FIRST DIVISION

[G.R. No. 155541. January 27, 2004]

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.

DECISION

YNARES-SANTIAGO, J.:

This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No.
09107, dated September 30, 2002,[1] which reversed the November 19, 1995 Order of Regional Trial
Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled Testate Estate of Juliana Diez Vda.
De Gabriel. The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel, represented by
Prudential Bank as its duly appointed and qualified Administrator.

As correctly summarized by the Court of Appeals, the relevant facts are as follows:

During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the
Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two days after her death,
Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978. The
return did not indicate that the decedent had died.

On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with
the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a
quo appointed one of the heirs as Special Administrator. Philtrusts motion for reconsideration was
denied by the probate court.

On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and
appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr.
Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead.

In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the
decedents tax liability and found a deficiency income tax for the year 1977 in the amount of
P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and
Assessment Notice No. NARD-78-82-00501 addressed to the decedent c/o Philippine Trust Company,
Sta. Cruz, Manila which was the address stated in her 1978 Income Tax Return. No response was made
by Philtrust. The BIR was not informed that the decedent had actually passed away.

In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the
Commissioner and Auditor Tax Consultant of the Estate of the decedent.

On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to
enforce collection of the decedents deficiency income tax liability, which were served upon her heir,
Francisco Gabriel. On November 22, 1984, respondent filed a Motion for Allowance of Claim and for an
Order of Payment of Taxes with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of
protest with the Litigation Division of the BIR, which was not acted upon because the assessment notice
had allegedly become final, executory and incontestable.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal
opposition to the BIRs Motion for Allowance of Claim based on the ground that there was no proper
service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR filed
its Reply, contending that service to Philippine Trust Company was sufficient service, and that the filing
of the claim against the Estate on November 22, 1984 was within the five-year prescriptive period for
assessment and collection of taxes under Section 318 of the 1977 National Internal Revenue Code
(NIRC).

On November 19, 1985, the court a quo issued an Order denying respondents claim against the
Estate,[2] after finding that there was no notice of its tax assessment on the proper party.[3]

On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.
09107,[4] assailing the Order of the probate court dated November 19, 1985. It was claimed that
Philtrust, in filing the decedents 1978 income tax return on April 5, 1979, two days after the taxpayers
death, had constituted itself as the administrator of the estate of the deceased at least insofar as said
return is concerned.[5] Citing Basilan Estate Inc. v. Commissioner of Internal Revenue,[6] respondent
argued that the legal requirement of notice with respect to tax assessments[7] requires merely that the
Commissioner of Internal Revenue release, mail and send the notice of the assessment to the taxpayer
at the address stated in the return filed, but not that the taxpayer actually receive said assessment
within the five-year prescriptive period.[8] Claiming that Philtrust had been remiss in not notifying
respondent of the decedents death, respondent therefore argued that the deficiency tax assessment
had already become final, executory and incontestable, and that petitioner Estate was liable therefor.

On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent. Although
acknowledging that the bond of agency between Philtrust and the decedent was severed upon the
latters death, it was ruled that the administrator of the Estate had failed in its legal duty to inform
respondent of the decedents death, pursuant to Section 104 of the National Internal Revenue Code of
1977. Consequently, the BIRs service to Philtrust of the demand letter and Notice of Assessment was
binding upon the Estate, and, upon the lapse of the statutory thirty-day period to question this claim,
the assessment became final, executory and incontestable. The dispositive portion of said decision
reads:

WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET ASIDE. Another
one is entered ordering the Administrator of the Estate to pay the Commissioner of Internal Revenue
the following:

a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978, plus
20% interest per annum from November 2, 1982 up to November 2, 1985 and in addition thereto 10%
surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax Code as
amended by PD 69 and 1705; and
b. The costs of the suit.

SO ORDERED.[9]

Hence, the instant petition, raising the following issues:

1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment
against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid service in order to
bind the Estate;

2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final
demand was already final, executory and incontestable.

Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her
death. As such, petitioner argues that there was no proper notice of the assessment which,
therefore, never became final, executory and incontestable.[10] Petitioner further contends that
respondents failure to file its claim against the Estate within the proper period prescribed by the Rules
of Court is a fatal error, which forever bars its claim against the Estate.[11]

Respondent, on the other hand, claims that because Philtrust filed the decedents income tax return
subsequent to her death, Philtrust was the de facto administrator of her Estate.[12]Consequently, when
the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust, there was
proper service on the Estate.[13] Respondent further asserts that Philtrust had the legal obligation to
inform petitioner of the decedents death, which requirement is found in Section 104 of the NIRC of
1977.[14] Since Philtrust did not, respondent contends that petitioner Estate should not be allowed to
profit from this omission.[15] Respondent further argues that Philtrusts failure to protest the
aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977
meant that the assessment had already become final, executory and incontestable.[16]

The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by
extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-issue
of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-
00501 was valid service on petitioner, and the issue of whether Philtrusts inaction thereon could bind
petitioner. If both sub-issues are answered in the affirmative, respondents contention as to the finality
of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because
Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest an
assessment. Failure to file such a protest within said period means that the assessment ipso
jure becomes final and unappealable, as a consequence of which legal proceedings may then be initiated
for collection thereof.

We find in favor of the petitioner.

The first point to be considered is that the relationship between the decedent and Philtrust was one
of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of the
Civil Code, death of the agent or principal automatically terminates the agency. In this instance, the
death of the decedent on April 3, 1979 automatically severed the legal relationship between her and
Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her agent
when, on April 5, 1979, it filed her Income Tax Return for the year 1978.

Since the relationship between Philtrust and the decedent was automatically severed at the moment of
the Taxpayers death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service
on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly done.

It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent,
and, indeed, that the court a quo twice rejected Philtrusts motion to be thus appointed. As of November
18, 1982, the date of the demand letter and Assessment Notice, the legal relationship between the
decedent and Philtrust had already been non-existent for three years.

Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the legal
obligation on Philtrust to inform respondent of the decedents death. The said Section reads:

SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where, though exempt
from tax, the gross value of the estate exceeds three thousand pesos, the executor, administrator, or
any of the legal heirs, as the case may be, within two months after the decedents death, or within a like
period after qualifying as such executor or administrator, shall give written notice thereof to the
Commissioner of Internal Revenue.

The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of 1977, or the
chapter on Estate Tax, and pertains to all cases of transfers subject to tax or where the gross value of
the estate exceeds three thousand pesos. It has absolutely no applicability to a case for
deficiency income tax, such as the case at bar. It further lacks applicability since Philtrust was never the
executor, administrator of the decedents estate, and, as such, never had the legal obligation, based on
the above provision, to inform respondent of her death.

Although the administrator of the estate may have been remiss in his legal obligation to inform
respondent of the decedents death, the consequences thereof, as provided in Section 119 of the
National Internal Revenue Code of 1977, merely refer to the imposition of certain penal sanctions on the
administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency
tax assessments, or the waiver of the notice requirement for such assessments.

Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No. NARD-78-82-
00501, there was absolutely no legal obligation on the part of Philtrust to either (1) respond to the
demand letter and assessment notice, (2) inform respondent of the decedents death, or (3) inform
petitioner that it had received said demand letter and assessment notice. This lack of legal obligation
was implicitly recognized by the Court of Appeals, which, in fact, rendered its assailed decision on
grounds of equity.[17]

Since there was never any valid notice of this assessment, it could not have become final, executory and
incontestable, and, for failure to make the assessment within the five-year period provided in Section
318 of the National Internal Revenue Code of 1977, respondents claim against the petitioner Estate is
barred. Said Section 18 reads:

SEC. 318. Period of limitation upon assessment and collection. Except as provided in the succeeding
section, internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period. For the purpose of this section, a return filed before the last day prescribed by
law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall
not apply to cases already investigated prior to the approval of this Code.

Respondent argues that an assessment is deemed made for the purpose of giving effect to such
assessment when the notice is released, mailed or sent to the taxpayer to effectuate the assessment,
and there is no legal requirement that the taxpayer actually receive said notice within the five-year
period.[18] It must be noted, however, that the foregoing rule requires that the notice be sent to the
taxpayer, and not merely to a disinterested party. Although there is no specific requirement that the
taxpayer should receive the notice within the said period, due process requires at the very least that
such notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and Development
Corporation,[19] we had occasion to say:

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 interests 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.

In Republic v. De le Rama,[20] we clarified that, when an estate is under administration, notice must be
sent to the administrator of the estate, since it is the said administrator, as representative of the estate,
who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the
court. In that case, legal notice of the assessment was sent to two heirs, neither one of whom had any
authority to represent the estate. We said:

The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and said
notice could not produce any effect. In the case of Bautista and Corrales Tan v. Collector of Internal
Revenue this Court had occasion to state that the assessment is deemed made when the notice to this
effect is released, mailed or sent to the taxpayer for the purpose of giving effect to said assessment. It
appearing that the person liable for the payment of the tax did not receive the assessment, the
assessment could not become final and executory. (Citations omitted, emphasis supplied.)

In this case, the assessment was served not even on an heir of the Estate, but on a completely
disinterested third party. This improper service was clearly not binding on the petitioner.

By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was
remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was remiss
in its obligation to inform respondent of the decedents death, and (4) the assessment notice is therefore
binding on the Estate, respondent is arguing in circles. The most crucial point to be remembered is that
Philtrust had absolutely no legal relationship to the deceased, or to her Estate. There was therefore no
assessment served on the Estate as to the alleged underpayment of tax. Absent this assessment, no
proceedings could be initiated in court for the collection of said tax,[21] and respondents claim for
collection, filed with the probate court only on November 22, 1984, was barred for having been made
beyond the five-year prescriptive period set by law.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 09107,
dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Manila,
Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the
Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel for the deficiency income
tax of the decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, and Carpio, JJ., co

FIRST DIVISION

G.R. No. 159694 January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.

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

G.R. No. 163581 January 27, 2006

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PANGANIBAN, CJ.:

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

The Case

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

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

The Facts

The CA narrated the facts as follows:

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

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad
(or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedent’s
estate (or ‘estate’). Subsequently, it issued a Return Verification Order. But without the required
preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs,
received the Letter of Authority on March 14, 1997.

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

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

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

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

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

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

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

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at
public auction on August 8, 2000.

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

"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement Division
to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a
[P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status
Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety bond in the
amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to
desist and refrain from proceeding with the auction sale of the subject property or from issuing a
[W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/or unless a contrary order is issued.

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

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

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

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the
CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The
motion was granted and the hearing was reset to February 6, 2001.

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

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

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

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

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

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

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

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

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

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

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

xxxxxxxxx

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

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

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

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter should
have stated the facts and the law on which they were based; otherwise, they were deemed void.6 The
appellate court held that while administrative agencies, like the BIR, were not bound by procedural
requirements, they were still required by law and equity to observe substantive due process. The reason
behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and
could effectively protest -- the basis of tax assessments against them.7Since the assessment and the
demand were void, the proceedings emanating from them were likewise void, and any order emanating
from them could never attain finality.

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

Hence, this Petition.10

The Issues

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

"I.

Whether petitioner’s assessment against the estate is valid.

"II.

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

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

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --

xxxxxxxxx

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

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

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

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

To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and
the facts on which the assessment was based. It does not at all conform to the compulsory requirement
under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for
the sheer purpose of investigation and was not even the requisite notice under the law.

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

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

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.

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

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

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

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

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

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

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

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals
the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot countenance an assessment based
on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection "should be made in accordance with law as
any arbitrariness will negate the very reason for government itself."21

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

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

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has been
perfected and consummated, considering the earlier determination that the assessment against the
estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the
basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner
and four deputy commissioners.

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

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

SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

COMMISSIONER OF INTERNAL G.R. No. 167560

REVENUE,

Petitioner, Present:

YNARES-SANTIAGO, J.,

Chairperson,

- versus - AUSTRIA-MARTINEZ,

CHICO-NAZARIO,

NACHURA, and

REYES, JJ.

DOMINADOR MENGUITO, Promulgated:

Respondent. September 17, 2008

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

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
assailing the March 31, 2005 Decision1 of the Court of Appeals (CA) which reversed and set aside
the Court of Tax Appeals (CTA) April 2, 2002 Decision2 and October 10, 2002 Resolution3 ordering
Dominador Menguito (respondent) to pay the Commissioner of Internal Revenue (petitioner)
deficiency income and percentage taxes and delinquency interest.

Based on the Joint Stipulation of Facts and Admissions4 of the parties, the CTA summarized the
factual and procedural antecedents of the case, the relevant portions of which read:
Petitioner Dominador Menguito [herein respondent] is a Filipino citizen, of legal age, married to
Jeanne Menguito and is engaged in the restaurant and/or cafeteria business. For the years 1991,
1992 and 1993, its principal place of business was at Gloriamaris, CCP Complex, Pasay City and
later transferred to Kalayaan Bar (Copper Kettle Cafeteria Specialist or CKCS), Departure Area,
Ninoy Aquino International Airport, Pasay City. During the same years, he also operated a branch
at Club John Hay, Baguio City carrying the business name of Copper Kettle Cafeteria Specialist
(Joint Stipulation of Facts and Admissions, p. 133, CTA records).

xxxx

Subsequently, BIR Baguio received information that Petitioner [herein respondent] has undeclared
income from Texas Instruments and Club John Hay, prompting the BIR to conduct another
investigation. Through a letter dated July 28, 1997, Spouses Dominador Menguito and Jeanne
Menguito (Spouses Menguito) were informed by the Assessment Division of the said office that
they have underdeclared sales totaling P48,721,555.96 (Exhibit 11, p. 83, BIR records). This was
followed by a Preliminary Ten (10) Day Letter dated August 11, 1997, informing Petitioner [herein
respondent] that in the investigation of his 1991, 1992 and 1993 income, business and
withholding tax case, it was found out that there is still due from him the total sum
of P34,193,041.55 as deficiency income and percentage tax.

On September 2, 1997, the assessment notices subject of the instant petition were issued. These
were protested by Ms. Jeanne Menguito, through a letter dated September 28, 1997 (Exhibit 14,
p. 112, BIR Records), on the ground that the 40% deduction allowed on their computed gross
revenue, is unrealistic. Ms. Jeanne Menguito requested for a period of thirty (30) days within
which to coordinate with the BIR regarding the contested assessment.

On October 10, 1997, BIR Baguio replied, informing the Spouses Menguito that the source of
assessment was not through the disallowance of claimed expenses but on data received from Club
John Hay and Texas Instruments Phils., Inc. Said letter gave the spouses ten (10) days to present
evidence (Exhibit 15, p. 110, BIR Records).

In an effort to clear an alleged confusion regarding Copper Kettle Cafeteria Specialist (CKCS)
being a sole proprietorship owned by the Spouses, and Copper Kettle Catering Services, Inc.
(CKCS, Inc.) being a corporation with whom Texas Instruments and Club John Hay entered into a
contract, Petitioner [respondent] submitted to BIR Baguio a photocopy of the SEC Registration of
Copper Kettle Catering Services, Inc. on March 23, 1999 (pp. 134-141, BIR Records).

On April 12, 1999, BIR Baguio wrote a letter to Spouses Menguito, informing the latter that a
reinvestigation or reconsideration cannot be given due course by the mere submission of an
uncertified photocopy of the Certificate of Incorporation. Thus, it avers that the amendment
issued is still valid and enforceable.

On May 26, 1999, Petitioner [respondent] filed the present case, praying for the cancellation and
withdrawal of the deficiency income tax and percentage tax assessments on account of
prescription, whimsical factual findings, violation of procedural due process on the issuance of
assessment notices, erroneous address of notices and multiple credit/ investigation by the
Respondent [petitioner] of Petitioner's [respondent’s] books of accounts and other related
records for the same tax year.

Instead of filing an Answer, Respondent [herein petitioner] moved to dismiss the instant petition
on July 1, 1999, on the ground of lack of jurisdiction. According to Respondent [petitioner], the
assessment had long become final and executory when Petitioner [respondent] failed to comply
with the letter dated October 10, 1997.

Petitioner opposed said motion on July 21, 1999, claiming that the final decision on Petitioner's
[respondent’s] protest is the April 12, 1999 letter of the Baguio Regional Office; therefore, the
filing of the action within thirty (30) days from receipt of the said letter was seasonably filed.
Moreover, Petitioner [respondent] asserted that granting that the April 12, 1999 letter in question
could not be construed to mean as a denial or final decision of the protest, still Petitioner's
[respondent’s] appeal was timely filed since Respondent [petitioner] issued a Warrant of Distraint
and/or Levy against the Petitioner [respondent] on May 3, 1999, which warrant constituted a final
decision of the Respondent [petitioner] on the protest of the taxpayer.

On September 3, 1999, this Court denied Respondent's [petitioner’s] 'Motion to Dismiss' for lack
of merit.

Respondent [petitioner] filed his Answer on September 24, 1999, raising the following Special and
Affirmative Defenses:

xxxx

5. Investigation disclosed that for taxable years 1991, 1992 and 1993, petitioner [respondent] filed
false or fraudulent income and percentage tax returns with intent to evade tax by under declaring
his sales.

6. The alleged duplication of investigation of petitioner [respondent] by the BIR Regional Office in
Baguio City and by the Revenue District Office in Pasay City is justified by the finding of fraud on
the part of the petitioner [respondent], which is an exception to the provision in the Tax Code that
the examination and inspection of books and records shall be made only once in a taxable year
(Section 235, Tax Code). At any rate, petitioner [respondent], in a letter dated July 18, 1994,
waived his right to the consolidation of said investigation.

7. The aforementioned falsity or fraud was discovered on August 5, 1997. The assessments were
issued on September 2, 1997, or within ten (10) years from the discovery of such falsity or fraud
(Section 223, Tax Code). Hence, the assessments have not prescribed.

8. Petitioner's [respondent’s] allegation that the assessments were not properly addressed is
rendered moot and academic by his acknowledgment in his protest letter dated September 28,
1997 that he received the assessments.

9. Respondent [petitioner] complied with the provisions of Revenue Regulations No. 12-85 by
informing petitioner [respondent] of the findings of the investigation in letters dated July 28,
1997 and August 11, 1997 prior to the issuance of the assessments.

10. Petitioner [respondent] did not allege in his administrative protest that there was a
duplication of investigation, that the assessments have prescribed, that they were not properly
addressed, or that the provisions of Revenue Regulations No. 12-85 were not observed. Not
having raised them in the administrative level, petitioner [respondent] cannot raise the same for
the first time on appeal (Aguinaldo Industries Corp. vs. Commissioner of Internal Revenue, 112
SCRA 136).

11. The assessments were issued in accordance with law and regulations.

12. All presumptions are in favor of the correctness of tax assessments (CIR vs. Construction
Resources of Asia, Inc., 145 SCRA 67), and the burden to prove otherwise is upon petitioner
[respondent].5 (Emphasis supplied)

On April 2, 2002, the CTA rendered a Decision, the dispositive portion of which reads:

Accordingly, Petitioner [herein respondent] is ORDERED to PAY the Respondent [herein

petitioner] the amount of P11,333,233.94 and P2,573,655.82 as deficiency income and percentage
tax liabilities, respectively for taxable years 1991, 1992 and 1993 plus 20% delinquency interest
from October 2, 1997 until full payment thereof.

SO ORDERED.6

Respondent filed a motion for reconsideration but the CTA denied the same in its Resolution of
October 10, 2002.7

Through a Petition for Review8 filed with the CA, respondent questioned the CTA Decision and
Resolution mainly on the ground that Copper Kettle Catering Services, Inc. (CKCS, Inc.) was a
separate and distinct entity from Copper Kettle Cafeteria Specialist (CKCS); the sales and revenues
of CKCS, Inc. could not be ascribed to CKCS; neither may the taxes due from one, charged to the
other; nor the notices to be served on the former, coursed through the latter.9 Respondent cited
the Joint Stipulation in which petitioner acknowledged that its (respondent’s) business was called
Copper Kettle Cafeteria Specialist, not Copper Kettle Catering Services, Inc.10

Based on the unrefuted11 CTA summary, the CA rendered the Decision assailed herein, the
dispositive portion of which reads:

WHEREFORE, the instant petition is GRANTED. Reversing the assailed Decision dated April 2, 2002
and Resolution dated October 10, 2002, the deficiency income tax and percentage income tax
assessments against petitioner in the amounts of P11,333,233.94 and P2,573,655.82 for taxable
years 1991, 1992 and 1993 plus the 20% delinquency interest thereon are annulled.

SO ORDERED.12

Petitioner filed a motion for reconsideration but the CA denied the same in its October 10, 2002
Resolution.13

Hence, herein recourse to the Court for the reversal of the CA decision and resolution on the
following grounds:

The Court of Appeals erred in reversing the decision of the Court of Tax Appeals and in holding
that Copper Kettle Cafeteria Specialist owned by respondent and Copper Kettle Catering Services,
Inc. owned and managed by respondent's wife are not one and the same.

II

The Court of Appeals erred in holding that respondent was denied due process for failure of
petitioner to validly serve respondent with the post-reporting and pre-assessment notices as
required by law.

On the first issue, the CTA has ruled that CKCS, Inc. and CKCS are one and the same corporation
because "[t]he contract between Texas Instruments and Copper Kettle was signed by petitioner’s
[respondent’s] wife, Jeanne Menguito as proprietress."14

However, the CA reversed the CTA on these grounds:

Respondent’s [herein petitioner’s] allegation that Copper Kettle Catering Services, Inc. and Copper
Kettle Cafeteria Specialists are not distinct entities and that the under-declared sales/revenues of
Copper Kettle Catering Services, Inc. pertain to Copper Kettle Cafeteria Specialist are belied by the
evidence on record. In the Joint Stipulation of Facts submitted before the tax court, respondent
[petitioner] admitted "that petitioner’s [herein respondent’s] business name is Copper Kettle
Cafeteria Specialist."

Also, the Certification of Club John Hay and Letter dated July 9, 1997 of Texas Instruments both
addressed to respondent indicate that these companies transacted with Copper Kettle Catering
Services, Inc., owned and managed by JEANNE G. MENGUITO, NOT petitioner Dominador
Menguito. The alleged under-declared sales income subject of the present assessments were
shown to have been earned by Copper Kettle Catering Services, Inc. in its commercial transaction
with Texas Instruments and Camp John Hay; NOT by petitioner’s dealing with these companies. In
fact, there is nothing on record which shows that Texas Instruments and Camp John Hay
conducted business relations with Copper Kettle Cafeteria Specialist, owned by herein petitioner
Dominador Menguito. In the absence, therefore, of clear and convincing evidence showing that
Copper Kettle Cafeteria Specialist and Copper Kettle Catering Services, Inc. are one and the same,
respondent can NOT validly impute alleged underdeclared sales income earned by Copper Kettle
Catering Services, Inc. as sales income of Copper Kettle Cafeteria Specialist.15 (Emphasis supplied)

Respondent is adamant that the CA is correct. Many times in the past, the BIR had treated CKCS
separately from CKCS, Inc.: from May 1994 to June 1995, the BIR sent audit teams to examine the
books of account and other accounting records of CKCS, and based on said audits, respondent was
held liable for deficiency taxes, all of which he had paid.16 Moreover, the certifications17 issued by
Club John Hay and Texas Instruments identify the concessionaire operating therein as CKCS, Inc.,
owned and managed by his spouse Jeanne Menguito, and not

CKCS.18

Petitioner impugns the findings of the CA, claiming that these are contradicted by evidence on
record consisting of a reply to the September 2, 1997 assessment notice of BIR Baguio which
Jeanne Menguito wrote on September 28, 1997, to wit:

We are in receipt of the assessment notice you have sent us, dated September 2, 1997. Having
taken hold of the same only now following our travel overseas, we were not able to respond
immediately and manifest our protest. Also, with the impending termination of our businesses at
19th Tee, Club John Hay and at Texas Instruments, Loakan, Baguio City, we have already started
the transfer of our records and books in Baguio City to Manila that we will need more time to
review and sort the records that may have to be presented relative to the assessment x x
x.19 (Emphasis supplied)

Petitioner insists that said reply confirms that the assessment notice is directed against the
businesses which she and her husband, respondent herein, own and operate at Club John Hay and
Texas Instruments, and establishes that she is protesting said notice not just for herself but also
for respondent.20

Moreover, petitioner argues that if it were true that CKCS, Inc. and CKCS are separate and distinct
entities, respondent could have easily produced the articles of incorporation of CKCS, Inc.; instead,
what respondent presented was merely a photocopy of the incorporation articles.21 Worse,
petitioner adds, said document was not offered in evidence before the CTA, but was presented
only before the CA.22

Petitioner further insists that CKCS, Inc. and CKCS are merely employing the fiction of their
separate corporate existence to evade payment of proper taxes; that the CTA saw through their
ploy and rightly disregarded their corporate individuality, treating them instead as one taxable
entity with the same tax base and liability;23 and that the CA should have sustained the CTA.24

In effect, petitioner would have the Court resolve a purely factual issue25 of whether or not there
is substantial evidence that CKCS, Inc. and CKCS are one and the same taxable entity.

As a general rule, the Court does not venture into a trial of facts in proceedings under Rule 45 of
the Rules of Courts, for its only function is to review errors of law.26 The Court declines to inquire
into errors in the factual assessment of the CA, for the latter’s findings are conclusive, especially
when these are synonymous to those of the CTA.27 But when the CA contradicts the factual
findings of the CTA, the Court deems it necessary to determine whether the CA was justified in
doing so, for one basic rule in taxation is that the factual findings of the CTA, when supported by
substantial evidence, will not be disturbed on appeal unless it is shown that the CTA committed
gross error in its appreciation of facts.28

The Court finds that the CA gravely erred when it ignored the substantial evidence on record
and reversed the CTA.

In a number of cases, the Court has shredded the veil of corporate identity and ruled that where
a corporation is merely an adjunct, business conduit or alter ego of another corporation or when
they practice fraud on our internal revenue laws,[29] the fiction of their separate and distinct
corporate identities shall be disregarded, and both entities treated as one taxable person,
subject to assessment for the same taxable transaction.

The Court considers the presence of the following circumstances, to wit: when the owner of one
directs and controls the operations of the other, and the payments effected or received by one
are for the accounts due from or payable to the other;30 or when the properties or products of
one are all sold to the other, which in turn immediately sells them to the public,[31] as substantial
evidence in support of the finding that the two are actually one juridical taxable personality.

In the present case, overwhelming evidence supports the CTA in disregarding the separate identity
of CKCS, Inc. from CKCS and in treating them as one taxable entity.

First, in respondent’s Petition for Review before the CTA, he expressly admitted that he "is
engaged in restaurant and/or cafeteria business" and that "[i]n 1991, 1992 and 1993, he also
operated a branch at Club John Hay, Baguio City with a business name of Copper Kettle Cafeteria
Specialist."32 Respondent repeated such admission in the Joint Stipulation.33 And then in Exhibit
"1"34 for petitioner, a July 18, 1994 letter sent by Jeanne Menguito to BIR, Baguio City, she stated
thus:

"in connection with the investigation of Copper Kettle Cafeteria Specialist which is located at 19th
Tee Club John Hay, Baguio City under letter of authority nos. 0392897, 0392898, and 0392690
dated May 16, 1994, investigating my income, business, and withholding taxes for the years 1991,
1992, and 1993."35 (Emphasis supplied)

Jeanne Menguito signed the letter as proprietor of Copper Kettle Cafeteria Specialist.36

Related to Exhibit "1" is petitioner's Exhibit "14," which is another letter dated September 28,
1997, in which Jeanne Menguito protested the September 2, 1997 assessment notices directed at
Copper Kettle Cafeteria Specialist and referred to the latter as "our business at 19th Tee Club John
Hay and at Texas Instruments."37 Taken along with the Joint Stipulation, Exhibits "A" through "C"
and the August 3, 1993 Certification of Camp John Hay, Exhibits "1" and "14," confirm that
respondent, together with his spouse Jeanne Menguito, own, operate and manage a branch of
Copper Kettle Cafeteria Specialist, also called Copper Kettle Catering Services at Camp John Hay.

Moreover, in Exhibits "A" to "A-1,"38 Exhibits "B" to "B-1"39 and Exhibits "C" to "C-1"40 which are
lists of concessionaires that operated in Club John Hay in 1992, 1993 and 1991, respectively,41 it
appears that there is no outlet with the name "Copper Kettle Cafeteria Specialist" as claimed by
respondent. The name that appears in the lists is "19th TEE CAFETERIA (Copper Kettle, Inc.)."
However, in the light of the express admission of respondent that in 1991, 1992 and 1993, he
operated a branch called Copper Kettle Cafeteria Specialist in Club John Hay, the entries in Exhibits
"A" through "C" could only mean that said branch refers to "19th Tee Cafeteria (Copper Kettle,
Inc.)." There is no evidence presented by respondent that contradicts this conclusion.

In addition, the August 9, 1993 Certification issued by Club John Hay that "COPPER KETTLE
CATERING SERVICES owned and managed by MS. JEANNE G. MENGUITO is a concessionaire in
John Hay since July 1991 up to the present and is operating the outlet 19TH TEE CAFETERIA AND
THE TEE BAR"42 convincingly establishes that respondent's branch which he refers to as Copper
Kettle Cafeteria Specialist at Club John Hay also appears in the latter's records as "Copper Kettle
Catering Services" with an outlet called "19th Tee Cafeteria and The Tee Bar."

Second, in Exhibit "8"43 and Exhibit "E,"44 Texas Instruments identified the concessionaire
operating its canteen as "Copper Kettle Catering Services, Inc."45 and/or "COPPER KETTLE
CAFETERIA SPECIALIST SVCS."46 It being settled that respondent's "Copper Kettle Cafeteria
Specialist" is also known as "Copper Kettle Catering Services," and that respondent and Jeanne
Menguito both own, manage and act as proprietors of the business, Exhibit "8" and Exhibit "E"
further establish that, through said business, respondent also had taxable transactions with Texas
Instruments.

In view of the foregoing facts and circumstances, the Articles of Incorporation of CKCS, Inc. -- a
certified true copy of which respondent attached only to his Reply filed with the CA47 -- cannot
insulate it from scrutiny of its real identity in relation to CKCS. It is noted that said Articles of
Incorporation of CKCS, Inc. was issued in 1989, but documentary evidence indicate that after said
date, CKCS, Inc. has also assumed the name CKCS, and vice-versa. The most concrete indication of
this practice is the 1991 Quarterly Percentage Tax Returns covering the business name/trade
"19th Tee Camp John Hay." In said returns, the taxpayer is identified as "Copper Kettle Cafeteria
Specialist"48 or CKCS, not CKCS, Inc. Yet, in several documents already cited, the purported owner
of 19th Tee Bar at Club John Hay is CKCS, Inc.

All these pieces of evidence buttress the finding of the CTA that in 1991, 1992 and 1993,
respondent, together with his spouse Jeanne Menguito, owned and operated outlets in Club John
Hay and Texas Instruments under the names Copper Kettle Cafeteria Specialist or CKCS and
Copper Kettle Catering Services or Copper Kettle Catering Services, Inc..
Turning now to the second issue.

In respondent's Petition for Review with the CTA, he questioned the validity of the Assessment
Notices,49 all dated September 2, 1997, issued by BIR, Baguio City against him on the following
grounds:

1. The assessment notices, based on income and percentage tax returns filed for 1991, 1992 and
1993, were issued beyond the three-year prescriptive period under Section 203 of the Tax Code;50

2. The assessment notices were addressed to Copper Kettle Specialist, Club John Hay, Baguio City,
despite notice to petitioner that respondent's principal place of business was at the CCP Complex,
Pasay City.51

3. The assessment notices were issued in violation of the requirement of Revenue Regulations No.
12-85, dated November 27, 1985, that the taxpayer be issued a post-reporting notice and pre-
assessment notice before the preliminary findings of deficiency may ripen into a formal
assessment;52 and

4. The assessment notices did not give respondent a 15-day period to reply to the findings of
deficiency.53

The Court notes that nowhere in his Petition for Review did respondent deny that he received the
September 2, 1997 assessment notices. Instead, during the trial, respondent's witness, Ma.
Theresa Nalda (Nalda), testified that she informed the BIR, Baguio City "that there was no Notice
or letter, that we did not receive,

perhaps, because they were not addressed to Mr. Menguito's head office."54

The CTA correctly upheld the validity of the assessment notices. Citing Section 223 of the Tax Code
which provides that the prescriptive period for the issuance of assessment notices based on fraud
is 10 years, the CTA ruled that the assessment notices issued against respondent on September 2,
1997 were timely because petitioner discovered the falsity in respondent's tax returns for 1991,
1992 and 1993 only on February 19, 1997.55 Moreover, in accordance with Section 2 of Revenue
Regulation No. 12-85, which requires that assessment notices be sent to the address indicated in
the taxpayer's return, unless the latter gives a notice of change of address, the assessment notices
in the present case were sent by petitioner to Camp John Hay, for this was the address respondent
indicated in his tax returns.56 As to whether said assessment notices were actually received, the
CTA correctly held that since respondent did not testify that he did not receive said notices, it can
be presumed that the same were actually sent to and received by the latter. The Court agrees with
the CTA in considering as hearsay the testimony of Nalda that respondent did not receive the
notices, because Nalda was not competent to testify on the matter, as she was employed by
respondent only in June 1998, whereas the assessment notices were sent on September 2, 1997.57

Anent compliance with the requirements of Revenue Regulation No. 12-85, the CTA held:
BIR records show that on July 28, 1997, a letter was issued by BIR Baguio to Spouses Menguito,
informing the latter of their supposed underdeclaration of sales totaling P48,721,555.96 and
giving them 5 days to communicate any objection to the results of the investigation (Exhibit 11, p.
83, BIR Records). Records likewise reveal the issuance of a Preliminary Ten (10) Day Letter on
August 11, 1997, informing Petitioner [respondent herein] that the sum of P34,193,041.55 is due
from him as deficiency income and percentage tax (Exhibit 13, p. 173, BIR Records). Said letter
gave the Petitioner [respondent herein] a period of ten (10) days to submit his objection to the
proposed assessment, either personally or in writing, together with any evidence he may want to
present.

xxxx

As to Petitioner's allegation that he was given only ten (10) days to reply to the findings of
deficiency instead of fifteen (15) days granted to a taxpayer under Revenue Regulations No. 12-85,
this Court believes that when Respondent [petitioner herein] gave the Petitioner [respondent
herein] on October 10, 1997 an additional period of ten (10) days to present documentary
evidence or a total of twenty (20) days, there was compliance with Revenue Regulations No. 12-85
and the latter was amply given opportunity to present his side x x x.58

The CTA further held that respondent was estopped from raising procedural issues against the
assessment notices, because these were not cited in the September 28, 1997 letter-protest which
his spouse Jeanne Menguito filed with petitioner.59

On appeal by respondent,60 the CA resolved the issue, thus:

Moreover, if the taxpayer denies ever having received an assessment from the BIR, it is
incumbent upon the latter to prove by competent evidence that such notice was indeed received
by the addressee. Here, respondent [petitioner herein] merely alleged that it "forwarded" the
assessment notices to petitioner [respondent herein]. The respondent did not show any proof of
mailing, registry receipt or acknowledgment receipt signed by the petitioner [respondent
herein]. Since respondent [petitioner herein] has not adduced sufficient evidence that petitioner
[respondent herein] had in fact received the pre-assessment notice and post-reporting notice
required by law, it cannot be assumed that petitioner [respondent herein] had been served said
notices.61

No other ground was cited by the CA for the reversal of the finding of the CTA on the issue.

The CA is gravely mistaken.

In their Petition for Review with the CTA, respondent expressly stated that "[s]ometime in
September 1997, petitioner [respondent herein] received various assessment notices, all dated 02
September 1997, issued by BIR-Baguio for alleged deficiency income and percentage taxes for
taxable years ending 31 December 1991, 1992 and 1993 x x x."62 In their September 28, 1997
protest to the September 2, 1997 assessment notices, respondent, through his spouses Jeanne
Menguito, acknowledged that "[they] are in receipt of the assessment notice you have sent us,
dated September 2, 1997 x x x."63

Respondent is therefore estopped from denying actual receipt of the September 2, 1997
assessment notices, notwithstanding the denial of his witness Nalda.

As to the address indicated on the assessment notices, respondent cannot question the same for
it is the said address which appears in its percentage tax returns.64 While respondent claims that
he had earlier notified petitioner of a change in his business address, no evidence of such written
notice was presented. Under Section 11 of Revenue Regulation No. 12-85, respondent's failure to
give written notice of change of address bound him to whatever communications were sent to the
address appearing in the tax returns for the period involved in the investigation.65

Thus, what remain in question now are: whether petitioner issued and mailed a post-reporting
notice and a pre-assessment notice; and whether respondent actually received them.

There is no doubt that petitioner failed to prove that it served on respondent a post-reporting
notice and a pre-assessment notice. Exhibit "11"66 of petitioner is a mere photocopy of a July 28,
1997 letter it sent to respondent, informing him of the initial outcome of the investigation into his
sales, and the release of a preliminary assessment upon completion of the investigation, with
notice for the latter to file any objection within five days from receipt of the letter. "Exhibit
"13"67 of petitioner is also a mere photocopy of an August 11, 1997 Preliminary Ten (10) Day
Letter to respondent, informing him that he had been found to be liable for deficiency income and
percentage tax and inviting him to submit a written objection to the proposed assessment within
10 days from receipt of notice. But nowhere on the face of said documents can be found evidence
that these were sent to and received by respondent. Nor is there separate evidence, such as a
registry receipt of the notices or a certification from the Bureau of Posts, that petitioner actually
mailed said notices.

However, while the lack of a post-reporting notice and pre-assessment notice is a deviation from
the requirements under Section 168 and Section 269 of Revenue Regulation No. 12-85, the same
cannot detract from the fact that formal assessments were issued to and actually received by
respondents in accordance with Section 228 of the National Internal Revenue Code which was in
effect at the time of assessment.

It should be emphasized that the stringent requirement that an assessment notice be satisfactorily
proven to have been issued and released or, if receipt thereof is denied, that said assessment
notice have been served on the taxpayer,70 applies only to formal assessments prescribed under
Section 228 of the National Internal Revenue Code, but not to post-reporting notices or pre-
assessment notices. The issuance of a valid formal assessment is a substantive prerequisite to tax
collection,71 for it contains not only a computation of tax liabilities but also a demand for payment
within a prescribed period, thereby signaling the time when penalties and interests begin to
accrue against the taxpayer and enabling the latter to determine his remedies therefor. Due
process requires that it must be served on and received by the taxpayer.72

A post-reporting notice and pre-assessment notice do not bear the gravity of a formal assessment
notice. The post-reporting notice and pre-assessment notice merely hint at the initial findings of
the BIR against a taxpayer and invites the latter to an "informal" conference or clarificatory
meeting. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for
payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer for as long
as the latter is properly served a formal assessment notice. In the case of respondent, a formal
assessment notice was received by him as acknowledged in his Petition for Review and Joint
Stipulation; and, on the basis thereof, he filed a protest with the BIR, Baguio City and eventually a
petition with the CTA.

WHEREFORE, the petition is GRANTED. The March 31, 2005 Decision of the Court of Appeals
is REVERSED and SET ASIDE and the April 2, 2002 Decision and October 10, 2002 Resolution of the
Court of Tax Appeals are REINSTATED.

SO ORDERED.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 185371

Petitioner,

Present:

CARPIO, J., Chairperson,

NACHURA,

- versus - PERALTA,

ABAD, and

MENDOZA, JJ.

METRO STAR SUPERAMA, INC., Promulgated:

Respondent.

December 8, 2010

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

DECISION

MENDOZA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court filed by the
petitioner Commissioner of Internal Revenue (CIR) seeks to reverse and set aside the 1] September 16,
2008 Decision[1] of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2]
its November 18, 2008 Resolution[2] denying petitioners motion for reconsideration.

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

Based on a Joint Stipulation of Facts and Issues[3] of the parties, the CTA Second Division summarized the
factual and procedural antecedents of the case, the pertinent portions of which read:

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

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

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

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente issued a Preliminary 15-day
Letter, which petitioner received on November 9, 2001. The said letter stated that a post audit review
was held and it was ascertained that there was deficiency value-added and withholding taxes due from
petitioner in the amount of P292,874.16.

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

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

VALUE ADDED TAX

Gross Sales P1,697,718.90

Output Tax P 154,338.08

Less: Input Tax

VAT Payable P 154,338.08

Add: 25% Surcharge P 38,584.54

20% Interest 79,746.49

Compromise Penalty

Late Payment P16,000.00

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

TOTAL P 291,069.09

WITHHOLDING TAX

Compensation 2,772.91

Expanded 110,103.92

Total Tax Due P 112,876.83

Less: Tax Withheld 111,848.27

Deficiency Withholding Tax P 1,028.56

Add: 20% Interest p.a. 576.51

Compromise Penalty 200.00

TOTAL P 1,805.07

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

Film Rental 10,000.25 x 10% 1,000.00

Audit Fee 193,261.20 x 5% 9,663.00

Rental Expense 41,272.73 x 1% 412.73

Security Service 156,142.01 x 1% 1,561.42

Service Contractor P 110,103.92

Total

SUMMARIES OF DEFICIENCIES

VALUE ADDED TAX P 291,069.09

WITHHOLDING TAX 1,805.07

TOTAL P 292,874.16

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

On February 6, 2004, petitioner received from Revenue District Office No. 67 a Warrant of Distraint
and/or Levy No. 67-0029-23 dated May 12, 2003 demanding payment of deficiency value-added tax and
withholding tax payment in the amount of P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent Commissioner a Motion for
Reconsideration pursuant to Section 3.1.5 of Revenue Regulations No. 12-99.

On February 8, 2005, respondent Commissioner, through its authorized representative, Revenue

Regional Director of Revenue Region 10, Legaspi City, issued a Decision denying petitioners Motion for
Reconsideration. Petitioner, through counsel received said Decision on February 18, 2005.

x x x.

Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded
due process, Metro Star filed a petition for review[4] with the CTA. The parties then stipulated on the
following issues to be decided by the tax court:

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

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

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

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

2.2 Whether petitioner was informed of the law and facts on which the assessment is made in
compliance with Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT on sales of
services under Section 108(A) of the National Internal Revenue Code;

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

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

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

The CTA-Second Division opined that [w]hile there [is] a disputable presumption that a mailed letter [is]
deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of mail
shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.[5] It also found that there was no clear showing that Metro Star actually
received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of
Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were
void, as Metro Star was denied due process.[6]

The CIR sought reconsideration[7] of the decision of the CTA-Second Division, but the motion was denied
in the latters July 24, 2007 Resolution.[8]

Aggrieved, the CIR filed a petition for review[9] with the CTA-En Banc, but the petition was dismissed
after a determination that no new matters were raised. The CTA-En Bancdisposed:

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

SO ORDERED.

The motion for reconsideration[10] filed by the CIR was likewise denied by the CTA-En Banc in
its November 18, 2008 Resolution.[11]

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

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

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the
highest respect. In Sea-Land Service Inc. v. Court of Appeals[G.R. No. 122605, 30 April 2001, 357 SCRA
441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its
function is dedicated exclusively to the consideration of tax problems, has necessarily developed an
expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or
improvident exercise of authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax
Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that
the CTA rendered a decision which is valid in every respect.

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

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

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

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

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

x x x.

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

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

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

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

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

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

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

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

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

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

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

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

Such assessment may be protested administratively by filing a request for reconsideration or

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

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

Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is
liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law
upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement.
To proceed heedlessly with tax collection without first establishing a valid assessment is evidently
violative of the cardinal principle in administrative investigations - that taxpayers should be able to
present their case and adduce supporting evidence.[14]
This is confirmed under the provisions R.R. No. 12-99 of the BIR which pertinently provide:

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

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

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

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

3.1.3 Exceptions to Prior Notice of the Assessment. The notice for informal conference and the
preliminary assessment notice shall not be required in any of the following cases, in which case,
issuance of the formal assessment notice for the payment of the taxpayer's deficiency tax liability shall
be sufficient:
(i) When the finding for any deficiency tax is the result of mathematical error in the computation of the
tax appearing on the face of the tax return filed by the taxpayer; or

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

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

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

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

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

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

x x x.

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

The case of CIR v. Menguito[16] cited by the CIR in support of its argument that only the non-service of
the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein was
the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the
old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an assessment.
The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which an assessment would be
made. Otherwise, the assessment itself would be invalid.[17] The regulation then, on the other hand,
simply provided that a notice be sent to the respondent in the form prescribed, and that no
consequence would ensue for failure to comply with that form.

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

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

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

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 ones hard-earned income to taxing authorities, every person who is able
to must contribute his share in the running of the government. The government for its part is expected
to respond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.

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

WHEREFORE, the petition is DENIED.

SO ORDERED.
THIRD DIVISION

COMMISSIONER OF INTERNAL REVENUE, G.R. No. 177279

Petitioner,

Present:

CARPIO MORALES, J.,

- versus - Chairperson,

BRION,

BERSAMIN,

VILLARAMA, JR., and

SERENO, JJ.

HON. RAUL M. GONZALEZ, Secretary of

Justice, L. M. CAMUS ENGINEERING
CORPORATION (represented by LUIS M. Promulgated:
CAMUS and LINO D. MENDOZA),

Respondents. October 13, 2010

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

DECISION

VILLARAMA, JR., J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended,
assailing the Decision[1] dated October 31, 2006 and Resolution[2]dated March 6, 2007 of the Court of
Appeals (CA) in CA-G.R. SP No. 93387 which affirmed the Resolution[3] dated December 13, 2005 of
respondent Secretary of Justice in I.S. No. 2003-774 for violation of Sections 254 and 255 of the National
Internal Revenue Code of 1997 (NIRC).

The facts as culled from the records:

Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner
of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr.,
Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora supervised by Section Chief
Sixto C. Dy, Jr. of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all
internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering
Corporation (LMCEC) for the taxable years 1997, 1998 and 1999.[4] The audit and investigation against
LMCEC was precipitated by the information provided by an informer that LMCEC had
substantial underdeclared income for the said period. For failure to comply with the subpoena duces
tecum issued in connection with the tax fraud investigation, a criminal complaint was instituted by the
Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the
NIRC (I.S. No. 00-956 of the Office of the City Prosecutor of Quezon City).[5]

Based on data obtained from an informer and various clients of LMCEC,[6] it was discovered that LMCEC
filed fraudulent tax returns with substantial underdeclarations of taxable income for the years 1997,
1998 and 1999. Petitioner thus assessed the company of total deficiency taxes amounting
to P430,958,005.90 (income tax - P318,606,380.19 and value-added tax [VAT] - P112,351,625.71)
covering the said period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February
22, 2001.[7]

LMCECs alleged underdeclared income was summarized by petitioner as follows:

Year Income Income Undeclared Percentage of

Per ITR Per Investigation Income Underdeclaration

1997 96,638,540.00 283,412,140.84 186,733,600.84 193.30%

1998 86,793,913.00 236,863,236.81 150,069,323.81 172.90%

1999 88,287,792.00 251,507,903.13 163,220,111.13 184.90%[8]

In view of the above findings, assessment notices together with a formal letter of demand dated August
7, 2002 were sent to LMCEC through personal service on October 1, 2002.[9] Since the company and its
representatives refused to receive the said notices and demand letter, the revenue officers resorted to
constructive service[10] in accordance with Section 3, Revenue Regulations (RR) No. 12-99[11].

On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr., referred to the
Secretary of Justice for preliminary investigation its complaint against LMCEC, Luis M. Camus and Lino D.
Mendoza, the latter two were sued in their capacities as President and Comptroller, respectively. The
case was docketed as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue officers who
conducted the tax fraud investigation, it was alleged that despite the receipt of the final assessment
notice and formal demand letter on October 1, 2002, LMCEC failed and refused to pay the deficiency tax
assessment in the total amount of P630,164,631.61, inclusive of increments, which had become final
and executory as a result of the said taxpayers failure to file a protest thereon within the thirty (30)-day
reglementary period.[12]

Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be held liable
whatsoever for the alleged tax deficiency which had become due and demandable. Considering that the
complaint and its annexes all showed that the suit is a simple civil action for collection and not a tax
evasion case, the Department of Justice (DOJ) is not the proper forum for BIRs complaint. They also
assail as invalid the assessment notices which bear no serial numbers and should be shown to have been
validly served by an Affidavit of Constructive Service executed and sworn to by the revenue officers who
served the same. As stated in LMCECs letter-protest dated December 12, 2002addressed to Revenue
District Officer (RDO) Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already
undergone a series of routine examinations for the years 1997, 1998 and 1999; under the NIRC, only one
examination of the books of accounts is allowed per taxable year.[13]

LMCEC further averred that it had availed of the Bureaus Tax Amnesty Programs (Economic Recovery
Assistance Payment [ERAP] Program and the Voluntary Assessment Program [VAP]) for 1998 and 1999;
for 1997, its tax liability was terminated and closed under Letter of Termination[14] dated June 1,
1999 issued by petitioner and signed by the Chief of the Assessment Division.[15] LMCEC claimed it made
payments of income tax, VAT and expanded withholding tax (EWT), as follows:

TAXABLE AMOUNT OF TAXES

YEAR PAID

1997 Termination Letter Under Letter EWT - P 6,000.00

of Authority No. 174600
Dated November 4, 1998 VAT - 540,605.02

IT - 3,000.00

1998 ERAP Program pursuant WC - 38,404.55

to RR #2-99 VAT - 61,635.40

1999 VAP Program pursuant IT - 878,495.28

to RR #8-2001 VAT - 1,324,317.00[16]

LMCEC argued that petitioner is now estopped from further taking any action against it and its corporate
officers concerning the taxable years 1997 to 1999. With the grant of immunity from audit from the
companys availment of ERAP and VAP, which have a feature of a tax amnesty, the element of fraud is
negated the moment the Bureau accepts the offer of compromise or payment of taxes by the
taxpayer. The act of the revenue officers in finding justification under Section 6(B) of the NIRC (Best
Evidence Obtainable) is misplaced and unavailing because they were not able to open the books of the
company for the second time, after the routine examination, issuance of termination letter and the
availment of ERAP and VAP. LMCEC thus maintained that unless there is a prior determination of fraud
supported by documents not yet incorporated in the docket of the case, petitioner cannot just issue LAs
without first terminating those previously issued. It emphasized the fact that the BIR officers who filed
and signed the Affidavit-Complaint in this case were the same ones who appeared as complainants in an
earlier case filed against Camus for his alleged failure to obey summons in violation of Section 5
punishable under Section 266 of the NIRC of 1997 (I.S. No. 00-956 of the Office of the City Prosecutor of
Quezon City). After preliminary investigation, said case was dismissed for lack of probable cause in a
Resolution issued by the Investigating Prosecutor on May 2, 2001.[17]

LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by petitioner for
having no basis in fact and law. However, until now the said protest remains unresolved. As to the
alleged informant who purportedly supplied the confidential information, LMCEC believes that such
person is fictitious and his true identity and personality could not be produced. Hence, this case is
another form of harassment against the company as what had been found by the Office of the City
Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both have something to do
with the audit/examination of LMCEC for taxable years 1997, 1998 and 1999 pursuant to LA No.
00009361.[18]

In the Joint Reply-Affidavit executed by the Bureaus revenue officers, petitioner disagreed with the
contention of LMCEC that the complaint filed is not criminal in nature, pointing out that LMCEC and its
officers Camus and Mendoza were being charged for the criminal offenses defined and penalized under
Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Pay Tax) of the NIRC. This finds
support in Section 205 of the same Code which provides for administrative (distraint, levy, fine,
forfeiture, lien, etc.) and judicial (criminal or civil action) remedies in order to enforce collection of
taxes. Both remedies may be pursued either independently or simultaneously.In this case, the BIR
decided to simultaneously pursue both remedies and thus aside from this criminal action, the Bureau
also initiated administrative proceedings against LMCEC.[19]

On the lack of control number in the assessment notice, petitioner explained that such is a mere office
requirement in the Assessment Service for the purpose of internal control and monitoring; hence, the
unnumbered assessment notices should not be interpreted as irregular or anomalous. Petitioner
stressed that LMCEC already lost its right to file a protest letter after the lapse of the thirty (30)-day
reglementary period. LMCECs protest-letter dated December 12, 2002 to RDO Clavelina S. Nacar, RD No.
40, Cubao, Quezon City was actually filed only on December 16, 2002, which was disregarded by the
petitioner for being filed out of time. Even assuming for the sake of argument that the assessment
notices were invalid, petitioner contended that such could not affect the present criminal
action,[20] citing the ruling in the landmark case of Ungab v. Cusi, Jr.[21]
As to the Letter of Termination signed by Ruth Vivian G. Gandia of the Assessment Division, Revenue
Region No. 7, Quezon City, petitioner pointed out that LMCEC failed to mention that the undated
Certification issued by RDO Pablo C. Cabreros, Jr. of RD No. 40, Cubao, Quezon City stated that the
report of the 1997 Internal Revenue taxes of LMCEC had already been submitted for review and
approval of higher authorities. LMCEC also cannot claim as excuse from the reopening of its books of
accounts the previous investigations and examinations. Under Section 235 (a), an exception was
provided in the rule on once a year audit examination in case of fraud, irregularity or mistakes, as
determined by the Commissioner. Petitioner explained that the distinction between a Regular Audit
Examination and Tax Fraud Audit Examination lies in the fact that the former is conducted by the district
offices of the Bureaus Regional Offices, the authority emanating from the Regional Director, while the
latter is conducted by the TFD of the National Office only when instances of fraud had been determined
by the petitioner.[22]

Petitioner further asserted that LMCECs claim that it was granted immunity from audit when it availed
of the VAP and ERAP programs is misleading. LMCEC failed to state that its availment of ERAP under RR
No. 2-99 is not a grant of absolute immunity from audit and investigation, aside from the fact that said
program was only for income tax and did not cover VAT and withholding tax for the taxable year
1998. As for LMCECS availment of VAP in 1999 under RR No. 8-2001 dated August 1, 2001 as amended
by RR No. 10-2001 dated September 3, 2001, the company failed to state that it covers only income tax
and VAT, and did not include withholding tax. However, LMCEC is not actually entitled to the benefits of
VAP under Section 1 (1.1 and 1.2) of RR No. 10-2001. As to the principle of estoppel invoked by LMCEC,
estoppel clearly does not lie against the BIR as this involved the exercise of an inherent power by the
government to collect taxes.[23]

Petitioner also pointed out that LMCECs assertion correlating this case with I.S. No. 00-956 is misleading
because said case involves another violation and offense (Sections 5 and 266 of the NIRC). Said case was
filed by petitioner due to the failure of LMCEC to submit or present its books of accounts and other
accounting records for examination despite the issuance of subpoena duces tecum against Camus in his
capacity as President of LMCEC. While indeed a Resolution was issued by Asst. City Prosecutor Titus C.
Borlas on May 2, 2001 dismissing the complaint, the same is still on appeal and pending resolution by
the DOJ. The determination of probable cause in said case is confined to the issue of whether there was
already a violation of the NIRC by Camus in not complying with the subpoena duces tecum issued by the
BIR.[24]

Petitioner contended that precisely the reason for the issuance to the TFD of LA No. 00009361 by the
Commissioner is because the latter agreed with the findings of the investigating revenue officers that
fraud exists in this case. In the conduct of their investigation, the revenue officers observed the proper
procedure under Revenue Memorandum Order (RMO) No. 49-2000 wherein it is required that before
the issuance of a Letter of Authority against a particular taxpayer, a preliminary investigation should first
be conducted to determine if a prima facie case for tax fraud exists. As to the allegedly unresolved
protest filed on April 20, 2001 by LMCEC over the PAN, this has been disregarded by the Bureau for
being pro forma and having been filed beyond the 15-day reglementary period. A subsequent letter
dated April 20, 2001 was filed with the TFD and signed by a certain Juan Ventigan. However, this was
disregarded and considered a mere scrap of paper since the said signatory had not shown any prior
authorization to represent LMCEC. Even assuming said protest letter was validly filed on behalf of the
company, the issuance of a Formal Demand Letter and Assessment Notice through constructive service
on October 1, 2002 is deemed an implied denial of the said protest. Lastly, the details regarding the
informer being confidential, such information is entitled to some degree of protection, including the
identity of the informant against LMCEC.[25]

In their Joint Rejoinder-Affidavit,[26] Camus and Mendoza reiterated their argument that the identity of
the alleged informant is crucial to determine if he/she is qualified under Section 282 of the
NIRC. Moreover, there was no assessment that has already become final, the validity of its issuance and
service has been put in issue being anomalous, irregular and oppressive. It is contended that for criminal
prosecution to proceed before assessment, there must be a prima facie showing of a willful attempt to
evade taxes. As to LMCECs availment of the VAP and ERAP programs, the certificate of immunity from
audit issued to it by the BIR is plain and simple, but petitioner is now saying it has the right to renege
with impunity from its undertaking. Though petitioner deems LMCEC not qualified to avail of the
benefits of VAP, it must be noted that if it is true that at the time the petitioner filed I.S. No. 00-956
sometime in January 2001 it had already in its custody that Confidential Information No. 29-2000 dated
July 7, 2000, these revenue officers could have rightly filed the instant case and would not resort to filing
said criminal complaint for refusal to comply with a subpoena duces tecum.

On September 22, 2003, the Chief State Prosecutor issued a Resolution[27] finding no sufficient evidence
to establish probable cause against respondents LMCEC, Camus and Mendoza. It was held that since the
payments were made by LMCEC under ERAP and VAP pursuant to the provisions of RR Nos. 2-99 and 8-
2001 which were offered to taxpayers by the BIR itself, the latter is now in estoppel to insist on the
criminal prosecution of the respondent taxpayer. The voluntary payments made thereunder are in the
nature of a tax amnesty. The unnumbered assessment notices were found highly irregular and thus their
validity is suspect; if the amounts indicated therein were collected, it is uncertain how these will be
accounted for and if it would go to the coffers of the government or elsewhere. On the required prior
determination of fraud, the Chief State Prosecutor declared that the Office of the City Prosecutor in I.S.
No. 00-956 has already squarely ruled that (1) there was no prior determination of fraud, (2) there was
indiscriminate issuance of LAs, and (3) the complaint was more of harassment. In view of such findings,
any ensuing LA is thus defective and allowing the collection on the assailed assessment notices would
already be in the context of a fishing expedition or witch-hunting. Consequently, there is nothing to
speak of regarding the finality of assessment notices in the aggregate amount of P630,164,631.61.

Petitioner filed a motion for reconsideration which was denied by the Chief State Prosecutor.[28]

Petitioner appealed to respondent Secretary of Justice but the latter denied its petition for review under
Resolution dated December 13, 2005.[29]

The Secretary of Justice found that petitioners claim that there is yet no finality as to LMCECs payment
of its 1997 taxes since the audit report was still pending review by higher authorities, is unsubstantiated
and misplaced. It was noted that the Termination Letter issued by the Commissioner on June 1, 1999 is
explicit that the matter is considered closed. As for taxable year 1998, respondent Secretary stated that
the record shows that LMCEC paid VAT and withholding tax in the amount of P61,635.40
and P38,404.55, respectively. This eventually gave rise to the issuance of a certificate of immunity from
audit for 1998 by the Office of the Commissioner of Internal Revenue. For taxable year 1999,
respondent Secretary found that pursuant to earlier LA No. 38633 dated July 4, 2000, LMCECs 1999 tax
liabilities were still pending investigation for which reason LMCEC assailed the subsequent issuance of
LA No. 00009361 dated August 25, 2000 calling for a similar investigation of its alleged 1999 tax
deficiencies when no final determination has yet been arrived on the earlier LA No. 38633.[30]

On the allegation of fraud, respondent Secretary ruled that petitioner failed to establish the existence of
the following circumstances indicating fraud in the settlement of LMCECs tax liabilities: (1) there must
be intentional and substantial understatement of tax liability by the taxpayer; (2) there must be
intentional and substantial overstatement of deductions or exemptions; and (3) recurrence of the
foregoing circumstances. First, petitioner miserably failed to explain why the assessment notices were
unnumbered; second,the claim that the tax fraud investigation was precipitated by an alleged informant
has not been corroborated nor was it clearly established, hence there is no other conclusion but that the
Bureau engaged in a fishing expedition; and furthermore, petitioners course of action is contrary to
Section 235 of the NIRC allowing only once in a given taxable year such examination and inspection of
the taxpayers books of accounts and other accounting records. There was no convincing proof
presented by petitioner to show that the case of LMCEC falls under the exceptions provided in Section
235. Respondent Secretary duly considered the issuance of Certificate of Immunity from Audit and
Letter of Termination dated June 1, 1999 issued to LMCEC.[31]

Anent the earlier case filed against the same taxpayer (I.S. No. 00-956), the Secretary of Justice found
petitioner to have engaged in forum shopping in view of the fact that while there is still pending an
appeal from the Resolution of the City Prosecutor of Quezon City in said case, petitioner hurriedly filed
the instant case, which not only involved the same parties but also similar substantial issues (the joint
complaint-affidavit also alleged the issuance of LA No. 00009361 dated August 25, 2000). Clearly, the
evidence of litis pendentia is present. Finally, respondent Secretary noted that if indeed LMCEC
committed fraud in the settlement of its tax liabilities, then at the outset, it should have been
discovered by the agents of petitioner, and consequently petitioner should not have issued the Letter of
Termination and the Certificate of Immunity From Audit. Petitioner thus should have been more
circumspect in the issuance of said documents.[32]

Its motion for reconsideration having been denied, petitioner challenged the ruling of respondent
Secretary via a certiorari petition in the CA.

On October 31, 2006, the CA rendered the assailed decision[33] denying the petition and concurred with
the findings and conclusions of respondent Secretary. Petitioners motion for reconsideration was
likewise denied by the appellate court.[34] It appears that entry of judgment was issued by the CA stating
that its October 31, 2006 Decision attained finality on March 25, 2007.[35] However, the said entry of
judgment was set aside upon manifestation by the petitioner that it has filed a petition for review
before this Court subsequent to its receipt of the Resolution dated March 6, 2007 denying petitioners
motion for reconsideration on March 20, 2007.[36]

The petition is anchored on the following grounds:

I.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who
gravely abused his discretion by dismissing the complaint based on grounds which are not even
elements of the offenses charged.

II.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who
gravely abused his discretion by dismissing petitioners evidence, contrary to law.

III.

The Honorable Court of Appeals erroneously sustained the findings of the Secretary of Justice who
gravely abused his discretion by inquiring into the validity of a Final Assessment Notice which has
become final, executory and demandable pursuant to Section 228 of the Tax Code of 1997 for failure of
private respondent to file a protest against the same.[37]

The core issue to be resolved is whether LMCEC and its corporate officers may be prosecuted for
violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and
Accurate Information and Pay Tax).

Petitioner filed the criminal complaint against the private respondents for violation of the following
provisions of the NIRC, as amended:

SEC. 254. Attempt to Evade or Defeat Tax. Any person who willfully attempts in any manner to evade or
defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties
provided by law, upon conviction thereof, be punished by a fine of not less than Thirty thousand pesos
(P30,000) but not more than One hundred thousand pesos (P100,000) and suffer imprisonment of not
less than two (2) years but not more than four (4) years: Provided, That the conviction or acquittal
obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.

SEC. 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 thereunder to pay any tax, make a return, keep any record, or supply
any correct and accurate information, who willfully fails to pay such tax, make such return, keep such
record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund
excess taxes withheld on compensations 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 Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but
not more than ten (10) years.

x x x x (Emphasis supplied.)

Respondent Secretary concurred with the Chief State Prosecutors conclusion that there is insufficient
evidence to establish probable cause to charge private respondents under the above provisions, based
on the following findings: (1) the tax deficiencies of LMCEC for taxable years 1997, 1998 and 1999 have
all been settled or terminated, as in fact LMCEC was issued a Certificate of Immunity and Letter of
Termination, and availed of the ERAP and VAP programs; (2) there was no prior determination of the
existence of fraud; (3) the assessment notices are unnumbered, hence irregular and suspect; (4) the
books of accounts and other accounting records may be subject to audit examination only once in a
given taxable year and there is no proof that the case falls under the exceptions provided in Section 235
of the NIRC; and (5) petitioner committed forum shopping when it filed the instant case even as the
earlier criminal complaint (I.S. No. 00-956) dismissed by the City Prosecutor of Quezon City was still
pending appeal.

Petitioner argues that with the finality of the assessment due to failure of the private respondents to
challenge the same in accordance with Section 228 of the NIRC, respondent Secretary has no jurisdiction
and authority to inquire into its validity. Respondent taxpayer is thereby allowed to do indirectly what it
cannot do directly to raise a collateral attack on the assessment when even a direct challenge of the
same is legally barred. The rationale for dismissing the complaint on the ground of lack of control
number in the assessment notice likewise betrays a lack of awareness of tax laws and jurisprudence,
such circumstance not being an element of the offense. Worse, the final, conclusive and undisputable
evidence detailing a crime under our taxation laws is swept under the rug so easily on mere conspiracy
theories imputed on persons who are not even the subject of the complaint.

We grant the petition.

There is no dispute that prior to the filing of the complaint with the DOJ, the report on the tax fraud
investigation conducted on LMCEC disclosed that it made substantial underdeclarations in its income tax
returns for 1997, 1998 and 1999. Pursuant to RR No. 12-99,[38] a PAN was sent to and received by LMCEC
on February 22, 2001 wherein it was notified of the proposed assessment of deficiency taxes amounting
to P430,958,005.90 (income tax - P318,606,380.19 and VAT - P112,351,625.71) covering taxable years
1997, 1998 and 1999.[39] In response to said PAN, LMCEC sent a letter-protest to the TFD, which denied
the same on April 12, 2001 for lack of legal and factual basis and also for having been filed beyond the
15-day reglementary period.[40]

As mentioned in the PAN, the revenue officers were not given the opportunity to examine LMCECs
books of accounts and other accounting records because its officers failed to comply with the
subpoena duces tecum earlier issued, to verify its alleged underdeclarations of income reported by the
Bureaus informant under Section 282 of the NIRC. Hence, a criminal complaint was filed by the Bureau
against private respondents for violation of Section 266 which provides:

SEC. 266. Failure to Obey Summons. Any person who, being duly summoned to appear to testify, or to
appear and produce books of accounts, records, memoranda, or other papers, or to furnish information
as required under the pertinent provisions of this Code, neglects to appear or to produce such books of
accounts, records, memoranda, or other papers, or to furnish such information, shall, upon conviction,
be punished by a fine of not less than Five thousand pesos (P5,000) but not more than Ten thousand
pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than two (2) years.

It is clear that I.S. No. 00-956 involves a separate offense and hence litis pendentia is not present
considering that the outcome of I.S. No. 00-956 is not determinative of the issue as to whether probable
cause exists to charge the private respondents with the crimes of attempt to evade or defeat tax and
willful failure to supply correct and accurate information and pay tax defined and penalized under
Sections 254 and 255, respectively. For the crime of tax evasion in particular, compliance by the
taxpayer with such subpoena, if any had been issued, is irrelevant. As we held in Ungab v. Cusi,
Jr.,[41] [t]he crime is complete when the [taxpayer] has x x x knowingly and willfully filed [a] fraudulent
[return] with intent to evade and defeat x x x the tax. Thus, respondent Secretary erred in holding that
petitioner committed forum shopping when it filed the present criminal complaint during the pendency
of its appeal from the City Prosecutors dismissal of I.S. No. 00-956 involving the act of disobedience to
the summons in the course of the preliminary investigation on LMCECs correct tax liabilities for taxable
years 1997, 1998 and 1999.

In the Details of Discrepancies attached as Annex B of the PAN,[42] private respondents were already
notified that inasmuch as the revenue officers were not given the opportunity to examine LMCECs books
of accounts, accounting records and other documents, said revenue officers gathered information from
third parties. Such procedure is authorized under Section 5 of the NIRC, which provides:

SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons. In ascertaining the correctness of any return, or in making a return when none has
been made, or in determining the liability of any person for any internal revenue tax, or in collecting any
such liability, or in evaluating tax compliance, the Commissioner is authorized:

(A) To examine any book, paper, record or other data which may be relevant or material to such inquiry;

(B) To obtain on a regular basis from any person other than the person whose internal revenue tax
liability is subject to audit or investigation, or from any office or officer of the national and local
governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and
government-owned or -controlled corporations, any information such as, but not limited to, costs and
volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and
financial statements of corporations, mutual fund companies, insurance companies, regional operating
headquarters of multinational companies, joint accounts, associations, joint ventures or consortia and
registered partnerships, and their members;
(C) To summon the person liable for tax or required to file a return, or any officer or employee of such
person, or any person having possession, custody, or care of the books of accounts and other accounting
records containing entries relating to the business of the person liable for tax, or any other person, to
appear before the Commissioner or his duly authorized representative at a time and place specified in
the summons and to produce such books, papers, records, or other data, and to give testimony;

(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; x x x

x x x x (Emphasis supplied.)

Private respondents assertions regarding the qualifications of the informer of the Bureau deserve scant
consideration. We have held that the lack of consent of the taxpayer under investigation does not imply
that the BIR obtained the information from third parties illegally or that the information received is false
or malicious. Nor does the lack of consent preclude the BIR from assessing deficiency taxes on the
taxpayer based on the documents.[43] In the same vein, herein private respondents cannot be allowed to
escape criminal prosecution under Sections 254 and 255 of the NIRC by mere imputation of a fictitious
or disqualified informant under Section 282 simply because other than disclosure of the official registry
number of the third party informer, the Bureau insisted on maintaining the confidentiality of the
identity and personal circumstances of said informer.

Subsequently, petitioner sent to LMCEC by constructive service allowed under Section 3 of RR No. 12-99,
assessment notice and formal demand informing the said taxpayer of the law and the facts on which the
assessment is made, as required by Section 228 of the NIRC. Respondent Secretary, however, fully
concurred with private respondents contention that the assessment notices were invalid for being
unnumbered and the tax liabilities therein stated have already been settled and/or terminated.

We do not agree.

A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment
Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without
merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and that the report of
investigation submitted by the Revenue Officer conducting the audit shall be given due course.

The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the
fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the
formal letter of demand and the notice of assessment shall be void.[44]

As it is, the formality of a control number in the assessment notice is not a requirement for its validity
but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax
against said taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the
former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment
is based, which is a mandatory requirement under Section 228 of the NIRC.
Section 228 of the NIRC provides that the taxpayer shall be informed in writing of the law and the facts
on which the assessment is made. Otherwise, the assessment is void. To implement the provisions of
Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads:

3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of
demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered
mail or by personal delivery. x x x.[45](Emphasis supplied.)

The Formal Letter of Demand dated August 7, 2002 contains not only a detailed computation of LMCECs
tax deficiencies but also details of the specified discrepancies, explaining the legal and factual bases of
the assessment. It also reiterated that in the absence of accounting records and other documents
necessary for the proper determination of the companys internal revenue tax liabilities, the
investigating revenue officers resorted to the Best Evidence Obtainable as provided in Section 6(B) of
the NIRC (third party information) and in accordance with the procedure laid down in RMC No. 23-2000
dated November 27, 2000. Annex A of the Formal Letter of Demand thus stated:

Thus, to verify the validity of the information previously provided by the informant, the assigned
revenue officers resorted to third party information. Pursuant to Section 5(B) of the NIRC of 1997,
access letters requesting for information and the submission of certain documents (i.e., Certificate of
Income Tax Withheld at Source and/or Alphabetical List showing the income payments made to L.M.
Camus Engineering Corporation for the taxable years 1997 to 1999) were sent to the various clients of
the subject corporation, including but not limited to the following:

1. Ayala Land Inc.

2. Filinvest Alabang Inc.

3. D.M. Consunji, Inc.

4. SM Prime Holdings, Inc.

5. Alabang Commercial Corporation

6. Philam Properties Corporation

7. SM Investments, Inc.

8. Shoemart, Inc.

9. Philippine Securities Corporation

10. Makati Development Corporation

From the documents gathered and the data obtained therein, the substantial underdeclaration as
defined under Section 248(B) of the NIRC of 1997 by your corporation of its income had been
confirmed. x x x x[46] (Emphasis supplied.)

In the same letter, Assistant Commissioner Percival T. Salazar informed private respondents that the
estimated tax liabilities arising from LMCECs underdeclaration amounted to P186,773,600.84 in
1997, P150,069,323.81 in 1998 and P163,220,111.13 in 1999. These figures confirmed that the non-
declaration by LMCEC for the taxable years 1997, 1998 and 1999 of an amount exceeding 30%
income[47] declared in its return is considered a substantial underdeclaration of income, which
constituted prima facieevidence of false or fraudulent return under Section 248(B)[48] of the NIRC, as
amended.[49]

On the alleged settlement of the assessed tax deficiencies by private respondents, respondent Secretary
found the latters claim as meritorious on the basis of the Certificate of Immunity From Audit issued on
December 6, 1999 pursuant to RR No. 2-99 and Letter of Termination dated June 1, 1999 issued by
Revenue Region No. 7 Chief of Assessment Division Ruth Vivian G. Gandia. Petitioner, however, clarified
that the certificate of immunity from audit covered only income tax for the year 1997 and does not
include VAT and withholding taxes, while the Letter of Termination involved tax liabilities for taxable
year 1997 (EWT, VAT and income taxes) but which was submitted for review of higher authorities as per
the Certification of RD No. 40 District Officer Pablo C. Cabreros, Jr.[50] For 1999, private respondents
supposedly availed of the VAP pursuant to RR No. 8-2001.

RR No. 2-99 issued on February 7, 1999 explained in its Policy Statement that considering the scarcity of
financial and human resources as well as the time constraints within which the Bureau has to clean the
Bureaus backlog of unaudited tax returns in order to keep updated and be focused with the most
current accounts in preparation for the full implementation of a computerized tax administration, the
said revenue regulation was issued providing for last priority in audit and investigation of tax returns to
accomplish the said objective without, however, compromising the revenue collection that would have
been generated from audit and enforcement activities. The program named as Economic Recovery
Assistance Payment (ERAP) Program granted immunity from audit and investigation of income tax, VAT
and percentage tax returns for 1998. It expressly excluded withholding tax returns (whether for income,
VAT, or percentage tax purposes). Since such immunity from audit and investigation does not preclude
the collection of revenues generated from audit and enforcement activities, it follows that the Bureau is
likewise not barred from collecting any tax deficiency discovered as a result of tax fraud
investigations. Respondent Secretarys opinion that RR No. 2-99 contains the feature of a tax amnesty is
thus misplaced.

Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the
government a chance to collect uncollected tax from tax evaders without having to go through the
tedious process of a tax case.[51] Even assuming arguendo that the issuance of RR No. 2-99 is in the
nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never favored
nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption
must be construed strictly against the taxpayer and liberally in favor of the taxing authority.[52]
For the same reason, the availment by LMCEC of VAP under RR No. 8-2001 as amended by RR No. 10-
2001, through payment supposedly made in October 29, 2001 before the said program ended on
October 31, 2001, did not amount to settlement of its assessed tax deficiencies for the period 1997 to
1999, nor immunity from prosecution for filing fraudulent return and attempt to evade or defeat tax. As
correctly asserted by petitioner, from the express terms of the aforesaid revenue regulations, LMCEC is
not qualified to avail of the VAP granting taxpayers the privilege of last priority in the audit and
investigation of all internal revenue taxes for the taxable year 2000 and all prior years under certain
conditions, considering that first, it was issued a PAN on February 19, 2001, and second, it was the
subject of investigation as a result of verified information filed by a Tax Informer under Section 282 of
the NIRC duly recorded in the BIR Official Registry as Confidential Information (CI) No. 29-2000[53] even
prior to the issuance of the PAN.

Section 1 of RR No. 8-2001 provides:

SECTION 1. COVERAGE. x x x

Any person, natural or juridical, including estates and trusts, liable to pay any of the above-cited internal
revenue taxes for the above specified period/s who, due to inadvertence or otherwise, erroneously paid
his internal revenue tax liabilities or failed to file tax return/pay taxes may avail of the Voluntary
Assessment Program (VAP), except those falling under any of the following instances:

1.1 Those covered by a Preliminary Assessment Notice (PAN), Final Assessment Notice (FAN), or
Collection Letter issued on or before July 31, 2001; or

1.2 Persons under investigation as a result of verified information filed by a Tax Informer under
Section 282 of the Tax Code of 1997, duly processed and recorded in the BIR Official Registry Book on
or before July 31, 2001;

1.3 Tax fraud cases already filed and pending in courts for adjudication; and

x x x x (Emphasis supplied.)

Moreover, private respondents cannot invoke LMCECs availment of VAP to foreclose any subsequent
audit of its account books and other accounting records in view of the strong finding of
underdeclaration in LMCECs payment of correct income tax liability by more than 30% as supported by
the written report of the TFD detailing the facts and the law on which such finding is based, pursuant to
the tax fraud investigation authorized by petitioner under LA No. 00009361. This conclusion finds
support in Section 2 of RR No. 8-2001 as amended by RR No. 10-2001 provides:

SEC. 2. TAXPAYERS BENEFIT FROM AVAILMENT OF THE VAP. A taxpayer who has availed of the VAP
shall not be audited except upon authorization and approval of the Commissioner of Internal Revenue
when there is strong evidence or finding of understatement in the payment of taxpayers correct tax
liability by more than thirty percent (30%) as supported by a written report of the appropriate office
detailing the facts and the law on which such finding is based: Provided, however, that any VAP payment
should be allowed as tax credit against the deficiency tax due, if any, in case the concerned taxpayer has
been subjected to tax audit.

xxxx

Given the explicit conditions for the grant of immunity from audit under RR No. 2-99, RR No. 8-2001 and
RR No. 10-2001, we hold that respondent Secretary gravely erred in declaring that petitioner is now
estopped from assessing any tax deficiency against LMCEC after issuance of the aforementioned
documents of immunity from audit/investigation and settlement of tax liabilities. It is axiomatic that the
State can never be in estoppel, and this is particularly true in matters involving taxation. The errors of
certain administrative officers should never be allowed to jeopardize the governments financial
position.[54]

Respondent Secretarys other ground for assailing the course of action taken by petitioner in proceeding
with the audit and investigation of LMCEC -- the alleged violation of the general rule in Section 235 of
the NIRC allowing the examination and inspection of taxpayers books of accounts and other accounting
records only once in a taxable year -- is likewise untenable. As correctly pointed out by petitioner, the
discovery of substantial underdeclarations of income by LMCEC for taxable years 1997, 1998 and 1999
upon verified information provided by an informer under Section 282 of the NIRC, as well as the
necessity of obtaining information from third parties to ascertain the correctness of the return filed or
evaluation of tax compliance in collecting taxes (as a result of the disobedience to the summons issued
by the Bureau against the private respondents), are circumstances warranting exception from the
general rule in Section 235.[55]

As already stated, the substantial underdeclared income in the returns filed by LMCEC for 1997, 1998
and 1999 in amounts equivalent to more than 30% (the computation in the final assessment notice
showed underdeclarations of almost 200%) constitutes prima facie evidence of fraudulent return under
Section 248(B) of the NIRC. Prior to the issuance of the preliminary and final notices of assessment, the
revenue officers conducted a preliminary investigation on the information and documents showing
substantial understatement of LMCECs tax liabilities which were provided by the Informer, following the
procedure under RMO No. 15-95.[56] Based on the prima facie finding of the existence of fraud,
petitioner issued LA No. 00009361 for the TFD to conduct a formal fraud investigation of
LMCEC.[57] Consequently, respondent Secretarys ruling that the filing of criminal complaint for violation
of Sections 254 and 255 of the NIRC cannot prosper because of lack of prior determination of the
existence of fraud, is bereft of factual basis and contradicted by the evidence on record.

Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions
are in favor of the correctness of a tax assessment unless proven otherwise.[58] We have held that a
taxpayers failure to file a petition for review with the Court of Tax Appeals within the statutory period
rendered the disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of the Governments
right to assess.[59]Indeed, any objection against the assessment should have been pursued following the
avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal
revenue taxes.[60]

Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were
duly served on LMCEC on October 1, 2002. Private respondents did not file a motion for reconsideration
of the said assessment notice and formal demand; neither did they appeal to the Court of Tax
Appeals. Section 228 of the NIRC[61] provides the remedy to dispute a tax assessment within a certain
period of time. It states that an assessment may be protested by filing a request for reconsideration or
reinvestigation within 30 days from receipt of the assessment by the taxpayer. No such administrative
protest was filed by private respondents seeking reconsideration of the August 7, 2002 assessment
notice and formal letter of demand. Private respondents cannot belatedly assail the said assessment,
which they allowed to lapse into finality, by raising issues as to its validity and correctness during the
preliminary investigation after the BIR has referred the matter for prosecution under Sections 254 and
255 of the NIRC.

As we held in Marcos II v. Court of Appeals[62]:

It is not the Department of Justice which is the government agency tasked to determine the amount of
taxes due upon the subject estate, but the Bureau of Internal Revenue, whose determinations and
assessments are presumed correct and made in good faith. The taxpayer has the duty of proving
otherwise. In the absence of proof of any irregularities in the performance of official duties, an
assessment will not be disturbed. Even an assessment based on estimates is prima facie valid and
lawful where it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof
is upon the complaining party to show clearly that the assessment is erroneous. Failure to present proof
of error in the assessment will justify the judicial affirmance of said assessment. x x x.

Moreover, these objections to the assessments should have been raised, considering the ample
remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal Revenue and the Court
of Tax Appeals, as described earlier, and cannot be raised now via Petition for Certiorari, under the
pretext of grave abuse of discretion. The course of action taken by the petitioner reflects his disregard
or even repugnance of the established institutions for governance in the scheme of a well-ordered
society. The subject tax assessments having become final, executory and enforceable, the same can no
longer be contested by means of a disguised protest. In the main, Certiorari may not be used as a
substitute for a lost appeal or remedy. This judicial policy becomes more pronounced in view of the
absence of sufficient attack against the actuations of government. (Emphasis supplied.)

The determination of probable cause is part of the discretion granted to the investigating prosecutor
and ultimately, the Secretary of Justice. However, this Court and the CA possess the power to review
findings of prosecutors in preliminary investigations. Although policy considerations call for the widest
latitude of deference to the prosecutors findings, courts should never shirk from exercising their power,
when the circumstances warrant, to determine whether the prosecutors findings are supported by the
facts, or by the law. In so doing, courts do not act as prosecutors but as organs of the judiciary,
exercising their mandate under the Constitution, relevant statutes, and remedial rules to settle cases
and controversies.[63] Clearly, the power of the Secretary of Justice to review does not preclude this
Court and the CA from intervening and exercising our own powers of review with respect to the DOJs
findings, such as in the exceptional case in which grave abuse of discretion is committed, as when a clear
sufficiency or insufficiency of evidence to support a finding of probable cause is ignored.[64]

WHEREFORE, the petition is GRANTED. The Decision dated October 31, 2006 and Resolution
dated March 6, 2007 of the Court of Appeals in CA-G.R. SP No. 93387 are hereby REVERSED and SET
ASIDE. The Secretary of Justice is hereby DIRECTED to order the Chief State Prosecutor to file before the
Regional Trial Court of Quezon City, National Capital Judicial Region, the corresponding Information
against L. M. Camus Engineering Corporation, represented by its President Luis M. Camus and
Comptroller Lino D. Mendoza, for Violation of Sections 254 and 255 of the National Internal Revenue
Code of 1997.

No costs.

SO ORDERED.
THIRD DIVISION

G.R. No. 198677 November 26, 2014

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
BASF COATING + INKS PHILS., INC., Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari assailing the Decision1 of the Court of Tax Appeals
(CTA) En Banc, dated June 16, 2011, and Resolution2 dated September 16, 2011, in C.T.A. EB No. 664
(C.T.A. Case No. 7125).

The pertinent factual and procedural antecedents of the case are as follows:

Respondent was a corporation which was duly organized under and by virtue of the laws of the Republic
of the Philippines on August 1, 1990 with a term of existence of fifty (50) years. Its BIR-registered
address was at 101 Marcos Alvarez Avenue, Barrio Talon, Las Piñas City. In a joint special meeting held
on March 19, 2001, majorityof the members of the Board of Directors and the stockholders representing
more than two-thirds (2/3) of the entire subscribed and outstanding capital stock of herein respondent
corporation, resolved to dissolve the corporation by shortening its corporate term to March 31,
2001.3 Subsequently, respondent moved out of its address in Las Piñas City and transferred to Carmelray
Industrial Park, Canlubang, Calamba, Laguna.

On June 26, 2001, respondent submitted two (2) letters to the Bureau of Internal Revenue (BIR)
Revenue District Officer of Revenue District Office (RDO) No. 53, Region 8, in Alabang, Muntinlupa City.
The first letter, dated April 26, 2001, was a notice of respondent's dissolution, in compliance with the
requirements of Section 52(c) of the National Internal Revenue Code.4 On the other hand, the second
letter, dated June 22, 2001, was a manifestation indicating the submission of various documents
supporting respondent's dissolution, among which was BIR Form No. 1905, which refers to an update of
information contained in its tax registration.5

Thereafter, in a Formal Assessment Notice (FA N) dated January 17, 2003, petitioner assessed
respondent the aggregate amount of ₱18,671,343.14 representing deficiencies in income tax, value
added tax, withholding tax on compensation, expanded withholding tax and documentary stamp tax,
including increments, for the taxable year 1999.6 The FAN was sent by registered mail on January 24,
2003 to respondent's former address in Las Piñas City.

On March 5, 2004, the Chief of the Collection Section of BIR Revenue Region No. 7, RDO No. 39, South
Quezon City, issued a First Notice Before Issuance of Warrant of Distraint and Levy, which was sent to
the residence of one of respondent's directors.7
On March 19, 2004, respondent filed a protest letter citing lack of due process and prescription as
grounds.8 On April 16, 2004, respondent filed a supplemental letter of protest.9 Subsequently, on June
14, 2004, respondent submitted a letter wherein it attached documents to prove the defenses raised in
its protest letters.10

On January 10, 2005, after 180 dayshad lapsed without action on the part of petitioner on respondent's
protest, the latter filed a Petition for Review11 with the CTA.

Trial on the merits ensued.

On February 17, 2010, the CTA Special First Division promulgated its Decision,12 the dispositive portion
of which reads, thus:

WHEREFORE, the Petition for Review is hereby GRANTED. The assessments for deficiency income tax in
the amount of ₱14,227,425.39, deficiency value-added tax of ₱3,981,245.66, deficiency withholding tax
on compensation of ₱49,977.21, deficiency expanded withholding tax of ₱156,261.97 and deficiency
documentary stamp tax of ₱256,432.91, including increments, in the aggregate amount of
₱18,671,343.14 for the taxable year 1999 are hereby CANCELLED and SET ASIDE.

SO ORDERED.13

The CTA Special First Division ruled that since petitioner was actually aware of respondent's new
address, the former's failure to send the Preliminary Assessment Notice and FAN to the said address
should not be taken against the latter. Consequently, since there are no valid notices sent to
respondent, the subsequent assessments against it are considered void. Aggrieved by the Decision,
petitioner filed a Motion for Reconsideration, but the CTA Special First Division denied it in its
Resolution14 dated July 13, 2010.

Petitioner then filed a Petition for Review with the CTA En Banc.15

On June 16, 2011, the CTA En Banc promulgated its assailed Decision denying petitioner's Petition for
Review for lack of merit. The CTA En Banc held that petitioner's right to assess respondent for deficiency
taxes for the taxable year 1999 has already prescribed and that the FAN issued to respondent never
attained finality because respondent did not receive it.

Petitioner filed a Motion for Reconsideration, but the CTA En Banc denied it in its Resolution dated
September 16, 2011.

Hence, the present petition with the following Assignment of Errors:

THE HONORABLE CTA EN BANC ERRED IN RULING THAT THE RIGHT OF PETITIONER TO ASSESS HEREIN
RESPONDENT FOR DEFICIENCY INCOME TAX, VALUEADDED TAX, WITHHOLDING TAX ON
COMPENSATION, EXPANDED WITHHOLDING TAX AND DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR
1999 IS BARRED BY PRESCRIPTION.
II

THE HONORABLE COURT OF TAX APPEALS, EN BANC, ERRED IN RULING THAT THE FORMAL ASSESSMENT
NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME TAX, VALUE-ADDED TAX, WITHHOLDING TAX ON
COMPENSATION, EXPANDED WITHHOLDING TAX AND DOCUMENTARY STAMP TAX FOR TAXABLE YEAR
1999 HAS NOT YET BECOME FINAL, EXECUTORY AND DEMANDABLE.16

The petition lacks merit.

Petitioner contends that, insofar as respondent's alleged deficiency taxes for the taxable year1999 are
concerned, the running of the three-year prescriptive period to assess, under Sections 203 and 222 of
the National Internal Revenue Act of 1997 (Tax Reform Act of 1997) was suspended when respondent
failed to notify petitioner, in writing, of its change of address, pursuant to the provisions of Section 223
of the same Act and Section 11 of BIR Revenue Regulation No. 12-85.

Sections 203, 222 and 223 of the Tax Reform Act of 1997 provide, respectively:

Sec. 203. Period of Limitation Upon Assessment and Collection.– Except as provided in Section
222,internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law
for the filing of the return, and no proceeding in court without assessment for the collection of such
taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day. (emphasis supplied)

Sec. 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 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 ten (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 the 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 the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon.

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

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed in
paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within five (5)
years following the assessment of the tax.
(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected bydistraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (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 and paragraph (a) hereof shall be
construed to authorize the examination and investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty law or decree.

Sec. 223. Suspension of Running of Statute of Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of assessment and the beginning of distraint or levy a
proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days thereafter; when the taxpayer requests for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him
in the return filed upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs
the Commissioner of any change in address, the running of the Statute of Limitations will not be
suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines. (emphasis supplied)

In addition, Section 11 of BIR Revenue Regulation No. 12-85 states:

Sec. 11. Change of Address. – In case of change of address, the taxpayer must give a written notice
thereof to the Revenue District Officer or the district having jurisdiction over his formerlegal residence
and/or place of business, copy furnished the Revenue District Officer having jurisdiction over his new
legal residence or place of business, the Revenue Computer Center and the Receivable Accounts
Division, BIR, National Office, Quezon City, and in case of failure to do so, any communication referred
to in these regulations previously sent to his former legal residence or business address as appear in is
tax return for the period involved shall be considered valid and binding for purposes of the period within
which to reply.

It is true that, under Section 223 of the Tax Reform Act of 1997, the running of the Statute of Limitations
provided under the provisions of Sections 203 and 222 of the same Act shall be suspended when the
taxpayer cannot be located in the address given by him in the return filed upon which a tax is being
assessed or collected. In addition, Section 11 of Revenue Regulation No. 12-85 states that, in case of
change of address, the taxpayer is required to give a written notice thereof to the Revenue District
Officer or the district having jurisdiction over his former legal residence and/or place of business.
However, this Court agrees with both the CTA Special First Division and the CTA En Banc in their ruling
that the above mentioned provisions on the suspension of the three-year period to assess apply only if
the BIR Commissioner is not aware of the whereabouts of the taxpayer.
In the present case, petitioner, by all indications, is well aware that respondent had moved to its new
address in Calamba, Laguna, as shown by the following documents which form partof respondent's
records with the BIR:

1) Checklist on Income Tax/Withholding Tax/Documentary Stamp Tax/Value-Added Tax and Other

Percentage Taxes;17

2) General Information (BIR Form No. 23-02);18

3) Report on Taxpayer's Delinquent Account, dated June 27, 2002;19

4) Activity Report, dated October 17, 2002;20

5) Memorandum Report of Examiner, dated June 27, 2002;21

6) Revenue Officer's Audit Report on Income Tax;22

7) Revenue Officer's Audit Report on Value-Added Tax;23

8) Revenue Officer's Audit Report on Compensation Withholding Taxes;24

9) Revenue Officer's Audit Report on Expanded Withholding Taxes;25

10) Revenue Officer's Audit Report on Documentary Stamp Taxes.26

The above documents, all of which were accomplished and signed by officers of the BIR, clearly show
that respondent's address is at Carmelray Industrial Park, Canlubang, Calamba, Laguna. The CTA also
found that BIR officers, at various times prior to the issuance of the subject FAN, conducted examination
and investigation of respondent's tax liabilities for 1999 at the latter's new address in Laguna as
evidenced by the following, in addition to the above mentioned records:

1) Letter, dated September 27, 2001, signed by Revenue Officer I Eugene R. Garcia;27

2) Final Request for Presentation of Records Before Subpoena Duces Tecum, dated March 20, 2002,
signed by Revenue Officer I Eugene R. Garcia.28

Moreover, the CTA found that, based on records, the RDO sent respondent a letter dated April 24, 2002
informing the latter of the results of their investigation and inviting it to an informal
conference.29 Subsequently, the RDO also sent respondent another letter dated May 30, 2002,
acknowledging receipt of the latter's reply to his April 24, 2002 letter.30 These two letters were sent to
respondent's new address in Laguna. Had the RDO not been informed or was not aware of respondent's
new address, he could not have sent the said letters to the said address.

Furthermore, petitioner should have been alerted by the fact that prior to mailing the FAN, petitioner
sent to respondent's old address a Preliminary Assessment Notice but it was "returned to sender." This
was testified to by petitioner's Revenue Officer II at its Revenue District Office 39 in Quezon City.31 Yet,
despite this occurrence, petitioner still insisted in mailing the FAN to respondent's old address.
Hence, despite the absence of a formal written notice of respondent's change of address, the fact
remains that petitioner became aware of respondent's new address as shown by documents replete in
its records. As a consequence, the running of the three-year period to assess respondent was not
suspended and has already prescribed.

It bears stressing that, in a number of cases, this Court has explained that the statute of limitations on
the collection of taxes primarily benefits the taxpayer. In these cases, the Court exemplified the
detrimental effects that the delay in the assessment and collection of taxes inflicts upon the taxpayers.
Thus, in Commissioner of Internal Revenue v. Philippine Global Communication, Inc.,32 this Court echoed
Justice Montemayor's disquisition in his dissenting opinion in Collector of Internal Revenue v. Suyoc
Consolidated Mining Company,33 regarding the potential loss to the taxpayer if the assessment and
collection of taxes are not promptly made, thus:

Prescription in the assessment and in the collection of taxes is provided by the Legislature for the
benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the
collection of taxes, so that the agency charged with the assessment and collection may not tarry too
long or indefinitely tothe prejudice of the interests of the Government, which needs taxes to run it; and
for the taxpayer so that within a reasonable time after filing his return, hemay know the amount of the
assessment he is required to pay, whether or not such assessment is well founded and reasonable so
that he may either pay the amount of the assessment or contest its validity incourt x x x. It would surely
be prejudicial to the interest of the taxpayer for the Government collecting agency to unduly delay the
assessment and the collection because by the time the collecting agency finally gets around to making
the assessment or making the collection, the taxpayer may then have lost his papers and books to
support his claim and contest that of the Government, and what is more, the tax is in the meantime
accumulating interest which the taxpayer eventually has to pay.34

Likewise, in Republic of the Philippines v. Ablaza,35 this Court elucidated that the prescriptive period for
the filing of actions for collection of taxes is justified by the need to protect law-abiding citizens from
possible harassment. Also, in Bank of the Philippine Islands v. Commissioner of Internal Revenue,36 it
was held that the statute of limitations on the assessment and collection of taxes is principally intended
to afford protection to the taxpayer against unreasonable investigations as the indefinite extension of
the period for assessment deprives the taxpayer of the assurance that he will no longer be subjected to
further investigation for taxes after the expiration of a reasonable period of time. Thus, in Commissioner
of Internal Revenue v. B.F. Goodrich Phils., Inc.,37 this Court ruled that the legal provisions on
prescription should be liberally construed to protect taxpayers and that, as a corollary, the exceptions to
the rule on prescription should be strictly construed.

It might not also be amiss to point out that petitioner's issuance of the First Notice Before Issuance of
Warrant of Distraint and Levy38 violated respondent's right to due process because no valid notice of
assessment was sent to it. An invalid assessment bears no valid fruit. The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle inadministrative investigations: that taxpayers
should be able to present their case and adduce supporting evidence.39 In the instant case, respondent
has not properly been informed of the basis of its tax liabilities. Without complying with the unequivocal
mandate of first informing the taxpayer of the government’s claim, there can be no deprivation of
property, because no effective protest can be made.

It is true that taxes are the lifeblood of the government. However, in spite of all its plenitude, the power
to tax has its limits.40 Thus, in Commissioner of Internal Revenue v. Algue, Inc.,41 this Court held:

Taxes are the lifeblood of the government and so should be collected without unnecessary
hindrance.1âwphi1 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.

xxxx

It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate and operate it. Hence, despite the natural
reluctance to surrender part of one’s hard-earned income to taxing authorities, every person who is able
to must contribute his share in the running of the government. The government for its partis expected
torespond in the form of tangible and intangible benefits intended to improve the lives of the people
and enhance their moral and material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.

But even as we concede the inevitability and indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. If
it is not, then the taxpayer has a right to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the taxpayer can
demonstrate x x x that the law has not been observed.42

It is an elementary rule enshrined in the 1987 Constitution that no person shall be deprived of property
without due process of law. In balancing the scales between the power of the State to tax and its
inherent right to prosecute perceived transgressors of the law on one side, and the constitutional rights
of a citizen todue process of law and the equal protection of the laws on the other, the scales must tilt in
favor of the individual, for a citizen’s right is amply protected by the Bill of Rights under the
Constitution.43

As to the second assigned error, petitioner's reliance on the provisions of Section 3.1.7 of BIR Revenue
Regulation No. 12-9944 as well as on the case of Nava v. Commissioner of Internal Revenue45 is
misplaced, because in the said case, one of the requirements ofa valid assessment notice is that the
letter or notice must be properly addressed. It is not enough that the notice is sent by registered mail as
provided under the said Revenue Regulation. In the instant case, the FAN was sent tothe wrong address.
Thus, the CTA is correct in holding that the FAN never attained finality because respondent never
received it, either actually or constructively.
WHEREFORE, the instant petition is DENIED. The Decision of the Court of Tax Appeals En Banc, dated
June 16, 2011, and its Resolution dated September 16, 2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125),
are AFFIRMED.

SO ORDERED.

DIOSDADO M. PERALTA
THIRD DIVISION

G.R. No. 193100, December 10, 2014

SAMAR-I ELECTRIC COOPERATIVE, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

VILLARAMA, JR., J.:

At bar is a petition for review on certiorari of the Decision1 of the Court of Tax Appeals En Banc (CTA EB)
dated March 11, 2010 and its Resolution2 dated July 28, 2010 in C.T.A. EB Nos. 460 and 462 (C.T.A. Case
No. 6697) affirming the May 27, 2008 Decision3 and the January 19, 2009 Amended Decision4 of the
CTA’s First Division, and ordering petitioner to pay respondent Commissioner of Internal Revenue (CIR)
deficiency withholding tax on compensation in the aggregate amount of P2,690,850.91, plus 20%
interest starting September 30, 2002, until fully paid, pursuant to Section 249(c) of the National Internal
Revenue Code (NIRC) of 1997.

The following facts are undisputed as found by the CTA’s First Division and adopted by the CTA
EB:chanroblesvirtuallawlibrary

Samar-I Electric Cooperative, Inc. (Petitioner) is an electric cooperative, with principal office at Barangay
Carayman, Calbayog City. It was issued a Certificate of Registration by the National Electrification
Administration (NEA) on February 27, 1974 pursuant to Presidential Decree (PD) 269. Likewise, it was
granted a Certificate of Provisional Registration under Republic Act (RA) 6938, otherwise known as the
Cooperative Code of the Philippines on March 16, 1993, by the Cooperative Development Authority
(CDA).

Respondent Commissioner of Internal Revenue is a public officer authorized under the National Internal
Revenue Code (NIRC) to examine any taxpayer including inter alia, the power to issue tax assessment,
evaluate, and decide upon protests relative thereto.

On July 13, 1999 and April 17, 2000, petitioner filed its 1998 and 1999 income tax returns, respectively.
Petitioner filed its 1997, 1998, and 1999 Annual Information Return of Income Tax Withheld on
Compensation, Expanded and Final Withholding Taxes on February 17, 1998, February 1, 1999, and
February 4, 2000, in that order.

On November 13, 2000, respondent issued a duly signed Letter of Authority (LOA) No. 1998 00023803;
covering the examination of petitioner’s books of account and other accounting records for income and
withholding taxes for the period 1997 to 1999. The LOA was received by petitioner on November 14,
2000.

Petitioner cooperated in the audit and investigation conducted by the Special Investigation Division of
the BIR by submitting the required documents on December 5, 2000.

On October 19, 2001, respondent sent a Notice for Informal Conference which was received by
petitioner in November 2001; indicating the allegedly income and withholding tax liabilities of petitioner
for 1997 to 1999. Attached to the letter is a summary of the report, with an explanation of the findings
of the investigators.

In response, petitioner sent a letter dated November 26, 2001 to respondent maintaining its
indifference to the latter’s findings and requesting details of the assessment.

On December 13, 2001, petitioner executed a Waiver of the Defense of Prescription under the Statute of
Limitations, good until March 29, 2002.

On February 27, 2002, a letter was sent by petitioner to respondent requesting a detailed computation
of the alleged 1997, 1998 and 1999 deficiency withholding tax on compensation.

On February 28, 2002, respondent issued a Preliminary Assessment Notice (PAN). The PAN was received
by petitioner on April 9, 2002, which was protested on April 18, 2002. Respondent’s Reply dated May
27, 2002, contained the explanation of the legal basis of the issuance of the questioned tax assessments.

However, on July 8, 2002, respondent dismissed petitioner’s protest and recommended the issuance of
a Final Assessment Notice.

Consequently, on September 15, 2002, petitioner received a demand letter and assessments notices
(Final Assessment Notices) for the alleged 1997, 1998, and 1999 deficiency withholding tax in the
amount of [P]3,760,225.69, as well as deficiency income tax covering the years 1998 to 1999 in the
amount of [P]440,545.71, or in the aggregate amount of [P]4,200,771.40.

Petitioner filed its protest and Supplemental Protest to the Final Assessment Notices on October 14,
2002 and November 4, 2002, respectively. But on the Final Decision on Disputed Assessment issued on
April 10, 2003, petitioner was still held liable for the alleged tax liabilities.5

The CTA EB narrates the following succeeding events:chanroblesvirtuallawlibrary

On May 29, 2003, the Petition for Review was filed by SAMELCO-I with the Court in division.

On May 27, 2008, the assailed Decision partially granting SAMELCO-I’s petition was promulgated.
Dissatisfied, both parties sought reconsideration of the said decision. CIR filed the “Motion for Partial
Reconsideration (Re: Decision dated 27 May 2008[)]” on June 13, 2008. On the other hand, SAMELCO-I’s
“Motion for Reconsideration” was filed on June 17, 2008.

On January 19, 2009, the Court in division promulgated its Amended Decision which denied CIR’s motion
and partially granted SAMELCO-I’s motion.

Thereafter, CIR and SAMELCO-I filed their “Motion for Extension of Time to File Petition for Review” on
February 6, 2009 and February 11, 2009, respectively. Both motions were granted by the Court.6

The following issues were raised by the parties in their petitions for review before the CTA EB. In C.T.A.
EB 460, herein respondent CIR raised the following grounds:chanroblesvirtuallawlibrary

I. Whether or not SAMELCO-I is entitled to tax privileges accorded to members in accordance with
Republic Act No. 6938, or the Cooperative Code, or to privileges of Presidential Decree (PD) No.
269.

II. Whether or not SAMELCO-I is liable for the minimum corporate income tax (MCIT) for taxable
years 1998 to 1999.

III. Whether or not SAMELCO-I is liable to pay the total deficiency expanded withholding tax of
[P]3,760,225.69 for taxable years 1997 to 1999.7

On the other hand, petitioner SAMELCO-I raised the following legal and factual errors in C.T.A. EB No.
462, viz.:chanroblesvirtuallawlibrary

I. The Court in Division gravely erred in holding that the 1997 and 1998 assessments on
withholding tax on compensation (received by SAMELCO-I on September 15, 2002), have not
prescribed even if the waiver validly executed was good only until March 29, 2002.

II. The Court in Division erred in holding that CIR can validly assess within the ten (10)-year
prescriptive period even if the notice of informal conference, PAN, formal letter of demand, and
assessment notice mention not a word that the BIR is invoking Section 222 (a) of the 1997 Tax
Code [then Sec. 223, NIRC], due to alleged false withholding tax returns filed by [SAMELCO-I] as
the same assertions were mere afterthought to justify application of the 10-year prescriptive
period to assess.

III. The Court in Division failed to consider that CIR made no findings as to SAMELCO-I’s filing of a
false return as clearly manifested by the non-imposition of 50% surcharge on the 1997, 1998
and 1999 basic withholding tax deficiency in the PAN, demand notice and even in the
assessment notice other than interest charges.

IV. The Court in Division erred in not holding that given SAMELCO-I’s filing of its 1997, 1998, and
1999 withholding tax returns in good faith, and in close consultation with the BIR personnel in
 Calbayog City where SAMELCO-I’s place of business is located, the latter should no longer be
imposed the incremental penalties (surcharge and interest).

V. The Court in Division failed to rule that since there was no substantial under remittance of 1998
withholding tax as the basic deficiency tax per amended decision is less than 30% of the
computed total tax due per return, SAMELCO-I did not file a false return.

VI. The Court in Division overlooked the fact that for taxable year 1999, [SAMELCO-I] remitted the
amount of [P]844,958.00 as withholding tax in compensation instead of [P]786,702.43 as
indicated in Page 8, Annex C of the CTA (1st Division) Decision.

VII. The Court in Division erred in failing to declare as void both the formal letter of demand and
assessment notice on withholding tax on compensation for 1997 taxable year, given its non-
compliance with Section 3.1.4 of RR 12-99.8

On February 26, 2009, the CTA EB consolidated both cases. After the filing of the respective Comments
of both parties, the cases were deemed submitted for decision. The CTA EB found that the issues and
arguments raised by the parties were “mere reiterations of what have been considered and passed
upon by the Court in division in the assailed Decision and the Amended Decision.”9 It ruled that
SAMELCO-I is exempted in the payment of the Minimum Corporate Income Tax (MCIT); that due process
was observed in the issuance of the assessments in accordance with Section 228 of the Tax Code; and
that the 1997 and 1998 assessments on deficiency withholding tax on compensation have not
prescribed. Finding no reversible error in the Decision and the Amended Decision, the CTA EB
ruled, viz.:chanroblesvirtuallawlibrary

WHEREFORE, premises considered, We deny the petitions for lack of merit. Accordingly, We AFFIRM the
May 27, 2008 Decision and the January 19, 2009 Amended Decision promulgated by the First Division of
this Court.

SO ORDERED.10

Petitioner moved for reconsideration. In a Resolution dated July 28, 2010, the CTA EB denied the
motion. Petitioner now comes to this Court raising the following assignment of
errors:chanroblesvirtuallawlibrary

A. The Honorable CTA En Banc gravely erred in holding that respondent sufficiently complied with the
due process requirements mandated by Section 228 of the 1997 Tax Code in the issuance of 1997-1999
assessments to petitioner, even if the details of discrepancies on which the assessments were factually
and legally based as required under Section 3.1.4 of Revenue Regulations (RR) No[.] 12-99, were not
found in the Formal Letter of Demand and Final Assessment Notice (FAN) sent to petitioner, in clear
violation of the doctrine established in the case of Commissioner of Internal Revenue vs. Enron Subic
Power Corporation, G.R. No. 166387, January 19, 2009, applying Section 3.1.4 of RR 12-99 in relation to
Section 228 NIRC.
B. The Honorable CTA En Banc erred in holding that respondent observed due process notwithstanding
the missing Annex “A-1” that was meant to show Details of Discrepancies and to be attached to BIR’s
Letter of Demand/Final Notice dated September 15, 2002, which was not furnished to petitioner and
worse, a file copy of which is not even found in the BIR records as part of its Exhibit “16” and neither is
the same found in the CTA records.

C. In deciding that the 1997 and 1998 withholding tax assessments have not yet prescribed, the
Honorable CTA En Banc failed to consider the singular significance of the Waiver of the Defense of
Prescription validly agreed upon and executed by the parties.

D. The Honorable CTA En Banc erred in holding that respondent can validly assess within the ten (10)-
year prescriptive period even if the Notice of Informal Conference, PAN, and Final Letter of Demand
(dated September 15, 2002), mentioned not a word as to the falsity of the returns filed by petitioner,
but as an afterthought that was raised rather belatedly only in the Answer and during the trial.

E. The Honorable CTA En Banc erred in holding as valid the 1997 deficiency withholding tax assessment
being anchored on RR 2-98 (as cited in Notice of Informal Conference and PAN), as the said RR 2-98
governs compensation income paid beginning January 1, 1998.11

We shall resolve the instant controversy by discussing the following two main issues in seriatim:
whether the 1997 and 1998 assessments on withholding tax on compensation were issued within the
prescriptive period provided by law; and whether the assessments were issued in accordance with
Section 228 of the NIRC of 1997.

On the issue of prescription, petitioner contends that the subject 1997 and 1998 withholding tax
assessments on compensation were issued beyond the prescriptive period of three years under Section
203 of the NIRC of 1997. Under this section, the government is allowed a period of only three years to
assess the correct tax liability of a taxpayer, viz.:chanroblesvirtuallawlibrary

SEC. 203. Period of Limitation Upon Assessment and Collection. – Except as provided in Section 222,
internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for
the filing of the return, and no proceeding in court without assessment for the collection of such taxes
shall be begun after the expiration of such period: Provided, That in a case where a return is filed
beyond the period prescribed by law, the three (3)-year period shall be counted from the day the return
was filed. For purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.

Relying on Section 203, petitioner argues that the subject deficiency tax assessments issued by
respondent on September 15, 2002 was issued beyond the three-year prescriptive period. Petitioner
filed its Annual Information Return of Income Tax Withheld on Compensation, Expanded and Final
Withholding Taxes on the following dates: on February 17, 1998 for the taxable year 1997; and on
February 1, 1999 for the year taxable 1998. Thus, if the period prescribed under Section 203 of the NIRC
of 1997 is to be followed, the three-year prescriptive period to assess for the taxable years 1997 and
1998 should have ended on February 16, 2001 and January 31, 2002, respectively.

We disagree.

While petitioner is correct that Section 203 sets the three-year prescriptive period to assess, the
following exceptions are provided under Section 222 of the NIRC of
1997, viz.:chanroblesvirtuallawlibrary

SEC. 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 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 ten (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 the 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 the
Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be
assessed within the period agreed upon. The period so agreed upon may be extended by subsequent
written agreement made before the expiration of the period previously agreed upon.

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

(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court within the
period agreed upon in writing before the expiration of the five (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 and investigation or inquiry into any tax return filed in
accordance with the provisions of any tax amnesty law or decree. (Emphasis supplied.)

In the case at bar, it was petitioner’s substantial underdeclaration of withholding taxes in the amount of
P2,690,850.91 which constituted the “falsity” in the subject returns – giving respondent the benefit of
the period under Section 222 of the NIRC of 1997 to assess the correct amount of tax “at any time within
ten (10) years after the discovery of the falsity, fraud or omission.”12

The case of Aznar v. Court of Tax Appeals13 discusses what acts or omissions may constitute
falsity, viz.:chanroblesvirtuallawlibrary
Petitioner argues that Sec. 332 of the NIRC does not apply because the taxpayer did not file false and
fraudulent returns with intent to evade tax, while respondent Commissioner of Internal Revenue insists
contrariwise, with respondent Court of Tax Appeals concluding that the very “substantial
underdeclarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence
of the income tax returns with an intent to evade the payment of tax.”

To our minds we can dispense with these controversial arguments on facts, although we do not deny
that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial
evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. We
believe that the proper and reasonable interpretation of said provision should be that in the three
different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) failure to file a
return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun
without assessment, at any time within ten years after the discovery of the (1) falsity, (2) fraud, (3)
omission. Our stand that the law should be interpreted to mean a separation of the three different
situations of false return, fraudulent return with intent to evade tax, and failure to file a return is
strengthened immeasurably by the last portion of the provision which segregates the situations into
three different classes, namely “falsity,” “fraud” and “omission.” That there is a difference between
“false return” and “fraudulent return” cannot be denied. While the first merely implies deviation from
the truth, whether intentional or not, the second implies intentional or deceitful entry with intent to
evade the taxes due.

The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the
NIRC should be applicable to normal circumstances, but whenever the government is placed at a
disadvantage so as to prevent its lawful agents from proper assessment of tax liabilities due to false
returns, fraudulent return intended to evade payment of tax or failure to file returns, the period of ten
years provided for in Sec. 332 (a) NIRC, from the time of the discovery of the falsity, fraud or omission
even seems to be inadequate and should be the one enforced.

There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court
of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which
to assess petitioner’s tax liability had not expired at the time said assessment was made.14

A careful examination of the evidence on record yields to no other conclusion but that petitioner failed
to withhold taxes from its employees’ 13th month pay and other benefits in excess of thirty thousand
pesos (P30,000.00) amounting to P2,690,850.91 for the taxable years 1997 to 1999 – resulting to its
filing of the subject false returns. Petitioner failed to refute this finding, both in fact and in law, before
the courts a quo.

We quote the following portion of the assailed Decision of the CTA EB, viz.:chanroblesvirtuallawlibrary

It is noteworthy to mention that during the trial, the witness for the CIR testified that SAMELCO-I did not
file an accurate return, as follows:
ATTY. FRANCIA:

Q: Did the petitioner file an accurate Return?

MS. RAPATAN:

A: No.

ATTY. FRANCIA:

Q: Can you please explain?

MS. RAPATAN:

A: Because I based the computation of my deficiency withholding taxes on declared taxable income
per alpha list submitted then, I have extracted a data from the Alpha List, particularly that of the
manager and other officials, only their basic salary and their overtime pay were declared but the
other benefits were not actually subjected to withholding tax. So, the deficiency withholding taxes
from the taxes on the taxable 13th month pay and other benefits in excess of the [P]12,000.00 for
1997 and for the taxable years 1998 and 1999, in excess of the [P]30,000.00. I also noticed that the
per diem of the Manager was not included in the withholding tax computation of SAMELCO[-]I.

ATTY. FRANCIA:

Nothing further, your Honors.

JUSTICE BAUTISTA:

Any re-cross?

ATTY. NAPUTO:

No re-cross, your Honors.15

We have consistently held that courts will not interfere in matters which are addressed to the sound
discretion of the government agency entrusted with the regulation of activities coming under its special
and technical training and knowledge.16 The findings of fact of these quasi-judicial agencies are generally
accorded respect and even finality as long as they are supported by substantial evidence – in recognition
of their expertise on the specific matters under their consideration.17 In the case at bar, petitioner failed
to proffer convincing argument and evidence that would persuade us to disturb the factual findings of
the CTA First Division, as affirmed by the CTA EB. As such, we cannot but affirm the finding of
petitioner’s substantial underdeclaration of withholding taxes in the amount of P2,690,850.91 which
constituted the “falsity” in the subject returns.

Anent the issue of violation of due process in the issuance of the final notice of assessment and letter of
demand, Section 228 of the NIRC of 1997 provides:chanroblesvirtuallawlibrary
SEC. 228. Protesting of Assessment. – x x x

xxxx

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

Petitioner contends that as the Final Demand Letter and Assessment Notices (FAN) were silent as to the
nature and basis of the assessments, it was denied due process,18 and the assessments must be declared
void. It likewise invokes Revenue Regulations (RR) No. 12-99 which
states, viz.:chanroblesvirtuallawlibrary

3.1.4 Formal Letter of Demand and Assessment Notice. – The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand
calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand
and assessment notice shall be void . The same shall be sent to the taxpayer only by registered mail or
by personal delivery. x x x

We uphold the assessments issued to petitioner.

Both Section 228 of the NIRC of 1997 and Section 3.1.4 of RR No. 12-99 clearly require the written
details on the nature, factual and legal bases of the subject deficiency tax assessments. The reason for
the mandatory nature of this requirement is explained in the case of Commissioner of Internal Revenue
v. Reyes:19

A void assessment bears no valid fruit.

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

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals
the lack of basis for – not to mention the insufficiency of – the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot countenance an assessment based
on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection “should be made in accordance with law as
any arbitrariness will negate the very reason for government itself.” (Emphasis supplied; citations
omitted)

In Commissioner of Internal Revenue v. Enron Subic Power Corporation,20 we held that the law requires
that the legal and factual bases of the assessment be stated in the formal letter of demand and
assessment notice, and that the alleged “factual bases” in the advice, preliminary letter and “audit
working papers” did not suffice. Thus:chanroblesvirtuallawlibrary

Both the CTA and the CA concluded that the deficiency tax assessment merely itemized the deductions
disallowed and included these in the gross income. It also imposed the preferential rate of 5% on some
items categorized by Enron as costs. The legal and factual bases were, however, not indicated.

The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax
deficiency. During the pre-assessment stage, the CIR advised Enron’s representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter
and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual
bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts
on which the deficiency tax assessment was based.

We disagree. The advice of tax deficiency, given by the CIR to an employee of Enron, as well as the
preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of the legal
and factual bases of the assessment.These steps were mere perfunctory discharges of the CIR’s duties
in correctly assessing a taxpayer. The requirement for issuing a preliminary or final notice, as the case
may be, informing a taxpayer of the existence of a deficiency tax assessment is markedly different from
the requirement of what such notice must contain. Just because the CIR issued an advice, a preliminary
letter during the pre-assessment stage and a final notice, in the order required by law, does not
necessarily mean that Enron was informed of the law and facts on which the deficiency tax
assessment was made.21 (Emphasis supplied)

In this case, we agree with the respondent that petitioner was sufficiently apprised of the nature, factual
and legal bases, as well as how the deficiency taxes being assessed against it were computed. Records
reveal that on October 19, 2001, prior to the conduct of an informal conference, petitioner was already
informed of the results and findings of the investigations made by the respondent, and was duly
furnished with a copy of the summary of the report submitted by Revenue Officer Elisa G. Ponferrada-
Rapatan of the Special Investigation Division. Said summary report contained an explanation of Findings
of Investigation stating the legal and factual bases for the deficiency assessment. In a letter dated
February 27, 2002 petitioner requested for copies of working papers indicating how the deficiency
withholding taxes were computed.22 Respondent promptly responded in a letter-reply dated February
28, 2002 stating:chanroblesvirtuallawlibrary

please be informed that the cooperative’s deficiency withholding taxes on compensation were due to
the failure of the cooperative to withhold taxes on the taxable 13th month pay and other benefits in
excess of P30,000.00 threshold pursuant to Section 3 of Revenue Regulation No. 2-95 implementing
Republic Act No. 7833 and Section 2.78/1 B 11 of Revenue Regulation 2-98 implementing Section 32 B e
of Republic Act No. 8424. Further, we are providing you hereunder the computational format on how
deficiency withholding taxes were computed and sample computation from our working papers, for
your information and guidance.23

On April 9, 2002, petitioner received the PAN dated February 28, 2002 which contained the
computations of its deficiency income and withholding taxes. Attached to the PAN was the detailed
explanation of the particular provision of law and revenue regulation violated,
thus:chanroblesvirtuallawlibrary

DETAILS OF DISCREPANCIES

1. Deficiency income taxes for 1998 and 1999 respectively result from non-payment of the
minimum corporate income tax (MCIT) imposed pursuant to Section 27(E) of the 1997 Tax
Reform Act.

2. Deficiency Withholding Taxes on Compensation for 1997-1999 are the total withholding taxes
on compensation of all employees of SAMELCO[-]I resulting from failure of employer to
withhold taxes on the taxable 13th month pay and other benefits in excess of [P]30,000.00
threshold pursuant to Revenue Regulation 2-98.24

The above information provided to petitioner enabled it to protest the PAN by questioning respondent’s
interpretation of the laws cited as legal basis for the computation of the deficiency withholding taxes
and assessment of minimum corporate income tax despite petitioner’s position that it remains exempt
therefrom.25 In its letter-reply dated May 27, 2002, respondent answered the arguments raised by
petitioner in its protest, and requested it to pay the assessed deficiency on the date of payment stated
in the PAN. A second protest letter dated June 23, 2002 was sent by petitioner, to which respondent
replied (letter dated July 8, 2002) answering each of the two issues reiterated by petitioner: (1) validity
of EO 93 withdrawing the tax exemption privileges under PD 269; and (2) retroactive application of RR
No. 8-2000.26 The FAN was finally received by petitioner on September 24, 2002, and protested by it in a
letter dated October 14, 2002 which reiterated in lengthy arguments its earlier interpretation of the
laws and regulations upon which the assessments were based.27

Although the FAN and demand letter issued to petitioner were not accompanied by a written
explanation of the legal and factual bases of the deficiency taxes assessed against the petitioner, the
records showed that respondent in its letter dated April 10, 2003 responded to petitioner’s October 14,
2002 letter-protest, explaining at length the factual and legal bases of the deficiency tax assessments
and denying the protest.28

Considering the foregoing exchange of correspondence and documents between the parties, we find
that the requirement of Section 228 was substantially complied with. Respondent had fully informed
petitioner in writing of the factual and legal bases of the deficiency taxes assessment, which enabled the
latter to file an “effective” protest, much unlike the taxpayer’s situation in Enron. Petitioner’s right to
due process was thus not violated.

WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of the Court of Tax
Appeals En Banc dated March 11, 2010 and July 28, 2010, respectively, in C.T.A. EB Nos. 460 and 462
(C.T.A. Case No. 6697), are hereby AFFIRMED and UPHELD.

With costs against the petitioner.

SO ORDERED.
SECOND DIVISION

G.R. No. L-41919-24 May 30, 1980

QUIRICO P. UNGAB, petitioner,

vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of First Instance, Branch 1, 16TH
Judicial District, Davao City, THE COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in his
capacity as State Prosecutor, respondents.

CONCEPCION JR., J:

Petition for certiorari and prohibition with preliminary injunction and restraining order to annul and set
aside the informations filed in Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court
of First Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus Quirico Ungab,
accused;" and to restrain the respondent Judge from further proceeding with the hearing and trial of the
said cases.

It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia examined the income tax returns
filed by the herein petitioner, Quirico P. Ungab, for the calendar year ending December 31, 1973. In the
course of his examination, he discovered that the petitioner failed to report his income derived from
sales of banana saplings. As a result, the BIR District Revenue Officer at Davao City sent a "Notice of
Taxpayer" to the petitioner informing him that there is due from him (petitioner) the amount of
P104,980.81, representing income, business tax and forest charges for the year 1973 and inviting
petitioner to an informal conference where the petitioner, duly assisted by counsel, may present his
objections to the findings of the BIR Examiner. 1 Upon receipt of the notice, the petitioner wrote the BIR
District Revenue Officer protesting the assessment, claiming that he was only a dealer or agent on
commission basis in the banana sapling business and that his income, as reported in his income tax
returns for the said year, was accurately stated. BIR Examiner Ben Garcia, however, was fully convinced
that the petitioner had filed a fraudulent income tax return so that he submitted a "Fraud Referral
Report," to the Tax Fraud Unit of the Bureau of Internal Revenue. After examining the records of the
case, the Special Investigation Division of the Bureau of Internal Revenue found sufficient proof that the
herein petitioner is guilty of tax evasion for the taxable year 1973 and recommended his
prosecution: têñ.£îhqwâ£

(1) For having filed a false or fraudulent income tax return for 1973 with intent to evade his just taxes
due the government under Section 45 in relation to Section 72 of the National Internal Revenue Code;

(2) For failure to pay a fixed annual tax of P50.00 a year in 1973 and 1974, or a total of unpaid fixed
taxes of P100.00 plus penalties of 175.00 or a total of P175.00, in accordance with Section 183 of the
National Internal Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer of banana poles or saplings, on the total sales
of P129,580.35 to the Davao Fruit Corporation, depriving thereby the government of its due revenue in
the amount of P15,872.59, inclusive of surcharge. 2

In a second indorsement to the Chief of the Prosecution Division, dated December 12, 1974, the
Commissioner of Internal Revenue approved the prosecution of the petitioner. 3

Thereafter, State Prosecutor Jesus Acebes who had been designated to assist all Provincial and City
Fiscals throughout the Philippines in the investigation and prosecution, if the evidence warrants, of all
violations of the National Internal Revenue Code, as amended, and other related laws, in Administrative
Order No. 116 dated December 5, 1974, and to whom the case was assigned, conducted a preliminary
investigation of the case, and finding probable cause, filed six (6) informations against the petitioner
with the Court of First Instance of Davao City, to wit: têñ.£îhqwâ£

(1) Criminal Case No. 1960 — Violation of Sec. 45, in relation to Sec. 72 of the National Internal-Revenue
Code, for filing a fraudulent income tax return for the calendar year ending December 31, 1973; 4

(2) Criminal Case No. 1961 — Violation of Sec. 182 (a), in relation to Secs. 178, 186, and 208 of the
National Internal Revenue Code, for engaging in business as producer of saplings, from January, 1973 to
December, 1973, without first paying the annual fixed or privilege tax thereof; 5

(3) Criminal Case No. 1962 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of banana saplings and to pay the percentage tax due
thereon, for the quarter ending December 31, 1973; 6

(4) Criminal Case No. 1963 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales
receipts and earnings in his business as producer of saplings, and to pay the percentage tax due thereon,
for the quarter ending on March 31, 1973; 7

(5) Criminal Case No. 1964 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales,
receipts and earnings in his business as producer of banana saplings for the quarter ending on June 30,
1973, and to pay the percentage tax due thereon; 8

(6) Criminal Case No. 1965 — Violation of Sec. 183 (a), in relation to Secs. 186 and 209 of the National
Internal Revenue Code, for failure to render a true and complete return on the gross quarterly sales,
receipts and earnings as producer of banana saplings, for the quarter ending on September 30, 1973,
and to pay the percentage tax due thereon. 9

On September 16, 1975, the petitioner filed a motion to quash the informations upon the grounds that:
(1) the informations are null and void for want of authority on the part of the State Prosecutor to initiate
and prosecute the said cases; and (2) the trial court has no jurisdiction to take cognizance of the above-
entitled cases in view of his pending protest against the assessment made by the BIR
Examiner. 10 However, the trial court denied the motion on October 22, 1975. 11 Whereupon, the
petitioner filed the instant recourse. As prayed for, a temporary restraining order was issued by the
Court, ordering the respondent Judge from further proceeding with the trial and hearing of Criminal
Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First Instance of Davao, all
entitled: "People of the Philippines, plaintiff, versus Quirico Ungab, accused."

The petitioner seeks the annulment of the informations filed against him on the ground that the
respondent State Prosecutor is allegedly without authority to do so. The petitioner argues that while the
respondent State Prosecutor may initiate the investigation of and prosecute crimes and violations of
penal laws when duly authorized, certain requisites, enumerated by this Court in its decision in the case
of Estrella vs. Orendain, 12 should be observed before such authority may be exercised; otherwise, the
provisions of the Charter of Davao City on the functions and powers of the City Fiscal will be
meaningless because according to said charter he has charge of the prosecution of all crimes committed
within his jurisdiction; and since "appropriate circumstances are not extant to warrant the intervention
of the State Prosecution to initiate the investigation, sign the informations and prosecute these cases,
said informations are null and void." The ruling adverted to by the petitioner reads, as
follows: têñ.£îhqwâ£

In view of all the foregoing considerations, it is the ruling of this Court that under Sections 1679 and
1686 of the Revised Administrative Code, in any instance where a provincial or city fiscal fails, refuses or
is unable, for any reason, to investigate or prosecute a case and, in the opinion of the Secretary of
Justice it is advisable in the public interest to take a different course of action, the Secretary of Justice
may either appoint as acting provincial or city fiscal to handle the investigation or prosecution
exclusively and only of such case, any practicing attorney or some competent officer of the Department
of Justice or office of any city or provincial fiscal, with complete authority to act therein in all respects as
if he were the provincial or city fiscal himself, or appoint any lawyer in the government service,
temporarily to assist such city of provincial fiscal in the discharge of his duties, with the same complete
authority to act independently of and for such city or provincial fiscal provided that no such
appointment may be made without first hearing the fiscal concerned and never after the corresponding
information has already been filed with the court by the corresponding city or provincial fiscal without
the conformity of the latter, except when it can be patently shown to the court having cognizance of the
case that said fiscal is intent on prejudicing the interests of justice. The same sphere of authority is true
with the prosecutor directed and authorized under Section 3 of Republic Act 3783, as amended and/or
inserted by Republic Act 5184. The observation in Salcedo vs. Liwag, supra, regarding the nature of the
power of the Secretary of Justice over fiscals as being purely over administrative matters only was not
really necessary, as indicated in the above relation of the facts and discussion of the legal issues of said
case, for the resolution thereof. In any event, to any extent that the opinion therein may be inconsistent
herewith the same is hereby modified.

The contention is without merit. Contrary to the petitioner's claim, the rule therein established had not
been violated. The respondent State Prosecutor, although believing that he can proceed independently
of the City Fiscal in the investigation and prosecution of these cases, first sought permission from the
City Fiscal of Davao City before he started the preliminary investigation of these cases, and the City
Fiscal, after being shown Administrative Order No. 116, dated December 5, 1974, designating the said
State Prosecutor to assist all Provincial and City fiscals throughout the Philippines in the investigation
and prosecution of all violations of the National Internal Revenue Code, as amended, and other related
laws, graciously allowed the respondent State Prosecutor to conduct the investigation of said cases, and
in fact, said investigation was conducted in the office of the City Fiscal. 13

The petitioner also claims that the filing of the informations was precipitate and premature since the
Commissioner of Internal Revenue has not yet resolved his protests against the assessment of the
Revenue District Officer; and that he was denied recourse to the Court of Tax Appeals.

The contention is without merit. What is involved here is not the collection of taxes where the
assessment of the Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but
a criminal prosecution for violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to enforce collection before the
assessment procedures provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a criminal prosecution under the
Code. têñ.£îhqwâ£

The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary
before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when
the violator has, as in this case, knowingly and willfully filed fraudulent returns with intent to evade and
defeat a part or all of the tax. 14

An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and
evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded
upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the
government's failure to discover the error and promptly to assess has no connections with the
commission of the crime. 15

Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension
of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action
for violation of law. 16Obviously, the protest of the petitioner against the assessment of the District
Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code.
Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by
the petitioner.

WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order
heretofore issued is hereby set aside. With costs against the petitioner.

SO ORDERED.

Barredo (Chairman), Aquino, A

G.R. No. 119322 June 4, 1996

COMMISSIONER ON INTERNAL REVENUE, SENIOR STATE PROSECUTOR AURORA S. LAGMAN, SENIOR

STATE PROSECUTOR BERNELITO R. FERNANDEZ, SENIOR STATE PROSECUTOR HENRICK P. GINGOYON,
ROGELIO F. VISTA, STATE PROSECUTOR ALFREDO AGCAOILI, PROSECUTING ATTORNEY EMMANUEL
VELASCO, CITY PROSECUTOR CANDIDO V. RIVERA, AND ASSISTANT CITY PROSECUTOR LEOPOLDO E.
BARAQUIA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE TIRSO D'C VELASCO, PRESIDING JUDGE,
REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 88, FORTUNE TOBACCO CORPORATION, LUCIO
TAN, HARRY C. TAN, CARMEN KAO TAN, FLORENCIO SANTOS, SALVADOR MISON, CHUNG POE KEE,
ROJAS CHUA, MARIANO TANENGLIAN, JUANITA LEE AND ANTONIO P. ABAYA, respondents.

DAGUPAN COMBINED COMMODITIES, INC., TOWNSMAN COMMERCIALS, INC., LANDMARK SALES

AND MARKETING INC., CRIMSON CROCKER DISTRIBUTORS, INC., MOUNT MATUTUM MARKETING
CORP., FIRST UNION TRADING CORP., CARLSBURG AND SONS, INC., OMAR ALI DISTRIBUTORS, INC.,
ORIEL AND COMPANY, NEMESIO TAN, QUINTIN CALLEJA, YOLANDA MANALILI, CARLOS CHAN, ROMEO
TAN, VICENTE CO, WILLIAM YU, LETICIA LIM, GLORIA LOPEZ, ROBERT TANTAMCO, FELIPE LOY,
ROLANDO CHUA, HONORINA TAN, WILLIE TANTAMCO, HENRY WEECHEE, JESUS LIM, TEODORO TAN,
ANTONIO APOSTOL, DOMINGO TENG, CANDELARIO LI, ERLINDA CRUZ, CARLOS TUMPALAN, LARRY
JOHN SY, ERNESTO ONG, WILFREDO MACROHON, ANTONIO TIU, ROSARIO LESTER, WILFREDO ONG,
BONIFACIO CHUA, GO CHING CHUAN, HENRY CHUA, LOPE LIM GUAN, EMILIO TAN, FELIPE TAN SEH
CHUAN, ANDRES CO, FELIPE KEE, HENRY GO CO, NARCISO GO, ADOLFO LIM, CO SHU, DANIEL YAO
CABIGUN, GABRIELLE. QUINTELA, NELSON TE, EMILLIO GO, EDWIN LEE, CESAR LEDESMA, JR., JAO
CHEP SENG, ARNULFO TAN, BENJAMIN T. HONG, PHILIP JAO, JOSE P. YU, AND DAVID R.
CORTES, respondents-intervenors.

KAPUNAN, J.:p

The pivotal issue in this petition for review is whether or not respondent Court of Appeals in its
decision1 in CA-G.R. SP No. 33599 correctly ruled that the Regional Trial Court of Quezon City (Branch
88) in Civil Case No. Q-94- 18790 did not commit grave abuse of discretion amounting to lack of
jurisdiction in issuing four (4) orders directing the issuance of writs of preliminary injunction restraining
petitioner prosecutors from continuing with the preliminary injunction of I.S. Nos. 93-508 and 93-584 in
the Department of Justice and I.S. No. 93-17942 in the Office of the City Prosecutors of Quezon City
wherein private respondents were respondents and denying petitioners' Motion to Dismiss said Civil
Case No. 94-18790.2

In resolving the issue raised in the petition, the Court may be guided by its definition of what constitutes
grave abuse of discretion. By grave abuse of discretion is meant 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.3

On June 1, 1993, the President issued a Memorandum creating a Task Force to investigate the tax
liabilities of manufacturers engaged in tax evasion scheme, such as selling products through dummy
marketing corporations to avoid payment of correct internal revenue tax, to collect from them any tax
liabilities discovered from such investigation, and to file the necessary criminal actions against those
who may have violated the tax code. The task force was composed of the Commissioner of Internal
Revenue as Chairman, a representative of the Department of Justice and a representative of the
Executive Secretary.

On July 1, 1993, the Commissioner of Internal Revenue issued a Revenue Memorandum Circular No. 37-
93 reclassifying best selling cigarettes bearing the brands "Hope," "More," and "Champion" as cigarettes
of foreign brands subject to a higher rate of tax.

On August 3, 1993, respondent Fortune Tobacco Corporation (Fortune) questioned the validity of the
reclassification of said brands of cigarettes as violative of its right to due process and equal protection of
law. Parenthetically, on September 8, 1993, the Court of Tax Appeals by resolution ruled that the
reclassification made by the Commissioner "is of doubtful legality" and enjoined its enforcement.

In a letter of August 13, 1993 which was received by Fortune on August 24, 1993, the Commissioner
assessed against Fortune the total amount of P7,685,942,221.66 representing deficiency income, ad
valorem and value-added tax for the year 1992 with the request that the said amount be paid within
thirty (30) days upon receipt thereof.4 Fortune on September 17, 1993 moved for reconsideration of the
assessments.

On September 7, 1993, the Commissioner of Internal Revenue filed a complaint with the Department of
Justice against respondent Fortune, its corporate officers, nine (9) other corporations and their
respective corporate officers for alleged fraudulent tax evasion for supposed non-payment by Fortune
of the correct amount of income tax, ad valorem tax and value-added tax for the year 1992. The
complaint alleged, among others, that:

In the said income tax return, the taxpayer declared a net taxable income of P183,613,408.00 and an
income tax due of P64,264,693.00. Based mainly on documentary evidence submitted by the taxpayer
itself, these declarations are false and fraudulent because the correct taxable income of the corporation
for the said year is P1,282,959,399.25.

This underdeclaration which resulted in the evasion of the amount of P723,773,759.79 as deficiency
income tax for the year 1992 is a violation of Section 45 of the Tax Code, penalized under Section 253 in
relation to Sections 252(b) and (d) and 253 thereof, thus: . . .

xxx xxx xxx

Fortune Tobacco Corporation, through its Vice-President for Finance, Roxas Chua, likewise filed value-
added tax returns for the 1st, 2nd, 3rd and 4th quarters of 1992 with the Rev. District Office of Marikina,
Metro Manila, declaring therein gross taxable sales, as follows:

1st Qtr. P 2,924,418,055.00

2nd Qtr. 2,980,335,235.00

3rd Qtr. 2,839,519,325.00

4th Qtr. 2,992,386,005.00

However, contrary to what have been reported in the said value- added tax returns, and based on
documentary evidence obtained from the taxpayer, the total actual taxable sales of the corporation for
the year 1992 amounted to P16,158,575,035.00 instead of P11,929,322,334.52 as declared by the
corporation in the said VAT returns.

These fraudulent underdeclarations which resulted in the evasion of value-added taxes in the aggregate
amount of P1,169,688,645.63 for the entire year 1992 are violations of Section 110 in relation to Section
100 of the Tax Code, which are likewise penalized under the aforequoted Section 253, in relation to
Section 252, thereof. Sections 110 and 100 provide:

xxx xxx xxx

Furthermore, based on the corporation's VAT returns, the corporation reported its taxable sales for
1992 in the amount of P11,736,658,580. This declaration is likewise false and fraudulent because, based
on the daily manufacturer's sworn statements submitted to the BIR by the taxpayer, its total taxable
sales during the year 1992 is P16,686,372,295.00. As a result thereof, the corporation was able to evade
the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 in violation of Section
127 in relation to Section 142, as amended by R.A. 6956, penalized under the aforequoted Section 253,
in relation to Section 252, all of the Tax Code. Sections 127 and 142, as amended by R.A. 6956, are
quoted as follows: . . .

The complaint docketed as I.S. No. 93-508, was referred to the Department of Justice Task Force on
revenue cases which found sufficient basis to further investigate the allegations that Fortune, through
fraudulent means, evaded payment of income tax, ad valorem tax, and value-added tax for the year
1992 thus, depriving the government of revenues in the amount of Seven and One-half (P7.5) Billion
Pesos.

The fraudulent scheme allegedly adopted by private respondents consisted of making fictitious and
simulated sales of Fortune's cigarette products to non-existing individuals and to entities incorporated
and existing only for the purpose of such fictitious sales by declaring registered wholesale prices with
the BIR lower than Fortune's actual wholesale prices which are required for determination of Fortune's
correct income, ad valorem, and value-added tax liabilities. The "ghosts wholesale buyers" then
ostensibly sold the products to customers and other wholesalers/retailers at higher wholesale prices
determined by Fortune. The tax returns and manufacturer's sworn statements filed by Fortune would
then declare the fictitious sales it made to the conduit corporators and non-existing individual buyers as
its gross sales.5

On September 8, 1993, the Department of Justice Task Force issued a subpoena directing private
respondents to submit their counter-affidavits not later than September 20, 1993. 6

Instead of filing their counter-affidavits, the private respondents on October 15, 1993 filed a Verified
Motion to Dismiss; Alternatively Motion to Suspend,7 based principally on the following grounds:

1. The complaint of petitioner Commissioner follows a pattern of prosecution against private

respondents in violation of their right to due process and equal protection of the law.

2. Petitioner Commissioner and the Court of Tax Appeals have still to determine Fortune's tax liability for
1992 in question; without any tax liability, there can be no tax evasion.

3. Exclusive jurisdiction to determine tax liability is vested in the Court of Tax Appeals; therefore, the
DOJ is without jurisdiction to conduct preliminary investigation.

4. The complaint of petitioner Commissioner is not supported by any evidence to serve as adequate
basis for the issuance of subpoena to private respondents and to put them to their defense.

At the scheduled preliminary investigation on October 15, 1993, private respondents were asked by the
panel of prosecutors to inform it of the aspects of the Verified Motion to Dismiss which counsel for
private respondents did so briefly. Counsel for the Commissioner of Internal Revenue asked for fifteen
(15) days within which to file a reply in writing to private respondents' Verified Motion to Dismiss.
Thereupon, the panel of prosecutors declared a recess. Upon reconvening, the panel of prosecutors
denied the motion to dismiss and treated the same as private respondents' counter-affidavits.8

On October 20, 1993, private respondents filed a motion for reconsideration of the order of October 15,
1993.9 On October 21, 1993, private respondents filed a motion to require the submission by the Bureau
of Internal Revenue of certain documents in further support of their Verified Motion to Dismiss. Among
the documents sought to be produced are the "Daily Manufacturer's Sworn Statements" which
according to petitioner Commissioner in her complaint were submitted by Fortune to the BIR and which
were the basis of her conclusion that Fortune's tax declarations were false and fraudulent. Fortune
claimed that without the "Daily Manufacturer's Sworn Statements," there is no evidence to support the
complaint, hence, warranting its outright dismissal.

On October 26, 1993, private respondents moved for the inhibition of the State prosecutors assigned to
the case for alleged lack of impartiality.10 Private respondents also sought the production of the "Daily
Manufacturer's Sworn Statements" submitted by certain cigarette companies similarly situated as
Fortune but were not proceeded against, thus, private respondents charged that Fortune and its officers
were being singled out for criminal prosecution which is discriminatory and in violation of the equal
protection clause of the Constitution.
On December 20, 1993, the panel of prosecutors issued an Omnibus Order11 denying private
respondents' motion for reconsideration, motion for suspension of investigation, motion to inhibit the
State Prosecutors, and motion to require submission by the BIR of certain documents to further support
private respondents' motion to dismiss.

On January 4, 1994, private respondents filed a petition for certiorari and prohibition with prayer for
preliminary injunction with the Regional Trial Court, Branch 88, Quezon City, docketed as Q-94-18790,
praying that the complaint of the Commissioner of Internal Revenue and the orders of the prosecutors
in I.S. No. 93-508 be dismissed or set aside, alternatively, the proceedings on the preliminary
investigation be suspended pending final determination by the Commissioner of Fortune's motion for
reconsideration/ reinvestigation of the August 13, 1993 assessment of the taxes due.12

On January 17, 1994, petitioners filed a motion to dismiss the petition13 on the grounds that (a) the trial
court is bereft of jurisdiction to enjoin a criminal prosecution under preliminary investigation; (b) a
criminal prosecution for tax fraud can proceed independently of criminal or administrative action; (c)
there is no prejudicial question to justify suspension of the preliminary investigation; (d) private
respondents' rights to due process was not violated; and (e) selective prosecution is not a valid defense
in this jurisdiction.

On January 19, 1994, at the hearing of the incident for the issuance of a writ of preliminary injunction in
the petition, private respondents offered in evidence their verified petition for certiorari and prohibition
and its annexes. Petitioners responded by praying that their motion to dismiss the petition
for certiorari and prohibition be considered as their opposition to private respondents' application for
the issuance of a writ of preliminary injunction.

On January 25, 1994, the trial court issued an order granting the prayer for the issuance of a preliminary
injunction.14 The trial court rationalized its order in this wise:

a) It is private respondents' claim that the ad valorem tax for the year 1992 was levied, assessed and
collected by the BIR under Section 142(c) of the Tax Code on the basis of the "manufacturer's registered
wholesale price" duly approved by the BIR. Fortune's taxable sales for 1992 was in the amount of
P11,736,658,580.00.

b) On the other hand, it is petitioners' contention that Fortune's declaration was false and fraudulent
because, based on its daily manufacturer's sworn statements submitted to the BIR, its taxable sales in
1992 were P16,686,372,295.00, as a result of which, Fortune was able to evade the payment of ad
valorem tax in the aggregate amount of P5,792,479,816.24.

c) At the hearing for preliminary investigation, the "Daily Manufacturer's Sworn Statements" which,
according to petitioners, were submitted to the BIR by private respondents and made the basis of
petitioner Commissioner's complaint that the total taxable sales of Fortune in 1992 amounted to
P16,686,372, 295.00 were not produced as part of the evidence for petitioners. In fact, private
respondents had filed a motion to require petitioner Commissioner to submit the aforesaid daily
manufacturer's sworn statements before the DOJ panel of prosecutors to show that Fortune's actual
taxable sales totaled P16,686,373,295.00, but the motion was denied.

d) There is nothing on record in the preliminary investigation before the panel of investigators which
supports the allegation that Fortune made a fraudulent declaration of its 1992 taxable sales.

e) Since, as alleged by private respondents, the ad valorem tax for the year 1992 should be based on the
"manufacturer's registered wholesale price" while, as claimed by petitioners, the ad valorem taxes
should be based on the wholesale price at which the manufacturer sold the cigarettes, which is a legal
issue as admitted by a BIR lawyer during the hearing for preliminary injunction, the correct
interpretation of the law involved, which is Section 142(c) of the Tax Code, constitutes a prejudicial
question which must first be resolved before criminal proceedings for tax evasion may be pursued. In
other words, the BIR must first make a final determination, which it has not, of Fortune's tax liability
relative to its 1992 ad valorem, value-added and income taxes before the taxpayer can be made liable
for tax evasion.

f) There was a precipitate issuance by the panel of prosecutors of subpoenas to private respondents, on
the very day following the filing of the complaint with the DOJ consisting of about 600 pages, and the
precipitate denial by the panel of prosecutors, after a recess of about twenty (20) minutes, of private
respondents' motion to dismiss, consisting of one hundred and thirty five (135) pages.

g) Private respondents had been especially targeted by the government for prosecution. Prior to the
filing of the complaint in I.S. No. 93-508, petitioner Commissioner issued Revenue Memorandum
Circular No. 37-93 reclassifying Fortune's best selling cigarettes, namely "Hope," "More," and
"Champion" as cigarettes bearing a foreign brand, thereby imposing upon them a higher rate of tax that
would price them out of the market.

h) While in petitioner Commissioner's letter of August 13, 1993, she gave Fortune a period of thirty (30)
days from receipt thereof within which to pay the alleged tax deficiency assessments, she filed the
criminal complaint for tax evasion before the period lapsed.

i) Based on the foregoing, the criminal complaint against private respondents was filed prematurely and
in violation of their constitutional right to equal protection of the laws.

On January 26, 1994, private respondents filed with the trial court a Motion to Admit Supplemental
Petition and sought the issuance of a writ of preliminary injunction to enjoin the State Prosecutors from
continuing with the preliminary investigation filed by them against private respondents with the Quezon
City Prosecutor's Office, docketed as I.S. 93-17942, for alleged fraudulent tax evasion, committed by
private respondents for the taxable year 1990. Private respondents averred in their motion that no
supporting documents or copies of the complaint were attached to the subpoena in I.S. 93-17942; that
the subpoena violates private respondents' constitutional right to due process, equal protection and
presumption of innocence; that I.S. 93-17942 is substantially the same as I.S. 93-508; that no tax
assessment has been issued by the Commission of Internal Revenue and considering that taxes paid
have not been challenged, no tax liability exists; and that since Assistant City Prosecutor Baraquia was a
former classmate of Presidential Legal Counsel Antonio T. Carpio, the former cannot conduct the
preliminary investigation in an impartial manner.

On January 28, 1994, private respondents filed with the trial court a second supplemental
petition,15 also seeking to stay the preliminary investigation in I.S. 93-584, which was the third complaint
filed against private respondents with the DOJ for alleged fraudulent tax evasion for the taxable year
1991.

On January 31, 1994, the lower court admitted the two (2) supplemental petitions and issued a
temporary restraining order in I.S. 93-17942 and I.S. 93-584.16 Also, on the same day, petitioners filed an
Urgent Motion for Immediate Resolution of petitioners' motion to dismiss.

On February 7, 1994, the trial court issued an order denying petitioners' motion to dismiss private
respondents' petition seeking to stay preliminary investigation in I.S. 93-508, ruling that the issue of
whether Sec. 127(b) of the National Tax Revenue Code should be the basis of private respondents' tax
liability as contended by the Bureau of Internal Revenue, or whether it is Section 142(c) of the same
Code that applies, as argued by herein private respondents, should first be settled before any complaint
for fraudulent tax evasion can be initiated.17

On February 14, 1994, the trial court issued an order granting private respondents' petition for a
supplemental writ of preliminary injunction, likewise enjoining the preliminary investigation of the two
(2) other complaints filed with the Quezon City Prosecutor's Office and the DOJ for fraudulent tax
evasion, I.S. 93-17942 and I.S. 93-584, for alleged tax evasion for the taxable years 1990 and 1991
respectively.18 In granting the supplemental writ, the trial court stated that the two other complaints are
the same as in I.S. 93-508, except that the former refer to the taxable years 1990 and 1991.

On March 7, 1994, petitioners filed a petition for certiorari and prohibition with prayer for preliminary
injunction before this Court. However, the petition was referred to the Court of Appeals for disposition
by virtue of its original concurrent jurisdiction over the petition.

On December 19, 1994, the Court of Appeals in CA-G.R No. SP-33599 rendered a decision denying the
petition. The Court of Appeals ruled that the trial court committed no grave abuse of discretion in
ordering the issuance of writs of preliminary injunction and in denying petitioners' motion to dismiss. In
upholding the reasons and conclusions given by the trial court in its orders for the issuance of the
questioned writs, the Court of Appeals said in part:

In making such conclusion the respondent Court must have understood from herein petitioner
Commissioner's letter-complaint of 14 pages (pp. 477-490, rollo of this case) and the joint affidavit of
eight revenue officers of 17 pages attached thereto (pp. 491-507, supra) and its annexes (pp. 508-
1077, supra), that the charge against herein respondents is for tax evasion for non-payment by herein
respondent Fortune of the correct amounts of income tax, ad valorem tax and value added tax, not
necessarily "fraudulent tax evasion." Hence, the need for previous assessment of the correct amount by
herein petitioner Commissioner before herein respondents may be charged criminally. Certiorari will not
be issued to cure errors in proceedings or correct erroneous conclusions of law or fact. As long as a
Court acts within its jurisdictions, any alleged error committed in the exercise of its jurisdiction, will
amount to nothing more than errors of judgment which are reviewable by timely appeal and not by a
special civil action of certiorari (Santos, Jr. vs. Court of Appeals, 152 SCRA 378; Gold City Integrated Port
Services, Inc. vs. Intermediate Appellate Court, 171 SCRA 579).

The questioned orders issued after hearing (Annexes A, B, C and D, petition) being but interlocutory,
review thereof by this Court is inappropriate until final judgment is rendered, absent a showing of grave
abuse of discretion on the part of the issuing court (See Van Dorn vs. Romillo, 139 SCRA 139, 141;
Newsweek, Inc. vs. IAC, 171, 177; Mendoza vs. Court of Appeals, 201 SCRA 343, 352). The factual and
legal issues involved in the main case still before the respondent Court are best resolved after trial.
Petitioners, therefore, instead of resorting to this petition for certiorari and prohibition should have filed
an answer to the petition as ordained in Section 4, Rule 16, in connection with Rule 11 of the Revised
Rules of Court, interposing as defense or defenses the objection or objections raised in their motion to
dismiss, then proceed to trial in order that thereafter the case may be decided on the merits by the
respondent Court. In case of an adverse decision, they may appeal therefrom by which the entire record
of the case would be elevated for review (See Mendoza vs. Court of Appeals, supra).
Therefore, certiorari and prohibition resorted to by herein petitioners will not lie in view of the remedy
open to them. Thus, the resulting delay in the final disposition of the case before the respondent Court
would not have been incurred.

Grave abuse of discretion as a ground for issuance of writs of certiorari and prohibition implies
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or where the
power is exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal
hostility, amounting to an evasion of positive duty or to a virtual refusal to perform the duty enjoined, or
to act at all in contemplation of law (Confederation of Citizens Labor Union vs. NLRC, 60 SCRA 84;
Bustamante vs. Commission on Audit, 216 SCRA 134). For such writs to lie, there must be capricious,
arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance
with centuries of both civil law and common law traditions (Young vs. Sulit, 162 SCRA 659, 664; FCC vs.
IAC, 166 SCRA 155; Purefoods Corp. vs. NLRC, 171 SCRA 45). Certiorari and prohibition are remedies
narrow in scope and inflexible in character. They are not general utility tools in the legal workshop (Vda.
de Guia vs. Veloso, 158 SCRA 340, 344). Their function is but limited to correction of defects of
jurisdiction solely, not to be used for any other purpose (Garcia vs. Ranada, 166 SCRA 9), such as to cure
errors in. proceedings or to correct erroneous conclusions of law or fact (Gold City Integrated Ports
Services vs. IAC, 171 SCRA 579). Due regard for the foregoing teachings enunciated in the decisions cited
can not bring about a decision other than what has been reached herein.

Needless to say, the case before the respondent court involving those against herein respondents for
alleged non-payment of the correct amounts due as income tax, ad valorem tax and value added tax for
the years 1990, 1991 and 1992 (Civil Case No. Q-94-18790) is not ended by this decision. The respondent
Court is still to try the case and decide it on the merits. All that is decided here is but the validity of the
orders of the respondent Court granting herein respondents' application for preliminary injunction and
denying herein petitioners' motion to dismiss. If upon the facts established after trial and the applicable
law, dissolution of the writ of preliminary injunction allowed to be issued by the respondent Court is
called for and a judgment favorable to herein petitioners is demanded, the respondent Court is duty
bound to render judgment accordingly.

WHEREFORE, the instant petition for certiorari and prohibition with application for issuance of
restraining order and writ of preliminary injunction is DISMISSED. Costs de oficio.19

Their motion for reconsideration having been denied by respondent appellate court on February 23,
1995, petitioners filed the present petition for review based on the following grounds:

THE RESPONDENT COURTS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR

EXCESS OF JURISDICTION IN HOLDING THAT:

I. THERE IS A PREJUDICIAL AND/OR LEGAL QUESTION TO JUSTIFY THE SUSPENSION OF THE PRELIMINARY
INVESTIGATION.

II. PRIVATE RESPONDENTS' RIGHTS TO DUE PROCESS, EQUAL PROTECTION AND PRESUMPTION OF
INNOCENCE WERE VIOLATED; ON THE CONTRARY, THE STATE ITSELF WAS DEPRIVED OF DUE PROCESS.

III. THE ADMISSION OF PRIVATE RESPONDENTS' SUPPLEMENTAL PETITIONS WERE PROPER.

IV. THERE WAS SELECTIVE PROSECUTION.

V. THE FACTUAL ALLEGATIONS IN THE PETITION ARE HYPOTHETICALLY ADMITTED IN A MOTION TO

DISMISS BASED ON JURISDICTIONAL GROUNDS.

VI. THE ISSUANCE OF THE WRITS OF INJUNCTION IS NOT A DECISION ON THE MERITS OF THE PETITION
BEFORE THE LOWER COURT.20

The petition is bereft of merit.

In essence, the complaints in I.S. Nos. 93-508, 93-584 and 93-17942 charged private respondents with
fraudulent tax evasion or wilfully attempting to evade or defeat payment of income tax, ad valorem tax
and value-added tax for the year 1992, as well as for the years 1990-1991.

The pertinent provisions of law involved are Sections 127(b) and 142(c) of the National Internal Revenue
Code which state:

Sec. 127. . . .

(b) Determination of gross selling price of goods subject to ad valorem tax. -- Unless otherwise provided,
the price, excluding the value-added tax, 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.

Sec. 142. . . .

(c) Cigarettes packed in twenties. -- There shall be levied, assessed and collected on cigarettes packed in
twenties an ad valorem tax at the rates prescribed below based on the manufacturer's registered
wholesale price.

xxx xxx xxx

Private respondents contend that per Fortune's VAT returns, correct taxable sales for 1992 was in the
amount of P11,736,658,580.00 which was the "manufacturer's registered wholesale price" in
accordance with Section 142(c) of the Tax Code and paid the amount of P4,805,254,523 as ad valorem
tax.

On the other hand, petitioners allege, as specifically worded in the complaint in I.S. No. 93-508, that
"based on the daily manufacturer's sworn statements submitted to the BIR by the Taxpayer (Fortune's)
total taxable sales during the year 1992 is P16,686,372,295.00," as result of which Fortune "was able to
evade the payment of ad valorem taxes in the aggregate amount of P5,792,479,816.24 . . ."

Petitioners now argue that Section 127(b) lays down the rule that in determining the gross selling price
of goods subject to ad valorem tax, it is the price, excluding the value-added tax, at which the goods are
sold at wholesale price in the place of production or through their sales agents to the public. The
registered wholesale price shall then be used for computing the ad valorem tax which is imposable upon
removal of the taxable goods from the place of production. However, petitioners claim that Fortune
used the "manufacturer's registered wholesale price" in selling the goods to alleged fictitious individuals
and dummy corporations for the purpose of evading the payment of the correct ad valorem tax.

There can be no question that under Section 127(b), the ad valorem tax should be based on
the correct price excluding the value-added tax, at which goods are sold at wholesale in the place of
production. It is significant to note that among the goods subject to ad valorem tax, the law --
specifically Section 142(c) -- requires that the corresponding tax on cigarettes shall be levied, assessed
and collected at the rates based on the "manufacturer's registered wholesale price." Why does the
wholesale price need to be registered and what is the purpose of the registration? The reason is self-
evident, which is to ensure the payment of the correct taxes by the manufacturers of cigarettes through
close supervision, monitoring and checking of the business operations of the cigarette companies. As
pointed out by private respondents, no industry is as intensely supervised by the BIR and also by the
National Tobacco Administration (NTA). Thus, the purchase and use of raw materials are subject to prior
authorization and approval by the NTA. Importations of bobbins or cigarette paper, the manufacture,
sale, and utilization of the same, are subject to BIR supervision and approval.21

Moreover, as pointed to by private respondents, for purposes of closer supervision by the BIR over the
production of cigarettes, Revenue Enforcement Officers are detailed on a 24-hour basis in the premises
of the manufacturer to secure production and removal of finished products. Composite Mobile Teams
conduct counter-security on the business operations as well as the performance of the Revenue
Enforcement Officers detailed thereat. Every transfer of any raw material is not allowed unless, in
addition to the required permits, accompanied by Revenue Enforcement Officer. For the purpose 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 and the Wholesale Price by Case. The data
submitted therewith is verified by the Revenue Officers and approved by the Commission of Internal
Revenue. Any change in the manufacturer's registered wholesale price of any brand cannot be effected
without submitting the corresponding Sworn Manufacturer's Declaration and verified by the Revenue
Officer and approved by the Commissioner on Internal Revenue.22 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;
and (c) the corresponding quantity removed during the day, the corresponding wholesale price thereof,
and the VAT paid thereon must be presented to the corresponding BIR representative for authentication
before removal.

Thus, as observed by the trial court in its order of January 25, 1994 granting private respondents' prayer
for the issuance of a writ of preliminary injunction, Fortune's registered wholesale price (was) duly
approved by the BIR, which fact is not disputed by petitioners.23

Now, 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
value-added tax, at which the goods are sold at wholesale in the place production," otherwise, the BIR
would not have approved the registered wholesale price of the goods for purposes of imposing the ad
valorem tax due. In such case, and in the absence of contrary evidence, it was precipitate and premature
to conclude that private respondents made fraudulent returns or wilfully attempted to evade payment
of taxes due. "Wilful" means "premeditated; malicious; done with intent, or with bad motive or purpose,
or with indifference to the natural consequence . . ."24 "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.25

Fraud cannot be presumed. If there was fraud or wilful 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.
But there is no allegation, much less evidence, of BIR personnel's malfeasance. In the very least, there is
the presumption that the BIR personnel performed their duties in the regular course in ensuing the
correct taxes were paid by Fortune.26

It is the opinion of both the trial court and respondent Court of Appeals, that before Fortune and the
other private respondents could be prosecuted for tax evasion under Sections 253 and 255 of the Tax
Code, the fact that the deficiency income, ad valorem and value-added taxes were due from Fortune for
the year 1992 should first be established. Fortune received form the Commissioner of Internal Revenue
the deficiency assessment notices in the total amount of P7,685,942,221.06 on August 24, 1993.
However, under Section 229 of the Tax Code, the taxpayer has the right to move for reconsideration of
the assessment issued by the Commissioner of Internal Revenue within thirty (30) days from receipt of
the assessment; and if the motion for reconsideration is denied, it may appeal to the Court of Appeals
within thirty (30) days from receipt of the Commissioner's decision. Here, Fortune received the
Commissioner's assessment notice dated August 13, 1993 on August 24, 1993 asking for the payment of
the deficiency taxes. Within thirty (30) days from receipt thereof, Fortune moved for reconsideration.
The Commissioner has not resolved the request for reconsideration up to the present.

We share with the view of both the trial court and court of Appeals that before the tax liabilities of
Fortune are first finally determined, it cannot be correctly asserted that private respondents have
wilfully attempted to evade or defeat the taxes sought to be collected from Fortune. In plain words,
before one is prosecuted for wilful attempt to evade or defeat any tax under Sections 253 and 255 of
the Tax code, the fact that a tax is due must first be proved.

Suppose the Commissioner eventually resolves Fortune's motion for reconsideration of the assessments
by pronouncing that the taxpayer is not liable for any deficiency assessment, then, the criminal
complaints filed against private respondents will have no leg to stand on.

In view of the foregoing reasons, we cannot subscribe to the petitioners' thesis citing Ungad
v. Cusi,27 that the lack of a final determination of Fortune's exact or correct tax liability is not a bar to
criminal prosecution, and that while a precise computation and assessment is required for a civil action
to collect tax deficiencies, the Tax Code does not require such computation and assessment prior to
criminal prosecution.

Reading Ungad carefully, the pronouncement therein that deficiency assessment is not necessary prior
to prosecution is pointedly and deliberately qualified by the Court with following statement quoted
from Guzik v. U.S.:28"The crime is complete when the violator has knowingly and wilfully filed a
fraudulent return with intent to evade and defeat apart or all of the tax." In plain words, for criminal
prosecution to proceed before assessment, there must be aprima facie showing of a wilful attempt to
evade taxes. There was a wilful attempt to evade tax in Ungad because of the taxpayer's failure to
declare in his income tax return "his income derived from banana sapplings." In the mind of the trial
court and the Court of Appeals, Fortune's situation is quite apart factually since the registered wholesale
price of the goods, approved by the BIR, is presumed to be the actual wholesale price, therefore, not
fraudulent and unless and until the BIR has made a final determination of what is supposed to be the
correct taxes, the taxpayer should not be placed in the crucible of criminal prosecution. Herein lies a
whale of difference between Ungad and the case at bar.

This brings us to the erroneous disquisition 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) were far from terminated -- private respondents were merely
subpoenaed and asked to submit counter affidavits, matters that they should have appealed to the
Secretary of Justice; b) it is only after the submission of private respondents' counter affidavits that the
prosecutors will determine whether or not 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.

We disagree.

As a general rule, criminal prosecutions cannot be enjoined. However, there are recognized exceptions
which, as summarized in Brocka v. Enrile29 are:

a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs. Albano, et
al., L-19272, January 25, 1967, 19 SCRA 95);

b. When necessary for the orderly administration of justice or to avoid oppression or multiplicity of
actions (Dimayuga, et al. vs. Fernandez, 43 Phil. 304; Hernandez vs. Albano, supra; Fortun vs. Labang, et
al., L-38383, May 27, 1981, 104 SCRA 607);

c. When there is a prejudicial question which is sub judice (De Leon vs. Mabanag, 70 Phil 202);

d. When the acts of the officer are without or in excess of authority (Planas vs. Gil, 67 Phil 62);

e. Where the prosecution is under an invalid law, ordinance or regulation (Young vs. Rafferty, 33 Phil.
556; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 389);

f. When double jeopardy is clearly apparent (Sangalang vs. People and Alvendia, 109 Phil. 1140);

g. Where the court had no jurisdiction over the offense (Lopez vs. City Judge, L-25795, October 29, 1966,
18 SCRA 616);

h. Where it is a case of persecution rather than prosecution (Rustia vs. Ocampo, CA-G.R. No. 4760,
March 25, 1960);

i. Where the charges are manifestly false and motivated by the lust for vengeance (Recto vs. Castelo, 18
L.J. [1953], cited in Rano vs. Alvenia, CA-G.R. No. 30720-R, October 8, 1962; Cf. Guingona, et al. vs. City
Fiscal, L-60033, April 4, 1984, 128 SCRA 577); 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 vs. Pane, et al., L-59524, February 18, 1985, 134 SCRA 438).
In issuing the questioned orders granting the issuance of a writ of preliminary injunction, the trial court
believed that said orders were warranted to afford private respondents adequate protection of their
constitutional rights, particularly in reference to presumption of innocence, due process and equal
protection of the laws. The trial court also found merit in private respondents' contention that
preliminary injunction should be issued to avoid oppression and because the acts of the state
prosecutors were without or in excess of authority and for the reason that there was a prejudicial
question.

Contrary to petitioners' submission, preliminary investigation may be enjoined where exceptional

circumstances so warrant. In Hernandez v. Albano30 and Fortun v. Labang,31 injunction was issued to
enjoin a preliminary investigation. In the case at bar, private respondents filed a motion to dismiss the
complaint against them before the prosecution and alternatively, to suspend the preliminary
investigation on the grounds cited hereinbefore, one of which is that the complaint of the Commissioner
is not supported by any evidence to serve as adequate basis for the issuance of the subpoena to them
and put them to their defense.

Indeed, the purpose of a preliminary injunction is to secure the innocent against hasty, malicious and
oppressive prosecution and to protect him from an open and public accusation of crime, from the
trouble, expense and anxiety of a public trial and also to protect the state from useless and expensive
trials. 32 Thus, the pertinent provisions of Rule 112 of the Rules of Court state:

Sec. 3. Procedure. -- Except as provided for in Section 7 hereof, no complaint or information for an
offense cognizable by the Regional Trial Court shall be filed without a preliminary investigation having
been first conducted in the following manner:

(a) The complaint shall state the known address of the respondent 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 two (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 ten (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 ten (10)
days from receipt thereof, the respondent shall submit counter-affidavits and other supporting
documents. He shall have the right to examine all other evidence submitted by the complainant.

(c) Such counter-affidavits and other supporting evidence 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 ten (10) day period, the investigating officer 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 ten (10) days therefrom. Upon the evidence thus adduced, the investigating officer shall
determine whether or not there is sufficient ground to hold the respondent for trial.

As found by the Court of Appeals, there was obvious haste by which the subpoena was issued to private
respondents, just the day after the complaint was filed, 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. The Court of Appeals
further added that the precipitate haste in the issuance of the subpoena justified private respondents'
misgivings regarding the objectivity and neutrality of the prosecutors in the conduct of the preliminary
investigation and so, the appellate court concluded, the grant of preliminary investigation by the trial
court to afford adequate protection to private respondents' constitutional rights and to avoid
oppression does not constitute grave abuse of discretion amounting to lack of jurisdiction.

The complaint filed by the Commissioner on Internal Revenue states itself that the primary evidence
establishing the falsity of the declared taxable sales in 1992 in the amount of P11,736,658,580.00 were
the "daily Manufacturer's Sworn Statements" submitted by the taxpayer which would show that the
total taxable sales in 1992 are in the amount of P16,686,372,295.00. However, the Commissioner did
not present the "Daily Manufacturer's Sworn Statements" supposedly submitted to the BIR by the
taxpayer, prompting private respondents to move for their production in order to verify the basis of
petitioners' computation. Still, the Commissioner failed to produce the declarations. In Borja
v. Moreno,33 it was held that the act of the investigator in proceeding with the hearing without first
acting on respondents' motion to dismiss is a manifest disregard of the requirement of due process.
Implicit in the opinion of the trial court and the Court of Appeals is that, if upon the examination of the
complaint, it was clear that there was no ground to continue, with the inquiry, the investigating
prosecutor was duty bound to dismiss the case. On this point, the trial court stressed that the
prosecutor conducting the preliminary investigation should have allowed the production of the "Daily
Manufacturer's Sworn Statements" submitted by Fortune without which there was no valid basis for the
allegation that private respondents wilfully attempted to evade payment of the correct taxes. The
prosecutors should also have produced the "Daily Manufacturer's 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. But the investigating prosecutors denied private respondents' motion, thus, indicating that
only Fortune was singled out for prosecution. The trial court and the Court of Appeals maintained that
at that stage of the preliminary investigation, where the complaint and the accompanying affidavits and
supporting documents did not show any violation of the Tax Code providing penal sanctions, the
prosecutors should have dismissed the complaint outright because of total lack of evidence, instead of
requiring private respondents to submit their counter affidavits under Section 3(b) of Rule 112.

We believe that the trial court in issuing its questioned orders, which are interlocutory in nature,
committed no grave abuse of discretion amounting to lack of jurisdiction. There are factual and legal
bases for the assailed orders. On the other hand, the burden is upon the petitioners to demonstrate that
the questioned orders constitute a whimsical and capricious exercise of judgment, which they have not.
For certiorari will not be issued to cure errors in proceedings or correct erroneous conclusions of law or
fact. As long as a court acts within its jurisdiction, any alleged errors committed in the exercise of its
jurisdiction will amount to nothing more than errors of judgment which are reviewable by timely appeal
and not by a special civil action of certiorari. 34 Consequently, the Regional Trial Court acted correctly
and judiciously, and as demanded by the facts and the law, in issuing the orders granting the writs of
preliminary injunction, in denying petitioners' motion to dismiss and in admitting the supplemental
petitions. What petitioners should have done was to file an answer to the petition filed in the trial court,
proceed to the hearing and appeal the decision of the court if adverse to them.

WHEREFORE, the instant petition is hereby DISMISSED.

SO ORDERED.
[G.R. No. 128315. June 29, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR REALTY AND DEVELOPMENT

CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO, respondents.

DECISION

PANGANIBAN, J.:

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 interests 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. Accordingly, an affidavit, which was executed by revenue
officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion,
cannot be deemed an assessment that can be questioned before the Court of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for
the nullification of the October 30, 1996 Decision[1] of the Court of Appeals[2] in CA-GR SP No. 40853,
which effectively affirmed the January 25, 1996 Resolution[3] of the Court of Tax Appeals[4] in CTA Case
No. 5271. The CTA disposed as follows:

WHEREFORE, finding [the herein petitioners] Motion to Dismiss as UNMERITORIOUS, the same is hereby
DENIED. [The CIR] is hereby given a period of thirty (30) days from receipt hereof to file her answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution[5] of the Court of Appeals denying
reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:

It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong
authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine
the books of accounts and other accounting records of Pascor Realty and Development Corporation.
(PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation
for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years
1986 and 1987, respectively.

On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the
Department of Justice 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. Private 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 in connection with the
criminal complaint filed by the Commissioner of Internal Revenue (BIR) against them.

In a letter dated May 17, 1995, the CIR denied the urgent request for reconsideration/reinvestigation of
the private respondents on the ground that no formal assessment has as yet been issued by the
Commissioner.

Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax
Appeals on a petition for review docketed as CTA Case No. 5271 on July 21, 1995. On September 6,
1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over
the subject matter of the petition, as there was no formal assessment issued against the petitioners. The
CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file
an answer within thirty (30) days from receipt of said resolution. The CIR received the resolution on
January 31, 1996 but did not file an answer nor did she move to reconsider the resolution.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and without jurisdiction in
considering the affidavit/report of the revenue officer and the indorsement of said report to the
secretary of justice as assessment which may be appealed to the Court of Tax Appeals;

Respondent Court of Tax Appeals acted with grave abuse of discretion in considering the denial by
petitioner of private respondents Motion for Reconsideration as [a] final decision which may be
appealed to the Court of Tax Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:

We agree with petitioners contentions, that the criminal complaint for tax evasion is the assessment
issued, and that the letter denial of May 17, 1995 is the decision properly appealable to
[u]s. Respondents ground of denial, therefore, that there was no formal assessment issued, is
untenable.

It is the Courts honest belief, that 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.

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to exclusive
appellate jurisdiction of this Court, do not, make any mention of formal assessment. The law merely
states, that this Court has exclusive appellate jurisdiction over decisions of the Commissioner of Internal
Revenue on disputed assessments, and other matters arising under the National Internal Revenue Code,
other law or part administered by the Bureau of Internal Revenue Code.
As far as this Court is concerned, the amount and kind of tax due, and the period covered, are sufficient
details needed for an assessment. These details are more than complete, compared to the following
definitions of the term as quoted hereunder. Thus:

Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163 Tenn. 332.
(Words and Phrases, Permanent Edition, Vol. 4, p. 446)

The word assessment 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 taxpayers property for
purpose of taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445)

From the above, it can be gleaned that an assessment simply states how much tax is due from a
taxpayer. Thus, based on these definitions, the details of the tax as given in the Joint Affidavit of
respondents examiners, which was attached to the tax evasion complaint, more than suffice to qualify
as an assessment. Therefore, this assessment having been disputed by petitioners, and there being a
denial of their letter disputing such assessment, this Court unquestionably acquired jurisdiction over the
instant petition for review.[6]

As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.

Hence, this recourse to this Court.[7]

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the
Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue with the Department
of Justice constituted an assessment of the tax due, and that the said assessment could be the subject of
a protest. By definition, an assessment is simply the statement of the details and the amount of tax due
from a taxpayer. Based on this definition, the details of the tax contained in the BIR examiners Joint
Affidavit,[8] which was attached to the criminal Complaint, constituted an assessment. Since the assailed
Order of the CTA was merely interlocutory and devoid of grave abuse of discretion, a petition
for certiorari did not lie.

Issues

Petitioners submit for the consideration of this Court the following issues:

(1) Whether or not the criminal complaint for tax evasion can be construed as an assessment.

(2) Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.

(3) Whether or not the CTA can take cognizance of the case in the absence of an assessment.[9]
In the main, the Court will resolve whether the revenue officers Affidavit-Report, which was attached to
the criminal Complaint filed with the Department of Justice, constituted an assessment that could be
questioned before the Court of Tax Appeals.

The Courts Ruling

The petition is meritorious.

Main Issue: Assessment

Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any
way be construed as a formal assessment of private respondents tax liabilities. This position is based on
Section 205 of the National Internal Revenue Code[10] (NIRC), which provides that remedies for the
collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section
223(a) of the same Code, 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 assessment.

Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the
collection of taxes, but merely a notice that the amount stated therein is due as tax and that the
taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners Joint
Affidavit, which contained the details of the supposed taxes due from respondent for taxable years
ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the
DOJ. Consequently, the denial by the BIR of private respondents request for reinvestigation of the
disputed assessment is properly appealable to the CTA.

We agree with petitioner. Neither the NIRC nor the revenue regulations governing the protest of
assessments[11] provide a specific definition or form of an assessment. However, the NIRC defines the
specific functions and effects of an assessment. To consider the affidavit 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.

True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has
tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability
can be deemed assessments.

To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of
the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in
addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for
its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher
rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its
payment until the full payment.[12]

The issuance of an assessment is vital in determining the period of limitation regarding its proper
issuance and the period within which to protest it. Section 203[13]of the NIRC provides that internal
revenue taxes must be assessed within three years from the last day within which to file the
return. Section 222,[14] on the other hand, specifies a period of ten years in case a fraudulent return with
intent to evade was submitted or in case of failure to file a return. Also, Section 228[15] of the same law
states that said assessment may be protested only within thirty days from receipt thereof. Necessarily,
the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion
would arise regarding the period within which to make an assessment or to protest the same, or
whether interest and penalty may accrue thereon.

It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an
assessment is deemed made only when the collector of internal revenue releases, mails or sends such
notice to the taxpayer.[16]

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, not to the taxpayers.

Respondents maintain that an assessment, in relation to taxation, is simply understood to mean:

A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.[17]

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper
presentation of tax rolls.[18]

Even these definitions fail to advance private respondents case. That the BIR examiners Joint Affidavit
attached to the Criminal Complaint contained some details of the tax liabilities of private respondents
does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax
due and a demand to the private respondents for payment thereof.

The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not
to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax
evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an
assessment, the commissioner opted instead to file a criminal case for tax evasion. What private
respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed
against them, not a notice that the Bureau of Internal Revenue had made an assessment.

In addition, what private respondents sent to the commissioner was a motion for a reconsideration of
the tax evasion charges filed, not of an assessment, as shown thus:

This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and
Development Corporation and for the same to be referred to the Appellate Division in order to give my
client the opportunity of a fair and objective hearing[19]

Additional Issues: Assessment Not Necessary Before Filing of Criminal Complaint

Private respondents maintain that the filing of a criminal complaint must be preceded by an
assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a
false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings
in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly
mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v.
Cusi,[20] 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 protests could not stop or
suspend the criminal action which was independent of the resolution of the protest in the CTA. This was
because the commissioner of internal revenue 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 255 of the
NIRC,[21] which penalizes failure to file a return. They add that a tax assessment should precede a
criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not
necessary before a criminal charge can be filed. This is the general rule. 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 commissioner 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 commissioner has issued an assessment. It must be stressed that a criminal complaint is
instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. CTA
Case No. 5271 is likewise DISMISSED. No costs.

SO ORDERED.

Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.

Romero (Chairman), J., abroad on official business.

FIRST DIVISION

G.R. No. 159694 January 27, 2006

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AZUCENA T. REYES, Respondent.

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

G.R. No. 163581 January 27, 2006

AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PANGANIBAN, CJ.:

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

The Case

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

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

The Facts

The CA narrated the facts as follows:

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

"On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad
(or ‘Abad’), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedent’s
estate (or ‘estate’). Subsequently, it issued a Return Verification Order. But without the required
preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular
investigation of the estate tax case. Azucena T. Reyes (or ‘[Reyes]’), one of the decedent’s heirs,
received the Letter of Authority on March 14, 1997.

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

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

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

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

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

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

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

"As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection
Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at
public auction on August 8, 2000.

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

"Without acting on [Reyes’s] protest and offer, [the CIR] instructed the Collection Enforcement Division
to proceed with the August 8, 2000 auction sale. Consequently, on June 28, 2000, [Reyes] filed a
[P]etition for [R]eview with the Court of Tax Appeals (or ‘CTA’), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status
Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyes’s] filing of a surety bond in the
amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to
desist and refrain from proceeding with the auction sale of the subject property or from issuing a
[W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/or unless a contrary order is issued.

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

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

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

"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the
CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The
motion was granted and the hearing was reset to February 6, 2001.

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

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

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

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

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

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

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

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

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

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

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

xxxxxxxxx

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

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

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

Ruling of the Court of Appeals

In partly granting the Petition, the CA said that Section 228 of the Tax Code and RR 12-99 were
mandatory and unequivocal in their requirement. The assessment notice and the demand letter should
have stated the facts and the law on which they were based; otherwise, they were deemed void.6 The
appellate court held that while administrative agencies, like the BIR, were not bound by procedural
requirements, they were still required by law and equity to observe substantive due process. The reason
behind this requirement, said the CA, was to ensure that taxpayers would be duly apprised of -- and
could effectively protest -- the basis of tax assessments against them.7Since the assessment and the
demand were void, the proceedings emanating from them were likewise void, and any order emanating
from them could never attain finality.

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

Hence, this Petition.10

The Issues

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

"I.

Whether petitioner’s assessment against the estate is valid.

"II.

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

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

The Court’s Ruling

The Petition is unmeritorious.

First Issue:

Validity of the Assessment Against the Estate

The second paragraph of Section 228 of the Tax Code12 is clear and mandatory. It provides as follows:
"Sec. 228. Protesting of Assessment. --

xxxxxxxxx

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

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

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

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

To be simply informed in writing of the investigation being conducted and of the recommendation for
the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of
correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and
the facts on which the assessment was based. It does not at all conform to the compulsory requirement
under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for
the sheer purpose of investigation and was not even the requisite notice under the law.

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

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

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no moment,
considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the provisions of the Tax
Code.15 While it is desirable for the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.

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

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

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

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

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

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

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

Even a cursory review of the preliminary assessment notice, as well as the demand letter sent, reveals
the lack of basis for -- not to mention the insufficiency of -- the gross figures and details of the itemized
deductions indicated in the notice and the letter. This Court cannot countenance an assessment based
on estimates that appear to have been arbitrarily or capriciously arrived at. Although taxes are the
lifeblood of the government, their assessment and collection "should be made in accordance with law as
any arbitrariness will negate the very reason for government itself."21

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

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

Second Issue:

Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has been
perfected and consummated, considering the earlier determination that the assessment against the
estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the
basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed
minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner
and four deputy commissioners.

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

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

SO ORDERED.

TAX REMEDIES PROPER

FIRST DIVISION

G.R. No. 167146 October 31, 2006

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
PHILIPPINE GLOBAL COMMUNICATION, INC., respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, seeking to set aside the en
bancDecision of the Court of Tax Appeals (CTA) in CTA EB No. 37 dated 22 February 2005,1 ordering the
petitioner to withdraw and cancel Assessment Notice No. 000688-80-7333 issued against respondent
Philippine Global Communication, Inc. for its 1990 income tax deficiency. The CTA, in its assailed en
banc Decision, affirmed the Decision of the First Division of the CTA dated 9 June 20042 and its
Resolution dated 22 September 2004 in C.T.A. Case No. 6568.

Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for
taxable year 1990 on 15 April 1991. On 13 April 1992, the Commissioner of Internal Revenue (CIR) issued
Letter of Authority No. 0002307, authorizing the appropriate Bureau of Internal Revenue (BIR) officials
to examine the books of account and other accounting records of respondent, in connection with the
investigation of respondent’s 1990 income tax liability. On 22 April 1992, the BIR sent a letter to
respondent requesting the latter to present for examination certain records and documents, but
respondent failed to present any document. On 21 April 1994, respondent received a Preliminary
Assessment Notice dated 13 April 1994 for deficiency income tax in the amount of P118,271,672.00,
inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed
for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the
following day, 22 April 1994, respondent received a Formal Assessment Notice with Assessment Notice
No. 000688-80-7333, dated 14 April 1994, for deficiency income tax in the total amount
of P118,271,672.00.3

On 6 May 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and Manalastas Law
Offices, filed a formal protest letter against Assessment Notice No. 000688-80-7333. Respondent filed
another protest letter on 23 May 1994, through another counsel Siguion Reyna Montecillo & Ongsiako
Law Offices. In both letters, respondent requested for the cancellation of the tax assessment, which they
alleged was invalid for lack of factual and legal basis.4
On 16 October 2002, more than eight years after the assessment was presumably issued, the Ponce
Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated 8
October 2002 denying the respondent’s protest against Assessment Notice No. 000688-80-7333, and
affirming the said assessment in toto.5

On 15 November 2002, respondent filed a Petition for Review with the CTA. After due notice and
hearing, the CTA rendered a Decision in favor of respondent on 9 June 2004.6 The CTA ruled on the
primary issue of prescription and found it unnecessary to decide the issues on the validity and propriety
of the assessment. It decided that the protest letters filed by the respondent cannot constitute a
request for reinvestigation, hence, they cannot toll the running of the prescriptive period to collect the
assessed deficiency income tax.7 Thus, since more than three years had lapsed from the time
Assessment Notice No. 000688-80-7333 was issued in 1994, the CIR’s right to collect the same has
prescribed in conformity with Section 269 of the National Internal Revenue Code of 19778 (Tax Code of
1977). The dispositive portion of this decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the petitioner. Accordingly,
respondent’s Final Decision dated October 8, 2002 is hereby REVERSED and SET ASIDE and respondent is
hereby ORDERED to WITHDRAW and CANCEL Assessment Notice No. 000688-80-7333 issued against the
petitioner for its 1990 income tax deficiency because respondent’s right to collect the same has
prescribed.9

The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA in a Resolution
dated 22 September 2004.10 Thereafter, the CIR filed a Petition for Review with the CTA en banc,
questioning the aforesaid Decision and Resolution. In its en banc Decision, the CTA affirmed the Decision
and Resolution in CTA Case No. 6568. The dispositive part reads:

WHEREFORE, premises considered, the Petition for Review is hereby DISMISSED for lack of merit.
Accordingly, the assailed Decision and Resolution in CTA Case No. 6568 are hereby AFFIRMED in toto.11

Hence, this Petition for Review on Certiorari raising the following grounds:

THE COURT OF TAX APPEALS, SITTING EN BANC, COMMITTED REVERSIBLE ERROR IN AFFIRMING THE
ASSAILED DECISION AND RESOLUTION IN CTA CASE NO. 6568 DECLARING THAT THE RIGHT OF THE
GOVERNMENT TO COLLECT THE DEFICIENCY INCOME TAX FROM RESPONDENT FOR THE YEAR 1990 HAS
PRESCRIBED

A. THE PRESCRIPTIVE PERIOD WAS INTERUPTED WHEN RESPONDENT FILED TWO LETTERS OF PROTEST
DISPUTING IN DETAIL THE DEFICIENCY ASSESSMENT IN QUESTION AND REQUESTING THE
CANCELLATION OF SAID ASSESSMENT. THE TWO LETTERS OF PROTEST ARE, BY NATURE, REQUESTS FOR
REINVESTIGATION OF THE DISPUTED ASSESSMENT.

B. THE REQUESTS FOR REINVESTIGATION OF RESPONDENT WERE GRANTED BY THE BUREAU OF

INTERNAL REVENUE.12

This Court finds no merit in this Petition.

The main issue in this case is whether or not CIR’s right to collect respondent’s alleged deficiency
income tax is barred by prescription under Section 269(c) of the Tax Code of 1977, which reads:

Section 269. Exceptions as to the period of limitation of assessment and collection of taxes. – x x x

xxxx

c. Any internal revenue tax which has been assessed within the period of limitation above-prescribed
may be collected by distraint or levy or by a proceeding in court within three years following the
assessment of the tax.

The law prescribed a period of three years from the date the return was actually filed or from the last
date prescribed by law for the filing of such return, whichever came later, within which the BIR may
assess a national internal revenue tax.13 However, the law increased the prescriptive period to assess or
to begin a court proceeding for the collection without an assessment to ten years when a false or
fraudulent return was filed with the intent of evading the tax or when no return was filed at all.14 In such
cases, the ten-year period began to run only from the date of discovery by the BIR of the falsity, fraud or
omission.

If the BIR issued this assessment within the three-year period or the ten-year period, whichever was
applicable, the law provided another three years after the assessment for the collection of the tax due
thereon through the administrative process of distraint and/or levy or through judicial
proceedings.15 The three-year period for collection of the assessed tax began to run on the date the
assessment notice had been released, mailed or sent by the BIR.16

The assessment, in this case, was presumably issued on 14 April 1994 since the respondent did not
dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997. However, as there was no Warrant of
Distraint and/or Levy served on the respondents nor any judicial proceedings initiated by the BIR, the
earliest attempt of the BIR to collect the tax due based on this assessment was when it filed its Answer
in CTA Case No. 6568 on 9 January 2003, which was several years beyond the three-year prescriptive
period. Thus, the CIR is now prescribed from collecting the assessed tax.

The provisions on prescription in the assessment and collection of national internal revenue taxes
became law upon the recommendation of the tax commissioner of the Philippines. The report
submitted by the tax commission clearly states that these provisions on prescription should be enacted
to benefit and protect taxpayers:

Under the former law, the right of the Government to collect the tax does not prescribe. However, in
fairness to the taxpayer, the Government should be estopped from collecting the tax where it failed to
make the necessary investigation and assessment within 5 years after the filing of the return and where
it failed to collect the tax within 5 years from the date of assessment thereof. Just as the government is
interested in the stability of its collections, so also are the taxpayers entitled to an assurance that they
will not be subjected to further investigation for tax purposes after the expiration of a reasonable period
of time. (Vol. II, Report of the Tax Commission of the Philippines, pp. 321-322).17
In a number of cases, this Court has also clarified that the statute of limitations on the collection of taxes
should benefit both the Government and the taxpayers. In these cases, the Court further illustrated the
harmful effects that the delay in the assessment and collection of taxes inflicts upon taxpayers.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,18 Justice Montemayor, in his
dissenting opinion, identified the potential loss to the taxpayer if the assessment and collection of taxes
are not promptly made.

Prescription in the assessment and in the collection of taxes is provided by the Legislature for the
benefit of both the Government and the taxpayer; for the Government for the purpose of expediting the
collection of taxes, so that the agency charged with the assessment and collection may not tarry too
long or indefinitely to the prejudice of the interests of the Government, which needs taxes to run it; and
for the taxpayer so that within a reasonable time after filing his return, he may know the amount of the
assessment he is required to pay, whether or not such assessment is well founded and reasonable so
that he may either pay the amount of the assessment or contest its validity in court x x x. It would surely
be prejudicial to the interest of the taxpayer for the Government collecting agency to unduly delay the
assessment and the collection because by the time the collecting agency finally gets around to making
the assessment or making the collection, the taxpayer may then have lost his papers and books to
support his claim and contest that of the Government, and what is more, the tax is in the meantime
accumulating interest which the taxpayer eventually has to pay .

In Republic of the Philippines v. Ablaza,19 this Court emphatically explained that the statute of limitations
of actions for the collection of taxes is justified by the need to protect law-abiding citizens from possible
harassment:

The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the
Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of every opportunity to molest, peaceful, law-abiding citizens. Without such legal defense
taxpayers would furthermore be under obligation to always keep their books and keep them open for
inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial
measure should be interpreted in a way conducive to bringing about the beneficient purpose of
affording protection to the taxpayer within the contemplation of the Commission which recommended
the approval of the law.

And again in the recent case Bank of the Philippine Islands v. Commissioner of Internal Revenue,20 this
Court, in confirming these earlier rulings, pronounced that:

Though the statute of limitations on assessment and collection of national internal revenue taxes
benefits both the Government and the taxpayer, it principally intends to afford protection to the
taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected
to further investigation for taxes after the expiration of a reasonable period of time.

Thus, in Commissioner of Internal Revenue v. B.F. Goodrich,21 this Court affirmed that the law on
prescription should be liberally construed in order to protect taxpayers and that, as a corollary, the
exceptions to the law on prescription should be strictly construed.

The Tax Code of 1977, as amended, provides instances when the running of the statute of limitations on
the assessment and collection of national internal revenue taxes could be suspended, even in the
absence of a waiver, under Section 271 thereof which reads:

Section 224. Suspension of running of statute. – The running of the statute of limitation provided in
Sections 268 and 269 on the making of assessments and the beginning of distraint or levy or a
proceeding in court for collection in respect of any deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a
proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation
which is granted by the Commissioner; when the taxpayer cannot be located in the address given by
him in the return filed upon which a tax is being assessed or collected x x x. (Emphasis supplied.)

Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this
petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the
Commissioner. However, this exception does not apply to this case since the respondent never
requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation
where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence.

Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the
Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request
for reconsideration and the request for reinvestigation, and distinguishes one from the other in this
manner:

Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request
for reconsideration or reinvestigation specifying the following particulars:

xxxx

For the purpose of protest herein—

(a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of
existing records without need of additional evidence. It may involve both a question of fact or of law or
both.

(b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of
newly-discovered evidence or additional evidence that a taxpayer intends to present in the
investigation. It may also involve a question of fact or law or both.
The main difference between these two types of protests lies in the records or evidence to be examined
by internal revenue officers, whether these are existing records or newly discovered or additional
evidence. A re-evaluation of existing records which results from a request for reconsideration does not
toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly
limits the suspension of the running of the statute of limitations to instances when reinvestigation is
requested by a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the case
of Bank of the Philippine Islands v. Commissioner of Internal Revenue22explaining why a request for
reinvestigation, and not a request for reconsideration, interrupts the running of the statute of
limitations on the collection of the assessed tax:

Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will
take more time than a reconsideration of a tax assessment, which will be limited to the evidence already
at hand; this justifies why the former can suspend the running of the statute of limitations on collection
of the assessed tax, while the latter cannot.

In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for
reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable since
respondent consistently and categorically refused to submit new evidence and cooperate in any
reinvestigation proceedings. This much was admitted in the Decision dated 8 October 2002 issued by
then CIR Guillermo Payarno, Jr.

In the said conference-hearing, Revenue Officer Alameda basically testified that Philcom, despite
repeated demands, failed to submit documentary evidences in support of its claimed deductible
expenses. Hence, except for the item of interest expense which was disallowed for being not ordinary
and necessary, the rest of the claimed expenses were disallowed for non-withholding. In the same
token, Revenue Officer Escober testified that upon his assignment to conduct the re-investigation, he
immediately requested the taxpayer to present various accounting records for the year 1990, in addition
to other documents in relation to the disallowed items (p.171). This was followed by other requests for
submission of documents (pp.199 &217) but these were not heeded by the taxpayer. Essentially, he
stated that Philcom did not cooperate in his reinvestigation of the case.

In response to the testimonies of the Revenue Officers, Philcom thru Atty. Consunji, emphasized that it
was denied due process because of the issuance of the Pre-Assessment Notice and the Assessment
Notice on successive dates. x x x Counsel for the taxpayer even questioned the propriety of the
conference-hearing inasmuch as the only question to resolved (sic) is the legality of the issuance of the
assessment. On the disallowed items, Philcom thru counsel manifested that it has no intention to
present documents and/or evidences allegedly because of the pending legal question on the validity of
the assessment.23

Prior to the issuance of Revenue Regulations No. 12-85, which distinguishes a request for
reconsideration and a request for reinvestigation, there have been cases wherein these two terms were
used interchangeably. But upon closer examination, these cases all involved a reinvestigation that was
requested by the taxpayer and granted by the BIR.
In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,24 the Court weighed the
considerable time spent by the BIR to actually conduct the reinvestigations requested by the taxpayer in
deciding that the prescription period was suspended during this time.

Because of such requests, several reinvestigations were made and a hearing was even held by the
Conference Staff organized in the collection office to consider claims of such nature which, as the record
shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most
unfair for respondent to now take advantage of such desistance to elude his deficiency income tax
liability to the prejudice of the Government invoking the technical ground of prescription.

Although the Court used the term "requests for reconsideration" in reference to the letters sent by the
taxpayer in the case of Querol v. Collector of Internal Revenue,25 it took into account the reinvestigation
conducted soon after these letters were received and the revised assessment that resulted from the
reinvestigations.

It is true that the Collector revised the original assessment on February 9, 1955; and appellant avers that
this revision was invalid in that it was not made within the five-year prescriptive period provided by law
(Collector vs. Pineda, 112 Phil. 321). But that fact is that the revised assessment was merely a result of
petitioner Querol’s requests for reconsideration of the original assessment, contained in his letters of
December 14, 1951 and May 25, 1953. The records of the Bureau of Internal Revenue show that after
receiving the letters, the Bureau conducted a reinvestigation of petitioner’s tax liabilities, and, in fact,
sent a tax examiner to San Fernando, La Union, for that purpose; that because of the examiner’s report,
the Bureau revised the original assessment, x x x. In other words, the reconsideration was granted in
part, and the original assessment was altered. Consequently, the period between the petition for
reconsideration and the revised assessment should be subtracted from the total prescriptive period
(Republic vs. Ablaza, 108 Phil 1105).

The Court, in Republic v. Lopez,26 even gave a detailed accounting of the time the BIR spent for each
reinvestigation in order to deduct it from the five-year period set at that time in the statute of
limitations:

It is now a settled ruled in our jurisdiction that the five-year prescriptive period fixed by Section 332(c)
of the Internal Revenue Code within which the Government may sue to collect an assessed tax is to be
computed from the last revised assessment resulting from a reinvestigation asked for by the taxpayer
and (2) that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should
be deducted from the total period of limitation.

xxxx

The first reinvestigation was granted, and a reduced assessment issued on 29 May 1954, from which
date the Government had five years for bringing an action to collect.

The second reinvestigation was asked on 16 January 1956, and lasted until it was decided on 22 April
1960, or a period of 4 years, 3 months, and 6 days, during which the limitation period was interrupted.
The Court reiterated the ruling in Republic v. Lopez in the case of Commissioner of Internal Revenue v.
Sison,27"that where a taxpayer demands a reinvestigation, the time employed in reinvestigating should
be deducted from the total period of limitation." Finally, in Republic v. Arcache,28 the Court enumerated
the reasons why the taxpayer is barred from invoking the defense of prescription, one of which was
that, "In the first place, it appears obvious that the delay in the collection of his 1946 tax liability was
due to his own repeated requests for reinvestigation and similarly repeated requests for extension of
time to pay."

In this case, the BIR admitted that there was no new or additional evidence presented. Considering that
the BIR issued its Preliminary Assessment Notice on 13 April 1994 and its Formal Assessment Notice on
14 April 1994, just one day before the three-year prescription period for issuing the assessment expired
on 15 April 1994, it had ample time to make a factually and legally well-founded assessment. Added to
the fact that the Final Decision that the CIR issued on 8 October 2002 merely affirmed its earlier findings,
whatever examination that the BIR may have conducted cannot possibly outlast the entire three-year
prescriptive period provided by law to collect the assessed tax, not to mention the eight years it actually
took the BIR to decide the respondent’s protest. The factual and legal issues involved in the assessment
are relatively simple, that is, whether certain income tax deductions should be disallowed, mostly for
failure to pay withholding taxes. Thus, there is no reason to suspend the running of the statute of
limitations in this case.

The distinction between a request for reconsideration and a request for reinvestigation is significant. It
bears repetition that a request for reconsideration, unlike a request for reinvestigation, cannot suspend
the statute of limitations on the collection of an assessed tax. If both types of protest can effectively
interrupt the running of the statute of limitations, an erroneous assessment may never prescribe. If the
taxpayer fails to file a protest, then the erroneous assessment would become final and
unappealable.29 On the other hand, if the taxpayer does file the protest on a patently erroneous
assessment, the statute of limitations would automatically be suspended and the tax thereon may be
collected long after it was assessed. Meanwhile the interest on the deficiencies and the surcharges
continue to accumulate. And for an unrestricted number of years, the taxpayers remain uncertain and
are burdened with the costs of preserving their books and records. This is the predicament that the law
on the statute of limitations seeks to prevent.

The Court, in sustaining for the first time the suspension of the running of the statute of limitations in
cases where the taxpayer requested for a reinvestigation, gave this justification:

A taxpayer may be prevented from setting up the defense of prescription even if he has not previously
waived it in writing as when by his repeated requests or positive acts the Government has been, for
good reasons, persuaded to postpone collection to make him feel that the demand was not
unreasonable or that no harassment or injustice is meant by the Government.

xxxx

This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are
several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said:
"The applicable principle is fundamental and unquestioned. ‘He who prevents a thing from being done
may not avail himself of the nonperformance which he himself occasioned, for the law says to him in
effect "this is your own act, and therefore you are not damnified."’ (R.H. Stearns Co. v. U.S., 78 L. ed.,
647). (Emphasis supplied.)30

This rationale is not applicable to the present case where the respondent did nothing to prevent the BIR
from collecting the tax. It did not present to the BIR any new evidence for its re-evaluation. At the
earliest opportunity, respondent insisted that the assessment was invalid and made clear to the BIR its
refusal to produce documents that the BIR requested. On the other hand, the BIR also communicated to
the respondent its unwavering stance that its assessment is correct. Given that both parties were at a
deadlock, the next logical step would have been for the BIR to issue a Decision denying the respondent’s
protest and to initiate proceedings for the collection of the assessed tax and, thus, allow the
respondent, should it so choose, to contest the assessment before the CTA. Postponing the collection
for eight long years could not possibly make the taxpayer feel that the demand was not unreasonable or
that no harassment or injustice is meant by the Government. There was no legal, or even a moral,
obligation preventing the CIR from collecting the assessed tax. In a similar case, Cordero v. Conda,31 the
Court did not suspend the running of the prescription period where the acts of the taxpayer did not
prevent the government from collecting the tax.

The government also urges that partial payment is "acknowledgement of the tax obligation", hence a
"waiver on the defense of prescription." But partial payment would not prevent the government from
suing the taxpayer. Because, by such act of payment, the government is not thereby "persuaded to
postpone collection to make him feel that the demand was not unreasonable or that no harassment or
injustice is meant." Which, as stated in Collector v. Suyoc Consolidated Mining Co., et al., L-11527,
November 25, 1958, is the underlying reason behind the rule that prescriptive period is arrested by the
taxpayer’s request for reexamination or reinvestigation – even if "he has not previously waived it
[prescription] in writing."

The Court reminds us, in the case of Commissioner of Internal Revenue v. Algue, Inc., 32 of the need to
balance the conflicting interests of the government and the taxpayers.

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 interest of the authorities and the taxpayers so that the real purpose of taxation, which is the
promotion of common good, may be achieved.

Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section
269(c) of the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given
effect. In providing for exceptions to such rule in Section 271, the law strictly limits the suspension of the
running of the prescription period to, among other instances, protests wherein the taxpayer requests
for a reinvestigation. In this case, where the taxpayer merely filed two protest letters requesting for a
reconsideration, and where the BIR could not have conducted a reinvestigation because no new or
additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax
which is the subject of the Decision issued by the CIR on 8 October 2002 affirming the Formal
Assessment issued on 14 April 1994 can no longer be the subject of any proceeding for its collection.
Consequently, the right of the government to collect the alleged deficiency tax is barred by prescription.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed en banc Decision of the CTA in
CTA EB No. 37 dated 22 February 2005, cancelling Assessment Notice No. 000688-80-7333 issued
against Philippine Global Communication, Inc. for its 1990 income tax deficiency for the reason that it is
barred by prescription, is hereby AFFIRMED. No costs.

SO ORDERED.
Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

ALLIED BANKING G.R. No. 175097

CORPORATION,

Petitioner,

Present:

CARPIO, J., Chairperson,

- versus - BRION,

DEL CASTILLO,

ABAD, and

PEREZ, JJ.

COMMISSIONER OF

INTERNAL REVENUE, Promulgated:

Respondent. February 5, 2010

x--------------------------------------------------------x
DECISION

DEL CASTILLO, J.:

The key to effective communication is clarity.

The Commissioner of Internal Revenue (CIR) as well as his duly authorized representative must indicate
clearly and unequivocally to the taxpayer whether an action constitutes a final determination on a
disputed assessment.[1] Words must be carefully chosen in order to avoid any confusion that could
adversely affect the rights and interest of the taxpayer.

Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic Act (RA) No. 9282,[3] in
relation to Rule 45 of the Rules of Court, are the August 23, 2006 Decision[4] of the Court of Tax Appeals
(CTA) and its October 17, 2006 Resolution[5] denying petitioners Motion for Reconsideration.

Factual Antecedents

On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary Assessment Notice (PAN) to
petitioner Allied Banking Corporation for deficiency Documentary Stamp Tax (DST) in the amount
of P12,050,595.60 and Gross Receipts Tax (GRT) in the amount of P38,995,296.76 on industry issue for
the taxable year 2001.[6] Petitioner received the PAN on May 18, 2004 and filed a protest against it
on May 27, 2004.[7]

On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment Notices to petitioner, which
partly reads as follows:[8]
It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you
may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and demandable.

Petitioner received the Formal Letter of Demand with Assessment Notices on August 30, 2004.[9]

Proceedings before the CTA First Division

On September 29, 2004, petitioner filed a Petition for Review[10] with the CTA which was raffled to its
First Division and docketed as CTA Case No. 7062.[11]

On December 7, 2004, respondent CIR filed his Answer.[12] On July 28, 2005, he filed a Motion to
Dismiss[13] on the ground that petitioner failed to file an administrative protest on the Formal Letter of
Demand with Assessment Notices. Petitioner opposed the Motion to Dismiss on August 18, 2005.[14]

On October 12, 2005, the First Division of the CTA rendered a Resolution[15] granting respondents
Motion to Dismiss. It ruled:

Clearly, it is neither the assessment nor the formal demand letter itself that is appealable to this Court. It
is the decision of the Commissioner of Internal Revenue on the disputed assessment that can be
appealed to this Court (Commissioner of Internal Revenue vs. Villa, 22 SCRA 3). As correctly pointed out
by respondent, a disputed assessment is one wherein the taxpayer or his duly authorized representative
filed an administrative protest against the formal letter of demand and assessment notice within thirty
(30) days from date [of] receipt thereof. In this case, petitioner failed to file an administrative protest on
the formal letter of demand with the corresponding assessment notices. Hence, the assessments did not
become disputed assessments as subject to the Courts review under Republic Act No. 9282. (See
also Republic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA 584.)

WHEREFORE, the Motion to Dismiss is GRANTED. The Petition for Review is hereby DISMISSED for lack
of jurisdiction.
SO ORDERED.[16]

Aggrieved, petitioner moved for reconsideration but the motion was denied by the First Division in its
Resolution dated February 1, 2006.[17]

Proceedings before the CTA En Banc

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

Finding no reversible error in the Resolutions dated October 12, 2005 and February 1, 2006 of the CTA
First Division, the CTA En Banc denied the Petition for Review[19]as well as petitioners Motion for
Reconsideration.[20]

The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an administrative
protest in order for the CTA to acquire jurisdiction. It emphasized that an administrative protest is an
integral part of the remedies given to a taxpayer in challenging the legality or validity of an
assessment. According to the CTA En Banc, although there are exceptions to the doctrine of exhaustion
of administrative remedies, the instant case does not fall in any of the exceptions.

Issue

Hence, the present recourse, where petitioner raises the lone issue of whether the Formal Letter of
Demand dated July 16, 2004 can be construed as a final decision of the CIR appealable to the CTA under
RA 9282.

Our Ruling

The petition is meritorious.

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

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

matters that are clearly within its jurisdiction.[21] Section 7 of RA 9282 provides:

Sec. 7. Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

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

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

xxxx

The word decisions in the above quoted provision of RA 9282 has been interpreted to mean the
decisions of the CIR on the protest of the taxpayer against the assessments.[22]Corollary thereto, Section
228 of the National Internal Revenue Code (NIRC) provides for the procedure for protesting an
assessment. It states:
SECTION 228. Protesting of Assessment. When the Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be required in the following cases:

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

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

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

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

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

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

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

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may
be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal
to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of
the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and
demandable.

In the instant case, petitioner timely filed a protest after receiving the PAN. In response thereto, the BIR
issued a Formal Letter of Demand with Assessment Notices. Pursuant to Section 228 of the NIRC, the
proper recourse of petitioner was to dispute the assessments by filing an administrative protest within
30 days from receipt thereof. Petitioner, however, did not protest the final assessment notices. Instead,
it filed a Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the
Petition for Review by the CTA was proper.

The case is an exception to the

rule on exhaustion of administrative remedies

However, a careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree
with petitioner that the instant case is an exception to the rule on exhaustion of administrative
remedies, i.e., estoppel on the part of the administrative agency concerned.

In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent contended that before
filing a petition with the court, petitioner should have first exhausted all administrative remedies by
appealing to the Office of the President. However, we ruled that respondent was estopped from
invoking the rule on exhaustion of administrative remedies considering that in its Resolution, it said, The
opinions promulgated by the Secretary of Justice are advisory in nature, which may either be accepted
or ignored by the office seeking the opinion, and any aggrieved party has the court for recourse. The
statement of the respondent in said case led the petitioner to conclude that only a final judicial ruling in
her favor would be accepted by the Commission.

Similarly, in this case, we find the CIR estopped from claiming that the filing of the Petition for Review
was premature because petitioner failed to exhaust all administrative remedies.
The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the following:

1. That the said assessment has already prescribed in accordance with the provisions of Section
203 of the Tax Code.

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

Contrary to your allegation, the assessments covering GRT and DST for taxable year 2001 has not
prescribed for [sic] simply because no returns were filed, thus, the three year prescriptive period has not
lapsed.

With the implementation of the CTRP, the phrase exempt from all taxes was deleted. Please refer to
Section 27(D)(3) and 28(A)(7) of the new Tax Code. Accordingly, you were assessed for deficiency gross
receipts tax on onshore income from foreign currency transactions in accordance with the rates
provided under Section 121 of the said Tax Code. Likewise, deficiency documentary stamp taxes was
[sic] also assessed on Loan Agreements, Bills Purchased, Certificate of Deposits and related transactions
pursuant to Sections 180 and 181 of NIRC, as amended.

The 25% surcharge and 20% interest have been imposed pursuant to the provision of Section 248(A) and
249(b), respectively, of the National Internal Revenue Code, as amended.

It is requested that the above deficiency tax be paid immediately upon receipt hereof, inclusive of
penalties incident to delinquency. This is our final decision based on investigation. If you disagree, you
may appeal this final decision within thirty (30) days from receipt hereof, otherwise said deficiency
tax assessment shall become final, executory and demandable.[24] (Emphasis supplied)

It appears from the foregoing demand letter that the CIR has already made a final decision on the
matter and that the remedy of petitioner is to appeal the final decision within 30 days.
In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we considered the language
used and the tenor of the letter sent to the taxpayer as the final decision of the CIR.

In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with
Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal
Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter
indicate that it is the final decision of the respondent on the matter. We have time and again reminded
the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer concerned to determine when his
or her right to appeal to the tax court accrues.[26] Viewed in the light of the foregoing, respondent is now
estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to
be a final decision.

Moreover, we cannot ignore the fact that in the Formal Letter of Demand with Assessment Notices,
respondent used the word appeal instead of protest, reinvestigation, or reconsideration. Although there
was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that
the word appeal under prevailing tax laws refers to the filing of a Petition for Review with the CTA. As
aptly pointed out by petitioner, under Section 228 of the NIRC, the terms protest, reinvestigation and
reconsideration refer to the administrative remedies a taxpayer may take before the CIR, while the term
appeal refers to the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending
Section 11 of RA 1125,[27] likewise uses the term appeal when referring to the action a taxpayer must
take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then, petitioner in
appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue from
respondent. Besides, any doubt in the interpretation or use of the word appeal in the Formal Letter of
Demand with Assessment Notices should be resolved in favor of petitioner, and not the respondent who
caused the confusion.

To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as
implemented by Section 3 of BIR Revenue Regulations No. 12-99.[28] It is the Formal Letter of Demand
and Assessment Notice that must be administratively protested or disputed within 30 days, and not the
PAN. Neither are we deviating from our pronouncement in St. Stephens Chinese Girls School v. Collector
of Internal Revenue,[29] that the counting of the 30 days within which to institute an appeal in the CTA
commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the
date the assessment was issued.
What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices
which was not administratively protested by the petitioner can be considered a final decision of the CIR
appealable to the CTA because the words used, specifically the words final decision and appeal, taken
together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact
the final decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the
same to the CTA.

We note, however, that during the pendency of the instant case, petitioner availed of the provisions of
Revenue Regulations No. 30-2002 and its implementing Revenue Memorandum Order by submitting an
offer of compromise for the settlement of the GRT, DST and VAT for the period 1998-2003, as evidenced
by a Certificate of Availment dated November 21, 2007.[30]Accordingly, there is no reason to reinstate
the Petition for Review in CTA Case No. 7062.

WHEREFORE, the petition is hereby GRANTED. The assailed August 23, 2006 Decision and the October
17, 2006 Resolution of the Court of Tax Appeals are REVERSED and SET ASIDE. The Petition for Review in
CTA Case No. 7062 is hereby DISMISSED based solely on the Bureau of Internal Revenues acceptance of
petitioners offer of compromise for the settlement of the gross receipts tax, documentary stamp tax and
value added tax, for the years 1998-2003.

SO ORDERED.
Manila

THIRD DIVISION

G.R. No. 76281 September 30, 1991

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WYETH SUACO LABORATORIES, INC. and THE COURT OF TAX APPEALS, respondents.

FERNAN, C.J.:

The sole issue in this petition for review on certiorari is whether or not petitioner's right to collect
deficiency withholding tax at source and sales tax liabilities from private respondent is barred by
prescription.

The antecedent facts are as follows:

Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic corporation
engaged in the manufacture and sale of assorted pharmaceutical and nutritional products. Its
accounting period is on a fiscal year basis ending October 31 of every year.

By virtue of Letter of Authority No. 52415 dated June 17, 1974 issued by then Commissioner of Internal
Revenue Misael P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and
examination of the books of accounts of Wyeth Suaco.1 On October 15, 1974, he submitted a report
containing the result of his investigation. The report disclosed that Wyeth Suaco was paying royalties to
its foreign licensors as well as remuneration for technical services to Wyeth International Laboratories of
London. Wyeth Suaco was also found to have declared cash dividends on September 27, 1973 and these
were paid on October 31, 1973. However, it allegedly failed to remit withholding tax at source for the
fourth (4th) quarter of 1973 on accrued royalties, remuneration for technical services and cash
dividends, resulting in a deficiency withholding tax at source in the aggregate amount of P3,178,994.15.2

Moreover, it was reported that during the periods from November 1, 1972 to December 31, 1972 and
January 1, 1973 to October 31, 1973, Wyeth Suaco deducted the cost of non-deductible raw materials,
resulting in its alleged failure to pay the correct amount of advance sales tax. There was reportedly also
a short payment of advance sales tax in its importation of "Mega Polymycin D" on October 3, 1972. All
these resulted in a deficiency sales tax in the amount of P60,855.21 and compromise penalty in the
amount of P300.00 or a total amount of P61,155.21.3
Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the aforesaid tax liabilities in
two (2) notices dated December 16, 1974 and December 17, 1974. These assessment notices were both
received by Wyeth Suaco on December 19, 1974.4

Thereafter, Wyeth Suaco through its tax consultant SGV &Co., sent the Bureau of Intemal Revenue two
(2) letters dated January 17, 1975 and February 8, 1975, protesting the assessments and requesting
their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis.

Wyeth Suaco argued that it was not liable to pay withholding tax at source on the accrued royalties and
dividends because they have yet to be remitted or paid abroad. It claimed that it was not able to remit
the balance of fifty percent (50%) of the accrued royalties to its foreign licensors because of Central
Bank Circular No. 289 allowing remittance of royalties up to fifty percent (50%) only. With regard to
what the Bureau of Internal Revenue claimed as the amount of P2,952,391.00 forming part of the cash
dividends declared in 1973, Wyeth Suaco alleged that the same was due its foreign stockholders. Again,
Wyeth Suaco was not able to remit these dividends because of the restriction of the Central Bank in a
memorandum implementing CB Circular No. 289 dated February 21, 1970. Thus, Wyeth Suaco's
contention was that a withholding tax at source on royalties and dividends becomes due and payable
only upon their actual payment or remittance.

On the matter of the withholding tax at source on remuneration for technical services, Wyeth Suaco
insisted that it was up-to-date in remitting the corresponding withholding tax on this income to the
Bureau of Internal Revenue.

As to the assessed deficiency sales tax, Wyeth Suaco maintained that the difference between its landed
cost figure (which is the basis for computing the advancesales tax) and that of the revenue examiner,
was due to the use of estimated amounts by the Bureau of Customs and to foreign exchange
differential.

Wyeth Suaco however, admitted liability with respect to the short payment of advance sales tax in the
amount of P1,000.00 on its importation of "Mega Polymycin D."5

On September 12, 1975, the Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the
compromise settlement under LOI 308. In its answer, Wyeth Suaco manifested its conformity to a 10%
compromise provided it be applied only to the basic sales tax, excluding surcharge and interest. As to
the deficiency withholding tax at source, Wyeth took exception on the ground that it involves purely a
legal question and some of the amounts included in the assessment have already bee paid.

On December 10, 1979, petitioner, thru then acting Commissioner of Internal Revenue Ruben B.
Ancheta, rendered a decision reducing the assessment of the withholding tax at source for 1973 to
P1,973,112.86. However, the amount of P61,155.21 as deficiency sales tax remained the same.6

Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980, praying
that lpeti tioner be enjoined from enforcing the assessments by reason of prescription and that the
assessments be declared null and void for lack of legal and factual basis.7
On February 7, 1980, petitioner issued a warrant of distrain of personal property and warrant of levy of
real property again private respondent to enforce collection of the deficiency taxes. These were served
on private respondent on March 12, 1980.8 However, collection of the deficiency taxes by virtue of
warrants of distraint and levy was enjoined by respondent court upon motion of Wyeth Suaco in a
resolution dated May 22, 1980.9

On May 30, 1980, petitioner filed his answer to Wyeth Suaco's petition for review praying, among
others, that private respondent be declared liable to pay the amount of P61,155.21 as deficiency sales
tax for the periods November 1, 1972 to December 31, 1972 and January 1, 1973 to October 31, 1973,
plus 14% annual interest thereon from December 17, 1974 until payment thereof pursuant to Section
183 (now Section 193) of the Tax Code, and the amount of P1,973,112.86 as deficie withholding tax at
source for the 4th quarter of 1973 plus 5% surcharge and 14% per annum interest thereon from
December 16, 1974 to December 16, 1977, pursuant to Section 51 (e) of the Tax Code of 1977, as
amended.10

On August 29, 1986, the Court of Tax Appeals rendered a decision enjoining the Commissioner of
Internal Revenue from collecting the deficiency taxes, the dispositive portion of which reads as follows:

WHEREFORE, the decision appealed from is hereby reversed and respondent Commissioner of Internal
Revenue is hereby enjoined from collecting the deficiency withholding tax at source for the fourth
quarter of 1973 as well as the deficiency sales tax assessed against petitioner (Wyeth Suaco). Without
pronouncement as to costs.11

The basis of the above decision was the finding of the Tax Court that while the assessments for the
deficiency taxes were made within the five-year period of limitation, the right of petitioner to collect the
same has already prescribed, in accordance with Section 319 (c) of the Tax Code of 1977. The said law
provides that an assessment of any internal revenue tax within the five-year period of limitation may be
collected by distraint or levy or by a proceeding in court, but only if begun within five (5) years after the
assessment of the tax.

Hence, this recourse by petitioner.

The applicable laws in the instant case are Sections 318 and 319 (c) of the National Internal Revenue
Code of 1977 (now Sections 203 and 224 of the National Internal Revenue Code of 1986), to wit:

SEC. 318. Period of limitation upon assessment and collection — Except as provided in the succeeding
section, internal revenue taxes shall be assessed within five years after the return was filed, and no
proceeding in court without assessment for the collection of such taxes shall be begun after the
expiration of such period. ...

SEC. 319. Exceptions as to period of limitations of assessment and collection of taxes. —

xxx xxx xxx

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

The main thrust of petitioner for the allowance of this petition is that the five-year prescriptive period
provided by law to mak a collection by distraint or levy or by a proceeding in court has not yet
prescribed. Although he admits that more than five (5) years have already lapsed from the time the
assessment notices were received by private respondent on December 19, 1974 up to the time the
warrants of distraint and levy were served on March 12, 1980, he avers that the running of the
prescriptive period was stayed or interrupted when Wyeth Suaco protested the assessments. Petitioner
argues that the protest letters sent by SGV & Co. in behalf of Wyeth Suaco dated January 17, 1975 and
February 8, 1975, requesting for withdrawal and cancellation of the assessments were actually requests
for reinvestigation or reconsideration, which could interrupt the running of the five-year prescriptive
period.

Wyeth Suaco, on the other hand, maintains the position that it never asked for a reinvestigation nor
reconsideration of th assessments. What it requested was the cancellation and with drawal of the
assessments for lack of legal and factual basis. Thus, its protest letters dated January 17, 1975 and
February 8, 1975 did not suspend or interrupt the running of the five-year prescriptive period.

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy
or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. In the case of Commissioner of Internal Revenue vs. Capitol
Subdivision, Inc.,12 this Court held:

The period of prescription of action to collect a taxpayer's deficiency income tax assessment is
interrupted when the taxpayer request for a review or reconsideration of said assessment, and starts to
run again when said request is denied.

In another case, this Court stated that the statutory period of limitation for collection may be
interrupted if by the taxpayer's repeated requests or positive acts the Government has been, for good
reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or
that no harassment or injustice is meant by the Goverrument.13 Also in the case of Cordero vs.
Gonda,14 we held:

Partial payment would not prevent the government from suing the taxpayer. Because, by such act of
payment, the government is not thereby "persuaded to postpone collection to make him feel that the
demand was not unreasonable or that no harassment or injustice is meant." This is the underlying
reason behind the rule that the prescriptive period is arrested by the taxpayer's request for re-
examination or reinvestigation — even if he "has not previously waived it (prescription in writing)". ...
(emphasis supplied)
Thus, the pivotal issue in this case is whether or not Wyeth Suaco sought reinvestigation or
reconsideration of the deficiency tax assessments issued by the Bureau of Internal Revenue.

After carefully examining the records of the case, we find that Wyeth Suaco admitted that it was seeking
reconsideration of the tax assessments as shown in a letter of James A. Gump, its President and General
Manager, dated April 28, 1975, the relevant portion of which is quoted hereunder, to wit:

We submit this letter as a follow-up to our protest filed with your office, through our tax advisers, Sycip,
Gorres, Velayo & Co., on January 20 and February 10, 1975 regarding alleged deficiency on withholding
tax at source of P3,178,994.15 and on percentage tax of P60,855.21, including interest and
surcharges, on which we are seeking reconsideration.15 (emphasis supplied)

Furthermore, when Wyeth Suaco thru its tax consultant SGV & Co. sent the letters protesting the
assessments, the Bureau of Internal Revenue, Manufacturing Audit Division, conducted a review and
reinvestigation of the assessments. This fact was admitted by Wyeth Suaco thru its Finance Manager in a
letter dated July 1, 1975 addressed to the Chief, Tax Accounts Division. The pertinent portion of said
letter reads as follows:

This will acknowledge receipt of your letter dated May 22, 1975 regarding our alleged income and
business tax deficiencies for fiscal year 1972/73.

xxx xxx xxx

Nevertheless, please be advised that the deficiency tax stated in your letter is what we are protesting on
pursuant to the letters we filed with the Bureau of Internal Revenue on January 20, 1975 and on
February 10, 1975.

xxx xxx xxx

As we understand, the matter is now undergoing review and consideration by your Manufacturing Audit
Division. Pending the outcome of their decision, we regret our inability to make settlement.
...16 (Emphasis supplied)

Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically
state or use th words "reinvestigation" and "reconsideration," the same are to be treated as letters of
reinvestigation and reconsideration. By virtue of these letters, the Bureau of Internal Revenue ordered
its Manufacturing Audit Division to review the assessment made. Furthermore, private respondent's
claim that it did not seek reinvestigation or reconsideration of the assessments is belied by the
subsequent correspondence or letters written by its officers, as shown above.

These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the
deficiency taxes. The Bureau of Internal Revenue, after having reviewed the record of Wyeth Suaco, in
accordance with its request for reinvestigation, rendered a final assessment. This final assessment issue
by then Acting Commissioner Ruben B. Ancheta was date December 10, 1979 and received by private
respondent on January 2, 1980, fixed its tax liability at P1,973,112.86 as deficiency withholding tax at
source and P61,155.21 as deficiency sales tax. It was only upon receipt by Wyeth Suaco of this final
assessment that the five-year prescriptive period started to run again.

Verily, the original assessments dated December 16 and 17, 1974 were both received by Wyeth Suaco
on December 19, 1974. However, when Wyeth Suaco protested the assessments and sought its
reconsideration in two (2) letters received by the Bureau of Internal Revenue on January 20 and
February 10, 1975, the prescriptive period was interrupted. This period started to run again when the
Bureau of Internal Revenue served the final assessment to Wyeth Suaco on January 2, 1980. Since the
warrants of distraint and levy were served on Wyeth Suaco on March 12, 1980, then, only about four (4)
months of the five-year prescriptive period was used.

Having resolved the issue of prescription, we now come to the merits of the case.

Wyeth Suaco questions the legality of the regulation imposed by the Bureau of Intemal Revenue of
requiring a withholding agent or taxpayer to remit the taxes deducted and withheld at source on
incomes which have not yet been paid. It maintains the stand that withholding tax at source should only
be remitted to the Bureau of Internal Revenue once the incomes subject to withholding tax at source
have actually been paid. Thus, private respondent avers that it was not liable to remit the taxes withheld
at source on royalties and dividends unless these incomes have been actually paid to its foreign licensors
and stockholders.

It is said that taxes are what we pay for civilized society. Without taxes, the government would be
paralyzed for lack of the motive power to activate and operate it. ... It is the lifeblood of the government
and so should be collected without unnecessary hindrance ...17

In line with this principle, the Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that
"the Commissioner of Internal Revenue may, with the approval of the Secretary of Finance, require the
withholding agents to pay or deposit the taxes deducted and withheld at more frequent intervals when
necessary to protect the interest of the government. The return shall be filed and the payment made
within 25 days from the close of each calendar quarter". Presently, Revenue Regulation No. 6-85
effective July 1, 1985, requires the filing of monthly return and payment of taxes withheld at source
within (10) days after the end of each month.

Moreover, the records show that Wyeth Suaco adopted the accrual method of accounting wherein the
effect of transactions and other events on assets and liabilities are recognized and reported in the time
periods to which they relate rather than only when cash is received or paid. The "Report of
Investigation" submitted by the tax examiner indicated that accrual was the basis of the taxpayer's
return.18 Thus, private respondent recorded accrued royalties and dividends payable as well as the
withholding tax at source payable on these incomes. Having deducted and withheld the tax at source
and having recorded the withholding tax at source payable in its books of accounts, private respondent
was obligated to remit the same to the Bureau of Internal Revenue.

With regard to the accuracy of the assessment on deficiency sales tax, we rule that the examiner's
assessment should be given full weight and credit, in the absence of proof submitted by Wyeth Suaco to
the contrary. This is in line with our ruling in several cases wherein we said that tax assessments by tax
examiners are presumed correct and made in good faith. The taxpayer has the duty to prove otherwise.
In the absence of proof of any irregularities in the performance of duties, an assessment duly made by a
Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments.19 The case of Commissioner of Internal
Revenue vs. Construction Resources of Asia, Inc.,20 where this Court cited 51 Am. Jur. pp. 620-621, states
the principle in detail, thus:

All presumptions are in favor of the correctness of tax assessments. The good faith of 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. No presumption can be indulged that all of the public
officials of the State in the various counties who have to do with the assessment of property for taxation
will knowingly violate the duties imposed upon them by law.

The final assessment issued by the Bureau of Internal Revenue declared the issuance of deficiency sales
tax assessments to be legal and valid. It was ascertained that during the investigation, Wyeth Suaco
deducted non-deductible raw materials which were not subjected to advance sales tax thereby resulting
in its failure to pay the correct amount of sales tax under Section 183, in relation to Section 186 and 186-
B of the Tax Code, prior to and after amendment by Presidential Decree No. 69. Wyeth Suaco was not
able to refute this by submitting supporting documents.21

WHEREFORE, the petition is GRANTED. Wyeth Suaco Laboratories, Inc, is hereby ordered to pay the
Bureau of Internal Revenue the amount of P1,973,112.86 as deficiency withholding tax at source, with
interest and surcharge in accordance with law, without prejudice to any reduction brought about by
payments or remittance made. Wyeth Suaco Laboratories, Inc. is also ordered to pay the Bureau of
Internal Revenue the amount of P60,855.21 as deficiency sales tax with interest and surcharge in
accordance with law. Costs against private respondent.

SO ORDERED.
CIR vs WYETH

Private respondent Wyeth Suaco Laboratories, Inc. (Wyeth Suaco for brevity) is a domestic corporation
engaged in the manufacture and sale of assorted pharmaceutical and nutritional products. By virtue of
Letter of Authority No. 52415 dated June 17, 1974 issued by then Commissioner of Internal Revenue
Misael P. Vera, Revenue Examiner Dante Kabigting conducted an investigation and examination of the
books of accounts of Wyeth Suaco. The report concluded that Wyeth allegedly failed to remit
withholding tax. Consequently, the Bureau of Internal Revenue assessed Wyeth Suaco on the aforesaid
tax liabilities in two (2) notices dated December 16, 1974 and December 17, 1974. These assessment
notices were both received by Wyeth Suaco on December 19, 1974. 4

Thereafter, Wyeth protested the assessments and requesting their cancellation or withdrawal on the
ground that said assessments lacked factual or legal basis. Wyeth Suaco argued that it was not liable to
pay withholding tax at source on the accrued royalties and dividends because they have yet to be
remitted or paid abroad. It claimed that it was not able to remit the balance of fifty percent (50%) of the
accrued royalties to its foreign licensors because of Central Bank Circular No. 289 allowing remittance of
royalties up to fifty percent (50%) only. Thus, Wyeth Suaco's contention was that a withholding tax at
source on royalties and dividends becomes due and payable only upon their actual payment or
remittance.

the Commissioner of Internal Revenue asked Wyeth Suaco to avail itself of the compromise settlement
under LOI 308. In its answer, Wyeth Suaco manifested its conformity to a 10% compromise provided it
be applied only to the basic sales tax, excluding surcharge and interest. As to the deficiency withholding
tax at source, Wyeth took exception on the ground that it involves purely a legal question and some of
the amounts included in the assessment have already bee paid. petitioner, thru then acting
Commissioner of Internal Revenue rendered a decision reducing the assessment of the withholding tax
at source for 1973 to P1,973,112.86.

Thereafter, Wyeth Suaco filed a petition for review in Court of Tax Appeals on January 18, 1980, praying
that petitioner be enjoined from enforcing the assessments by reason of prescription and that the
assessments be declared null for lack of legal and factual basis.

The Court of Tax Appeals rendered a decision enjoining the CIR from collecting the deficiency taxes, the
dispositive portion as statin that while the assessments for the deficiency taxes were made within the
five-year period of limitation, the right of petitioner to collect the same has already prescribed, in
accordance with Section 319 (c) of the Tax Code of 1977. The said law provides that an assessment of
any internal revenue tax within the five-year period of limitation may be collected by distraint or levy or
by a proceeding in court, but only if begun within five (5) years after the assessment of the tax.

ISSUE:

Is the Petitioner enjoined from collecting the deficiency tax by virtue of the five year prescription stated
by law?
Is the regulation imposed by the Bureau of Intemal Revenue of requiring a withholding agent or
taxpayer to remit the taxes deducted and withheld at source on incomes which have not yet been paid
legal?

Answer to first issue

Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy
or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment. Next question to consider is, did wyeth suaco ask for a
reconsideration or reinvestigation of the assessment? Although the protest letters prepared by SGV &
Co. in behalf of private respondent did not categorically state or use the words "reinvestigation" and
"reconsideration," the same are to be treated as letters of reinvestigation and reconsideration. These
letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the
deficiency taxes. Upon receiving these letters CIR reinvestigated the assessments made. This period
started to run again when the Bureau of Internal Revenue served the final assessment to Wyeth Suaco
on January 2, 1980 then, only about four (4) months of the five-year prescriptive period was used.

Answer to second question.

the Tax Code, particularly Section 54 (a) [now Section 51 (a)] provides that "the Commissioner of
Internal Revenue may, with the approval of the Secretary of Finance, require the withholding agents to
pay or deposit the taxes deducted and withheld at more frequent intervals when necessary to protect
the interest of the government…"

the records show that Wyeth Suaco adopted the accrual method of accounting wherein the effect of
transactions and other events on assets and liabilities are recognized and reported in the time periods to
which they relate rather than only when cash is received or paid. The "Report of Investigation"
submitted by the tax examiner indicated that accrual was the basis of the taxpayer's return. 18 Thus,
private respondent recorded accrued royalties and dividends payable as well as the withholding tax at
source payable on these incomes. Having deducted and withheld the tax at source and having recorded
the withholding tax at source payable in its books of accounts, private respondent was obligated to
remit the same to the Bureau of Internal Revenue.
THIRD DIVISION

LASCONA LAND CO., INC., G.R. No. 171251

Petitioner, Present:

VELASCO, JR., J., Chairperson,

PERALTA,

- versus - ABAD,

VILLARAMA, JR.,* and

MENDOZA, JJ.

Promulgated:

COMMISSIONER OF INTERNAL REVENUE,

March 5, 2012

Respondent.

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

DECISION

PERALTA, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking the
reversal of the Decision[1] dated October 25, 2005 and Resolution[2]dated January 20, 2006 of the Court
of Appeals (CA) in CA-G.R. SP No. 58061 which set aside the Decision[3] dated January 4, 2000 and
Resolution[4] dated March 3, 2000 of the Court of Tax Appeals (CTA) in C.T.A. Case No. 5777 and declared
Assessment Notice No. 0000047-93-407 dated March 27, 1998 to be final, executory and demandable.

The facts, as culled from the records, are as follows:

On March 27, 1998, the Commissioner of Internal Revenue (CIR) issued Assessment Notice No. 0000047-
93-407[5] against Lascona Land Co., Inc. (Lascona) informing the latter of its alleged deficiency income tax
for the year 1993 in the amount of P753,266.56.

Consequently, on April 20, 1998, Lascona filed a letter protest, but was denied by Norberto R. Odulio,
Officer-in-Charge (OIC), Regional Director, Bureau of Internal Revenue, Revenue Region No.
8, Makati City, in his Letter[6] dated March 3, 1999, which reads, thus:

xxxx

Subject: LASCONA LAND CO., INC.

1993 Deficiency Income Tax

Madam,

Anent the 1993 tax case of subject taxpayer, please be informed that while we agree with the
arguments advanced in your letter protest, we regret, however, that we cannot give due course to your
request to cancel or set aside the assessment notice issued to your client for the reason that the case
was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of
Section 228 of the Tax Code. By virtue thereof, the said assessment notice has become final, executory
and demandable.

In view of the foregoing, please advise your client to pay its 1993 deficiency income tax liability in the
amount of P753,266.56.

x x x x (Emphasis ours)
On April 12, 1999, Lascona appealed the decision before the CTA and was docketed as C.T.A. Case No.
5777. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA
within thirty (30) days from the lapse of the 180-day period rendered the assessment final and
executory.

The CIR, however, maintained that Lascona's failure to timely file an appeal with the CTA after the lapse
of the 180-day reglementary period provided under Section 228 of the National Internal Revenue Code
(NIRC) resulted to the finality of the assessment.

On January 4, 2000, the CTA, in its Decision,[7] nullified the subject assessment. It held that in cases of
inaction by the CIR on the protested assessment, Section 228 of the NIRC provided two options for the
taxpayer: (1) appeal to the CTA within thirty (30) days from the lapse of the one hundred eighty (180)-
day period, or (2) wait until the Commissioner decides on his protest before he elevates the case.

The CIR moved for reconsideration. It argued that in declaring the subject assessment as final, executory
and demandable, it did so pursuant to Section 3 (3.1.5) of Revenue Regulations No. 12-99
dated September 6, 1999 which reads, thus:

If the Commissioner or his duly authorized representative fails to act on the taxpayer's protest within
one hundred eighty (180) days from date of submission, by the taxpayer, of the required documents in
support of his protest, the taxpayer may appeal to the Court of Tax Appeals within thirty (30) days from
the lapse of the said 180-day period; otherwise, the assessment shall become final, executory and
demandable.

On March 3, 2000, the CTA denied the CIR's motion for reconsideration for lack of merit.[8] The CTA held
that Revenue Regulations No. 12-99 must conform to Section 228 of the NIRC. It pointed out that the
former spoke of an assessment becoming final, executory and demandable by reason of the inaction by
the Commissioner, while the latter referred to decisions becoming final, executory and demandable
should the taxpayer adversely affected by the decision fail to appeal before the CTA within the
prescribed period.Finally, it emphasized that in cases of discrepancy, Section 228 of the NIRC must
prevail over the revenue regulations.
Dissatisfied, the CIR filed an appeal before the CA.[9]

In the disputed Decision dated October 25, 2005, the Court of Appeals granted the CIR's petition and set
aside the Decision dated January 4, 2000 of the CTA and its Resolution dated March 3, 2000. It further
declared that the subject Assessment Notice No. 0000047-93-407 dated March 27, 1998 as final,
executory and demandable.

Lascona moved for reconsideration, but was denied for lack of merit.

Thus, the instant petition, raising the following issues:

THE HONORABLE COURT HAS, IN THE REVISED RULES OF COURT OF TAX APPEALS WHICH IT RECENTLY
PROMULGATED, RULED THAT AN APPEAL FROM THE INACTION OF RESPONDENT COMMISSIONER IS
NOT MANDATORY.

II

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT HELD THAT THE ASSESSMENT HAS BECOME FINAL
AND DEMANDABLE BECAUSE, ALLEGEDLY, THE WORD DECISION IN THE LAST PARAGRAPH OF SECTION
228 CANNOT BE STRICTLY CONSTRUED AS REFERRING ONLY TO THE DECISION PER SE OF THE
COMMISSIONER, BUT SHOULD ALSO BE CONSIDERED SYNONYMOUS WITH AN ASSESSMENT WHICH HAS
BEEN PROTESTED, BUT THE PROTEST ON WHICH HAS NOT BEEN ACTED UPON BY THE
COMMISSIONER.[10]

In a nutshell, the core issue to be resolved is: Whether the subject assessment has become final,
executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty
(30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the
NIRC.

Petitioner Lascona, invoking Section 3,[11] Rule 4 of the Revised Rules of the Court of Tax Appeals,
maintains that in case of inaction by the CIR on the protested assessment, it has the option to either: (1)
appeal to the CTA within 30 days from the lapse of the 180-day period; or (2) await the final decision of
the Commissioner on the disputed assessment even beyond the 180-day period − in which case, the
taxpayer may appeal such final decision within 30 days from the receipt of the said decision. Corollarily,
petitioner posits that when the Commissioner failed to act on its protest within the 180-day period, it
had the option to await for the final decision of the Commissioner on the protest, which it did.

The petition is meritorious.

Section 228 of the NIRC is instructional as to the remedies of a taxpayer in case of the inaction of the
Commissioner on the protested assessment, to wit:

SEC. 228. Protesting of Assessment. − x x x

xxxx

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

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may
be prescribed by implementing rules and regulations.

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

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

Respondent, however, insists that in case of the inaction by the Commissioner on the protested
assessment within the 180-day reglementary period, petitioner should have appealed the inaction to
the CTA. Respondent maintains that due to Lascona's failure to file an appeal with the CTA after the
lapse of the 180-day period, the assessment became final and executory.

We do not agree.

In RCBC v. CIR,[12] the Court has held that in case the Commissioner failed to act on the disputed
assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1)
file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day
period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such
final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision.[13]

This is consistent with Section 3 A (2), Rule 4 of the Revised Rules of the Court of Tax Appeals,[14] to wit:

SEC. 3. Cases within the jurisdiction of the Court in Divisions. The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

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

(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code or other applicable law provides a specific period
for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of
Internal Revenue within the one hundred eighty day-period under Section 228 of the National Internal
revenue Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the
Court and does not necessarily constitute a formal decision of the Commissioner of Internal Revenue
on the tax case; Provided, further, that should the taxpayer opt to await the final decision of the
Commissioner of Internal Revenue on the disputed assessments beyond the one hundred eighty day-
period abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a),
Rule 8 of these Rules; and Provided, still further, that in the case of claims for refund of taxes
erroneously or illegally collected, the taxpayer must file a petition for review with the Court prior to the
expiration of the two-year period under Section 229 of the National Internal Revenue Code;

(Emphasis ours)

In arguing that the assessment became final and executory by the sole reason that petitioner failed to
appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period,
respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to
just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse
of the 180-day period. This is incorrect.

As early as the case of CIR v. Villa,[15] it was already established that the word "decisions" in paragraph 1,
Section 7 of Republic Act No. 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. We quote what this Court said aptly in a previous case:

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 thirty
days prescribed by section 11 of Republic Act No. 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 assessment" that the Collector
must decide, and the taxpayer can appeal to the Court of Tax Appeals only upon receipt of the
decision of the Collector on the disputed assessment, . . . [16]

Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it
did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day
prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to
decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final
decision of the CIR on the protested assessment. More so, because the law and jurisprudence have
always contemplated a scenario where the CIR will decide on the protested assessment.

It must be emphasized, however, that in case of the inaction of the CIR on the protested assessment,
while we reiterate − the taxpayer has two options, either: (1) file a petition for review with the CTA
within 30 days after the expiration of the 180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days after
the receipt of a copy of such decision, these options are mutually exclusive and resort to one bars the
application of the other.

Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the
protested assessment, it then has the right to appeal such final decision to the Court by filing a petition
for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration
of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed
assessments.[17] Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt
of the Letter[18] dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed
within 30 days after receipt of the copy of the decision.

Finally, the CIR should be reminded that taxpayers cannot be left in quandary by its inaction on the
protested assessment. It is imperative that the taxpayers are informed of its action in order that the
taxpayer should then at least be able to take recourse to the tax court at the opportune time. As
correctly pointed out by the tax court:

x x x to adopt the interpretation of the respondent will not only sanction inefficiency, but will likewise
condone the Bureau's inaction. This is especially true in the instant case when despite the fact that
respondent found petitioner's arguments to be in order, the assessment will become final, executory
and demandable for petitioner's failure to appeal before us within the thirty (30) day period.[19]

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.[20] Thus, even as we concede the inevitability and
indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably
and in accordance with the prescribed procedure.[21]

WHEREFORE, the petition is GRANTED. The Decision dated October 25, 2005 and the Resolution
dated January 20, 2006 of the Court of Appeals in CA-G.R. SP No. 58061 are REVERSED and SET
ASIDE. Accordingly, the Decision dated January 4, 2000 of the Court of Tax Appeals in C.T.A. Case No.
5777 and its Resolution dated March 3, 2000 are REINSTATED.

SO ORDERED.

DIOSDADO M. PERALTA

Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.

Associate Justice

Chairperson
ROBERTO A. ABAD MARTIN S. VILLARAMA, JR.

Associate Justice Associate Justice

Manila

THIRD DIVISION

G.R. No. 168498 April 24, 2007

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

For resolution is petitioner’s Motion for Reconsideration of our Decision1 dated June 16, 2006 affirming
the Decision of the Court of Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which affirmed
the Resolutions of the Court of Tax Appeals Second Division dated May 3, 2004 and November 5, 2004 in
C.T.A. Case No. 6475, denying petitioner’s Petition for Relief from Judgment and Motion for
Reconsideration, respectively.

Petitioner reiterates its claim that its former counsel’s failure to file petition for review with the Court of
Tax Appeals within the period set by Section 228 of the National Internal Revenue Code of 1997 (NIRC)
was excusable and raised the following issues for resolution:

A.

THE DENIAL OF PETITIONER’S PETITION FOR RELIEF FROM JUDGMENT WILL RESULT IN THE DENIAL OF
SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO ESTABLISHED DECISIONS OF THIS HONORABLE
COURT BECAUSE THE ASSESSMENT SOUGHT TO BE CANCELLED HAS ALREADY PRESCRIBED – A FACT NOT
DENIED BY THE RESPONDENT IN ITS ANSWER.

B.

CONTRARY TO THIS HONORABLE COURT’S DECISION, AND FOLLOWING THE LASCONA DECISION, AS
WELL AS THE 2005 REVISED RULES OF THE COURT OF TAX APPEALS, PETITIONER TIMELY FILED ITS
PETITION FOR REVIEW BEFORE THE COURT OF TAX APPEALS; THUS, THE COURT OF TAX APPEALS HAD
JURISDICTION OVER THE CASE.

C.

CONSIDERING THAT THE SUBJECT ASSESSMENT INVOLVES AN INDUSTRY ISSUE, THAT IS, A DEFICIENCY
ASSESSMENT FOR DOCUMENTARY STAMP TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS ONSHORE
TAX, PETITIONER IN THE INTEREST OF SUBSTANTIVE JUSTICE AND UNIFORMITY OF TAXATION, SHOULD
BE ALLOWED TO FULLY LITIGATE THE ISSUE BEFORE THE COURT OF TAX APPEALS.2

Petitioner’s motion for reconsideration is denied for lack of merit.

Other than the issue of prescription, which is raised herein for the first time, the issues presented are a
mere rehash of petitioner’s previous arguments, all of which have been considered and found without
merit in our Decision dated June 16, 2006.

Petitioner maintains that its counsel’s neglect in not filing the petition for review within the
reglementary period was excusable. It alleges that the counsel’s secretary misplaced the Resolution
hence the counsel was not aware of its issuance and that it had become final and executory.

We are not persuaded.

In our Decision, we held that:

Relief cannot be granted on the flimsy excuse that the failure to appeal was due to the neglect of
petitioner’s counsel. Otherwise, all that a losing party would do to salvage his case would be to invoke
neglect or mistake of his counsel as a ground for reversing or setting aside the adverse judgment,
thereby putting no end to litigation.

Negligence to be "excusable" must be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party have probably been impaired.
Petitioner’s former counsel’s omission could hardly be characterized as excusable, much less
unavoidable.

The Court has repeatedly admonished lawyers to adopt a system whereby they can always receive
promptly judicial notices and pleadings intended for them. Apparently, petitioner’s counsel was not only
remiss in complying with this admonition but he also failed to check periodically, as an act of prudence
and diligence, the status of the pending case before the CTA Second Division. The fact that counsel
allegedly had not renewed the employment of his secretary, thereby making the latter no longer
attentive or focused on her work, did not relieve him of his responsibilities to his client. It is a problem
personal to him which should not in any manner interfere with his professional commitments.3

Petitioner also argues that, in the interest of substantial justice, the instant case should be re-opened
considering that it was allegedly not accorded its day in court when the Court of Tax Appeals dismissed
its petition for review for late filing. It claims that rules of procedure are intended to help secure, not
override, substantial justice.

Petitioner’s arguments fail to persuade us.

As correctly observed by the Court of Tax Appeals in its Decision dated June 7, 2005:

If indeed there was negligence, this is obviously on the part of petitioner’s own counsel whose prudence
in handling the case fell short of that required under the circumstances. He was well aware of the
motion filed by the respondent for the Court to resolve first the issue of this Court’s jurisdiction on July
15, 2003, that a hearing was conducted thereon on August 15, 2003 where both counsels were present
and at said hearing the motion was submitted for resolution. Petitioner’s counsel apparently did not
show enthusiasm in the case he was handling as he should have been vigilant of the outcome of said
motion and be prepared for the necessary action to take whatever the outcome may have been. Such
kind of negligence cannot support petitioner’s claim for relief from judgment.

Besides, tax assessments by tax examiners are presumed correct and made in good faith, and all
presumptions are in favor of the correctness of a tax assessment unless proven otherwise.4 Also,
petitioner’s failure to file a petition for review with the Court of Tax Appeals within the statutory period
rendered the disputed assessment final, executory and demandable, thereby precluding it from
interposing the defenses of legality or validity of the assessment and prescription of the Government’s
right to assess.5

The Court of Tax Appeals is a court of special jurisdiction and can only take cognizance of such matters
as are clearly within its jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending R.A. No. 1125,
otherwise known as the Law Creating the Court of Tax Appeals, provides:

Sec. 7. Jurisdiction. — The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:

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

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

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules of the Court of Tax Appeals6 state:

RULE 4
Jurisdiction of the Court

xxxx

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions. — The Court in Divisions shall
exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal the following:

(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds
of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the National Internal Revenue Code or other laws administered by the Bureau of Internal
Revenue, where the National Internal Revenue Code or other applicable law provides a specific period
for action: Provided, that in case of disputed assessments, the inaction of the Commissioner of Internal
Revenue within the one hundred eighty day-period under Section 228 of the National Internal Revenue
Code shall be deemed a denial for purposes of allowing the taxpayer to appeal his case to the Court and
does not necessarily constitute a formal decision of the Commissioner of Internal Revenue on the tax
case; Provided, further, that should the taxpayer opt to await the final decision of the Commissioner of
Internal Revenue on the disputed assessments beyond the one hundred eighty day-period
abovementioned, the taxpayer may appeal such final decision to the Court under Section 3(a), Rule 8 of
these Rules; and Provided, still further, that in the case of claims for refund of taxes erroneously or
illegally collected, the taxpayer must file a petition for review with the Court prior to the expiration of
the two-year period under Section 229 of the National Internal Revenue Code;

xxxx

RULE 8
Procedure in Civil Cases

xxxx

SECTION 3. Who May Appeal; Period to File Petition. — (a) A party adversely affected by a decision,
ruling or the inaction of the Commissioner of Internal Revenue on disputed assessments or claims for
refund of internal revenue taxes, or by a decision or ruling of the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry, the Secretary of Agriculture, or a Regional
Trial Court in the exercise of its original jurisdiction may appeal to the Court by petition for review filed
within thirty days after receipt of a copy of such decision or ruling, or expiration of the period fixed by
law for the Commissioner of Internal Revenue to act on the disputed assessments. In case of inaction of
the Commissioner of Internal Revenue on claims for refund of internal revenue taxes erroneously or
illegally collected, the taxpayer must file a petition for review within the two-year period prescribed by
law from payment or collection of the taxes. (n)

From the foregoing, it is clear that the jurisdiction of the Court of Tax Appeals has been expanded to
include not only decisions or rulings but inaction as well of the Commissioner of Internal Revenue. The
decisions, rulings or inaction of the Commissioner are necessary in order to vest the Court of Tax
Appeals with jurisdiction to entertain the appeal, provided it is filed within 30 days after the receipt of
such decision or ruling, or within 30 days after the expiration of the 180-day period fixed by law for the
Commissioner to act on the disputed assessments. This 30-day period within which to file an appeal is
jurisdictional and failure to comply therewith would bar the appeal and deprive the Court of Tax Appeals
of its jurisdiction to entertain and determine the correctness of the assessments. Such period is not
merely directory but mandatory and it is beyond the power of the courts to extend the same.7
In case the Commissioner failed to act on the disputed assessment within the 180-day period from date
of submission of documents, a taxpayer can either: 1) file a petition for review with the Court of Tax
Appeals within 30 days after the expiration of the 180-day period; or 2) await the final decision of the
Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals
within 30 days after receipt of a copy of such decision. However, these options are mutually exclusive,
and resort to one bars the application of the other.

In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from
date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of
Tax Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30
days after the lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals
for late filing. Petitioner did not file a motion for reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the
Commissioner and thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot
be countenanced. After availing the first option, i.e., filing a petition for review which was however filed
out of time, petitioner can not successfully resort to the second option, i.e., awaiting the final decision of
the Commissioner and appealing the same to the Court of Tax Appeals, on the pretext that there is yet
no final decision on the disputed assessment because of the Commissioner’s inaction.

Lastly, we note that petitioner is raising the issue of prescription for the first time in the instant motion
for reconsideration. Although the same was raised in the petition for review, it was dismissed for late
filing. No motion for reconsideration was filed hence the disputed assessment became final,
demandable and executory. Thereafter, petitioner filed with the Court of Tax Appeals a petition for
relief from judgment. However, it failed to raise the issue of prescription therein. After its petition for
relief from judgment was denied by the Court of Tax Appeals for lack of merit, petitioner filed a petition
for review before this Court without raising the issue of prescription. It is only in the instant motion for
reconsideration that petitioner raised the issue of prescription which is not allowed. The rule is well-
settled that points of law, theories, issues and arguments not adequately brought to the attention of the
lower court need not be considered by the reviewing court as they cannot be raised for the first time on
appeal,8 much more in a motion for reconsideration as in this case, because this would be offensive to
the basic rules of fair play, justice and due process.9 This last ditch effort to shift to a new theory and
raise a new matter in the hope of a favorable result is a pernicious practice that has consistently been
rejected.

WHEREFORE, in view of the foregoing, petitioner’s motion for reconsideration is DENIED.

SO ORDERED.

CONSUELO YNARES-SANTIAGO
Associate Justice
SECOND DIVISION

G.R. No. L-66160 May 21, 1990

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
UNION SHIPPING CORPORATION and THE COURT OF TAX APPEALS, respondents.

Artemio M. Lobrin for private respondent.

PARAS, J.:

This is a petition for review on certiorari of the December 9, 1983 decision * of the Court of Tax Appeals
in CTA Case No. 2989 reversing the Commissioner of Internal Revenue.

In a letter dated December 27, 1974 (Exhibit "A") herein petitioner Commissioner of Internal Revenue
assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the
total sum of P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was
received on January 4, 1975, and in a letter dated January 10, 1975 (Exhibit "B"), received by petitioner
on January 13, 1975, private respondent protested the assessment.

Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy (Exhibit "C"), which was
served on private respondent's counsel, Clemente Celso, on November 25, 1976.

In a letter dated November 27, 1976 (Exhibit "D"), received by petitioner on November 29, 1976 (Exhibit
"D-1") private respondent reiterated its request for reinvestigation of the assessment and for the
reconsideration of the summary collection thru the Warrant of Distraint and Levy.

Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant
of Distraint and Levy, filed a collection suit before Branch XXI of the then Court of First Instance of
Manila and docketed as Civil Case No. 120459 against private respondent. Summons (Exhibit "E") in the
said collection case was issued to private respondent on December 28, 1978.

On January 10, 1979, private respondent filed with respondent court its Petition for Review of the
petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed
therein as CTA Case No. 2989 (Rollo, pp. 44-49), wherein it prays that after hearing, judgment be
rendered holding that it is not liable for the payment of the income tax herein involved, or which may be
due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979
(Rollo, pp. 50-53).

Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent —
WHEREFORE, the decision of the Commissioner of Internal Revenue appealed from, assessing against
and demanding from petitioner the payment of deficiency income tax, inclusive of 50% surcharge,
interest and compromise penalties, in the amounts of P73,958.76 and P583,155.22 for the years 1971
and 1972, respectively, is reversed.

Hence, the instant petition.

The Second Division of this Court, after the filing of the required pleadings, in a resolution dated January
28, 1985, resolved to give due course to the petition, and directed petitioner therein, to file his brief
(Rollo, p. 145). In compliance, petitioner filed his brief on May 10, 1985 (Rollo, p. 151). Respondents, on
the other hand, filed their brief on June 6, 1985 (Rollo, p. 156).

The main issues in this case are: (a) on the procedural aspect, whether or not the Court of Tax Appeals
has jurisdiction over this case and (b) on the merits, whether or not Union Shipping Corporation acting
as a mere "husbanding agent" of Yee Fong Hong Ltd. is liable for payment of taxes on the gross receipts
or earnings of the latter.

The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the
finality of an assessment because it is the most drastic action of all media of enforcing the collection of
tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment. Among
others, petitioner contends that the warrant of distraint and levy was issued after respondent
corporation filed a request for reconsideration of subject assessment, thus constituting petitioner's final
decision in the disputed assessments (Brief for petitioner, pp. 9 and 12).

Petitioner argues therefore that the period to appeal to the Court of Tax Appeals commenced to run
from receipt of said warrant on November 25, 1976, so that on January 10, 1979 when respondent
corporation sought redress from the Tax Court, petitioner's decision has long become final and
executory.

On this issue, this Court had already laid down the dictum that the Commissioner should always indicate
to the taxpayer in clear and unequivocal language what constitutes his final determination of the
disputed assessment.

Specifically, this Court ruled:

. . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate
to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by
a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections
7 and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the
Commissioner's communicated action is his final decision on the contested assessment, the aggrieved
taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless
difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues.
This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to
continually delay the finality of the assessment — and, consequently, the collection of the amount
demanded as taxes — by repeated requests for recomputation and reconsideration. On the part of the
Commissioner, this would encourage his office to conduct a careful and thorough study of every
questioned assessment and render a correct and definite decision thereon in the first instance. This
would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate
as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of
conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action.
(Surigao Electric Co., Inc. v. C.T.A., 57 SCRA 523, 528, [1974]).

There appears to be no dispute that petitioner did not rule on private respondent's motion for
reconsideration but contrary to the above ruling of this Court, left private respondent in the dark as to
which action of the Commissioner is the decision appealable to the Court of Tax Appeals. Had he
categorically stated that he denies private respondent's motion for reconsideration and that his action
constitutes his final determination on the disputed assessment, private respondent without needless
difficulty would have been able to determine when his right to appeal accrues and the resulting
confusion would have been avoided.

Much later, this Court reiterated the above-mentioned dictum in a ruling applicable on all fours to the
issue in the case at bar, that the reviewable decision of the Bureau of Internal Revenue is that contained
in the letter of its Commissioner, that such constitutes the final decision on the matter which may be
appealed to the Court of Tax Appeals and not the warrants of distraint (Advertising Associates, Inc. v.
Court of Appeals, 133 SCRA 769 [1984] emphasis supplied). It was likewise stressed that the procedure
enunciated is demanded by the pressing need for fair play, regularity and orderliness in administrative
action.

Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final
action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was
only when private respondent received the summons on the civil suit for collection of deficiency income
on December 28, 1978 that the period to appeal commenced to run.

The request for reinvestigation and reconsideration was in effect considered denied by petitioner when
the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private
respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days
well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.

On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation
is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows:

Coming to the second issue, petitioner contended and was substantiated by satisfactory uncontradicted
testimonies of Clemente Celso, Certified Public Accountant, and Rodolfo C. Cabalquinto, President and
General Manager, of petitioner that it is actually and legally the husbanding agent of the vessel of Yee
Fong Hong, Ltd. as (1) it neither performed nor transacted any shipping business, for and in
representation, of Yee Fong Hong, Ltd. or its vessels or otherwise negotiated or procured cargo to be
loaded in the vessels of Yee Fong Hong, Ltd. (p. 21, t.s.n., July 16, 1980); (2) it never solicited or procured
cargo or freight in the Philippines or elsewhere for loading in said vessels of Yee Fong Hong, Ltd. (pp. 21
& 38, ibid.); (3) it had not collected any freight income or receipts for the said Yee Fong Hong, Ltd. (pp.
22 & 38, ibid; pp. 46 & 48, t.s.n., Nov. 14, 1980.); (4) it never had possession or control, actual or
constructive, over the funds representing payment by Philippine shippers for cargo loaded on said
vessels (pp. 21 & 38, ibid; p. 48, ibid); petitioner never remitted to Yee Fong Hong, Ltd. any sum of
money representing freight incomes of Yee Fong Hong, Ltd. (p. 21, ibid.; p. 48, ibid); and (5) that the
freight payments made for cargo loaded in the Philippines for foreign destination were actually paid
directly by the shippers to the said Yee Fong Hong, Ltd. upon arrival of the goods in the foreign ports.
(Rollo, pp. 58-59).

On the same issue, the Commissioner of Internal Revenue Misael P. Vera, on query of respondent's
counsel, opined that respondent corporation being merely a husbanding agent is not liable for the
payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines (Rollo,
p. 63; Exhibit "I", Rollo, pp. 64-66).

Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue
Code since it is not in possession, custody or control of the funds received by and remitted to Yee Fong
Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or
corporation like the petitioner in this case, is not in the actual possession, custody, or control of the
funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on
income claimed by Yee Fong Hong, Ltd." (Rollo, p. 67).

Finally, it must be stated that factual findings of the Court of Tax Appeals are binding on this Court
(Industrial Textiles Manufacturing Company of the Phil., Inc. (ITEMCOP) v. Commissioner of Internal
Revenue, et al. (136 SCRA 549 [1985]). It is well-settled that in passing upon petitions for review of the
decisions of the Court of Tax Appeals, this Court is generally confined to questions of law. The findings of
fact of said Court are not to be disturbed unless clearly shown to be unsupported by substantial
evidence (Commissioner of Internal Revenue v. Manila Machinery & Supply Company, 135 SCRA 8
[1985]).

A careful scrutiny of the records reveals no cogent reason to disturb the findings of the Court of Tax
Appeals.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED and the assailed decision of the Court
of Tax Appeals is hereby AFFIRMED.

SO ORDERED.

Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes
[G.R. No. 135210. July 11, 2001]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ISABELA CULTURAL CORPORATION, respondent.

DECISION

PANGANIBAN, J.:

A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate
payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayers
request for reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus
appealable to the Court of Tax Appeals (CTA).

The Case

Before this Court is a Petition for Review on Certiorari[1] pursuant to Rule 45 of the Rules of Court,
seeking to set aside the August 19, 1998 Decision[2] of the Court of Appeals[3] (CA) in CA-GR SP No.
46383 and ultimately to affirm the dismissal of CTA Case No. 5211. The dispositive portion of the
assailed Decision reads as follows:

WHEREFORE, the assailed decision is REVERSED and SET ASIDE. Accordingly, judgment is hereby
rendered REMANDING the case to the CTA for proper disposition.[4]

The Facts

The facts are undisputed. The Court of Appeals quoted the summary of the CTA as follows:

As succinctly summarized by the Court of Tax appeals (CTA for brevity), the antecedent facts are as
follows:
In an investigation conducted on the 1986 books of account of [respondent, petitioner] had the
preliminary [finding] that [respondent] incurred a total income tax deficiency of P9,985,392.15, inclusive
of increments. Upon protest by [respondents] counsel, the said preliminary assessment was reduced to
the amount of P325,869.44, a breakdown of which follows:

Deficiency Income Tax P321,022.68

Deficiency Expanded

Withholding Tax 4,846.76

___________

Total P325,869.44

==========

(pp. 187-189, BIR records)

On February 23, 1990, [respondent] received from [petitioner] an assessment letter, dated February 9,
1990, demanding payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and
expanded withholding tax inclusive of surcharge and interest, respectively, for the taxable period from
January 1, 1986 to December 31, 1986. (pp. 204 and 205, BIR rec.)

In a letter, dated March 22, 1990, filed with the [petitioners] office on March 23, 1990 (pp. 296-311, BIR
rec.), [respondent] requested x x x a reconsideration of the subject assessment.
Supplemental to its protest was a letter, dated April 2, 1990, filed with the [petitioners] office on April
18, 1990 (pp. 224 & 225, BIR rec.), to which x x x were attached certain documents supportive of its
protest, as well as a Waiver of Statute of Limitation, dated April 17, 1990, where it was indicated that
[petitioner] would only have until April 5, 1991 within which to asses and collect the taxes that may be
found due from [respondent] after the re-investigation.

On February 9, 1995, [respondent] received from [petitioner] a Final Notice Before Seizure, dated
December 22, 1994 (p. 340, BIR rec.). In said letter, [petitioner] demanded payment of the subject
assessment within ten (10) days from receipt thereof. Otherwise, failure on its part would constrain
[petitioner] to collect the subject assessment through summary remedies.

[Respondent] considered said final notice of seizure as [petitioners] final decision. Hence, the instant
petition for review filed with this Court on March 9, 1995.

The CTA having rendered judgment dismissing the petition, [respondent] filed the instant petition
anchored on the argument that [petitioners] issuance of the Final Notice Before Seizure constitutes [its]
decision on [respondents] request for reinvestigation, which the [respondent] may appeal to the CTA.[5]

Ruling of the Court of Appeals

In its Decision, the Court of Appeals reversed the Court of Tax Appeals. The CA considered the final
notice sent by petitioner as the latters decision, which was appealable to the CTA. The appellate court
reasoned that the final Notice before seizure had effectively denied petitioners request for a
reconsideration of the commissioners assessment. The CA relied on the long-settled tax jurisprudence
that a demand letter reiterating payment of delinquent taxes amounted to a decision on a disputed
assessment.

Hence, this recourse.[6]

Issues
In his Memorandum,[7] petitioner presents for this Courts consideration a solitary issue:

Whether or not the Final Notice Before Seizure dated February 9, 1995 signed by Acting Chief Revenue
Collection Officer Milagros Acevedo against ICC constitutes the final decision of the CIR appealable to
the CTA.[8]

The Courts Ruling

The Petition is not meritorious.

Sole Issue: The Nature of the Final Notice Before Seizure

The Final Notice Before Seizure sent by the Bureau of Internal Revenue (BIR) to respondent reads as
follows:

On Feb.9, 1990, [this] Office sent you a letter requesting you to settle the above-captioned assessment.
To date, however, despite the lapse of a considerable length of time, we have not been honored with a
reply from you.

In this connection, we are giving you this LAST OPPORTUNITY to settle the adverted assessment within
ten (10) days after receipt hereof. Should you again fail, and refuse to pay, this Office will be constrained
to enforce its collection by summary remedies of Warrant of Levy of Road Property, Distraint of Personal
Property or Warrant of Garnishment, and/or simultaneous court action.

Please give this matter your preferential attention.

Very truly yours,

ISIDRO B. TECSON, JR.

Revenue District Officer

By:

(Signed)

MILAGROS M. ACEVEDO

Actg. Chief Revenue Collection Officer[9]

Petitioner maintains that this Final Notice was a mere reiteration of the delinquent taxpayers obligation
to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a
decision on a protested assessment. Such decision, the commissioner contends, must unequivocably
indicate that it is the resolution of the taxpayers request for reconsideration and must likewise state the
reason therefor.

Respondent, on the other hand, points out that the Final Notice Before Seizure should be considered as
a denial of its request for reconsideration of the disputed assessment. The Notice should be deemed as
petitioners last act, since failure to comply with it would lead to the distraint and levy of respondents
properties, as indicated therein.

We agree with respondent. In the normal course, the revenue district officer sends the taxpayer a notice
of delinquent taxes, indicating the period covered, the amount due including interest, and the reason
for the delinquency. If the taxpayer disagrees with or wishes to protest the assessment, it sends a letter
to the BIR indicating its protest, stating the reasons therefor, and submitting such proof as may be
necessary. That letter is considered as the taxpayers request for reconsideration of the delinquent
assessment. After the request is filed and received by the BIR, the assessment becomes a disputed
assessment on which it must render a decision. That decision is appealable to the Court of Tax Appeals
for review.
Prior to the decision on a disputed assessment, there may still be exchanges between the commissioner
of internal revenue (CIR) and the taxpayer. The former may ask clarificatory questions or require the
latter to submit additional evidence. However, the CIRs position regarding the disputed assessment
must be indicated in the final decision. It is this decision that is properly appealable to the CTA for
review.

Indisputably, respondent received an assessment letter dated February 9, 1990, stating that it had
delinquent taxes due; and it subsequently filed its motion for reconsideration on March 23, 1990. In
support of its request for reconsideration, it sent to the CIR additional documents on April 18, 1990. The
next communication respondent received was already the Final Notice Before Seizure dated November
10, 1994.

In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the
commissioners decision disposing of the request for reconsideration filed by respondent, who received
no other response to its request. Not only was the Notice the only response received; its content and
tenor supported the theory that it was the CIRs final act regarding the request for reconsideration. The
very title expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly
stated that respondent was being given this LAST OPPORTUNITY to pay; otherwise, its properties would
be subjected to distraint and levy. How then could it have been made to believe that its request for
reconsideration was still pending determination, despite the actual threat of seizure of its properties?

Furthermore, Section 228 of the National Internal Revenue Code states that a delinquent taxpayer may
nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted
upon 180 days after submission thereof. We quote:

Sec. 228. Protesting an Assessment. x x x

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

Such assessment may be protested administratively by filing a request for reconsideration or

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

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days
from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal
to the Court of Tax Appeals within (30) days from receipt of the said decision, or from the lapse of the
one hundred eighty (180)-day period; otherwise the decision shall become final, executory and
demandable.[10]

In this case, the said period of 180 days had already lapsed when respondent filed its request for
reconsideration on March 23, 1990, without any action on the part of the CIR.

Lastly, jurisprudence dictates that a final demand letter for payment of delinquent taxes may be
considered a decision on a disputed or protested assessment. In Commissioner of Internal Revenue v.
Ayala Securities Corporation, this Court held:

The letter of February 18, 1963 (Exh. G), in the view of the Court, is tantamount to a denial of the
reconsideration or [respondent corporations] x x x protest o[f] the assessment made by the petitioner,
considering that the said letter [was] in itself a reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already made, and for the immediate payment of the
sum of P758,687.04 in spite of the vehement protest of the respondent corporation on April 21, 1961.
This certainly is a clear indication of the firm stand of petitioner against the reconsideration of the
disputed assessment, in view of the continued refusal of the respondent corporation to execute the
waiver of the period of limitation upon the assessment in question.

This being so, the said letter amount[ed] to a decision on a disputed or protested assessment and, there,
the court a quo did not err in taking cognizance of this case.[11]

Similarly, in Surigao Electric Co., Inc. v. Court of Tax Appeals[12] and again in CIR v. Union Shipping
Corp.,[13] we ruled:

x x x. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the
commissioner on the petitioners several requests for reconsideration and recomputation. In this letter
the commissioner not only in effect demanded that the petitioner pay the amount of P11,533.53 but
also gave warning that in the event it failed to pay, the said commissioner would be constrained to
enforce the collection thereof by means of the remedies provided by law. The tenor of the letter,
specifically the statement regarding the resort to legal remedies, unmistakably indicate[d] the final
nature of the determination made by the commissioner of the petitioners deficiency franchise tax
liability.

As in CIR v. Union Shipping,[14] petitioner failed to rule on the Motion for Reconsideration filed by
private respondent, but simply continued to demand payment of the latters alleged tax delinquency.
Thus, the Court reiterated the dictum that the BIR should always indicate to the taxpayer in clear and
unequivocal language what constitutes final action on a disputed assessment. The object of this policy is
to avoid repeated requests for reconsideration by the taxpayer, thereby delaying the finality of the
assessment and, consequently, the collection of the taxes due. Furthermore, the taxpayer would not be
groping in the dark, speculating as to which communication or action of the BIR may be the decision
appealable to the tax court.[15]

In the instant case, the second notice received by private respondent verily indicated its nature that it
was final. Unequivocably, therefore, it was tantamount to a rejection of the request for reconsideration.

Commissioner v. Algue[16] is not in point here. In that case, the Warrant of Distraint and Levy, issued to
the taxpayer without any categorical ruling on its request for reconsideration, was not deemed
equivalent to a denial of the request. Because such request could not in fact be found in its records, the
BIR cannot be presumed to have taken it into consideration. The request was considered only when the
taxpayer gave a copy of it, duly stamp-received by the BIR. Hence, the Warrant was deemed premature.

In the present case, petitioner does not deny receipt of private respondents protest letter. As a matter
of fact, it categorically relates the following in its Statement of Relevant Facts:[17]

3. On March 23, 1990, respondent ICC wrote the CIR requesting for a reconsideration of the assessment
on the ground that there was an error committed in the computation of interest and that there were
expenses which were disallowed (Ibid., pp. 296-311).

4. On April 2, 1990, respondent ICC sent the CIR additional documents in support of its
protest/reconsideration. The letter was received by the BIR on April 18, 1990. Respondent ICC further
executed a Waiver of Statute of Limitation (dated April 17, 1990) whereby it consented to the BIR to
assess and collect any taxes that may be discovered in the process of reinvestigation, until April 3, 1991
(Ibid., pp. 296-311). A copy of the waiver is hereto attached as Annex C.

Having admitted as a fact private respondents request for reconsideration, petitioner must have passed
upon it prior to the issuance of the Final Notice Before Seizure.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED.

SO ORDERED.