G.R. No.

130430 December 13, 1999 REPUBLIC OF THE PHILIPPINES, represented by the Commissioner of the Bureau of Internal Revenue (BIR), petitioner, vs. SALUD V. HIZON, respondent.

I. WHETHER OR NOT THE INSTITUTION OF THE CIVIL CASE FOR COLLECTION OF TAXES WAS WITHOUT THE APPROVAL OF THE COMMISSIONER IN VIOLATION OF SECTION 221 OF THE NATIONAL INTERNAL REVENUE CODE. II. WHETHER OR NOT THE ACTION FOR COLLECTION OF TAXES FILED AGAINST RESPONDENT HAD ALREADY BEEN BARRED BY THE STATUTE OF LIMITATIONS. First. In sustaining respondent's contention that petitioner's complaint was filed without the authority of the BIR Commissioner, the trial court stated: 4 There is no question that the National Internal Revenue Code explicitly provides that in the matter of filing cases in Court, civil or criminal, for the collection of taxes, etc., the approval of the commissioner must first be secured. . . . [A]n action will not prosper in the absence of the commissioner's approval. Thus, in the instant case, the absence of the approval of the commissioner in the institution of the action is fatal to the cause of the plaintiff . . . . The trial court arrived at this conclusion because the complaint filed by the BIR was not signed by then Commissioner Liwayway Chato. Sec. 221 of the NIRC provides: Form and mode of proceeding in actions arising under this Code. Civil and criminal actions and proceedings instituted in behalf of the Government under the authority of this Code or other law enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the Philippines and shall be conducted by the provincial or city fiscal, or the Solicitor General, or by the legal officers of the

MENDOZA, J.: This is a petition for review of the decision 1 of the Regional Trial Court, Branch 44, San Fernando, Pampanga, dismissing the suit filed by the Bureau of Internal Revenue for collection of tax. The facts are as follows: On July 18, 1986, the BIR issued to respondent Salud V. Hizon a deficiency income tax assessment of P1,113,359.68 covering the fiscal year 1981-1982. Respondent not having contested the assessment, petitioner, on January 12, 1989, served warrants of distraint and levy to collect the tax deficiency. However, for reasons not known, it did not proceed to dispose of the attached properties. More than three years later, or on November 3, 1992, respondent wrote the BIR requesting a reconsideration of her tax deficiency assessment. The BIR, in a letter dated August 11, 1994, denied the request. On January 1, 1997, it filed a case with the Regional Trial Court, Branch 44, San Fernando, Pampanga to collect the tax deficiency. The complaint was signed by Norberto Salud, Chief of the Legal Division, BIR Region 4, and verified by Amancio Saga, the Bureau's Regional Director in Pampanga. Respondent moved to dismiss the case on two grounds: (1) that the complaint was not filed upon authority of the BIR Commissioner as required by 221 2 of the National Internal Revenue Code, and (2) that the action had already prescribed. Over petitioner's objection, the trial court, on August 28, 1997, granted the motion and dismissed the complaint. Hence, this petition. Petitioner raises the following issues: 3

Bureau of Internal Revenue deputized by the Secretary of Justice, but no civil and criminal actions for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code shall begun without the approval of the Commissioner. (Emphasis supplied) To implement this provision Revenue Administrative Order No. 5-83 of the BIR provides in pertinent portions: The following civil and criminal cases are to be handled by Special Attorneys and Special Counsels assigned in the Legal Branches of Revenues Regions: xxx xxx xxx II. Civil Cases 1. Complaints for collection on cases falling within the jurisdiction of the Region . . . . In all the abovementioned cases, the Regional Director is authorized to sign all pleadings filed in connection therewith which, otherwise, requires the signature of the Commissioner. xxx xxx xxx Revenue Administrative Order No. 10-95 specifically authorizes the Litigation and Prosecution Section of the Legal Division of regional district offices to institute the necessary civil and criminal actions for tax collection. As the complaint filed in this case was signed by the BIR's Chief of Legal Division for Region 4 and verified by the Regional Director, there was, therefore, compliance with the law. However, the lower court refused to recognize RAO No. 10-95 and, by implication, RAO No. 5-83. It held:

[M]emorand[a], circulars and orders emanating from bureaus and agencies whether in the purely public or quasi-public corporations are mere guidelines for the internal functioning of the said offices. They are not laws which courts can take judicial notice of. As such, they have no binding effect upon the courts for such memorand[a] and circulars are not the official acts of the legislative, executive and judicial departments of the Philippines. . . . 5 This is erroneous. The rule is that as long as administrative issuances relate solely to carrying into effect the provisions of the law, they are valid and have the force of law. 6 The governing statutory provision in this case is 4(d) of the NIRC which provides: Specific provisions to be contained in regulations. The regulations of the Bureau of Internal Revenue shall, among other things, contain provisions specifying, prescribing, or defining: xxx xxx xxx (d) The conditions to be observed by revenue officers, provincial fiscals and other officials respecting the institution and conduct of legal actions and proceedings. RAO Nos. 5-83 and 10-95 are in harmony with this statutory mandate. As amended by R.A. No. 8424, the NIRC is now even more categorical. Sec. 7 of the present Code authorizes the BIR Commissioner to delegate the powers vested in him under the pertinent provisions of the Code to any subordinate official with the rank equivalent to a division chief or higher, except the following: (a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;

(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; (c) The power to compromise or abate under 204 (A) and (B) of this Code, any tax deficiency: Provided, however, that assessment issued by the Regional Offices involving basic deficiency taxes of five hundred thousand pesos (P500,000.00) or less, and minor criminal violations as may be determined by rules and regulations to be promulgated by the Secretary of Finance, upon the recommendation of the Commissioner, discovered by regional and district officials, may be compromised by a regional evaluation board which shall be composed of the Regional Director as Chairman, the Assistant Regional Director, heads of the Legal, Assessment and Collection Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and (d) The power to assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept. None of the exceptions relates to the Commissioner's power to approve the filing of tax collection cases. Second. With regard to the issue that the case filed by petitioner for the collection of respondent's tax deficiency is barred by prescription, 223(c) of the NIRC provides: 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 7 following the assessment of the tax. The running of the three-year prescriptive period is suspended 8

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 the 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. Petitioner argues that, in accordance with this provision, respondent's request for reinvestigation of her tax deficiency assessment on November 3, 1992 effectively suspended the running of the period of prescription such that the government could still file a case for tax collection. 9 The contention has no merit. Sec. 229 10 of the Code mandates that a request for reconsideration must be made within 30 days from the taxpayer's receipt of the tax deficiency assessment, otherwise the assessment becomes final, unappealable and, therefore, demandable. 11 The notice of assessment for respondent's tax deficiency was issued by petitioner on July 18, 1986. On the other hand, respondent made her request for reconsideration thereof only on November 3, 1992, without stating when she received the notice of tax assessment. She explained that she was constrained to ask for a reconsideration in order to avoid the harassment of BIR collectors. 12 In all likelihood, she must have been referring to the distraint and levy of her properties by petitioner's agents which took place on January 12, 1989. Even assuming that she first learned of the deficiency assessment on this date, her request for reconsideration was nonetheless filed late since she made it more than 30 days thereafter. Hence, her request for reconsideration did not suspend the running of the prescriptive period provided under 223(c). Although the Commissioner acted on her request by eventually

denying it on August 11, 1994, this is of no moment and does not detract from the fact that the assessment had long become demandable. Nonetheless, it is contended that the running of the prescriptive period under 223(c) was suspended when the BIR timely served the warrants of distraint and levy on respondent on January 12, 1989. 13 Petitioner cites for this purpose our ruling in Advertising Associates Inc., v. Court of Appeals. 14 Because of the suspension, it is argued that the BIR could still avail of the other remedy under 223(c) of filing a case in court for collection of the tax deficiency, as the BIR in fact did on January 1, 1997. Petitioner's reliance on the Court's ruling in Advertising Associates Inc. v. Court of Appeals is misplaced. What the Court stated in that case and, indeed, in the earlier case of Palanca v. Commissioner of Internal Revenue, 15 is that the timely service of a warrant of distraint or levy suspends the running of the period to collect the tax deficiency in the sense that the disposition of the attached properties might well take time to accomplish, extending even after the lapse of the statutory period for collection. In those cases, the BIR did not file any collection case but merely relied on the summary remedy of distraint and levy to collect the tax deficiency. The importance of this fact was not lost on the Court. Thus, in Advertising Associates, it was held: 16 "It should be noted that the Commissioner did not institute any judicial proceeding to collect the tax. He relied on the warrants of distraint and levy to interrupt the running of the statute of limitations. Moreover, if, as petitioner in effect says, the prescriptive period was suspended twice, i.e., when the warrants of distraint and levy were served on respondent on January 12, 1989 and then when respondent made her request for reinvestigation of the tax deficiency assessment on November 3, 1992, the three-year prescriptive period must have commenced running again sometime after the service of the warrants of distraint and levy. Petitioner, however, does not state when or why this took place and, indeed, there appears to be no reason for such. It is noteworthy that petitioner raised this point before the lower court apparently as an alternative theory, which, however, is untenable.

For the foregoing reasons, we hold that petitioner's contention that the action in this case had not prescribed when filed has no merit. Our holding, however, is without prejudice to the disposition of the properties covered by the warrants of distraint and levy which petitioner served on respondent, as such would be a mere continuation of the summary remedy it had timely begun. Although considerable time has passed since then, as held in Advertising Associates Inc. v. Court of Appeals 17 and Palanca v. Commissioner of Internal Revenue, 18 the enforcement of tax collection through summary proceedings may be carried out beyond the statutory period considering that such remedy was seasonably availed of. WHEREFORE, the petition is DENIED. G.R. No. 139736 October 17, 2005 BANK OF THE PHILIPPINE ISLANDS, Petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DECISION CHICO-NAZARIO, J.: This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999,1 which reversed and set aside the Decision of the Court of Tax Appeals (CTA), dated 02 February 1999,2 and which reinstated Assessment No. FAS-5-85-89002054 requiring petitioner Bank of the Philippine Islands (BPI) to pay the amount of P28,020.00 as deficiency documentary stamp tax (DST) for the taxable year 1985, inclusive of the compromise penalty. There is hardly any controversy as to the factual antecedents of this Petition. Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 and 14 June 1985, it sold United States

(US) $500,000.00 to the Central Bank of the Philippines (Central Bank), for the total sales amount of US$1,000,000.00. On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054,3 finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank, computed as follows

On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to protest your assessment against it for deficiency documentary stamp tax for the year 1985 in the amount of P28,020.00, arising from its sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and another U.S. $500,000.00 on June 14, 1985.

1. Under established market practice, the documentary stamp tax on telegraphic transfers or sales of foreign exchange is paid by the buyer. Thus, when BPI sells to any party, the cost of documentary stamp tax 1985 Deficiency Documentary Stamp Tax Foreign Bills of Exchange.. P 18,480,000.00 is added to the total price or charge to the buyer and the seller affixes the corresponding documentary stamp on the document. Similarly, Tax Due Thereon: 27,720.00 when the Central Bank sells foreign exchange to BPI, it charges BPI for the cost of the documentary stamp on the transaction. P18,480,000.00 x P0.30 (Sec. 182 NIRC). P200.00 Add: Suggested compromise penalty. TOTAL AMOUNT DUE AND COLLECTIBLE. 2. In the two transactions subject of your assessment, no documentary stamps were affixed because the buyer, 300.00 Central Bank of the Philippines, was exempt from such tax. And while it is true that under P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of the Tax Code "that whenever one party to a taxable document enjoys exemption from the tax herein imposed, the other party thereto who is not exempt shall be the one directly liable for the tax," this proviso (and the other amendments of P.D. 1994) took effect only on January 1, 1986, according to sec. 49 of P.D. 1994. Hence, the liability for the documentary stamp tax could not be shifted to the seller. In view of the foregoing, we request that the assessment be revoked and cancelled. Very truly yours, Quezon City PADILLA LAW OFFICE Attention of: Mr. Pedro C. Aguillon By: Asst. Commissioner for Collection (signed) Sir: SABINO PADILLA, JR.5

P 28,020.00

Petitioner BPI received the Assessment, together with the attached Assessment Notice,4 on 20 October 1989. Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 November 1989, and filed with the BIR on 17 November 1989. The said protest letter is reproduced in full below November 16, 1989 The Commissioner of Internal Revenue

Petitioner BPI did not receive any immediate reply to its protest letter. However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy6 against petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner BPI only on 23 October 1992.7 Then again, petitioner BPI did not hear from the BIR until 11 September 1997, when its counsel received a letter, dated 13 August 1997, signed by then BIR Commissioner Liwayway Vinzons-Chato, denying its "request for reconsideration," and addressing the points raised by petitioner BPI in its protest letter, dated 16 November 1989, thus In reply, please be informed that after a thorough and careful study of the facts of the case as well as the law and jurisprudence pertinent thereto, this Office finds the above argument to be legally untenable. It is admitted that while industry practice or market convention has the force of law between the members of a particular industry, it is not binding with the BIR since it is not a party thereto. The same should, therefore, not be allowed to prejudice the Bureau of its lawful task of collecting revenues necessary to defray the expenses of the government. (Art. 11 in relation to Art. 1306 of the New Civil Code.) Moreover, let it be stated that even before the amendment of Sec. 222 (now Sec. 173) of the Tax Code, as amended, the same was already interpreted to hold that the other party who is not exempt from the payment of documentary stamp tax liable from the tax. This interpretation was further strengthened by the following BIR Rulings which in substance state: 1. BIR Unnumbered Ruling dated May 30, 1977 "x x x Documentary stamp taxes are payable by either person, signing, issuing, accepting, or transferring the instrument, document or paper. It is now settled that where one party to the instrument is exempt from said taxes, the other party who is not exempt should be liable." 2. BIR Ruling No. 144-84 dated September 3, 1984

"x x x Thus, where one party to the contract is exempt from said tax, the other party, who is not exempt, shall be liable therefore. Accordingly, since A.J.L. Construction Corporation, the other party to the contract and the one assuming the payment of the expenses incidental to the registration in the vendees name of the property sold, is not exempt from said tax, then it is the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977, as amended." Premised on all the foregoing considerations, your request for reconsideration is hereby DENIED.8 Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded to file a Petition for Review with the CTA on 10 October 1997;9 to which respondent BIR Commissioner, represented by the Office of the Solicitor General, filed an Answer on 08 December 1997.10 Petitioner BPI raised in its Petition for Review before the CTA, in addition to the arguments presented in its protest letter, dated 16 November 1989, the defense of prescription of the right of respondent BIR Commissioner to enforce collection of the assessed amount. It alleged that respondent BIR Commissioner only had three years to collect on Assessment No. FAS-5-85-89-002054, but she waited for seven years and nine months to deny the protest. In her Answer and subsequent Memorandum, respondent BIR Commissioner merely reiterated her position, as stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latters protest; and remained silent as to the expiration of the prescriptive period for collection of the assessed deficiency DST. After due trial, the CTA rendered a Decision on 02 February 1999, in which it identified two primary issues in the controversy between petitioner BPI and respondent BIR Commissioner: (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.

The CTA answered the first issue in the negative and held that the statute of limitations for respondent BIR Commissioner to collect on the Assessment had not yet prescribed. In resolving the issue of prescription, the CTA reasoned that In the case of Commissioner of Internal Revenue vs. Wyeth Suaco Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA 125, the Supreme Court laid to rest the first issue. It categorically ruled that a "protest" is to be treated as request for reinvestigation or reconsideration and a mere request for reexamination or reinvestigation tolls the prescriptive period of the Commissioner to collect on an assessment. . . ... In the case at bar, there being no dispute that petitioner filed its protest on the subject assessment on November 17, 1989, there can be no conclusion other than that said protest stopped the running of the prescriptive period of the Commissioner to collect. Section 320 (now 223) of the Tax Code, clearly states that a request for reinvestigation which is granted by the Commissioner, shall suspend the prescriptive period to collect. The underscored portion above does not mean that the Commissioner will cancel the subject assessment but should be construed as when the same was entertained by the Commissioner by not issuing any warrant of distraint or levy on the properties of the taxpayer or any action prejudicial to the latter unless and until the request for reinvestigation is finally given due course. Taking into consideration this provision of law and the aforementioned ruling of the Supreme Court in Wyeth Suaco which specifically and categorically states that a protest could be considered as a request for reinvestigation, We rule that prescription has not set in against the government.11 The CTA had likewise resolved the second issue in the negative. Referring to its own decision in an earlier case, Consolidated Bank & Trust Co. v. The Commissioner of Internal Revenue,12 the CTA reached the conclusion that the sales of foreign currency by petitioner

BPI to the Central Bank in taxable year 1985 were not subject to DST From the abovementioned decision of this Court, it can be gleaned that the Central Bank, during the period June 11, 1984 to March 9, 1987 enjoyed tax exemption privilege, including the payment of documentary stamp tax (DST) pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive Review Board. As such, the Central Bank, as buyer of the foreign currency, is exempt from paying the documentary stamp tax for the period above-mentioned. This Court further expounded that said tax exemption of the Central Bank was modified beginning January 1, 1986 when Presidential Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on sales of foreign currency to the Central Bank is shifted to the seller. Applying the above decision to the case at bar, petitioner cannot be held liable for DST on its 1985 sales of foreign currencies to the Central Bank, as the latter who is the purchaser of the subject currencies is the one liable thereof. However, since the Central Bank is exempt from all taxes during 1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board dated March 3, 1985, neither the petitioner nor the Central Bank is liable for the payment of the documentary stamp tax for the formers 1985 sales of foreign currencies to the latter. This aforecited case of Consolidated Bank vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals in its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision was in turn affirmed by the Supreme Court in its resolution denying the petition filed by Consolidated Bank dated November 20, 1995 with the Supreme Court under Entry of Judgment dated March 1, 1996.13 In sum, the CTA decided that the statute of limitations for respondent BIR Commissioner to collect on Assessment No. FAS-5-85-89002054 had not yet prescribed; nonetheless, it still ordered the cancellation of the said Assessment because the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were tax-exempt.

Herein respondent BIR Commissioner appealed the Decision of the CTA to the Court of Appeals. In its Decision dated 11 August 1999,14 the Court of Appeals sustained the finding of the CTA on the first issue, that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a protest on 17 November 1989 and, therefore, the prescriptive period for collection on the Assessment had not yet lapsed. In the same Decision, however, the Court of Appeals reversed the CTA on the second issue and basically adopted the position of the respondent BIR Commissioner that the sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. The Court of Appeals, thus, ordered the reinstatement of Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay the amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive of the compromise penalty. Comes now petitioner BPI before this Court in this Petition for Review on Certiorari, seeking resolution of the same two legal issues raised and discussed in the courts below, to reiterate: (1) whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and (2) whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST. I The efforts of respondent Commissioner to collect on Assessment No. FAS-5-85-89-002054 were already barred by prescription. Anent the question of prescription, this Court disagrees in the Decisions of the CTA and the Court of Appeals, and herein determines the statute of limitations on collection of the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed. The period for the BIR to assess and collect an internal revenue tax is limited to three years by Section 203 of the Tax Code of 1977, as amended,15 which provides that

SEC. 203. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period: Provided, That in a case where a return is filed beyond the period prescribed by law, the three-year period shall be counted from the day the return was filed. For the purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.16 The three-year period of limitations on the assessment and collection of national internal revenue taxes set by Section 203 of the Tax Code of 1977, as amended, can be affected, adjusted, or suspended, in accordance with the following provisions of the same Code SEC. 223. Exceptions as to period of limitation of assessment and collection of taxes. (a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud, or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. (c) Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax.

(d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. (e) Provided, however, That nothing in the immediately preceding section and paragraph (a) hereof shall be construed to authorize the examination and investigation or inquiry into any tax returns filed in accordance with the provisions of any tax amnesty law or decree.17 SEC. 224. Suspension of running of statute. The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.18 As enunciated in these statutory provisions, the BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. In case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the

three-year or ten-year period, whichever is appropriate, then the BIR has another three years19 after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.20 In the present Petition, there is no controversy on the timeliness of the issuance of the Assessment, only on the prescription of the period to collect the deficiency DST following its Assessment. While Assessment No. FAS-5-85-89-002054 and its corresponding Assessment Notice were both dated 10 October 1989 and were received by petitioner BPI on 20 October 1989, there was no showing as to when the said Assessment and Assessment Notice were released, mailed or sent by the BIR. Still, it can be granted that the latest date the BIR could have released, mailed or sent the Assessment and Assessment Notice to petitioner BPI was on the same date they were received by the latter, on 20 October 1989. Counting the three-year prescriptive period, for a total of 1,095 days,21 from 20 October 1989, then the BIR only had until 19 October 1992 within which to collect the assessed deficiency DST. The earliest attempt of the BIR to collect on Assessment No. FAS-585-89-002054 was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI. Although the Warrant was issued on 15 October 1992, previous to the expiration of the period for collection on 19 October 1992, the same was served on petitioner BPI only on 23 October 1992. Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer.22 It is only logical to

require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed. If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23 October 1992 was already beyond the prescriptive period for collection of the deficiency DST, which had expired on 19 October 1992, then what more the letter of respondent BIR Commissioner, dated 13 August 1997 and received by the counsel of the petitioner BPI only on 11 September 1997, denying the protest of petitioner BPI and requesting payment of the deficiency DST? Even later and more unequivocally barred by prescription on collection was the demand made by respondent BIR Commissioner for payment of the deficiency DST in her Answer to the Petition for Review of petitioner BPI before the CTA, filed on 08 December 1997.23 II There is no valid ground for the suspension of the running of the prescriptive period for collection of the assessed DST under the Tax Code of 1977, as amended. In their Decisions, both the CTA and the Court of Appeals found that the filing by petitioner BPI of a protest letter suspended the running of the prescriptive period for collecting the assessed DST. This Court, however, takes the opposing view, and, based on the succeeding discussion, concludes that there is no valid ground for suspending the running of the prescriptive period for collection of the deficiency DST assessed against petitioner BPI. A. The statute of limitations on assessment and collection of taxes is for the protection of the taxpayer and, thus, shall be construed liberally in his favor. Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the

taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time.24 As aptly explained in Republic of the Philippines v. Ablaza25 The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens; to the Government because tax officers would be obliged to act promptly in the making of assessment, and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers, not to determine the latters real liability, but to take advantage of every opportunity to molest peaceful, law-abiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. In order to provide even better protection to the taxpayer against unreasonable investigation, the Tax Code of 1977, as amended, identifies specifically in Sections 223 and 22426 thereof the circumstances when the prescriptive periods for assessing and collecting taxes could be suspended or interrupted. To give effect to the legislative intent, these provisions on the statute of limitations on assessment and collection of taxes shall be construed and applied liberally in favor of the taxpayer and strictly against the Government. B. The statute of limitations on assessment and collection of national internal revenue taxes may be waived, subject to certain conditions, under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,

as amended, respectively. Petitioner BPI, however, did not execute any such waiver in the case at bar. According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, the prescriptive periods for assessment and collection of national internal revenue taxes, respectively, could be waived by agreement, to wit SEC. 223. Exceptions as to period of limitation of assessment and collection of taxes. ... (b) If before the expiration of the time prescribed in the preceding section for the assessment of the tax, both the Commissioner and the taxpayer have agreed in writing to its assessment after such time the tax may be assessed within the period agreed upon. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. ... (d) Any internal revenue tax which has been assessed within the period agreed upon as provided in paragraph (b) hereinabove may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the three-year period. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon.27 The agreements so described in the afore-quoted provisions are often referred to as waivers of the statute of limitations. The waiver of the statute of limitations, whether on assessment or collection, should not be construed as a waiver of the right to invoke the defense of prescription but, rather, an agreement between the taxpayer and the BIR to extend the period to a date certain, within which the latter could still assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally.28

A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by both the Commissioner and the taxpayer; (3) before the expiration of the ordinary prescriptive periods for assessment and collection; and (4) for a definite period beyond the ordinary prescriptive periods for assessment and collection. The period agreed upon can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. The BIR had issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even more detailed procedure for the proper execution of such a waiver. RMO No. 20-90 mandates that the procedure for execution of the waiver shall be strictly followed, and any revenue official who fails to comply therewith resulting in the prescription of the right to assess and collect shall be administratively dealt with. This Court had consistently ruled in a number of cases that a request for reconsideration or reinvestigation by the taxpayer, without a valid waiver of the prescriptive periods for the assessment and collection of tax, as required by the Tax Code and implementing rules, will not suspend the running thereof.29 In the Petition at bar, petitioner BPI executed no such waiver of the statute of limitations on the collection of the deficiency DST per Assessment No. FAS-5-85-89-002054. In fact, an internal memorandum of the Chief of the Legislative, Ruling & Research Division of the BIR to her counterpart in the Collection Enforcement Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to execute a Waiver of the Statute of Limitations extending the period of collection of the said tax up to December 31, 1993 pending reconsideration of its protest. . ."30 Without a valid waiver, the statute of limitations on collection by the BIR of the deficiency DST could not have been suspended under paragraph (d) of Section 223 of the Tax Code of 1977, as amended. C. The protest filed by petitioner BPI did not constitute a request for reinvestigation, granted by the respondent BIR Commissioner, which could have suspended the running of the statute of limitations on

collection of the assessed deficiency DST under Section 224 of the Tax Code of 1977, as amended. The Tax Code of 1977, as amended, also recognizes instances when the running of the statute of limitations on the assessment and collection of national internal revenue taxes could be suspended, even in the absence of a waiver, under Section 224 thereof, which reads SEC. 224. Suspension of running of statute. The running of the statute of limitation provided in Section[s] 203 and 223 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That, if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines.31 Of particular importance to the present case is one of the circumstances enumerated in Section 224 of the Tax Code of 1977, as amended, wherein the running of the statute of limitations on assessment and collection of taxes is considered suspended "when the taxpayer requests for a reinvestigation which is granted by the Commissioner." This Court gives credence to the argument of petitioner BPI that there is a distinction between a request for reconsideration and a request for reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27 November 1985 by the Secretary of Finance, upon the recommendation of the BIR Commissioner, governs the procedure for protesting an assessment and distinguishes between the two types of protest, as follows

PROTEST TO ASSESSMENT SEC. 6. Protest. The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation. . . ... For the purpose of the protest herein (a) Request for reconsideration. refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b) Request for reinvestigation. refers to a plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation. It may also involve a question of fact or law or both. With the issuance of RR No. 12-85 on 27 November 1985 providing the above-quoted distinctions between a request for reconsideration and a request for reinvestigation, the two types of protest can no longer be used interchangeably and their differences so lightly brushed aside. It bears to emphasize that under Section 224 of the Tax Code of 1977, as amended, the running of the prescriptive period for collection of taxes can only be suspended by a request for reinvestigation, not a request for reconsideration. Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter can not. The protest letter of petitioner BPI, dated 16 November 1989 and filed with the BIR the next day, on 17 November 1989, did not specifically request for either a reconsideration or reinvestigation. A close review of the contents thereof would reveal, however, that it protested Assessment No. FAS-5-85-89-002054 based on a question of law, in

particular, whether or not petitioner BPI was liable for DST on its sales of foreign currency to the Central Bank in taxable year 1985. The same protest letter did not raise any question of fact; neither did it offer to present any new evidence. In its own letter to petitioner BPI, dated 10 September 1992, the BIR itself referred to the protest of petitioner BPI as a request for reconsideration.32 These considerations would lead this Court to deduce that the protest letter of petitioner BPI was in the nature of a request for reconsideration, rather than a request for reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as amended, on the suspension of the running of the statute of limitations should not apply. Even if, for the sake of argument, this Court glosses over the distinction between a request for reconsideration and a request for reinvestigation, and considers the protest of petitioner BPI as a request for reinvestigation, the filing thereof could not have suspended at once the running of the statute of limitations. Article 224 of the Tax Code of 1977, as amended, very plainly requires that the request for reinvestigation had been granted by the BIR Commissioner to suspend the running of the prescriptive periods for assessment and collection. That the BIR Commissioner must first grant the request for reinvestigation as a requirement for suspension of the statute of limitations is even supported by existing jurisprudence. In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that . . .The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one

day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949. . . .34 In Republic of the Philippines v. Acebedo,35 this Court similarly found that . . . [T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. A). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. D), but there was no follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. The burden of proof that the taxpayers request for reinvestigation had been actually granted shall be on respondent BIR Commissioner. The grant may be expressed in communications with the taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR representatives in response to the request for reinvestigation. In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the protest letters of taxpayer Querol, sent a tax examiner to San Fernando, Pampanga, to conduct the reinvestigation; as a result of which, the original assessment against taxpayer Querol was revised by permitting him to deduct reasonable depreciation. In another case, Republic of the Philippines v. Lopez,37 taxpayer Lopez filed a total of four petitions for reconsideration and reinvestigation. The first petition was denied by the BIR. The second and third petitions were granted by the BIR and after each reinvestigation, the assessed amount was reduced. The fourth petition was again denied and, thereafter, the BIR filed a collection suit against taxpayer Lopez. When the taxpayers spouses Sison, in Commissioner of Internal Revenue v. Sison,38 contested the assessment against them and asked for a reinvestigation, the BIR ordered the reinvestigation resulting in the issuance of an amended assessment. Lastly, in Republic of the Philippines v. Oquias,39 the BIR granted taxpayer Oquiass request for reinvestigation and duly notified him of the date when such

reinvestigation would be held; only, neither taxpayer Oquias nor his counsel appeared on the given date. In all these cases, the request for reinvestigation of the assessment filed by the taxpayer was evidently granted and actual reinvestigation was conducted by the BIR, which eventually resulted in the issuance of an amended assessment. On the basis of these facts, this Court ruled in the same cases that the period between the request for reinvestigation and the revised assessment should be subtracted from the total prescriptive period for the assessment of the tax; and, once the assessment had been reconsidered at the taxpayers instance, the period for collection should begin to run from the date of the reconsidered or modified assessment.40 The rulings of the foregoing cases do not apply to the present Petition because: (1) the protest filed by petitioner BPI was a request for reconsideration, not a reinvestigation, of the assessment against it; and (2) even granting that the protest of petitioner BPI was a request for reinvestigation, there was no showing that it was granted by respondent BIR Commissioner and that actual reinvestigation had been conducted. Going back to the administrative records of the present case, it would seem that the BIR, after receiving a copy of the protest letter of petitioner BPI on 17 November 1989, did not attempt to communicate at all with the latter until 10 September 1992, less than a month before the prescriptive period for collection on Assessment No. FAS-5-85-89002054 was due to expire. There were internal communications, mostly indorsements of the docket of the case from one BIR division to another; but these hardly fall within the same sort of acts in the previously discussed cases that satisfactorily demonstrated the grant of the taxpayers request for reinvestigation. Petitioner BPI, in the meantime, was left in the dark as to the status of its protest in the absence of any word from the BIR. Besides, in its letter to petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it had not yet acted on the protest of the former This refers to your protest against and/or request for reconsideration of the assessment/s of this Office against you involving the amount of

P28,020.00 under FAS-5-85-89-002054 dated October 23, 1989 as deficiency documentary stamp tax inclusive of compromise penalty for the year 1985. In this connection, it is requested that the enclosed waiver of the statute of limitations extending the period of collection of the said tax/es to December 31, 1993 be executed by you as a condition precedent of our giving due course to your protest41 When the BIR stated in its letter, dated 10 September 1992, that the waiver of the statute of limitations on collection was a condition precedent to its giving due course to the request for reconsideration of petitioner BPI, then it was understood that the grant of such request for reconsideration was being held off until compliance with the given condition. When petitioner BPI failed to comply with the condition precedent, which was the execution of the waiver, the logical inference would be that the request was not granted and was not given due course at all. III The suspension of the statute of limitations on collection of the assessed deficiency DST from petitioner BPI does not find support in jurisprudence. It is the position of respondent BIR Commissioner, affirmed by the CTA and the Court of Appeals, that the three-year prescriptive period for collecting on Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the said prescriptive period was suspended, invoking the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.42 It was in this case in which this Court ruled that the prescriptive period provided by law to make a collection is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. Petitioner BPI, on the other hand, is requesting this Court to revisit the Wyeth Suaco case contending that it had unjustifiably expanded the grounds for suspending the prescriptive period for collection of national internal revenue taxes.

This Court finds that although there is no compelling reason to abandon its decision in the Wyeth Suaco case, the said case cannot be applied to the particular facts of the Petition at bar. A. The only exception to the statute of limitations on collection of taxes, other than those already provided in the Tax Code, was recognized in the Suyoc case. As had been previously discussed herein, the statute of limitations on assessment and collection of national internal revenue taxes may be suspended if the taxpayer executes a valid waiver thereof, as provided in paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended; and in specific instances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Outside of these statutory provisions, however, this Court also recognized one other exception to the statute of limitations on collection of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Co.43 In the said case, the Collector of Internal Revenue issued an assessment against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested for at least a year within which to pay the amount assessed, but at the same time, reserving its right to question the correctness of the assessment before actual payment. The Collector granted taxpayer Suyoc an extension of only three months to pay the assessed tax. When taxpayer Suyoc failed to pay the assessed tax within the extended period, the Collector sent it a demand letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer Suyoc asked for a reinvestigation and reconsideration of the assessment, but the Collector denied the request. Taxpayer Suyoc reiterated its request for reconsideration on 25 April 1952, which was denied again by the Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the Conference Staff. The Conference Staff heard the appeal from 02 September 1952 to 16 July 1955, and the negotiations resulted in the reduction of the assessment on 26 July 1955. It was the collection of the reduced assessment that was questioned before this Court for being enforced beyond the prescriptive period.44

In resolving the issue on prescription, this Court ratiocinated thus It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription. While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.45 By the principle of estoppel, taxpayer Suyoc was not allowed to raise the defense of prescription against the efforts of the Government to collect the tax assessed against it. This Court adopted the following principle from American jurisprudence: "He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect this is your own act, and therefore you are not damnified."46

In the Suyoc case, this Court expressly conceded that a mere request for reconsideration or reinvestigation of an assessment may not suspend the running of the statute of limitations. It affirmed the need for a waiver of the prescriptive period in order to effect suspension thereof. However, even without such waiver, the taxpayer may be estopped from raising the defense of prescription because by his repeated requests or positive acts, he had induced Government authorities to delay collection of the assessed tax. Based on the foregoing, petitioner BPI contends that the declaration made in the later case of Wyeth Suaco, that the statute of limitations on collection is suspended once the taxpayer files a request for reconsideration or reinvestigation, runs counter to the ruling made by this Court in the Suyoc case. B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco case, it finds that Wyeth Suaco is not applicable to the Petition at bar because of the distinct facts involved herein. In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit withholding taxes on royalties and dividend declarations, as well as, for deficiency sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975 and 08 February 1975, protesting the assessments and requesting their cancellation or withdrawal on the ground that said assessments lacked factual or legal basis. On 12 September 1975, the BIR Commissioner advised taxpayer Wyeth Suaco to avail itself of the compromise settlement being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco manifested its conformity to paying a compromise amount, but subject to certain conditions; though, apparently, the said compromise amount was never paid. On 10 December 1979, the BIR Commissioner rendered a decision reducing the assessment for deficiency withholding tax against taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales tax. It was at this point when taxpayer Wyeth Suaco brought its case before the CTA to enjoin the BIR from enforcing the assessments by reason of prescription. Although the CTA decided in

favor of taxpayer Wyeth Suaco, it was reversed by this Court when the case was brought before it on appeal. According to the decision of this Court Settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment. . . ... Although the protest letters prepared by SGV & Co. in behalf of private respondent did not categorically state or use the words "reinvestigation" and "reconsideration," the same are to be treated as letters of reinvestigation and reconsideration These letters of Wyeth Suaco interrupted the running of the five-year prescriptive period to collect the deficiency taxes. The Bureau of Internal Revenue, after having reviewed the records of Wyeth Suaco, in accordance with its request for reinvestigation, rendered a final assessment It was only upon receipt by Wyeth Suaco of this final assessment that the five-year prescriptive period started to run again.47 The foremost criticism of petitioner BPI of the Wyeth Suaco decision is directed at the statement made therein that, "settled is the rule that the prescriptive period provided by law to make a collection by distraint or levy or by a proceeding in court is interrupted once a taxpayer requests for reinvestigation or reconsideration of the assessment."48 It would seem that both petitioner BPI and respondent BIR Commissioner, as well as, the CTA and Court of Appeals, take the statement to mean that the filing alone of the request for reconsideration or reinvestigation can already interrupt or suspend the running of the prescriptive period on collection. This Court therefore takes this opportunity to clarify and qualify this statement made in the Wyeth Suaco case. While it is true that, by itself, such statement would appear to be a generalization of the exceptions to the statute of limitations on collection, it is best interpreted in consideration of the particular facts of the Wyeth Suaco case and previous jurisprudence.

The Wyeth Suaco case cannot be in conflict with the Suyoc case because there are substantial differences in the factual backgrounds of the two cases. The Suyoc case refers to a situation where there were repeated requests or positive acts performed by the taxpayer that convinced the BIR to delay collection of the assessed tax. This Court pronounced therein that the repeated requests or positive acts of the taxpayer prevented or estopped it from setting up the defense of prescription against the Government when the latter attempted to collect the assessed tax. In the Wyeth Suaco case, taxpayer Wyeth Suaco filed a request for reinvestigation, which was apparently granted by the BIR and, consequently, the prescriptive period was indeed suspended as provided under Section 224 of the Tax Code of 1977, as amended.49 To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies specific circumstances when the statute of limitations on assessment and collection may be interrupted or suspended, among which is a request for reinvestigation that is granted by the BIR Commissioner. The act of filing a request for reinvestigation alone does not suspend the period; such request must be granted.50 The grant need not be express, but may be implied from the acts of the BIR Commissioner or authorized BIR officials in response to the request for reinvestigation.51 This Court found in the Wyeth Suaco case that the BIR actually conducted a reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco, which resulted in the reduction of the assessment originally issued against it. Taxpayer Wyeth Suaco was also aware that its request for reinvestigation was granted, as written by its Finance Manager in a letter dated 01 July 1975, addressed to the Chief of the Tax Accounts Division, wherein he admitted that, "[a]s we understand, the matter is now undergoing review and consideration by your Manufacturing Audit Division" The statute of limitations on collection, then, started to run only upon the issuance and release of the reduced assessment. The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period for collection is interrupted or suspended when the taxpayer files a request for reinvestigation, provided that, as clarified

and qualified herein, such request is granted by the BIR Commissioner. Thus, this Court finds no compelling reason to abandon its decision in the Wyeth Suaco case. It also now rules that the said case is not applicable to the Petition at bar because of the distinct facts involved herein. As already heretofore determined by this Court, the protest filed by petitioner BPI was a request for reconsideration, which merely required a review of existing evidence and the legal basis for the assessment. Respondent BIR Commissioner did not require, neither did petitioner BPI offer, additional evidence on the matter. After petitioner BPI filed its request for reconsideration, there was no other communication between it and respondent BIR Commissioner or any of the authorized representatives of the latter. There was no showing that petitioner BPI was informed or aware that its request for reconsideration was granted or acted upon by the BIR. IV Conclusion To summarize all the foregoing discussion, this Court lays down the following rules on the exceptions to the statute of limitations on collection. The statute of limitations on collection may only be interrupted or suspended by a valid waiver executed in accordance with paragraph (d) of Section 223 of the Tax Code of 1977, as amended, and the existence of the circumstances enumerated in Section 224 of the same Code, which include a request for reinvestigation granted by the BIR Commissioner. Even when the request for reconsideration or reinvestigation is not accompanied by a valid waiver or there is no request for reinvestigation that had been granted by the BIR Commissioner, the taxpayer may still be held in estoppel and be prevented from setting up the defense of prescription of the statute of limitations on collection when, by his own repeated requests or positive acts, the Government had been, for good reasons, persuaded to postpone collection to make

the taxpayer feel that the demand is not unreasonable or that no harassment or injustice is meant by the Government, as laid down by this Court in the Suyoc case. Applying the given rules to the present Petition, this Court finds that (a) The statute of limitations for collection of the deficiency DST in Assessment No. FAS-5-85-89-002054, issued against petitioner BPI, had already expired; and (b) None of the conditions and requirements for exception from the statute of limitations on collection exists herein: Petitioner BPI did not execute any waiver of the prescriptive period on collection as mandated by paragraph (d) of Section 223 of the Tax Code of 1977, as amended; the protest filed by petitioner BPI was a request for reconsideration, not a request for reinvestigation that was granted by respondent BIR Commissioner which could have suspended the prescriptive period for collection under Section 224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than filing a request for reconsideration of Assessment No. FAS-5-85-89-002054, did not make repeated requests or performed positive acts that could have persuaded the respondent BIR Commissioner to delay collection, and that would have prevented or estopped petitioner BPI from setting up the defense of prescription against collection of the tax assessed, as required in the Suyoc case. This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They presented no reason or explanation as to why it took them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable assessment and investigation by the BIR. Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a determination on the validity and

correctness of the said Assessment for the latter would only be unenforceable. Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which reinstated Assessment No. FAS-5-85-89002054 requiring petitioner BPI to pay the amount of P28,020.00 as deficiency documentary stamp tax for the taxable year 1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED. G.R. No. 174942 March 7, 2008

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank and Trust Company), petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION TINGA, J.: The Bank of the Philippine Islands (BPI) seeks a review of the Decision1dated 15 August 2006 and the Resolution2dated 5 October 2006, both of the Court of Tax Appeals (CTA or tax court), which ruled that BPI is liable for the deficiency documentary stamp tax (DST) on its cabled instructions to its foreign correspondent bank and that prescription had not yet set in against the government. The following undisputed facts are culled from the CTA decision: Petitioner, the surviving bank after its merger with Far East Bank and Trust Company, is a corporation duly created and existing under the laws of the Republic of the Philippines with principal office at Ayala Avenue corner Paseo de Roxas Ave., Makati City.

Respondent thru then Revenue Service Chief Cesar M. Valdez, issued to the petitioner a pre-assessment notice (PAN) dated November 26, 1986. Petitioner, in a letter dated November 29, 1986, requested for the details of the amounts alleged as 1982-1986 deficiency taxes mentioned in the November 26, 1986 PAN. On April 7, 1989, respondent issued to the petitioner, assessment/demand notices FAS-1-82 to 86/89-000 and FAS 582 to 86/89-000 for deficiency withholding tax at source (Swap Transactions) and DST involving the amounts of P190,752,860.82 and P24,587,174.63, respectively, for the years 1982 to 1986. On April 20, 1989, petitioner filed a protest on the demand/assessment notices. On May 8, 1989, petitioner filed a supplemental protest. On March 12, 1993, petitioner requested for an opportunity to present or submit additional documentation on the Swap Transactions with the then Central Bank (page 240, BIR Records). Attached to the letter dated June 17, 1994, in connection with the reinvestigation of the abovementioned assessment, petitioner submitted to the BIR, Swap Contracts with the Central Bank. Petitioner executed several Waivers of the Statutes of Limitations, the last of which was effective until December 31, 1994. On August 9, 2002, respondent issued a final decision on petitioners protest ordering the withdrawal and cancellation of the deficiency withholding tax assessment in the amount of P190,752,860.82 and considered the same as closed and terminated. On the other hand, the deficiency DST assessment in the amount of P24,587,174.63 was reiterated and the petitioner was ordered to pay the said amount within thirty (30) days from receipt of such order. Petitioner received a copy of

the said decision on January 15, 2003. Thereafter, on January 24, 2003, petitioner filed a Petition for Review before the Court. On August 31, 2004, the Court rendered a Decision denying the petitioners Petition for Review, the dispositive portion of which is quoted hereunder: IN VIEW OF ALL THE FOREGOING, the petition is hereby DENIED for lack of merit. Accordingly, petitioner is ORDERED to PAY the respondent the amount of P24,587,174.63 representing deficiency documentary stamp tax for the period 1982-1986, plus 20% interest starting February 14, 2003 until the amount is fully paid pursuant to Section 249 of the Tax Code. SO ORDERED. On September 21, 2004, petitioner filed a Motion for Reconsideration of the abovementioned Decision which was denied for lack of merit in a Resolution dated February 14, 2005. On March 9, 2005, petitioner filed with the Court En Banc a Motion for Extension of Time to File Petition for Review praying for an extension of fifteen (15) days from March 10, 2005 or until March 25, 2005. Petitioners motion was granted in a Resolution dated March 16, 2005. On March 28, 2005, (March 25 was Good Friday), petitioner filed the instant Petition for Review, advancing the following assignment of errors. I. THIS HONORABLE COURT OVERLOOKED THE SIGNIFICANCE OF THE WAIVER DULY AND VALIDLY AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL DECEMBER 31, 1994;

II. THIS TAX COURT ERRED IN HOLDING THAT THE COLLECTION OF ALLEGED DEFICIENCY TAX HAS NOT PRESCRIBED. III. THIS HONORABLE COURT ERRED IN HOLDING THAT RESPONDENT DID NOT VIOLATE PROCEDURAL DUE PROCESS IN THE ISSUANCE OF ASSESSMENT NOTICE RELATIVE TO DOCUMENTARY STAMP DEFICIENCY. IV. THIS HONORABLE COURT ERRED IN HOLDING THAT THE 4 MARCH 1987 MEMORANDUM OF THE LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR COMMISISONER VESTS NO RIGHTS TO PETITIONER. V. THIS HONORABLE COURT ERRED IN HOLDING THAT PETITIONER IS LIABLE FOR DOCUMENTARY STAMP TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO 1986.3 The CTA synthesized the foregoing issues into whether the collection of the deficiency DST is barred by prescription and whether BPI is liable for DST on its SWAP loan transactions. On the first issue, the tax court, applying the case of Commissioner of Internal Revenue v. Wyeth Suaco Laboratories, Inc.,4(Wyeth Suaco case), ruled that BPIs protest and supplemental protest should be considered requests for reinvestigation which tolled the prescriptive period provided by law to collect a tax deficiency by distraint, levy, or court proceeding. It further held, as regards the second issue, that BPIs cabled instructions to its foreign correspondent bank to remit a specific sum in dollars to the Federal Reserve Bank, the same to be credited to the account of the Central Bank, are in the nature of a telegraphic transfer subject to DST under Section 195 of the Tax Code. In its Petition for Review5 dated 24 November 2006, BPI argues that the governments right to collect the DST had already prescribed because the Commissioner of Internal Revenue (CIR) failed to issue

any reply granting BPIs request for reinvestigation manifested in the protest letters dated 20 April and 8 May 1989. It was only through the 9 August 2002 Decision ordering BPI to pay deficiency DST, or after the lapse of more than thirteen (13) years, that the CIR acted on the request for reinvestigation, warranting the conclusion that prescription had already set in. It further claims that the CIR was not precluded from collecting the deficiency within three (3) years from the time the notice of assessment was issued on 7 April 1989, or even until the expiration on 31 December 1994 of the last waiver of the statute of limitations signed by BPI. Moreover, BPI avers that the cabled instructions to its correspondent bank are not subject to DST because the National Internal Revenue Code of 1977 (Tax Code of 1977) does not contain a specific provision that cabled instructions on SWAP transactions are subject to DST. The Office of the Solicitor General (OSG) filed a Comment6 dated 1 June 2007, on behalf of the CIR, asserting that the prescriptive period was tolled by the protest letters filed by BPI which were granted and acted upon by the CIR. Such action was allegedly communicated to BPI as, in fact, the latter submitted additional documents pertaining to its SWAP transactions in support of its request for reinvestigation. Thus, it was only upon BPIs receipt on 13 January 2003 of the 9 August 2002 Decision that the period to collect commenced to run again. The OSG cites the case of Collector of Internal Revenue v. Suyoc Consolidated Mining Company, et al.7(Suyoc case) in support of its argument that BPI is already estopped from raising the defense of prescription in view of its repeated requests for reinvestigation which allegedly induced the CIR to delay the collection of the assessed tax. In its Reply8dated 30 August 2007, BPI argues against the application of the Suyoc case on two points: first, it never induced the CIR to postpone tax collection; second, its request for reinvestigation was not categorically acted upon by the CIR within the three-year collection period after assessment. BPI maintains that it did not receive any communication from the CIR in reply to its protest letters.

We grant the petition. Section 3189 of the Tax Code of 1977 provides: 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 purposes of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. The statute of limitations on assessment and collection of national internal revenue taxes was shortened from five (5) years to three (3) years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. When it validly issues an assessment within the three (3)-year period, it has another three (3) years within which to collect the tax due by distraint, levy, or court proceeding. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent to the taxpayer.11 As applied to the present case, the CIR had three (3) years from the time he issued assessment notices to BPI on 7 April 1989 or until 6 April 1992 within which to collect the deficiency DST. However, it was only on 9 August 2002 that the CIR ordered BPI to pay the deficiency. In order to determine whether the prescriptive period for collecting the tax deficiency was effectively tolled by BPIs filing of the protest letters dated 20 April and 8 May 1989 as claimed by the CIR, we need to examine Section 32012 of the Tax Code of 1977, which states:

Sec. 320. Suspension of running of statute.The running of the statute of limitations provided in Sections 318 or 319 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer requests for a reinvestigation which is granted by the Commissioner; when the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected: Provided, That if the taxpayer informs the Commissioner of any change in address, the running of the statute of limitations will not be suspended; when the warrant of distraint and levy is duly served upon the taxpayer, his authorized representative, or a member of his household with sufficient discretion, and no property could be located; and when the taxpayer is out of the Philippines. (Emphasis supplied) The above section is plainly worded. In order to suspend the running of the prescriptive periods for assessment and collection, the request for reinvestigation must be granted by the CIR. In BPI v. Commissioner of Internal Revenue,13the Court emphasized the rule that the CIR must first grant the request for reinvestigation as a requirement for the suspension of the statute of limitations. The Court said: In the case of Republic of the Philippines v. Gancayco, taxpayer Gancayco requested for a thorough reinvestigation of the assessment against him and placed at the disposal of the Collector of Internal Revenue all the evidences he had for such purpose; yet, the Collector ignored the request, and the records and documents were not at all examined. Considering the given facts, this Court pronounced that x x x The act of requesting a reinvestigation alone does not suspend the period. The request should first be granted, in order to effect suspension. (Collector v. Suyoc Consolidated,

supra; also Republic v. Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949, within which to submit his evidence, which the latter did one day before. There were no impediments on the part of the Collector to file the collection case from April 1, 1949 In Republic of the Philippines v. Acebedo, this Court similarly found that x x x T]he defendant, after receiving the assessment notice of September 24, 1949, asked for a reinvestigation thereof on October 11, 1949 (Exh. "A"). There is no evidence that this request was considered or acted upon. In fact, on October 23, 1950 the then Collector of Internal Revenue issued a warrant of distraint and levy for the full amount of the assessment (Exh. "D"), but there was follow-up of this warrant. Consequently, the request for reinvestigation did not suspend the running of the period for filing an action for collection. [Emphasis in the original]14 The Court went on to declare that the burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation. There is nothing in the records of this case which indicates, expressly or impliedly, that the CIR had granted the request for reinvestigation filed by BPI. What is reflected in the records is the piercing silence and inaction of the CIR on the request for reinvestigation, as he considered BPIs letters of protest to be. In fact, it was only in his comment to the present petition that the CIR, through the OSG, argued for the first time that he had granted the request for reinvestigation. His consistent stance invoking the Wyeth Suaco case, as reflected in the records, is that the prescriptive period was tolled by BPIs request for reinvestigation, without any assertion that the same had been granted or at least acted upon.15

In the Wyeth Suaco case, private respondent Wyeth Suaco Laboratories, Inc. sent letters seeking the reinvestigation or reconsideration of the deficiency tax assessments issued by the BIR. The records of the case showed that as a result of these protest letters, the BIR Manufacturing Audit Division conducted a review and reinvestigation of the assessments. The records further showed that the company, thru its finance manager, communicated its inability to settle the tax deficiency assessment and admitted that it knew of the ongoing review and consideration of its protest. As differentiated from the Wyeth Suaco case, however, there is no evidence in this case that the CIR actually conducted a reinvestigation upon the request of BPI or that the latter was made aware of the action taken on its request. Hence, there is no basis for the tax courts ruling that the filing of the request for reinvestigation tolled the running of the prescriptive period for collecting the tax deficiency. Neither did the waiver of the statute of limitations signed by BPI supposedly effective until 31 December 1994 suspend the prescriptive period. The CIR himself contends that the waiver is void as it shows no date of acceptance in violation of RMO No. 20-90.16 At any rate, the records of this case do not disclose any effort on the part of the Bureau of Internal Revenue to collect the deficiency tax after the expiration of the waiver until eight (8) years thereafter when it finally issued a decision on the protest. We also find the Suyoc case inapplicable. In that case, several requests for reinvestigation and reconsideration were filed by Suyoc Consolidated Mining Company purporting to question the correctness of tax assessments against it. As a result, the Collector of Internal Revenue refrained from collecting the tax by distraint, levy or court proceeding in order to give the company every opportunity to prove its claim. The Collector also conducted several reinvestigations which eventually led to a reduced assessment. The company, however, filed a petition with the CTA claiming that the right of the government to collect the tax had already prescribed. When the case reached this Court, we ruled that Suyoc could not set up the defense of prescription since, by its own action, the government

was induced to delay the collection of taxes to make the company feel that the demand was not unreasonable or that no harassment or injustice was meant by the government. In this case, BPIs letters of protest and submission of additional documents pertaining to its SWAP transactions, which were never even acted upon, much less granted, cannot be said to have persuaded the CIR to postpone the collection of the deficiency DST. The inordinate delay of the CIR in acting upon and resolving the request for reinvestigation filed by BPI and in collecting the DST allegedly due from the latter had resulted in the prescription of the governments right to collect the deficiency. As this Court declared in Republic of the Philippines v. Ablaza:17 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 latters real liability, but to take advantage of every opportunity to molest peaceful, lawabiding citizens. Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.18 Given the prescription of the governments claim, we no longer deem it necessary to pass upon the validity of the assessment. WHEREFORE, the petition is GRANTED. The Decisionof the Court of Tax Appeals dated 15 August 2006 and its Resolution dated 5

October 2006, are hereby REVERSED and SET ASIDE. No pronouncement as to costs. 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 assessments7 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 nonexistent 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. COMMISSIONER OF INTERNAL REVENUE, Petitioner, G.R. No. 167560 Present:

- versus -

YNARES-SANTIAGO Chairperson, AUSTRIA-MARTINE CHICO-NAZARIO, NACHURA, and REYES, JJ. Promulgated: September 17, 2008

DOMINADOR MENGUITO, Respondent.

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 Admissions 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,
4

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 [respondents] 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 [respondents] 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 [respondents] 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 [petitioners] '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 [respondents] 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

I 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

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 (respondents) 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 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 petitioners [respondents] wife, Jeanne Menguito as proprietress."14 However, the CA reversed the CTA on these grounds: Respondents [herein petitioners] 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 petitioners [herein respondents] 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 petitioners 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 latters 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 respondents 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. G.R. No. 185371 December 8, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. METRO STAR SUPERAMA, INC., Respondent. 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 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution2 denying 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 Issues3 of the parties, the CTA Second Division summarized the factual and procedural antecedents of the case, the pertinent portions of which read: Petitioner is a domestic corporation duly organized and existing by virtue of the laws of the Republic of the Philippines, x x x. On January 26, 2001, the Regional Director of Revenue Region No. 10, Legazpi City, issued Letter of Authority No. 00006561 for Revenue Officer Daisy G. Justiniana to examine 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. RamosLafuente issued a Preliminary 15-day Letter, which petitioner received on November 9, 2001. The said letter stated that a post audit review was held and it was ascertained that there was deficiency value-added and withholding taxes due from petitioner in the amount of P 292,874.16. On April 11, 2002, petitioner received a Formal Letter of Demand dated April 3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four Pesos and Sixteen Centavos (P292,874.16.) for deficiency value-added and withholding taxes for the taxable year 1999, computed as follows:

ASSESSMENT NOTICE NO. 067-99-003-579-072 VALUE ADDED TAX Gross Sales Output Tax Less: Input Tax VAT Payable Add: 25% Surcharge 20% Interest Compromise Penalty Late Payment Failure to File VAT returns TOTAL WITHHOLDING TAX Compensation Expanded Total Tax Due Less: Tax Withheld Deficiency Withholding Tax Add: 20% Interest p.a. Compromise Penalty TOTAL *Expanded P1,949,334.25 x 5% 2,772.91 110,103.92 P 112,876.83 111,848.27 P 1,028.56 576.51 200.00 P 1,805.07 97,466.71 P16,000.00 2,400.00 18,400.00 136,731.01 P 291,069.09 P 38,584.54 79,746.49 P1,697,718.90 P 154,338.08 _____________ P 154,338.08

Withholding Tax Film Rental Audit Fee Rental Expense 10,000.25 193,261.20 41,272.73 x 10% x 5% x 1% x 1% 1,000.00 9,663.00 412.73 1,561.42 P 110,103.92

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 review4 with the CTA. The parties then stipulated on the following issues to be decided by the tax court: 1. Whether the respondent complied with the due process requirement as provided under the National Internal Revenue Code and Revenue Regulations No. 12-99 with regard to the issuance of a deficiency tax assessment; 1.1 Whether petitioner is liable for the respective amounts of P291,069.09 and P1,805.07 as deficiency VAT and withholding tax for the year 1999; 1.2. Whether the assessment has become final and executory and demandable for failure of petitioner to protest the same within 30 days from its receipt thereof on April 11, 2002, pursuant to Section 228 of the National Internal Revenue Code; 2. Whether the deficiency assessments issued by the respondent are void for failure to state the law and/or facts upon which they are based. 2.2 Whether petitioner was informed of the law and facts on which the assessment is made in compliance with Section 228 of the National Internal Revenue Code; 3. Whether or not petitioner, as owner/operator of a movie/cinema house, is subject to VAT on sales of services under Section 108(A) of the National Internal Revenue Code;

Security Service 156,142.01 Service Contractor Total

SUMMARIES OF DEFICIENCIES VALUE ADDED TAX WITHHOLDING TAX TOTAL P 291,069.09 1,805.07 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

4. Whether or not the assessment is based on the best evidence obtainable pursuant to Section 6(b) of the National Internal Revenue Code. The CTA-Second Division found merit in the petition of Metro Star and, on March 21, 2007, rendered a decision, the decretal portion of which reads: WHEREFORE, premises considered, the Petition for Review is hereby GRANTED. Accordingly, the assailed Decision dated February 8, 2005 is hereby REVERSED and SET ASIDE and respondent is ORDERED TO DESIST from collecting the subject taxes against petitioner. The CTA-Second Division opined that "[w]hile there [is] a disputable presumption that a mailed letter [is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee."5 It also found that there was no clear showing that Metro Star actually received the alleged PAN, dated January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated May 12, 2003 were void, as Metro Star was denied due process.6 The CIR sought reconsideration7 of the decision of the CTA-Second Division, but the motion was denied in the latters July 24, 2007 Resolution.8 Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the petition was dismissed after a determination that no new matters were raised. The CTA-En Banc disposed: WHEREFORE, the instant Petition for Review is hereby DENIED DUE COURSE and DISMISSED for lack of merit. Accordingly, the March 21, 2007 Decision and July 27, 2007 Resolution of the CTA Second Division in CTA Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in toto.

SO ORDERED. The motion for reconsideration10 filed by the CIR was likewise denied by the CTA-En Banc in its November 18, 2008 Resolution.11 The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process was served nonetheless because the latter received the Final Assessment Notice (FAN), comes now before this Court with the sole issue of whether or not Metro Star was denied due process. The general rule is that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its functions, has accordingly developed an exclusive expertise on the resolution unless there has been an abuse or improvident exercise of authority.12 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue,13 the Court wrote: Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect. On the matter of service of a tax assessment, a further perusal of our ruling in Barcelon is instructive, viz: Jurisprudence is replete with cases holding that if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed

received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. The Supreme Court has consistently held that while a mailed letter is deemed received by the addressee in the course of mail, this is merely a disputable presumption subject to controversion and a direct denial thereof shifts the burden to the party favored by the presumption to prove that the mailed letter was indeed received by the addressee (Republic vs. Court of Appeals, 149 SCRA 351). Thus as held by the Supreme Court in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104, January 30, 1965: "The facts to be proved to raise this presumption are (a) that the letter was properly addressed with postage prepaid, and (b) that it was mailed. Once these facts are proved, the presumption is that the letter was received by the addressee as soon as it could have been transmitted to him in the ordinary course of the mail. But if one of the said facts fails to appear, the presumption does not lie. (VI, Moran, Comments on the Rules of Court, 1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil 269)." x x x. What is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. And if said documents cannot be located, Respondent at the very least, should have submitted to the Court a certification issued by the Bureau of Posts and any other pertinent document which is executed with the intervention of the Bureau of Posts. This Court does not put much credence to the self serving documentations made by the BIR personnel especially if they are unsupported by substantial evidence establishing the fact of mailing. Thus: "While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that the release, mailing or sending of the notice be clearly and satisfactorily proved. Mere notations made without the 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. Menguito16 cited by the CIR in support of its argument that only the non-service of the FAN is fatal to the validity of an assessment, cannot apply to this case because the issue therein was the non-compliance with the provisions of R. R. No. 12-85 which sought to interpret Section 229 of the old tax law. RA No. 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of 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.1avvphi1 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. 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.

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: t.hqw (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,

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

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: t.hqw (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: t.hqw 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. t.hqw The contention is made, and is here rejected, that an assessment of the deficiency tax due is necessary before the taxpayer can be prosecuted criminally for the charges preferred. The crime is complete when the violator has, as in this case, knowingly and willfully

filed fraudulent returns with intent to evade and defeat a part or all of the tax. 14 An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfuly filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the government's failure to discover the error and promptly to assess has no connections with the commission of the crime. 15 Besides, it has been ruled that a petition for reconsideration of an assessment may affect the suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of a criminal action for violation of law. 16 Obviously, the protest of the petitioner against the assessment of the District Revenue Officer cannot stop his prosecution for violation of the National Internal Revenue Code. Accordingly, the respondent Judge did not abuse his discretion in denying the motion to quash filed by the petitioner. WHEREFORE, the petition should be, as it is hereby dismissed. The temporary restraining order heretofore issued is hereby set aside. With costs against the petitioner. 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 decision 1 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 nonpayment 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 VicePresident 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 counteraffidavits 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 Order 11 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-9418790, 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 petition 13 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. 9317942; 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. SP33599 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 19901991. 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 a prima 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. Enrile 29 are: a. To afford adequate protection to the constitutional rights of the accused (Hernandez vs. Albano, et al., L19272, 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. 30720R, 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. Albano 30 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 counteraffidavits 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.