private respondents’ constitutional rights have been violated, rests on untenable grounds.

Exceptions – must be strictly applied. Any claim to an exception must be fully

substantiated.

The Exceptions Enumerated in Brocka V. Enrile do not apply in the case at bar.

It is important to stress that in a preliminary investigation, the investigating officers’ SOLE DUTY is: to determine, before the presentation of evidence by the prosecution and by the defense, WON there are reasonable grounds for proceeding formally against the accused.

This is in conformity with the purpose of securing the innocent against hasty, malicious and oppressive prosecutions, and to protect him from an open and public accusation of crime, from the trouble, expense and anxiety of public trial, and also to protect the state from useless and expensive trials.

C.J. Manuel V. Moran - - “… the purpose of a preliminary investigation is to afford the accused an opportunity to show by his own evidence that there is no reasonable ground to believe that he is guilty of the offense charged and that, therefore, there is no good reason for further holding him to await trial in the CFI.”



How could private respondents’ constitutional right to presumption of innocence be violated when, in all stages of preliminary investigation, they were presumed innocent?

Declaring that there are reasonable grounds to continue with the inquiry is not the same as pronouncing that a respondent is guilty or probably guilty of the offense charged.

12. Private respondents WERE AFFORDED due process and equal protection of the laws.

The alleged haste by which the subpoena was issued to private respondents does not lessen the investigating panel’s ability to study and examine the complainant’s evidence.

Neither does such act merit the conclusion that the investigating panel was less than objective in conducting the preliminary investigation.

Courts cannot interfere with the discretion of the investigating officer to determine the specificity and adequacy of the averments in the complaints filed, except in very exceptional circumstances, which do not obtain here.

Private Respondents’ act of filing a petition for certiorari and prohibition before the RTC was rather untimely and uncalled for.

Reasons:(a.) failure to exhaust administrative remedies;(b.) grounds cited were highly speculative, more fancied than real.

In Hernandez V. Albano – preliminary investigation can be stayed by court order only in extreme cases.

“By statute, the prosecuting officer of the City of Manila and his assistants are empowered to investigate crimes committed within the city’s territorial jurisdiction.

Not a mere privilege it is the sworn duty of a Fiscal to conduct an investigation of a criminal charge filed with his office.

The power to investigate postulates the other obligation on the part of the Fiscal to investigate promptly and file the case as speedily.

Public interest - - the protection of society - - so demands.

Agreeably to the foregoing, a rule - - now of long standing and frequent application - - was formulated that ordinarily criminal prosecution may not be blocked by court prohibition or injunction.

Really, if at every turn investigation of a crime will be halted by a court order, the administration of criminal justice will meet with an undue setback.

Indeed, the investigative power of the Fiscal may suffer such a tremendous shrinkage that it may end up in hollow sound rather than as part and parcel of the machinery of criminal justice.”

Dispositive Portion affirmed the decision of the trial court dismissing the petition for certiorari and prohibition with prayer for preliminary injunction filed to stay the preliminary investigation of criminal complaints against petitioner Hernandez.

In Fortun V. Labang – disgruntled lawyers who lost ehir cases in the judge’s sala filed criminal complaints against the CFI judge.

There the complaints were filed merely as a form of harassment against the judge and which “could have no other purpose than to place petitioner-judge in contempt and disrepute.”

There was an express finding by the Court that complaints against judges of the CFI are properly filed with the S.C. under E.O. No. 264 (1970) since the Court is considered as the department head of the judiciary.

- In the present case – Jurisdiction to Conduct Preliminary Investigation Over Fraudulent Tax Evasion Cases Lies with the State Prosecutors.

Neither Hernandez NOR Fortun supports the majority’s disposition.

The Majority has altered the entire rationale and concept of preliminary investigation of alleged criminal offenses.

“I will have no part in the shocking process … that the people have been cheated and defrauded of their taxes to the tune allegedly of P25.6 billion pesos, and yet, it is not given by this Court even a beggar’s chance to prove it.”

13. There is great and vital public interest in the successful investigation and prosecution of criminal offenses involving fraudulent tax evasion.

Said public interest is much more compelling in the present case since private respondents are not only accused of violating tax and penal laws, but are also depriving the Government of a primary source of revenue so essential to the life, growth and development of the nation and for the pre-station of essential services to the people.

14. This Opinion is not a pre-judgment or pre-determination of the private respondents’ guilt of the offense charge.



No one, at this stage, is in a position to determine and state with finality WON the private respondents are guilty of the offense charged in the BIR complaints.

It is precisely through the preliminary investigation that the DOJ Task Force on Revenue Cases can determine WON there are grounds to file informations in court OR to dismiss the BIR complaints.

15. The State Prosecutors did not commit grave abuse of discretion in requiring private respondents to submit couinter-affidavits to the complaints for fraudulent tax evasion.

Rules of Criminal Procedure do not even require, as a condition sine qua non to the validity of a preliminary investigation, the presence of the respondent as long as efforts to reach him are made, and an opportunity to controvert the complainant’s evidence is accorded him.

The purpose of the rule is to check attempts of unscrupulous respondents to thwart criminal investigations by not appearing or employing dilatory tactics.

16. Preliminary Investigation in the D.O.J. Revenue Cases Task Force against private respondents for alleged fraudulent tax evasion is well within its jurisdiction and constitutes no grave abuse of discretion, amounting to lack or excess of jurisdiction when it stayed such preliminary investigation.

17. The successful prosecution of criminal offenders is not only a right but the duty of the State.

There is no violation of constitutional rights in this case.

18. The consolidation of the 3 complaints in the D.O.J. against private respondents should be allowed since they all involve the same scheme allegedly used by private respondents to fraudulently evade payment of taxes.

Consolidation will :a. avoid multiplicity of suits; andb. enable private respondents to more

conveniently prepare whatever responsive pleadings are required or expected of them.

MAIN ISSUE: WON there are valid grounds to stop or stay the preliminary investigation of complaints filed by the B.I.R. with the D.O.J. Revenue Cases Task Force against Fortune Tobacco for alleged fraudulent tax evasion for the years 1990, 1991 and 1992?

No valid grounds to stop the preliminary investigation of the complaints with the D.O.J. Task Force, being constitutionally and legally in order

They should be allowed to resume until their final conclusion or completion, with private respondents given a non-extendible period of 10 days from notice to submit to the investigating panel their respective counter-affidavits and supporting documents, if any.

ISSUE DIFFERENTLY - STATED: Did the Trial Court commit grave abuse of discretion in stopping the subject preliminary investigation?

J. PADILLA: Yes.

RTC should be ENJOINED from proceeding in any manner in the civil case, at least until further orders from the S.C.

CA decision should be SET ASIDE.

J. VITUG DISSENTING:

ISSUE: WON judicial relief could be resorted to in order to stop state prosecutors from going through with their investigation of complaints lodged against private respondents.

SC should not unduly interfere, let alone to peremptorily prevent, the prosecuting agencies or offices of the government in their investigatorial work or in their own evaluation of the results of investigation.

In this case – the parties have exhaustively and adequately presented their respective caes.

In the interest of good order, the practical measure of enjoining the Trial Court from taking further cognizance of the case would not be unwarranted.

Civil Liability for the due payment of Internal Revenue Taxes, including the applicable remedies and proceedings in the determination thereof,

Must be considered “apart from” and “technically independent of”:

The Criminal Aspect that may be brought to bear in appropriate cases.

A recourse in one is not necessarily preclusive of, nor would the results thereof be conclusive on, the other.



18: COMMISSIONER OF INTERNAL REVENUE V. CA, CTA & FORTUNE TOBACCO

GR No. 119761; August 29, 1996; J. Vitug

NATURE: Petition for Review

FACTS: Fortune Tobacco Corporation (Fortune) is engaged in the manufacture of different brands of cigarettes.

They registered trademark names:1. Champion2. Hope 3. More

Because of foreign companies with same brands, 1987 CIR Tan was to classify them as “foreign brands” so Fortune changed: Hope to “Hope Luxury” and More to “Premium More”.

Fortune was taxed as local brands at 40%, 45% based on NIRC SECTION 142, (c.) (2.) for:1. Hope Luxury M. 100’s2. Hope Luxury M. King 3. More Premium M. 100’s4. More Premium International5. Champion Int’l M. 100’s6. Champion M. 100’s

at 15%, 20% based on NIRC SECTION 142, (c.) last paragraph for:

7. Champion M. King8. Champion Lights

On July 1, 1993, CIR issued Revenue Memorandum Circular (RMC) 37-97, reclassifying “Hope”, “More”, and “Champion” as bearing foreign brands [appearing in the World Tobacco Directory] subject to 55% ad valorem tax.

CIR assessed Fortune deficiency Ad Valorem Tax of P9,598,334.

2 days later RA 7654 became effective, which amended NIRC:

SECTION 142. CIGARS AND CIGARETTES. –

xxx xxx xxx

(c.) CIGARETTES PACKED BY MACHINE. – There shall be levied, assessed and collected on cigarettes packed by machine a tax at the rates prescribed below based on the constructive manufacturer’s wholesale price or the actual manufacturer’s wholesale price, whichever is higher:

(1.) On locally manufactured cigarettes which are currently classified and taxed at 55% or the exportation of which is not authorized by contract or otherwise, 55% provided that the minimum tax shall not be less than P5 per pack.

(2.) On other locally manufactured cigarettes, 45% provided that the minimum tax shall not be less than P3 per pack.

xxx xxx xxx

When the registered manufacturer’s wholesale price or the actual manufacturer’s wholesale price, whichever is higher of existing brands of cigarettes, including the amounts intended to cover the taxes, of cigarettes packed in twenties does not exceed P4.80 per pack, the rate shall be 20%.

Fortune Tobacco filed a petition for review in the CTA.

CTA judged in favor of Fortune. BIR failed to observe due process: notice and

hearing; RMC 37-93 is discriminatory; The deficiency assessment is cancelled for lack of

legal basis.

CA (1995) affirmed CTA.

ISSUE/S: WON RMC 37-97 is a mere interpretative (administrative opinion) ruling of the BIR which

(1.) can become effective without need for prior notice and hearing,

(2.) nor publication, (3.) that its issuance is not discriminatory since it

would apply under similar circumstances to all locally manufactured cigarettes

(4.) that BIR is not prescribed from reclassifying “Hope” “More” and “Champion” before the effectivity of RA 7654

HELD: BIR used their quasi-legislative authority in order to place: “Hope Luxury” “Premium More” and “Champion” cigarettes within the scope of the amendatory law and subject them to an increased tax rate.

Notice, Hearing and Publication are necessary.

The RMC as J. Bellosillo expresses in his Separate Opinion is “adjudicatory” in nature and thus violative of due process following the “Ang Tibay” doctrine.

In addition RMC 37-93 infringed on uniformity of taxation because it does not apply to other cigarettes bearing foreign brands such as:

a. Locally Manufactured by ALHAMBRA INDUSTRIES, INC.:



i. “PALM TREE”

b. Locally Manufactured by LA SUERTE CIGAR and CIGARETTE COMPANY:

(a.) “GOLDEN KEY”;

(b.) “CANNON”

c. Locally Manufactured by LA PERLA INDUSTRIES, INC.:

(a.) “WHITE HORSE”;

(b.) “RIGHT”

d. Locally Manufactured by MIGHTY CORPORATION:

i. “WHITE HORSE”

e. Locally Manufactured by STERLING TOBACCO CORPORATION:

(a.) “UNION”;

(b.) “WINNER”

RATIO:

SC differentiated 2 kinds of administrative issuances:1.) a legislative rule;

2.) an interpretative rule

Citing: Misamis Oriental Association of Coco Traders, Inc. V. Department of Finance Secretary:

… a legislative rule is in the nature of subordinate legislation, designed to implement a primary legislation by providing the details therof.

In the same way that laws must have the benefit of a public hearing, it is generally required that before a legislative rule is adopted there must be hearing.

In this connection, the ADMINISTRATIVE CODE of 1987 provides:

PUBLIC PARTICIPATION – If not otherwise required by law, an agency shall, as far as practicable, publish or circulate notices of proposed rules and afford interested parties the opportunity to submit their views prior to the adoption of any rule.

(2.) In the fixing of rates, no rule or final order shall be valid unless the proposed rates shall have been published in a newspaper of general circulation at least 2 weeks before the 1st hearing thereon.

(3.) In case of opposition, the rules on contested cases shall be observed.

In addition such rule must be published.

On the other hand, interpretative rules are designed to provide guidelines to the law which the administrative agency is in charge of enforcing.

SC cited BIR RMC 10-86: EFFECTIVITY OF INTERNAL REVENUE RULES & REGULATIONS which provides:

1 of the problem areas bearing on compliance with Internal Revenue Tax Rules and Regulations is lack or insufficiency of due notice to the tax paying public.

“due process” requires due notice (1987 CONSTITUTION, ARTICLE IV, SECTION 1; NCC ARTICLE 2)

Procedures:(4.) This Circular shall apply only to:

(a.) Revenue Regulations;(b.) Revenue Audit Memorandum Orders; and(c.) Revenue Memorandum Circulars and

Revenue Memorandum Orders bearing on internal revenue tax rules and regulations.

(5.) Except when the law otherwise expressly provides, the aforesaid internal revenue tax issuances shall not begin to be operative until after due notice thereof may be fairly presumed.

Due notice of the said issuances may be fairly presumed only after the ff. procedures have been taken:

xxx xxx xxx

(5.) Strict Compliance with the foregoing procedure is enjoined.

This RMC was not followed.

1987 ConstitutionARTICLE VI.SECTION 28.Paragraph 1 – mandates taxation to be uniform and equitable.

Uniformity requires that all subjects or objects of taxation, similarly situated are to be treated alike or put on equal footing both in privileges and liabilities.

Thus, all taxable articles or kinds of property of the same class must be taxed at the same rate and the tax must operate with the same force and effect in every place where the subject may be found.

SC cited the Transcript of the Hearing conducted on Aug. 10, 1993 by the Committee on Ways and Means of the House of Representatives wherein:



1. the CIR Liwayway Vinzons-Chato admitted that they promulgated RMC 37-93 in haste to come out before the effectivity of RA 7654; (midnight law)

2. that they have prepared an RMC supposed to come after which named the list of other locally manufactured cigarettes bearing a foreign brand to be taxed at 55% also.

DISPOSITION: CA is AFFIRMED.

NOTES:

J. BELLOSILLO SEPARATE OPINION:

What distresses him are:

First: the manner – (a.) hastily, (b.) without due process, (c.) singling out Fortune Tobacco alone,(d.) confiscatory

Second: the circumstances - (a.) To make it appear that prior to the

effectivity of the statute, these brands were already currently classified and taxed at 55%

(b.) 2 days before a new tax law was to take effect

Under which RMC 37-93 was issued.

Taxpayer Rights:1.) Due Process

2.) Equal Protection of Laws

Discussed Powers and Functions of Administrative Bodies:

Administrative agencies possess:

1.) quasi-legislative or rule making powers; and

power to make rules and regulations which results in delegated legislation that is within the confines of the granting statute and the doctrine of non-delegability and separability of powers.

3 types:

a.) Supplementary or Detailed Legislation

b.) Contingent Legislation

c.) Interpretative Rules – interprets, clarifies or explain statutes;

Purpose is merely to construe the statute being administered

Generally refers to no single person or party in particular but concerns all those belonging to the same class which may be covered

Citing: Tanada V. Tuvera: “need not be published.”

2.) quasi-judicial or administrative adjudicatory powers

power to adjudicate the rights of the person/s before it;

power to hear and determine questions of fact to which the legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing and administering the same law.

administrative agencies are required to:

1st: investigate facts

2nd: hold hearings

3rd: weigh evidence

4th: draw conclusions

due process must be observed - No person shall be deprived of life, liberty or property without due process of law.

Those who are brought into contest with Government in a quasi-judicial proceeding aimed at the control of their activities are entitled to be fairly advised of what the Government proposes and to be heard upon its proposal before it issues its final command. (I just want to ask what his basis is)

Cardinal Primary Rights In Administrative Proceedings:

Citing: Ang Tibay V. Court of Industrial Relations:

1.) Right to a Hearing, which includes the right of the party interested or affected to present his own case and submit evidence in support thereof;

2.) Tribunal must consider evidence presented;

3.) Decision must have something to support itself;

4.) Evidence must be substantial;



5.) Decision must be rendered on the evidence presented at the hearing, or at least contained in the record and disclosed to the parties affected;

6.) Tribunal or any of its judges must act on its or his own independent consideration of the law and facts of the controversy, and not simply accept the views of a subordinate in arriving at a decision;

7.) Tribunal should in all controversial questions render its decision in such manner that the parties may know the various issues involved and the reasons for the decisions rendered.

RMC 37-93 “adjudicatory” because the CIR:

(1.) cited and interpreted the law;

(2.) made a factual finding;

(3.) applied the law to the given set of facts;

(4.) arrived at a conclusion;

(5.) issued a ruling aimed at a specific individual – making it prejudicial to Fortune alone.

Therefore: due process – notice & hearing; and

publication are required.

Reception of evidence is appropriate if not necessary for the determination of WON a brand is foreign.

BIR Ruling No. 410-88, Aug. 24, 1988 – “in cases where it cannot be established OR there is dearth of evidence as to whether a brand is foreign or not…”

Comparision with RMC 47-91 in Misamis Oriental Association of Coco Traders V. Department of Finance Secretary:

Both reclassify products

RMC 47-91:

(1.) has no factual findings;

(2.) no application of laws to a given set of facts;

(3.) no conclusions of law;

(4.) no dispositive portion directed at any particular party

Circumstance – in Misamis, there was no new law yet to take effect that was involved

Fortune was assessed deficiency ad valorem tax for 6 hrs alone from their brands’ reclassification –

J. HERMOSISIMA, JR. DISSENTING OPINION:

The RMC is a valid interpretative ruling that the CIR had power to promulgate and enforce.

First: CIR is empowered to issue the questioned RMC.

NIRC

SECTION 245. AUTHORITY OF THE SECRETARY OF FINANCE TO PROMULGATE RULES AND REGULATIONS. – The Secretary of Finance, upon recommendation of the Commissioner, shall promulgate all needful rules and regulations for the effective enforcement of the provisions of this code …

without prejudice to the power of the CIR to make rulings or opinions in connection with the implementation of the provisions of internal revenue laws, including rulings on the classification of articles for sales tax and similar purposes.

BIR has powers:

1. to investigate;2. to initiate action and control the range of

investigation;3. to promulgate rules and regulations to better

carry our statutory policies4. to adjudicate controversies within the scope of

their activities

The RMC reclassified cigarette brands in connection with NIRC SECTION 142 (c.), as amended, which imposes ad valorem excise taxes on “locally manufactured cigarettes bearing a foreign brand.”

The criterion: “whenever it has to be determined whether or not a cigarette bears a foreign brand, the listing of brands manufactured in foreign countries appearing in the current World Tobacco Directory shall govern.”

CIR: is not required to subject the results of her inquiries

to feedback from the concerned cigarette manufacturers;



it is not desirable nor managerially sound to court dispute thereon when the law does not, in the first place, require debate or hearing thereon.

is the Chief Executive Officer of BIR, an administrative agency vested with quasi-legislative powers in recognition of its more encompassing and unequalled expertise in the field of taxation.

She was acting well within her prerogatives in issuing the RMC.

She has in her favor the presumption of regular performance of official duty which must be overcome by clearly persuasive evidence of stark error and grave abuse of discretion in order to be overturned and disregarded.

She is guided by the principles:

taxes are the lifeblood of the Government

revenue laws ought to be interpreted in favor of the Government, for the Government cannot survive without the funds to underwrite its varied operational expenses in pursuit of the welfare of the society which it serves and protects.

The contents of the RMC have not been proven to be erroneous or illegal as to render issuance thereof an act of grave abuse of discretion on the part of CIR.

CIR made predetermined classifications which is the basis of the rates of ad valorem taxes on SECTION 142 (c.) of the NIRC

The previous classification of the brands was “other locally manufactured cigarettes” which does not bind the government, being an erroneous interpretative ruling.

Foreign cigarette brands were legislated to be taxed at higher rates because of their more extensive public exposure and international reputation; their competitive edge against local brands may easily be checked by imposition of higher tax rates.

The loss of revenue by the Government, because of erroneous determinations made by its past revenue commissioners, collected lesser taxes than what it was entitled to.

It is every citizen’s duty to pay the correct amount of taxes.

Fortune will not be shielded by any “vested rights”, for there are no vested rights to speak of, respecting a wrong construction of the law by administrative officials, and such wrong interpretation does not place the Government in estoppels to correct or overrule the same.

It is irrelevant that the CTA makes much of the effect of the passing of RA 7654.

CIR can reclassify cigarette brands prior to the effectivity of the RA.

Second: The determination of the classification of the cigarette brands was an “interpretation” of the CIR of the Tax Code.

NIRC SECTION 142 (c.) is subject to various and changing constructions.

The RMC did not have any penal sanction.

No detail had to be filled in by the CIR.

The basis for the classification of cigarettes has been provided for by the legislature.

There has been no “adjudication” – reclassification in accordance with law has its natural consequences

Example cited: copra was declassified from being an agricultural food to non-food product for purposes of the VAT laws, resulting in the revocation of an exemption previously enjoyed by copra traders.

citing Davis:1.) Legislative Rules – “makes” a new law; Compliance therewith may be enforced by a penal

sanction; Details and the manner of carrying out the law are

often left to the administrative agency entrusted with its enforcement.

2.) Interpretative Rules – determines what the law means

Opinion or statement of policy Merely advisory

There is no violation of equal protection of the laws because the RMC is one of general application for all cigarettes that are similarly situated.

Fortune’s brands were merely cited as illustrations

19: CIR V. PASCO REALTY AND DEVELOPMENT CORPORATION

GR No. 128315; June 29, 1999; J. Panganiban

DOCTRINE: Assessment is not necessary before filing criminal complaint for Tax Evasion based on SECTION 222 itself.



NATURE: Petition for Review on Certiorari under RULE 45 praying for the nullification of CA decision.

FACTS: Then CIR Jose U. Ong authorized Revenue Officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation (PRDC) for the years 1986, 1987 and 1988.

The Revenue Officers:1.) Thomas T. Que;2.) Sonia T. Estorco; and 3.) Emmanuel M. SavellanoRecommended issuance of an assessment in the amounts of: (a.) P7,498,434.65 for 1986 and (b.) P3, 015, 236.35 for 1987.

On March 1, 1995, the CIR filed a Criminal Complaint before the D.O.J. against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00.

Respondents PRDC, et. al. filed an Urgent Request for Reconsideration/ Reinvestigation disputing the tax assessment and tax liability.

On March 23, 1995, private respondents received a subpoena from the DOJ.

On May 17, 1995, the CIR denied the Request for Reconsideration/ Reinvestigation – ground: no formal assessment has yet been issued by the CIR.

Private respondents elevated the case to the CTA on a petition for review on July 21, 1995.

CIR filed a MTD ground: CTA has no jurisdiction over the subject matter of the petition.

CTA denied MTD and ordered CIR to file an Answer within 30 days.

The criminal case for tax evasion is already an assessment.

The complaint more particularly, the Joint Affidavit of Revenue Examiners Lagmay and Savellano attached thereto, contains the details of the assessment like the kind and amount of tax due, and the period covered

RA 1125 relating to the Exclusive Appellate Jurisdiction of the CTA do not make any mention of “formal assessment.”

The law merely states, that CTA has EAJ over decisions of the CIR on “disputed assessments,” and “other matters” arising under the NIRC, other law or part administered by the BIR.

As far as CTA is concerned, the amount and kind of tax due,a dn the period covered are sufficient details needed for an “assessment.”

Definitions of: “Assessment” – is laying a tax (Johnson City V.

Clinchfield)

When used in connection with taxation, may have more than one meaning.

The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay.

More commonly, the word “assessment” means the official valuation of a taxpayer’s property for purpose of taxation. (State V. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325)

CTA has unquestionably acquired jurisdiction over the instant petition for review.

CIR did not file an Answer nor an MFR, instead filed this Petition for Review on Certiorari on June 7, 1996 alleging that:

CTA acted with grave abuse of discretion and without jurisdiction in considering the:

1.) Affidavit / Report of the Revenue Officer/s and the Endorsement of Said Report To The Secretary of Justice as an “assessment” which may be appealed to the CTA;

NIRC

SECTION 205. REMEDIES FOR THE COLLECTION OF DELINQUENT TAXES. – The civil remedies for the collection of internal revenues, fees, or charges and increment thereto resulting from delinquency shall be:

(a.) by distraint of goods, chattels, or effects, and other personal property of whatever character including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property; and

(b.) By civil or criminal action.

Either of these remedies or both simultaneously may be pursued in the discretion of the authorities charged with the collection of such taxes:

Provided, however, That the remedies of distraint and levy shall not: be availed of



where the amount of tax involved is not more than P100.

The judgment in the criminal case shall not only impose the penalty but shall also order payment of the taxes subject of the criminal case as finally decided by the Commissioner.

The BIR shall advance the amounts needed to defray the costs of collection by means of civil or criminal action, including the preservation or transportation of personal property distrained and the advertisement and sale thereof, as well as of real property and improvements thereon.

Likewise BIR also cites SECTION 223 (a) – which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without an assessment.

2.) Denial of private respondent’s MFR as a Final Decision which may be appealed to the CTA

CA sustained the CTA and DISMISSED the petition.

Held that the CTA committed no grave abuse of discretion in ruling that the Criminal Complaint for Tax Evasion filed by the CIR with the DOJ constituted an “assessment” of the tax due, and that such “assessment” could be the subject of a protest.

“Assessment” - is simply the statement of the details and the amount of tax due from a taxpayer.

The assailed order of the CTA is merely interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not lie.

ISSUE/S: 1. WON the Affidavit - Report, executed by Revenue

Officers stating the Tax Liabilities of a Taxpayer and Attached to the Criminal Complaint for Tax Evasion filed before the DOJ can be deemed an “ASSESSMENT” that can be questioned before the CTA?

2. WON Assessment is Necessary Before Filing of Criminal Complaint? (DOCTRINE FOR CLASS)

HELD & RATIO: 1. NO

Not all documents coming from the BIR containing a computation of the tax liability can be deemed “assessments.”

Neither the NIRC nor the regulations governing the protest of assessments5 provide a specific definition or form of an assessment.

However, the NIRC defines the specific functions and effects of an assessment.

The purpose of the Joint-Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion.

It was not meant to be a notice of tax due nor a demand to the private respondents for payment thereof.

Despite the Revenue Officers’ Recommendation for the issuance of an “assessment” the CIR opted instead to file a Criminal Case for Tax Evasion.

To consider the Affidavit – Report attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers.

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period.

It also signals the time when penalties and protests begin to accrue against the taxpayer.

To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer.

The NIRC imposes a 25% penalty, in addition to the tax due, in case the taxpayer fails to pay deficiency tax within the time prescribed for its payment in the notice of assessment.

Likewise, an interest of 20% per annum, or such higher rates as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment.6

5 REVENUE REGULATIONS 12-85

6 SECTION 249 (b.)



The issuance of an “assessment” is vital in determining, the period of limitation regarding the proper issuance and the period within which to protest it.

SECTION 2037 of the NIRC provides that internal revenue taxes must be assessed within the 3 yrs from the last day within which to file the return.

SECTION 2228, on the other hand specifies a period of 10 years in case

SECTION 2289, states that said assessment must be protested only within 30 days from receipt thereof.An assessment is deemed made only when the Collector of Internal Revenue releases, mails or sends such notice to the taxpayer (citing: Basilan Estates V. CIR, 1967)

In the present case, the Revenue Officers’ Affidavit merely contained a computation of respondents’ tax liability.

It did not state a demand or a period for payment.

Worse it was addressed to the Justice Secretary and NOT to the Taxpayers.

What private respondents sent to the CIR was a MFR of the tax evasion charges filed, not of an “assessment.”

2. NO

NIRC

SECTION 222 specifically states that in cases where a false or fraudulent return is submitted or in cases of

7

SECTION 203. PERIOD OF LIMITATION UNPON ASSESSMENT AND COLLECTION. – Except as provided in SECTION 222, internal revenue taxes shall be assessed within 3 years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for collection of such taxes shall be begun after the expiration of such period:

Provided, That in a case where a return is filed beyond the period prescribed by law, the 3 year period shall be counted from the day the return was filed before the last day prescribed by law for the filing hereof shall be considered as filed on such last day.

8

? SECTION 222. EXCEPTIONS AS TO PERIOD OF LIMITATION OF ASSESSMENT AND COLLECTION OF TAXES. –

(a.) In the case of a false or fraudulent return with intent to evade tax or of the failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be filed without assessment, at any time within 10 years after the discovery of the falsity, fraud or omission:

- Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in civil or criminal action for the collection thereof.

(b.) If before the expiration of the time prescribed in SECTION 203 for the assessment of the tax, both CIR and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon.

- The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.

(c.) Any internal revenue tax, which has been assessed within the period of limitations as prescribed in paragraph (a.) hereof may be collected by distraint or levy or by a proceeding in court within 5 yeas following the assessment of the tax.

(d.) Any internal revenue tax, which has been assessed within the period agreed upon as provided in paragraph (b.) herein above may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the 5 year period.

- The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon

(e.) Provided, however, that nothing in the immediately preceding SECTION and paragraph (a.) hereof shall be construed to authorize the examination or inquiry into any tax return filed in accordance with the provisions of any tax amnesty law or decree.

9

? SECTION 228. PROTESTING OF ASSESSMENT. – When the CIR or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings:

Provided, however, that a pre - assessment notice shall not be required in the ff. cases:

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

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

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

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

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

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

Within a period to be prescribed by IRRs, the taxpayer shall be required to respond to said notice.

If the taxpayer fails to respond, the CIR or his duly authorized representative shall issue an assessment based on his findings.



failure to file a Return such as this case, proceeding in court may be commenced without an assessment.

- This is the General Rule.

SECTION 205 clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously.

Citing Ungab V. Cusi – petitioner therein sought the dismissal of the criminal Complaints for being premature, since his protest to the CTA had not yet been resolved.

- The Court held that such protest could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA.

- This was because the CIR had, in such tax evasion cases, DISCRETION on whether to issue an “assessment” OR to file a criminal case against the taxpayer OR to do both.

Private Respondents insist that SECTION 222 should be read in relation to SECTION 25510 of the NIRC, which penalizes failure to file a Return.

Private Respondents failed to show that they are entitled to an “Exception”.

Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return.

This fact need not be proven by an assessment.

The issuance of an assessment must be distinguished from the filing of a complaint.

Before an “Assessment” is issued, there is by practice a “pre – assessment notice” sent to the taxpayer.

The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted.

If the CIR is unsatisfied, an “assessment” signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her.

In contrast, the criminal charge need not go through all these.

The Criminal Charge is filed directly with the DOJ.

Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the CIR had issued an assessment.

It must be stressed that a criminal complaint is not instituted to demand payment, but to penalize the taxpayer for violation of the Tax Code.

DISPOSITION: Petition is GRANTED. CA decision REVERSED and SET ASIDE.CTA Case DISMISSED.

NOTES: feeling ko palpak yung pagkakatype ng: The Lawphil Project - Arellano Law Foundation nung case (source) kaya kelangan i-review yung codal provisions.

20: LASCONA LAND CO., INC. V. COMMISSIONER OF INTERNAL REVENUE

Associate Justice Estela M. Perlas-Bernabe

CA case – 14th division- CA G.R. SP No. 58061- October 25, 2005

10

? SECTION 255. FAILURE TO FILE RETURN, SUPPLY CORRECT AND ACCURATE INFORMATION, PAY TAX, WITHHOLD AND REMIT TAX AND REFUND EXCESS TAXES WITHHELD ON COMPENSATION. –

Any person required under this Code or by rules and regulations promulgated there under to:

1. pay any tax, 2. make a return, 3. keep any record, or 4. supply correct and accurate information

who willfully fails to: 1. pay such tax, 2. make such accurate information or3. withhold or remit taxes withheld, or 4. refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations,

shall in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than and imprisonment of not less than 1 year but nor more than 10 years.

Any person who attempts to: 1. make it appear for any reason that he or another has in fact field a return or statement, or

2. actually files a return or statement and subsequently withdraws the same return or statement after securing the official receiving seal or stamp of receipt of an internal revenue office wherein the same was actually filed

shall, upon conviction there for, be punished by a fine of not less than P10K but not more than P20K and suffer imprisonment of not less than 1 year but not more than 3 years.



DOCTRINE: When to elevate assessment to the CTA


FACTS: On March 27, 1998, the CIR issued Assessment Notice against Lascona Land Co., Inc. for deficiency Income tax for 1993 of P753,266.56.

BIR Region No. 8, Makati City – OIC Regional Director Norberto R. Odulio in their denial of Lascona’s protest stated: that the assessment has become final, executory and demandable because it was not elevated to the CTA as mandated by the last paragraph of SECTION 228 of the Tax Code.

C.T.A. nullified the assessment. C.T.A. Case No. 5777; Jan. 4, 2000 (eto yung

assigned actually pero hindi ko nahanap but this CA case citing it has the same facts and because this CA decision overturned the C.T.A. doctrine … )

B.I.R. filed an M.F.R. citing REVENUE REGULATIONS No. 12-99 dated Sept. 6, 1999

SECTION 3.1.5. xxx

“if the Commissioner of his duly authorized representative fails to act on the taxpayer’s protest within 180 days from date of submission, by the taxpayer, of the required documents in support of his protest, the taxpayer may appeal to the C.T.A. within 30 days from the lapse of the said 180-day period, otherwise, the assessment shall become final, executory and demandable.”

C.T.A. denied M.F.R. for lack of merit.

ISSUE/S: WON the remedy of the aggrieved taxpayer in this case has been waived or lost?

HELD: Yes.

Corollary thereto, C.T.A. committed reversible error in declaring RR 12-99 null and void because to sustain such ruling would allow the taxpayers to hamper the expedient collection of taxes by their failure to act within a reasonable period.

RATIO: Respondent filed its protest on April 20, 1998 and must have submitted it supporting documents within 60 days therefrom or until June 19, 1998.

Thereafter, BIR has 180 days or until Dec. 16, 1998 to act on the protest.

Lascona has another 30 days – until Jan. 16, 1999 to elevate its appeal to the C.T.A.

30 days counted from whichever comes first of:(1.) receipt of B.I.R. decision; or(2.) lapse of the 180-day period.

Lascona appealed to C.T.A. only on April 12, 1999, 3 months from the lapse of the 180-day period.

The appeal was clearly filed out of time.

Taxpayer need not await the outcome of its protest before it questions the propriety of the assessment before the C.T.A.

NIRC

SECTION 228. PROTESTING OF ASSESSMENT. – When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings;

Provided, however, that a pre-assessment notice shall not be required in the ff. cases:

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

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

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

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

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

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

Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment in such form and manner as may be prescribed by IRR.

Within 60 days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the C.T.A. within 30



days from receipt of the said decision, or from the lapse of the 180-day period;

Otherwise, the decision shall become final, executory and demandable.

The word “decision” in the last paragraph cannot be strictly construed as referring only to the decision per se of the BIR but should also be considered synonymous with the disputed assessment.

Citing: CIR V. S.C. Johnson and Son, Inc. (1999) – “laws are not just mere compositions, but have ends to be achieved and that the general purpose is a more important aid to the meaning of a law than any rule which grammar may lay down.

It is the duty of the courts to look to the objective to be accomplished, the evils to be remedied, or the purpose to be subserved, and should give the law a reasonable or liberal construction which will best effectuate its purpose.”

Tax Assessments made by tax examiners are presumed correct and made in good faith.

A taxpayer has to prove otherwise.

Failure of Lascona to appeal to C.T.A. in due time made the assessments in question final, executory and demandable.

Payment of taxes being admittedly a burden, taxpayers should not be left without any recourse when they feel aggrieved due to the erroneous and burdensome assessments made by a B.I.R. agent or by the Commissioner.

Said right is vested upon adversely affected taxpayers under R.A. 1125 (now the N.I.R.C. of 1997).

It cannot be rendered nugatory through the CIR’s act of immediate filing an action for collection without ruling beforehand on the disputed assessment.

However, the remedy of an aggrieved taxpayer is not without any limitation.

DISPOSITION: Petition GRANTED.

C.T.A. decision REVERSED and SET ASIDE.

Assessment Notice declared final, executory and demandable.

NOTES: a digest I found online:

LASCONA LAND CO., INC. v. CIR, & NORBERTO ODULIO

JAN. 04, 2000 – CTA 5777

Lascona argues that its failure to appeal to the CTA within 30 days from the lapse of the 180-day period did not makethe assessment final and executory simply because CIR did not act upon the protest within the 180-day period.

In such a situation, Lascona contends that it had the option to appeal to the CTA or to continue with the proceedings on its protest in the administrative level.

Once a decision is rendered by the Commissioner on the protest, the 30-day period to appeal from receipt of the decision is mandatory.

In case of inaction, Sec. 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to the CTA within 30 days from the lapse of the 180-day period; or second, he may wait until the Commissioner decides on his protest before he elevates his case.

The court believes that the taxpayer was given this option so that in case his protest is not acted upon within the 180-day period, he may be able to seek immediate relief and need not wait for an indefinite period of time for the Commissioner to decide.

But if he chooses to wait for a positive action on the part of the Commissioner, then the same could not result in the assessment becoming final, executory and demandable.



21: ALLIED BANKING CORPORATION V. GUILLERMO L. PARAYNO, JR. et. al.

C.T.A. 6565; Nov. 3, 2004; Associate Justice Juanito C. Castaneda, Jr.

Decision of 2nd Division of C.T.A. Q.C.


FACTS: Allied Banking Corporation is a duly licensed domestic commercial banking institution with principal office at 6754 Ayala Avenue, Makati City, Metro Manila.

BIR assessed them for Deficiency Documentary Stamp Tax on its Market Savings Deposit Placements for 1997, computed as:

Total Market Savings Deposit P 8,098,772,166.67Rate of Tax 0.30 / 200Basic Documentary Stamp Tax Due P 12,148,158.25Add: 25% Surcharge P 3,037,039.56TOTAL AMOUNT DUE & PAYABLE: P 15,185,197.81

BIR final decision along with warning of Warrant of Distraint and/ or Levy and Garnishment was received by Allied Bank on Oct. 15, 2002.

Allied Bank filed this petition for review in the C.T.A.

BIR’s Answer – Special and Affirmative Defenses:

1. C.T.A. has no jurisdiction over the instant case as the subject assessments have already become final, executory and demandable in accordance with SECTION 228 of the 1997 Tax Code;

xxx xxx xxx

If the protest is denied in whole or in part, or is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the C.T.A. within 30 days from receipt of the said decision, or from the lapse of the 180-day period;

Otherwise, the decision shall become final, executory and demandable.

Since the 30 day period expired from the lapse of the 180-day period without Allied Bank filing the appeal as required by law – the assessments have become final.

BIR claims that the 180-day period ran from Sept. 24, 1999, the date when petitioner filed its protest-letter.

2. Allied Bank’s “Market Savings Deposit” is considered a certificate of deposit contemplated and taxable under SECTIOn 180 of the Tax Code;



3. In the case of BPI-Family Bank V. CIR & CTA, CA-GR No. SP 29853, Sept. 19, 1994, the CA in interpreting NIRC SECTION 180 named with particularity the instruments subject to D.S.T.:

i. promissory note, whether negotiable or not;ii. bills of exchange;iii. drafts;iv. certificates of deposit;v. debt instruments used for deposit substitutes.

4. A “certificate of deposit” is a written acknowledgment of a bank of the receipt of money on deposit which the bank promises to pay to the depositor, bearer or to some other person or order (Olson Estate 206, Iowa, 706 – cited in Agbayani, p.44)

5. Elements of Certificate of Deposit:

(i.) that a bank received money on deposit;(ii.) from someone who is considered a depositor;(iii.)that the bank acknowledges the receipt of the

deposit in writing;(iv.)that the bank promises to pay to the depositor/

bearer/ or to some other person or order the deposit or any part thereof.

Allied Bank’s “Market Savings Deposit” has met these requirements.

6. SECTION 180 does not prescribe any particular form for a “certificate of deposit.”

7. All presumptions are in favor of the correctness of tax assessments.

Good Faith are tax assessors and the validity of their actions are presumed.

They will be presumed to have taken into consideration all the facts to which their attention was called. (CIR V. Construction Resources of Asia, Inc.)

It is incumbent upon the taxpayer to prove the contrary (Mindanao Bus Company V. CIR; CIR V. Antonio Tuazon, Inc.), and failure to do so shall vest legality to respondent’s actions and assessments.

The case was deemed submitted for decision on June 18, 2004.

Allied Bank claims that “Market Savings Deposit” is not the same as “Time Deposit” since (1.) it has no specific maturity date;(2.) it is evidenced by a regular savings passbook

BIR counters that Allied Bank’s “Market Savings Deposit” has the similar features to a time deposit such as:

(1.) higher interest rate than regular savings account;(2.) required minimum deposit balance;(3.) holding period in order to avail of the preferential rate

ISSUE/S:1. WON the C.T.A. has jurisdiction over the instant

case for failure of Allied Bank to comply with SECTION 228 of the NIRC 1997?

2. WON the Market Savings Deposit is of the same nature as that of Time Deposit and therefore subject to Documentary Stamp Tax?

HELD:1.) C.T.A. has jurisdiction

2.) Yes – both the certificate of time deposit as well as the passbook evidencing market savings deposit, are subject to Documentary Stamp Tax.

RATIO:(1.) In this particular case, the petition for review was filed on time, on Nov. 14, 2002, within 30 days from receipt of the Decision of the CIR.

Citing LASCONA LAND CO., INC. V. CIR – C.T.A. Case No. 5777; Jan. 4, 2000:

“It bears stressing that the wordings of Section 228 of the Tax Code clearly provide that it is only the decision not appealed by the taxpayer that becomes final, executory and demandable.

Otherwise, the authors of the law could have easily included the words assessment as also becoming final, executory and demandable should the BIR fail to act on the protest within 180 days.

As aptly cited by Petitioner, in Commissioner of Internal Revenue V. Villa, the SC held:

“The word “decisions” in paragraph 1, SECTION 7 of RA 1125, quoted above has been interpreted to mean the decisions of the Commissioner of Internal Revenue on the protest of the taxpayer against the assessments.

Definitely, said word does not signify the assessment itself.

“In the first place, we believe the respondent court erred in holding that the assessment in question is the respondent Collector’s decision or ruling appealable to it, and that consequently, the period of 30 days prescribed by SECTION 11 of RA 1125 within which petitioner should have appealed to the respondent court must be counted from its receipt of said assessment.

Where a taxpayer questions an assessment and asks the Collector to reconsider or cancel the same because he (the taxpayer) believes he is not liable therefor, the assessment becomes a ‘disputed assesment’ that the Collector must decide, and the taxpayer can appeal to the C.T.A. only upon receipt of



the decision of the Collector on the disputed assessment, xxx”

The same interpretation finds support in

RA 1125

SECTION 11. WHO MAY APPEAL; EFFECT OF APPEAL. – Any person, association or corporation adversely affected by a decision or ruling the the Collector of Internal Revenue, the Collector of Customs or any provincial or city Board of Assessment Appeals may file an appeal in the CTA within 30 days after the receipt of such decision or ruling.

Note that the law uses the word ‘decisions’, not ‘assessments’, thus further indicating the legislative intent to subject to judicial review the decision of the Commissioner on the protest against an assessment but not the assessment itself.

Verily, in case of inaction, Sec. 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to the CTA within 30 days from the lapse of the 180-day period; or second, he may wait until the Commissioner decides on his protest before he elevates his case.

The court believes that the taxpayer was given this option so that in case his protest is not acted upon within the 180-day period, he may be able to seek immediate relief and need not wait for an indefinite period of time for the Commissioner to decide.

But if he chooses to wait for a positive action on the part of the Commissioner, then the same could not result in the assessment becoming final, executory and demandable.”

(2.) Terminologies are mere matters which are capable of being overturned by circumstances.

What is controlling is the nature and the true character of the transaction as it is conveyed by the instrument or document attached to it. (L.R. Heat Treating Co.)

Documentary Stamp Tax is an excise tax on the privilege to enter into a transaction.

NIRC

SECTION 180. STAMP TAX ON ALL LOAN AGREEMENTS, PROMISSORY NOTES, BILLS OF EXCHANGE, DRAFTS, INSTRUMENTS AND SECURITIES ISSUED BY THE GOVERNMENT OR ANY OF ITS INSTRUMENTALITIES, CERTIFICATES OF DEPOSIT BEARING INTEREST AND OTEHRS NOT PAYABLE ON SIGHT OR DEMAND. - - On all: (1.) loan agreements signed abroad wherein the object of the contract is located or used in the Philippines, bills of exchange (between points within the Philippines), (2.) drafts, instruments and securities issued by the Government or any of its instrumentalities or

(3.) certificates of deposits drawing interest, or (4.) orders for the payment of any sum of money otherwise than at sight or on demand, or (5.) on all promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation, and (6.) on each renewal of any such note,There shall be collected a Documentary Stamp Tax (DST) of P0.30 on each P200, or fractional part thereof, of the face value of any such: agreement, bill of exchange, draft, certificate of deposit, or note:

Provided, That only 1 DST shall be imposed on either loan agreement, or promissory notes issued to secure such loan whichever will yield a higher tax:

xxx xxx xxx

The law subjects a “certificate of deposit” to documentary stamp tax.

The law taxes the document because of the transaction (citing The Law On Transfer and Business Taxation, by Hector S. de Leon, 1998 ed., p. 351).

A certificate of deposit – is “any written acknowledgment by a bank or banker of the receipt of a sum of money on deposit which the bank or banker promises to pay to the depositor, to the order of the depositor, or some other person or his order xxx” (Far East Bank & Trust Company V. Querimit).

The definition does not prescribe or require any particular form nor does it qualify.

In determining what instruments are subject to DST – substance would control over the form.

A “time deposit” – refers to a deposit amount paying interest for a fixed term, with the understanding that the funds cannot be withdrawn before maturity without giving advanced notice.

Usually carry “penalties” for early withdrawal in a form of reduced interest rates.

In both Time Deposit and Market Savings Deposit – the deposit may be withdrawn anytime, but the depositor gets to earn a lower rate of interest.

The Only Difference is the “Evidence of Deposit.”

Time Deposit Certificate of DepositMarket Savings Deposit Passbook

The Court cited the testimony of Allied Bank’s Witness Ms. Jimenez.

The premium rate given in a Market Savings Deposit is an incentive for a client who keeps his money for at least 30 days in the bank.

The client can choose a period: 30 or 60 days.

DISPOSITION: Petition DISMISSED for lack of merit.



CIR Decision assessing Allied Bank of Deficiency Documentary Stamp Tax for 1997 are hereby AFFIRMED.

Allied Bank is DIRECTED TO PAY the assessment, plus 30% delinquency interest from Nov. 14, 2002 up to the time such amount is fully paid.

NOTES: I think this decision is overturned by the Oct. 2005 CA case: Lascona V. CIR

It’s not really fair to expect us to know the proper interpretation when the CTA interpretation – specialized court for taxes gets overturned by CA’s interpretation.


Documents

Tax 2 Remedies Digests Ko