Professional Documents
Culture Documents
Fourth. It is finally argued that RMC No. 47-91 is counterproductive because traders The trial court ruled in favor of respondent, to wit:
and dealers would be forced to buy copra from coconut farmers who are exempt
from the VAT and that to the extent that prices are reduced the government would WHEREFORE, in view of the foregoing, the Petition is GRANTED and the subject
lose revenues as the 10% tax base is correspondingly diminished. Customs Memorandum Order 27-2003 is declared INVALID and OF NO FORCE AND
EFFECT. Respondents Commissioner of Customs, the District Collector of Subic or
This is not so. The sale of agricultural non-food products is exempt from VAT only anyone acting in their behalf are to immediately cease and desist from enforcing the
when made by the primary producer or owner of the land from which the same is said Customs Memorandum Order 27-2003.
produced, but in the case of agricultural food products their sale in their original
state is exempt at all stages of production or distribution. At any rate, the argument SO ORDERED.12
that the classification of copra as agricultural non-food product is counterproductive
is a question of wisdom or policy which should be addressed to respondent officials The RTC held that it had jurisdiction over the subject matter, given that the issue
and to Congress. raised by respondent concerned the quasi-legislative powers of petitioners. It
likewise stated that a petition for declaratory relief was the proper remedy, and that
WHEREFORE, the petition is DISMISSED. respondent was the proper party to file it. The court considered that respondent
was a regular importer, and that the latter would be subjected to the application of
SO ORDERED. the regulation in future transactions.
SECOND DIVISION With regard to the validity of the regulation, the trial court found that petitioners
had not followed the basic requirements of hearing and publication in the issuance
G.R. No. 179579 February 1, 2012 of CMO 27-2003. It likewise held that petitioners had "substituted the quasi-judicial
determination of the commodity by a quasi-legislative predetermination."13 The
COMMISSIONER OF CUSTOMS and the DISTRICT COLLECTOR OF THE PORT OF lower court pointed out that a classification based on importers and ports of
SUBIC, Petitioners, discharge were violative of the due process rights of respondent.
vs.
HYPERMIX FEEDS CORPORATION, Respondent. Dissatisfied with the Decision of the lower court, petitioners appealed to the CA,
raising the same allegations in defense of CMO 27-2003.14 The appellate court,
DECISION however, dismissed the appeal. It held that, since the regulation affected substantial
rights of petitioners and other importers, petitioners should have observed the
SERENO, J.: requirements of notice, hearing and publication.
Before us is a Petition for Review under Rule 45,1 assailing the Decision2 and the Hence, this Petition.
Resolution3 of the Court of Appeals (CA), which nullified the Customs Memorandum
Order (CMO) No. 27-20034 on the tariff classification of wheat issued by petitioner Petitioners raise the following issues for the consideration of this Court:
Commissioner of Customs.
I. THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE
The antecedent facts are as follows: WHICH IS NOT IN ACCORD WITH THE LAW AND PREVAILING
JURISPRUDENCE.
On 7 November 2003, petitioner Commissioner of Customs issued CMO 27-2003.
Under the Memorandum, for tariff purposes, wheat was classified according to the II. THE COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE
following: (1) importer or consignee; (2) country of origin; and (3) port of TRIAL COURT HAS JURISDICTION OVER THE CASE.
discharge.5 The regulation provided an exclusive list of corporations, ports of
discharge, commodity descriptions and countries of origin. Depending on these The Petition has no merit.
factors, wheat would be classified either as food grade or feed grade. The
corresponding tariff for food grade wheat was 3%, for feed grade, 7%. We shall first discuss the propriety of an action for declaratory relief.
CMO 27-2003 further provided for the proper procedure for protest or Valuation Rule 63, Section 1 provides:
and Classification Review Committee (VCRC) cases. Under this procedure, the
release of the articles that were the subject of protest required the importer to post Who may file petition. – Any person interested under a deed, will, contract or other
a cash bond to cover the tariff differential.6 written instrument, or whose rights are affected by a statute, executive order or
regulation, ordinance, or any other governmental regulation may, before breach or
A month after the issuance of CMO 27-2003, on 19 December 2003, respondent filed violation thereof, bring an action in the appropriate Regional Trial Court to
a Petition for Declaratory Relief7 with the Regional Trial Court (RTC) of Las Pinñ as determine any question of construction or validity arising, and for a declaration of
City. It anticipated the implementation of the regulation on its imported and his rights or duties, thereunder.
perishable Chinese milling wheat in transit from China.8 Respondent contended that
CMO 27-2003 was issued without following the mandate of the Revised The requirements of an action for declaratory relief are as follows: (1) there must be
Administrative Code on public participation, prior notice, and publication or a justiciable controversy; (2) the controversy must be between persons whose
registration with the University of the Philippines Law Center. interests are adverse; (3) the party seeking declaratory relief must have a legal
interest in the controversy; and (4) the issue involved must be ripe for judicial
Respondent also alleged that the regulation summarily adjudged it to be a feed determination.15 We find that the Petition filed by respondent before the lower
grade supplier without the benefit of prior assessment and examination; thus, court meets these requirements.
despite having imported food grade wheat, it would be subjected to the 7% tariff
upon the arrival of the shipment, forcing them to pay 133% more than was proper. First, the subject of the controversy is the constitutionality of CMO 27-2003 issued
by petitioner Commissioner of Customs. In Smart Communications v. NTC,16 we
Furthermore, respondent claimed that the equal protection clause of the held:
Constitution was violated when the regulation treated non-flour millers differently
from flour millers for no reason at all. The determination of whether a specific rule or set of rules issued by an
administrative agency contravenes the law or the constitution is within the
Lastly, respondent asserted that the retroactive application of the regulation was jurisdiction of the regular courts. Indeed, the Constitution vests the power of judicial
confiscatory in nature. review or the power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation in the courts,
On 19 January 2004, the RTC issued a Temporary Restraining Order (TRO) effective including the regional trial courts. This is within the scope of judicial power, which
for twenty (20) days from notice.9 includes the authority of the courts to determine in an appropriate action the
validity of the acts of the political departments. Judicial power includes the duty of
Petitioners thereafter filed a Motion to Dismiss.10 They alleged that: (1) the RTC did the courts of justice to settle actual controversies involving rights which are legally
not have jurisdiction over the subject matter of the case, because respondent was demandable and enforceable, and to determine whether or not there has been a
asking for a judicial determination of the classification of wheat; (2) an action for grave abuse of discretion amounting to lack or excess of jurisdiction on the part of
declaratory relief was improper; (3) CMO 27-2003 was an internal administrative any branch or instrumentality of the Government. (Emphasis supplied)
rule and not legislative in nature; and (4) the claims of respondent were speculative
and premature, because the Bureau of Customs (BOC) had yet to examine Meanwhile, in Misamis Oriental Association of Coco Traders, Inc. v. Department of
respondent’s products. They likewise opposed the application for a writ of Finance Secretary,17 we said:
preliminary injunction on the ground that they had not inflicted any injury through
the issuance of the regulation; and that the action would be contrary to the rule that xxx [A] legislative rule is in the nature of subordinate legislation, designed to
administrative issuances are assumed valid until declared otherwise. implement a primary legislation by providing the details thereof. xxx
Finally, the issue raised by respondent is ripe for judicial determination, because It is also not clear how the regulation intends to "monitor more closely wheat
litigation is inevitable19 for the simple and uncontroverted reason that respondent importations and thus prevent their misclassification." A careful study of CMO 27-
is not included in the enumeration of flour millers classified as food grade wheat 2003 shows that it not only fails to achieve this end, but results in the opposite. The
importers. Thus, as the trial court stated, it would have to file a protest case each application of the regulation forecloses the possibility that other corporations that
time it imports food grade wheat and be subjected to the 7% tariff. are excluded from the list import food grade wheat; at the same time, it creates an
assumption that those who meet the criteria do not import feed grade wheat. In the
It is therefore clear that a petition for declaratory relief is the right remedy given the first case, importers are unnecessarily burdened to prove the classification of their
circumstances of the case. wheat imports; while in the second, the state carries that burden.
Considering that the questioned regulation would affect the substantive rights of Petitioner Commissioner of Customs also went beyond his powers when the
respondent as explained above, it therefore follows that petitioners should have regulation limited the customs officer’s duties mandated by Section 1403 of the
applied the pertinent provisions of Book VII, Chapter 2 of the Revised Tariff and Customs Law, as amended. The law provides:
Administrative Code, to wit:
Section 1403. – Duties of Customs Officer Tasked to Examine, Classify, and Appraise
Section 3. Filing. – (1) Every agency shall file with the University of the Philippines Imported Articles. – The customs officer tasked to examine, classify, and appraise
Law Center three (3) certified copies of every rule adopted by it. Rules in force on imported articles shall determine whether the packages designated for examination
the date of effectivity of this Code which are not filed within three (3) months from and their contents are in accordance with the declaration in the entry, invoice and
that date shall not thereafter be the bases of any sanction against any party of other pertinent documents and shall make return in such a manner as to indicate
persons. whether the articles have been truly and correctly declared in the entry as regard
their quantity, measurement, weight, and tariff classification and not imported
xxx xxx xxx contrary to law. He shall submit samples to the laboratory for analysis when feasible
to do so and when such analysis is necessary for the proper classification, appraisal,
Section 9. Public Participation. - (1) If not otherwise required by law, an agency shall, and/or admission into the Philippines of imported articles.
as far as practicable, publish or circulate notices of proposed rules and afford
interested parties the opportunity to submit their views prior to the adoption of any Likewise, the customs officer shall determine the unit of quantity in which they are
rule. usually bought and sold, and appraise the imported articles in accordance with
Section 201 of this Code.
(2) In the fixing of rates, no rule or final order shall be valid unless the
proposed rates shall have been published in a newspaper of general Failure on the part of the customs officer to comply with his duties shall subject him
circulation at least two (2) weeks before the first hearing thereon. to the penalties prescribed under Section 3604 of this Code.1âwphi1
(3) In case of opposition, the rules on contested cases shall be observed. The provision mandates that the customs officer must first assess and determine the
classification of the imported article before tariff may be imposed. Unfortunately,
When an administrative rule is merely interpretative in nature, its applicability CMO 23-2007 has already classified the article even before the customs officer had
needs nothing further than its bare issuance, for it gives no real consequence more the chance to examine it. In effect, petitioner Commissioner of Customs diminished
than what the law itself has already prescribed. When, on the other hand, the the powers granted by the Tariff and Customs Code with regard to wheat
administrative rule goes beyond merely providing for the means that can facilitate importation when it no longer required the customs officer’s prior examination and
or render least cumbersome the implementation of the law but substantially assessment of the proper classification of the wheat.
increases the burden of those governed, it behooves the agency to accord at least to
those directly affected a chance to be heard, and thereafter to be duly informed, It is well-settled that rules and regulations, which are the product of a delegated
before that new issuance is given the force and effect of law.20 power to create new and additional legal provisions that have the effect of law,
should be within the scope of the statutory authority granted by the legislature to
Likewise, in Tanñ ada v. Tuvera,21 we held: the administrative agency. It is required that the regulation be germane to the
"The authority of the Secretary of Finance to determine articles similar or analogous Here, as earlier mentioned, respondent Josefina Leal, being a pawnshop owner, is
to those subject to a rate of sales tax under certain category enumerated in Section assailing the revenue orders imposing 5% lending investor’s tax on pawnshops
163 and 165 of this Code shall be without prejudice to the power of the issued by petitioner. Clearly then, she should have filed her petition with the Court of
Commissioner of Internal Revenue to make rulings or opinions in connection with Tax Appeals, not the RTC. Indeed, the Court of Appeals erred in holding that the RTC
the implementation of the provisions of internal revenue laws, including ruling on order should have been challenged before this Court.
the classification of articles of sales and similar purposes." (emphasis added)
WHEREFORE, the petition is GRANTED. Accordingly: (1) the assailed Decision dated
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals [CTA for December 23, 1993 of the Court of Appeals in CA-G.R. SP No. 28824 is SET ASIDE;
brevity]), as amended, such rulings of the Commissioner of Internal Revenue are (2) the Order dated April 27, 1992 and the Writ of Preliminary Injunction dated May
appealable to that court, thus: 21, 1992 both issued by the RTC, Branch 75, San Mateo, Rizal in Civil Case No. 849-
92, are declared NULL and VOID for having been issued without jurisdiction; and (3)
"SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate Civil Case No. 849-92 is ordered DISMISSED.
jurisdiction to review by appeal, as herein provided -
SO ORDERED.
(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes, fees EN BANC
or other charges, penalties imposed in relation thereto, or other matters
arising under the National Internal Revenue Code or other laws or part G.R. No. L-25043 April 26, 1968
of law administered by the Bureau of Internal Revenue;
ANTONIO ROXAS, EDUARDO ROXAS and ROXAS Y CIA., in their own respective
x x x x x x x x x." (emphasis added) behalf and as judicial co-guardians of JOSE ROXAS, petitioners,
vs.
"SEC. 11. Who may appeal; effect of appeal. – Any person, association or COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE,
corporation adversely affected by a decision or ruling of the respondents.
Commissioner of Internal Revenue, or the Commissioner of Customs or
any provincial or city Board of Assessment Appeals may file an appeal in Leido, Andrada, Perez and Associates for petitioners.
the Court of Tax Appeals within thirty days after the receipt of such Office of the Solicitor General for respondents.
decision or ruling.
BENGZON, J.P., J.:
x x x x x x x x x." (emphasis added)
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted to their
"SEC. 18. x x x. – No judicial proceedings against the Government grandchildren by hereditary succession the following properties:
involving matters arising under the National Internal Revenue Code, the
Customs Law or the Assessment Law shall be maintained, except as (1) Agricultural lands with a total area of 19,000 hectares, situated in
herein provided, until and unless an appeal has been previously filed the municipality of Nasugbu, Batangas province;
with the Court of Tax Appeals and disposed of in accordance with the
provisions of this Act. (2) A residential house and lot located at Wright St., Malate, Manila; and
In the same vein, we held in Meralco Securities Corporation vs. Savellano,21 thus: In 1953 and 1955 Roxas y Cia. derived from said installment payments a net gain of
P42,480.83 and P29,500.71. Fifty percent of said net gain was reported for income
"Respondent judge has no jurisdiction to take cognizance of the case because the tax purposes as gain on the sale of capital asset held for more than one year
subject matter thereof clearly falls within the scope of cases now exclusively within pursuant to Section 34 of the Tax Code.
the jurisdiction of the Court of Tax Appeals. Section 7 of Republic Act No. 1125,
enacted June 16, 1954, granted to the Court of Tax Appeals exclusive appellate RESIDENTIAL HOUSE
jurisdiction to review by appeal, among others, decisions of the Commissioner of
Internal Revenue in cases involving disputed assessments, refunds of internal During their bachelor days the Roxas brothers lived in the residential house at
revenue taxes, fees or other charges, penalties imposed in relation thereto, or other Wright St., Malate, Manila, which they inherited from their grandparents. After
matters arising under the National Internal Revenue Code or other law or part of Antonio and Eduardo got married, they resided somewhere else leaving only Jose in
law administered by the Bureau of Internal Revenue. The law transferred to the the old house. In fairness to his brothers, Jose paid to Roxas y Cia. rentals for the
Court of Tax Appeals jurisdiction over all cases involving said assessments house in the sum of P8,000.00 a year.
previously cognizable by Courts of First Instance, and even those already pending in
ASSESSMENTS
said courts. The question of whether of not to impose a deficiency tax assessment on
Meralco Securities Corporation undoubtedly comes within the purview of the words On June 17, 1958, the Commissioner of Internal Revenue demanded from Roxas y
"disputed assessments" or of "other matters arising under the National Internal Cia the payment of real estate dealer's tax for 1952 in the amount of P150.00 plus
Revenue Code…." In the case of Blaquera, etc. vs. Rodriguez, etc.(103 Phil. 511 P10.00 compromise penalty for late payment, and P150.00 tax for dealers of
[1958]), this Court ruled that ‘the determination of the correctness or incorrectness securities for 1952 plus P10.00 compromise penalty for late payment. The
of a tax assessment to which the taxpayer is not agreeable, falls within the assessment for real estate dealer's tax was based on the fact that Roxas y Cia.
jurisdiction of the Court of Tax Appeals and not of the Court of First Instance, for received house rentals from Jose Roxas in the amount of P8,000.00. Pursuant to Sec.
under the provisions of Section 7 of Republic Act No. 1125, the Court of Tax Appeals 194 of the Tax Code, an owner of a real estate who derives a yearly rental income
Jose Roxas 6,323.00 5,588.00 WHEREFORE, the decision appealed from is hereby affirmed with
respect to petitioners Antonio Roxas, Eduardo Roxas, and Jose Roxas
The deficiency income taxes resulted from the inclusion as income of Roxas y Cia. of who are hereby ordered to pay the respondent Commissioner of
the unreported 50% of the net profits for 1953 and 1955 derived from the sale of Internal Revenue the amounts of P12,808.00, P12,887.00 and
the Nasugbu farm lands to the tenants, and the disallowance of deductions from P11,857.00, respectively, as deficiency income taxes for the years 1953
gross income of various business expenses and contributions claimed by Roxas y and 1955, plus 5% surcharge and 1% monthly interest as provided for
Cia. and the Roxas brothers. For the reason that Roxas y Cia. subdivided its Nasugbu in Sec. 51(a) of the Revenue Code; and modified with respect to the
farm lands and sold them to the farmers on installment, the Commissioner partnership Roxas y Cia. in the sense that it should pay only P150.00, as
considered the partnership as engaged in the business of real estate, hence, 100% of real estate dealer's tax. With costs against petitioners.
the profits derived therefrom was taxed.
Not satisfied, Roxas y Cia. and the Roxas brothers appealed to this Court. The
Commissioner of Internal Revenue did not appeal.
The following deductions were disallowed:
The issues:
ROXAS Y CIA.:
(1) Is the gain derived from the sale of the Nasugbu farm lands an
1953 ordinary gain, hence 100% taxable?
Pasay City Firemen Christmas Fund 25.00 It should be borne in mind that the sale of the Nasugbu farm lands to the very
farmers who tilled them for generations was not only in consonance with, but more
Pasay City Police Dept. X'mas fund 50.00 in obedience to the request and pursuant to the policy of our Government to allocate
lands to the landless. It was the bounden duty of the Government to pay the agreed
1955 compensation after it had persuaded Roxas y Cia. to sell its haciendas, and to
subsequently subdivide them among the farmers at very reasonable terms and
Contributions to — prices. However, the Government could not comply with its duty for lack of funds.
Obligingly, Roxas y Cia. shouldered the Government's burden, went out of its way
Baguio City Police Christmas fund 25.00 and sold lands directly to the farmers in the same way and under the same terms as
would have been the case had the Government done it itself. For this magnanimous
Pasay City Firemen Christmas fund 25.00 act, the municipal council of Nasugbu passed a resolution expressing the people's
gratitude.
Pasay City Police Christmas fund 50.00
The power of taxation is sometimes called also the power to destroy. Therefore it
EDUARDO ROXAS: should be exercised with caution to minimize injury to the proprietary rights of a
taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill
1953
the "hen that lays the golden egg". And, in order to maintain the general public's
trust and confidence in the Government this power must be used justly and not
Contributions to —
treacherously. It does not conform with Our sense of justice in the instant case for
Hijas de Jesus' Retiro de Manresa 450.00 the Government to persuade the taxpayer to lend it a helping hand and later on to
penalize him for duly answering the urgent call.
Philippines Herald's fund for Manila's neediest
families 100.00 In fine, Roxas y Cia. cannot be considered a real estate dealer for the sale in question.
Hence, pursuant to Section 34 of the Tax Code the lands sold to the farmers are
1955 capital assets, and the gain derived from the sale thereof is capital gain, taxable only
to the extent of 50%.
Contributions to Philippines
Herald's fund for Manila's DISALLOWED DEDUCTIONS
neediest families 120.00
The contributions to the Christmas funds of the Pasay City Police, Pasay City EDUARDO ROXAS
Firemen and Baguio City Police are not deductible for the reason that the Christmas
funds were not spent for public purposes but as Christmas gifts to the families of the Net income per return P 304,166.92
members of said entities. Under Section 39(h), a contribution to a government entity
is deductible when used exclusively for public purposes. For this reason, the Add: 1/3 share, profits in Roxas y Cia P 153,249.15
disallowance must be sustained. On the other hand, the contribution to the Manila
Police trust fund is an allowable deduction for said trust fund belongs to the Manila Less profits declared 146,052.58
Police, a government entity, intended to be used exclusively for its public functions.
The contributions to the Philippines Herald's fund for Manila's neediest families Amount understated P 7,196.57
were disallowed on the ground that the Philippines Herald is not a corporation or an
association contemplated in Section 30 (h) of the Tax Code. It should be noted Less 1/3 share in contributions
however that the contributions were not made to the Philippines Herald but to a amounting to P21,126.06 disallowed
group of civic spirited citizens organized by the Philippines Herald solely for from partnership but allowed to
charitable purposes. There is no question that the members of this group of citizens partners 7,042.02 155.55
do not receive profits, for all the funds they raised were for Manila's neediest
families. Such a group of citizens may be classified as an association organized
exclusively for charitable purposes mentioned in Section 30(h) of the Tax Code. Net income per review P304,322.47
Rightly, the Commissioner of Internal Revenue disallowed the contribution to Our Less: Exemptions 4,800.00
Lady of Fatima chapel at the Far Eastern University on the ground that the said
university gives dividends to its stockholders. Located within the premises of the
university, the chapel in question has not been shown to belong to the Catholic Net taxable income P299,592.47
Church or any religious organization. On the other hand, the lower court found that
it belongs to the Far Eastern University, contributions to which are not deductible Tax Due P147,250.00
under Section 30(h) of the Tax Code for the reason that the net income of said
Tax paid 147,159.00
university injures to the benefit of its stockholders. The disallowance should be
sustained.
Lastly, Roxas y Cia. questions the imposition of the real estate dealer's fixed tax upon Deficiency P91.00
it, because although it earned a rental income of P8,000.00 per annum in 1952, said ===========
rental income came from Jose Roxas, one of the partners. Section 194 of the Tax
JOSE ROXAS
Code, in considering as real estate dealers owners of real estate receiving rentals of
at least P3,000.00 a year, does not provide any qualification as to the persons paying
Net income per return P222,681.76
the rentals. The law, which states: 1äwphï1.ñët
Add: 1/3 share, profits in Roxas y
. . . "Real estate dealer" includes any person engaged in the business of P153,429.15
Cia.
buying, selling, exchanging, leasing or renting property on his own
account as principal and holding himself out as a full or part-time dealer Less amount reported 146,135.46
in real estate or as an owner of rental property or properties rented or
offered to rent for an aggregate amount of three thousand pesos or more
a year: . . . (Emphasis supplied) . Amount understated 7,113.69
is too clear and explicit to admit construction. The findings of the Court of Tax Less 1/3 share of contributions
Appeals or, this point is sustained.1äwphï1.ñët disallowed from partnership but
allowed as deductions to partners 7,042.02 71.67
To Summarize, no deficiency income tax is due for 1953 from Antonio Roxas,
Eduardo Roxas and Jose Roxas. For 1955 they are liable to pay deficiency income tax
in the sum of P109.00, P91.00 and P49.00, respectively, computed as follows: * Net income per review P222,753.43
The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits The respondent is a corporation duly organized and existing under the laws of the
and rendered the following judgment: Philippines. Being engaged in the sale of plastic products, it imports synthetic resin
and other chemicals for the manufacture of its products. For this purpose, it is
IN VIEW OF THE FOREGOING CONSIDERATIONS, with the exception of required to file an Import Entry and Internal Revenue Declaration (Consumption
that portion regarding the additional residence taxes and surcharges for Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs
the years 1951 to 1957 in the amount of P244.00, for which we hold Code.
petitioner liable, the decision appealed from is hereby reversed. The
petitioner is ordered to pay to the Commissioner of Internal Revenue or Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence
his representative the sum of P244.00, as additional residence tax and Division of the Economic Intelligence and Investigation Bureau (EIIB), received
surcharge without pronouncement as to costs. confidential information that the respondent had imported synthetic resin
amounting to P115,599,018.00 but only declared P45,538,694.57.3 According to the
From said judgment, the Commissioner of Internal Revenue has appealed to Us. informer, based on photocopies of 77 Consumption Entries furnished by another
informer, the 1987 importations of the respondent were understated in its
The law conferring jurisdiction on the Court of Tax Appeals is found in Section 7 of accounting records.4 Amoto submitted a report to the EIIB Commissioner
Republic Act 1125, the pertinent part of which states: recommending that an inventory audit of the respondent be conducted by the
Internal Inquiry and Prosecution Office (IIPO) of the EIIB.5
Sec. 7. Jurisdiction. — The Court of Tax Appeals shall exercise exclusive
appellate jurisdiction to review by appeal as herein provided — Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued
Mission Order No. 398-896 dated November 14, 1989 for the audit and investigation
(1) Decisions of the Collector of Internal Revenue in cases involving
4
of the importations of Hantex for 1987. The IIPO issued subpoena duces tecum and
disputed assessments, refunds of internal revenue taxes, fees or other ad testificandum for the president and general manager of the respondent to appear
charges, penalties imposed in relation thereto, or other matters arising in a hearing and bring the following:
under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue; 1. Books of Accounts for the year 1987;
The word "decisions" in paragraph 1, Section 7 of Republic Act 1125, quoted above, 2. Record of Importations of Synthetic Resin and Calcium Carbonate for
has been interpreted to mean the decisions of the Commissioner of Internal Revenue the year 1987;
on the protest of the taxpayer against the assessments. Definitely, said word does not
signify the assessment itself. We quote what this Court said aptly in a previous case: 3. Income tax returns & attachments for 1987; and
In the first place, we believe the respondent court erred in holding that 4. Record of tax payments.7
the assessment in question is the respondent Collector's decision or ruling
appealable to it, and that consequently, the period of thirty days However, the respondent’s president and general manager refused to comply with
prescribed by section 11 of Republic Act No. 1125 within which the subpoena, contending that its books of accounts and records of importation of
petitioner should have appealed to the respondent court must be synthetic resin and calcium bicarbonate had been investigated repeatedly by the
counted from its receipt of said assessment. Where a taxpayer questions Bureau of Internal Revenue (BIR) on prior occasions. 8 The IIPO explained that
an assessment and asks the Collector to reconsider or cancel the same despite such previous investigations, the EIIB was still authorized to conduct an
because he (the taxpayer) believes he is not liable therefor, the investigation pursuant to Section 26-A of Executive Order No. 127. Still, the
assessment becomes a "disputed assessment" that the Collector must respondent refused to comply with the subpoena issued by the IIPO. The latter
decide, and the taxpayer can appeal to the Court of Tax Appeals only forthwith secured certified copies of the Profit and Loss Statements for 1987 filed by
upon receipt of the decision of the Collector on the disputed assessment, the respondent with the Securities and Exchange Commission (SEC). 9 However, the
. . . 5(Emphasis supplied) IIPO failed to secure certified copies of the respondent’s 1987 Consumption Entries
from the Bureau of Customs since, according to the custodian thereof, the original
The same interpretation finds support in Section 11 of Republic Act 1125, which copies had been eaten by termites. 10
states:1äwphï1.ñët
In a Letter dated June 28, 1990, the IIPO requested the Chief of the Collection
Sec. 11. Who may appeal; effect of appeal. — Any person, association or Division, Manila International Container Port, and the Acting Chief of the Collection
corporation adversely affected by a decision or ruling of the Collector of Division, Port of Manila, to authenticate the machine copies of the import entries
Internal Revenue, the Collector of Customs or any provincial or city supplied by the informer. However, Chief of the Collection Division Merlita D. Tomas
Board of Assessment Appeals may file an appeal in the Court of Tax could not do so because the Collection Division did not have the original copies of
Appeals within thirty days after the receipt of such decision or ruling. the entries. Instead, she wrote the IIPO that, as gleaned from the records, the
(Emphasis supplied) following entries had been duly processed and released after the payment of duties
and taxes:
Note that the law uses the word "decisions", not "assessments", further indicating
the legislative intention to subject to judicial review the decision of the IMPORTER – HANTEX TRADING CO., INC. – SERIES OF 1987
Commissioner on the protest against an assessment but not the assessment itself. 6
ENTRY NO. DATE RELEASED ENTRY NO. DATE RELEASED
03058-87 1/30/87 50265-87 12/9/87
The respondent requested anew that the income tax deficiency assessment and the The Ruling of the Court of Appeals
sales tax deficiency assessment be set aside for lack of factual and legal basis.
The CA held that the income and sales tax deficiency assessments issued by the
The BIR Commissioner 30 wrote the respondent on December 10, 1993, denying its petitioner were unlawful and baseless since the copies of the import entries relied
letter-request for the dismissal of the assessments.31 The BIR Commissioner upon in computing the deficiency tax of the respondent were not duly authenticated
admitted, in the said letter, the possibility that the figures appearing in the by the public officer charged with their custody, nor verified under oath by the EIIB
photocopies of the Consumption Entries had been tampered with. She averred, and the BIR investigators.38 The CA also noted that the public officer charged with
however, that she was not proscribed from relying on other admissible evidence, the custody of the import entries was never presented in court to lend credence to
namely, the Letters of Torres and Filamor dated August 7 and 22, 1990 on their the alleged loss of the originals.39 The CA pointed out that an import entry is a public
investigation of the respondent’s tax liability. The Commissioner emphasized that document which falls within the provisions of Section 19, Rule 132 of the Rules of
her decision was final. 32 Court, and to be admissible for any legal purpose, Section 24, Rule 132 of the Rules
of Court should apply.40 Citing the ruling of this Court in Collector of Internal Revenue
The respondent forthwith filed a petition for review in the CTA of the v. Benipayo,41 the CA ruled that the assessments were unlawful because they were
Commissioner’s Final Assessment Letter dated December 10, 1993 on the following based on hearsay evidence. The CA also ruled that the respondent was deprived of
grounds: its right to due process of law.
First. The alleged 1987 deficiency income tax assessment (including increments) The CA added that the CTA should not have just brushed aside the legal requisites
and the alleged 1987 deficiency sales tax assessment (including increments) are provided for under the pertinent provisions of the Rules of Court in the matter of the
void ab initio, since under Sections 16(a) and 49(b) of the Tax Code, the admissibility of public documents, considering that substantive rules of evidence
Commissioner shall examine a return after it is filed and, thereafter, assess the should not be disregarded. It also ruled that the certifications made by the two
correct amount of tax. The following facts obtaining in this case, however, are Customs Collection Chiefs under the guise of supporting the respondent’s alleged tax
indicative of the incorrectness of the tax assessments in question: the deficiency deficiency assessments invoking the best evidence obtainable rule under the Tax
interests imposed in the income and percentage tax deficiency assessment notices Code should not be permitted to supplant the best evidence rule under Section 7,
were computed in violation of the provisions of Section 249(b) of the NIRC of 1977, Rule 130 of the Rules of Court.
as amended; the percentage tax deficiency was computed on an annual basis for the
year 1987 in accordance with the provision of Section 193, which should have been Finally, the CA noted that the tax deficiency assessments were computed without the
computed in accordance with Section 162 of the 1977 NIRC, as amended by Pres. tax returns. The CA opined that the use of the tax returns is indispensable in the
Decree No. 1994 on a quarterly basis; and the BIR official who signed the deficiency computation of a tax deficiency; hence, this essential requirement must be complied
tax assessments was the Assistant Commissioner for Collection, who had no with in the preparation and issuance of valid tax deficiency assessments. 42
authority to sign the same under the NIRC.
The Present Petition
Moreover, under Revenue Administrative Order No. 5-83,45 the Regional Director is The respondent argues that it was not necessary for it to show the correct
authorized to sign all pleadings filed in connection with cases referred to the assessment, considering that it is questioning the assessments not only because they
Revenue Regions by the National Office which, otherwise, require the signature of are erroneous, but because they were issued without factual basis and in patent
the petitioner. violation of the assessment procedures laid down in the NIRC of 1977, as amended. 61
It is also pointed out that the petitioner failed to use the tax returns filed by the
We do not agree with the contention of the respondent that a motion for respondent in computing the deficiency taxes which is contrary to law; 62 as such, the
reconsideration ought to have been filed before the filing of the instant petition. A deficiency assessments constituted deprivation of property without due process of
motion for reconsideration of the decision of the CA is not a condition sine qua non law.63
for the filing of a petition for review under Rule 45. As we held in Almora v. Court of
Appeals:46 Central to the second issue is Section 16 of the NIRC of 1977, as amended, 64 which
provides that the Commissioner of Internal Revenue has the power to make
Rule 45, Sec. 1 of the Rules of Court, however, distinctly provides that: assessments and prescribe additional requirements for tax administration and
enforcement. Among such powers are those provided in paragraph (b) thereof,
A party may appeal by certiorari from a judgment of the which we quote:
Court of Appeals, by filing with the Supreme Court a petition
for certiorari within fifteen (15) days from notice of (b) Failure to submit required returns, statements, reports and other
judgment, or of the denial of his motion for reconsideration documents. – When a report required by law as a basis for the
filed in due time. (Emphasis supplied) assessment of any national internal revenue tax shall not be forthcoming
within the time fixed by law or regulation or when there is reason to
The conjunctive "or" clearly indicates that the 15-day reglementary believe that any such report is false, incomplete or erroneous, the
period for the filing of a petition for certiorari under Rule 45 Commissioner shall assess the proper tax on the best evidence obtainable.
commences either from notice of the questioned judgment or from
notice of denial of the appellant’s motion for reconsideration. A prior In case a person fails to file a required return or other document at the
motion for reconsideration is not indispensable for a petition for review time prescribed by law, or willfully or otherwise files a false or fraudulent
on certiorari under Rule 45 to prosper. …47 return or other document, the Commissioner shall make or amend the
return from his own knowledge and from such information as he can
While Rule 45 of the Rules of Court provides that only questions of law may be obtain through testimony or otherwise, which shall be prima facie correct
raised by the petitioner and resolved by the Court, under exceptional circumstances, and sufficient for all legal purposes.65
the Court may take cognizance thereof and resolve questions of fact. In this case, the
findings and conclusion of the CA are inconsistent with those of the CTA, not to This provision applies when the Commissioner of Internal Revenue undertakes to
mention those of the Commissioner of Internal Revenue. The issues raised in this perform her administrative duty of assessing the proper tax against a taxpayer, to
case relate to the propriety and the correctness of the tax assessments made by the make a return in case of a taxpayer’s failure to file one, or to amend a return already
petitioner against the respondent, as well as the propriety of the application of filed in the BIR.
Section 16, paragraph (b) of the 1977 NIRC, as amended by Pres. Decree Nos. 1705,
1773, 1994 and Executive Order No. 273, in relation to Section 3, Rule 132 of the The petitioner may avail herself of the best evidence or other information or
Rules of Evidence. There is also an imperative need for the Court to resolve the testimony by exercising her power or authority under paragraphs (1) to (4) of
threshold factual issues to give justice to the parties, and to determine whether the Section 7 of the NIRC:
CA capriciously ignored, misunderstood or misinterpreted cogent facts and
circumstances which, if considered, would change the outcome of the case. (1) To examine any book, paper, record or other data which may be
relevant or material to such inquiry;
On the second issue, the petitioner asserts that since the respondent refused to
cooperate and show its 1987 books of account and other accounting records, it was (2) To obtain information from any office or officer of the national and
proper for her to resort to the best evidence obtainable – the photocopies of the local governments, government agencies or its instrumentalities,
import entries in the Bureau of Customs and the respondent’s financial statement including the Central Bank of the Philippines and government owned or
filed with the SEC.48 The petitioner maintains that these import entries were controlled corporations;
admissible as secondary evidence under the best evidence obtainable rule, since
they were duly authenticated by the Bureau of Customs officials who processed the (3) To summon the person liable for tax or required to file a return, or
documents and released the cargoes after payment of the duties and taxes due.49 any officer or employee of such person, or any person having
Further, the petitioner points out that under the best evidence obtainable rule, the possession, custody, or care of the books of accounts and other
tax return is not important in computing the tax deficiency. 50 accounting records containing entries relating to the business of the
person liable for tax, or any other person, to appear before the
The petitioner avers that the best evidence obtainable rule under Section 16 of the Commissioner or his duly authorized representative at a time and place
1977 NIRC, as amended, legally cannot be equated to the best evidence rule under specified in the summons and to produce such books, papers, records, or
the Rules of Court; nor can the best evidence rule, being procedural law, be made other data, and to give testimony;
strictly operative in the interpretation of the best evidence obtainable rule which is
substantive in character.51 The petitioner posits that the CTA is not strictly bound by (4) To take such testimony of the person concerned, under oath, as may
be relevant or material to such inquiry; …66
It also appears on the worksheet of the IIPO, as culled from the photocopies of the FIRST DIVISION
Consumption Entries from its informer, that the total cost of the respondent’s
importation for 1987 was P105,761,527.00. Per the report of Torres and Filamor, [G.R. No. L-6741. January 31, 1956.]
they also relied on the photocopies of the said Consumption Entries:
INTERPROVINCIAL AUTOBUS CO., INC., Petitioner, vs. COLLECTOR OF INTERNAL
The importations made by taxpayer verified by us from the records of REVENUE, Respondent.
the Bureau of Customs and xerox copies of which are hereto attached
shows the big volume of importations made and not declared in the DECISION
income tax return filed by taxpayer.
LABRADOR, J.:
Based on the above findings, it clearly shows that a prima facie case of
fraud exists in the herein transaction of the taxpayer, as a consequence This is an appeal by way of certiorari from a decision of the Court of Appeals
of which, said transaction has not been possibly entered into the books reversing the judgment of the Court of First Instance of Misamis Occidental in civil
of accounts of the subject taxpayer.87 case No. 1161, entitled The Interprovincial Autobus Co., Inc., Plaintiff versus Bibiano
L. Meer as Collector of Internal Revenue, Defendant and absolving the Defendant-
In fine, the petitioner based her finding that the 1987 importation of the respondent Appellant therein from the complaint.
was underdeclared in the amount of P105,761,527.00 on the worthless machine
copies of the Consumption Entries. Aside from such copies, the petitioner has no Plaintiff is a common carrier engaged in transporting passengers and freight by
other evidence to prove that the respondent imported goods costing means of TPU buses in Misamis Occidental and Northern Zamboanga. Sometime in
P105,761,527.00. The petitioner cannot find solace on the certifications of Tomas the year 1941 the provincial revenue agent for Misamis Occidental examined the
and Danganan because they did not authenticate the machine copies of the stubs of the freight receipts that had been issued by the Plaintiff. He found that the
Consumption Entries, and merely indicated therein the entry numbers of stubs of the receipts issued during the years 1936 to 1938 were not preserved; chan
Consumption Entries and the dates when the Bureau of Customs released the same. roblesvirtualawlibrarybut those for the years 1939 to 1940 were available. By
The certifications of Tomas and Danganan do not even contain the landed costs and referring, however, to the conductors’ daily reports for 1936 to 1938, he was able to
the advance sales taxes paid by the importer, if any. Comparing the certifications of ascertain the number of receipts for those years and these, together with those for
Tomas and Danganan and the machine copies of the Consumption Entries, only 36 of 1939 to 1940, gave a total during the 5-year period from 1936 to 1940, of 194,406
the entry numbers of such copies are included in the said certifications; the entry freight receipts issued. Both the said daily reports of Plaintiff’s conductors and the
numbers of the rest of the machine copies of the Consumption Entries are not found available stubs did not state the value of the goods transported thereunder.
therein. Pursuant, however, to sections 121 and 127 of the Revised Documentary Stamp Tax
Regulations of the Department of Finance promulgated on September 16, 1924, he
Even if the Court would concede to the petitioner’s contention that the certification assumed that the value of the goods covered by each of the above- mentioned freight
of Tomas and Danganan authenticated the machine copies of the Consumption receipts amounted to more than P5, and assessed a documentary stamp tax of P0.04
Entries referred to in the certification, it appears that the total cost of importations on each of the 194,406 receipts. The tax thus assessed amounted to P7,776.24,
inclusive of advance sales tax is only P64,324,953.00 – far from the amount of which was collected from the deposit of the Plaintiff in the Misamis Occidental
P105,716,527.00 arrived at by the EIIB and the BIR, 88 or even the amount of branch of the Philippine National Bank. Plaintiff demanded the refund of the
P110,079,491.61 arrived at by Deputy Commissioner Deoferio, Jr. 89 As gleaned from amount, and upon refusal of the Defendant, Plaintiff filed the action. The Court of
the certifications of Tomas and Danganan, the goods covered by the Consumption First Instance of Misamis Occidental having rendered judgment in favor of the
Entries were released by the Bureau of Customs, from which it can be presumed that Plaintiff, the Defendant appealed to the Court of Appeals. This court reversed the
the respondent must have paid the taxes due on the said importation. The petitioner decision appealed from and absolved the Defendant from the complaint. Hence, this
did not adduce any documentary evidence to prove otherwise. appeal.
Thus, the computations of the EIIB and the BIR on the quantity and costs of the In this Court Petitioner-Appellant presents the following
importations of the respondent in the amount of P105,761,527.00 for 1987 have no propositions:chanroblesvirtuallawlibrary (1) that the judgment of the Court of
factual basis, hence, arbitrary and capricious. The petitioner cannot rely on the Appeals is null and void, because it had no jurisdiction of the case, which involves
presumption that she and the other employees of the BIR had regularly performed the validity of an assessment; chan roblesvirtualawlibrary(2) that the decision of the
their duties. As the Court held in Collector of Internal Revenue v. Benipayo,90 in order Court of Appeals is erroneous because freight receipts are not bills of lading within
to stand judicial scrutiny, the assessment must be based on facts. The presumption the meaning of Section 1449, sub-paragraph (r), of the Revised Administrative Code
of the correctness of an assessment, being a mere presumption, cannot be made to of 1917, and because the provision of section 121 of the Revised Documentary
rest on another presumption. Stamp Tax Regulations, to the effect that if the bill of lading fails to state the value of
the goods shipped, it must be held that the tax is due, is illegal; chan
Section 227 of the National Internal Revenue Code imposes the tax on receipts for Another reason for sustaining the validity of the regulation may be found in the
goods or effects shipped from one port or place to another port or place in the principle of legislative approval by re-enactment. The regulations were approved on
Philippines. The use of the word place after port and of the word “receipt” shows September 16, 1924. When the National Internal Revenue Code was approved on
that the receipts for goods shipped on land are included. February 18, 1939, the same provisions on stamp tax, bills of lading and receipts
were reenacted. There is a presumption that the Legislature reenacted the law on
The next claim involves the validity of Department of Finance Regulation No. 26 the tax with full knowledge of the contents of the regulations then in force regarding
dated September 16, 1924, which provides:chanroblesvirtuallawlibrary bills of lading and receipts, and that it approved or confirmed them because they
carry out the legislative purpose.
“SEC. 121. Basis of the tax and affixture of stamps. — Bills of lading are exempt from
the documentary stamp tax imposed by paragraphs (q) and (r) of section 1449 of “ cralaw Of course, the rule does not operate to freeze a meaning which is in evident
the Administrative Code when the value of the goods shipped is P5 or less. Unless conflict with the clearly expressed legislative intent. Helvering vs. Hallock, 309 U. S.
the bill of lading states that the goods are worth P5 or less, it must be held that the 106, 119-121, 60 S. Ct. 444, 84 L. Ed. 604 A.L.R. 1368. But where a statute is
tax is due, and internal revenue officers will see to it that the tax is paid in all cases susceptible of the meaning placed upon it by Treasury ruling and Congress
where the bill of lading does not state that the shipment is worth P5 or less.” thereafter reenacts the provision without substantial change, such action is to some
extent confirmatory that the ruling carries out the congressional purpose.” (Mead
“SEC. 127. ‘Chits,’ memorandum slips, and other papers not in the usual commercial Corporation vs. Commissioner of Internal Revenue, 116 F [2d] 187, p. 194)
form of bills of lading, when used by common carriers in the transportation of
merchandise or goods for the collection of fees therefor are considered as bills of “The fact that an identical Treasury Regulation with regard to computation of stamp
lading, and the original thereof issued or used should bear the documentary stamp tax on conveyances had been in effect during several re-enactments of the statute
as provided by paragraphs (q) and (r) of section 1449 of the Administrative Code.” was pursuasive evidence of congressional approval thereof cralaw ..” (Railroad
Federal Sav. and Loan Ass’n. vs. United States, 135 F [2d], p. 290)
The above regulations were promulgated under the authority of section 79 (B) of the
Administrative Code (originally section 2 of Act 2803), which expressly “The law, I believe, is now settled that substantial re-enactment of legislation which
provides:chanroblesvirtuallawlibrary has been construed by Treasury regulations is at least strong evidence of legislative
approval of such construction. It is presumed that Congress knew of the existing
“The Department Head shall have power to promulgate, whenever he may see fit to administrative interpretations of the statute cralaw .” (Cargill vs. United States, 46 F.
do so, all rules, regulations, orders, circulars, memorandums, and other instructions, Supp. 712, 716.)
not contrary to law, necessary to regulate the proper working and harmonious and
efficient administration of each and all of the offices and dependencies of his “Regulations promulgated by the Commissioner of Internal Revenue under authority
Department, and for the strict enforcement and proper execution of the laws relative of the Revenue Act of 1928 acquired the effect of law by substantial re-enactment of
to matters under the jurisdiction of said Department; chan provision of the 1928 Act in the 1932 Revenue Act cralaw .” (S. Slater & Sons, Inc., vs.
roblesvirtualawlibrarybut none of said rules or orders shall prescribe penalties for White, etc., 33 F. Supp. 329, 330.)
the violation thereof, except as expressly authorized by law cralaw .”
It is to be noted that the regulation does not purport to modify or change the law in
Did the Secretary of Finance infringe or violate any right of the taxpayer when he the sense that when the value of the merchandise (for which the receipt is issued)
directed that the tax is to be collected in all cases where the bill of lading or receipt does not appear thereon the tax shall always be imposed. Such a meaning would
does not state that the shipment is worth P5 or less, or, in the language of the have the effect of changing the law; chan roblesvirtualawlibrarythe regulation
Petitioner-Appellant, when he (Secretary) created a presumption of liability to the should not be understood in this illegal or authorized sense. The regulation should
tax if the receipt fails to state such value? It cannot be denied that the regulation is be considered merely as a directive to internal revenue officers to assess the tax and
merely a directive to the tax officers; chan roblesvirtualawlibraryit does not purport collect the same. As already adverted to, it only creates a presumption of the liability
to change or modify the law; chan roblesvirtualawlibraryit does not create a liability of the taxpayer, which presumption, however, is not conclusive upon the taxpayer
to the stamp tax when the value of the goods does not appear on the face of the who can adduce evidence that the tax is not collectible because the value of the
receipt. The practical usefulness of the directive becomes evident when account is merchandise concerned does not exceed the amount of P5. It was in pursuance of
taken of the fact that tax officers are in no position to witness the issuance of this interpretation of the regulation that the trial court permitted evidence to be
receipts and check the value of the goods for which they are issued. If tax officers introduced to show that the Petitioner-Appellant is not subject to the tax on the
were to assess or collect the tax only when they find that the value of the goods receipts.
covered by the receipts is more than five pesos, the assessment and collection of the
tax would be well-nigh impossible, as it is impossible for tax collectors to determine Claim is made that the evidence submitted by the Petitioner- Appellant proved that
from the receipts alone, if they do not contain the value of the goods, whether the the freight receipts covered shipment of merchandise worth not more than P5. It is
goods receipted for exceed P5, or not. The regulation impliedly required the argued in support of this claim that the said freight receipts were issued to people
statement of the value of the goods in the receipts; chan roblesvirtualawlibraryso carrying agricultural produce from one place to another, perhaps from their farms to
that the collection of the tax can be enforced. This the Petitioner-Appellant failed to the towns or to their residences. The Court of Appeals’ decision, upon which the
do and he now claims the unreasonableness of the provision as a basis for his
The rule above-mentioned has not been complied with and the action for recovery On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock in
must be denied. Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were
valued at ₱7,789,995.00.1 On June 22, 1990, ₱159,363.21 was paid as capital gains
It is also contended that the tax should be collected from the holder of the receipt, tax for the transaction.
and not from the one who collected it, which is the transportation company. There is
no merit in this contention because the law expressly provides that the tax should be On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common
paid by the one “making, signing, issuing, accepting, or transferring the same.” shares of stock in AAI for ₱17,718,360.00. AMC paid the capital gains tax of
(Section 1449, Revised Administrative Code of 1917) . The receipts were made and ₱352,242.96.
issued by the transportation company; chan roblesvirtualawlibraryit is therefore
liable for the payment of the tax thereon. On October 15, 1993, the Commissioner issued a "Notice of Taxpayer" to AMC, Lucas
G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of
The last contention of the Petitioner-Appellant is that the tax could no longer be deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The
collectible because the same was assessed and collected after seven years, the tax notice contained a schedule for preliminary conference.
having been due in 1936-1938 and the assessment having been made in the year
1947. The period within which a tax may be assessed is ten years after the discovery The events preceding G.R. No. 120935 are the following:
of the falsity, fraud or omission (section 332, paragraph (a), National Internal
Revenue Code). Petitioner-Appellant cites, in support of his contention, paragraph (c) On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ)
of the same action. This paragraph refers to the collection of the tax by distraint or her Affidavit of Complaint2 against AMC, Lucas G. Adamson, Therese June D.
by levy or by a proceeding in court, and the period prescribed is within five years Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d)3 , and 1104 ,
after the assessment of the tax. in relation to Section 1005 , as penalized under Section 255,6 and for violation of
Section 2537 , in relation to Section 252 (b) and (d) of the National Internal Revenue
Was the levy justified? The discovery, according to the pleadings, took place in the Code (NIRC).8
year 1941 and the warrant of distraint or levy was issued on September 30, 1946
(paragraphs 3 and 4 of the complaint). The pleadings do not show, neither does the AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with
evidence, the specific date of the assessment. It is only alleged in the complaint that the DOJ a motion to suspend proceedings on the ground of prejudicial question,
the examination of the books took place in the year 1941. In order to sustain the pendency of a civil case with the Supreme Court, and pendency of their letter-
claim of the invalidity of the levy, it is necessary for the Plaintiff to allege and prove request for re-investigation with the Commissioner. After the preliminary
that the levy took place after five years from the date of the assessments. But the investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion
date of the assessment has not been proved. This is a material matter that the for Reconsideration against the findings of probable cause was denied by the
Petitioner-Appellant should have proved to assail the levy. Because of his failure to prosecutor.
do so the exemption from levy may not be invoked by him. Besides, the question was
not raised in the pleadings as a ground to void the collection of the amount. The On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los
court cannot assume that the levy and distraint took place beyond the period Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in
prescribed by law. This conclusion is supported by the presumption of the regularity Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or Suspend
of the acts of public officers. In any event the collection was made in 1947, within the Proceedings. They invoked the grounds that there was yet no final assessment of
ten years after the discovery in 1941, and the liability of Petitioner-Appellant is not their tax liability, and there were still pending relevant Supreme Court and CTA
thereby affected. cases. Initially, the trial court denied the motion. A Motion for Reconsideration was
however filed, this time assailing the trial court’s lack of jurisdiction over the nature
For the foregoing considerations, the judgment of the Court of Appeals is declared of the subject cases. On August 8, 1994, the trial court granted the Motion. It ruled
void and that of the Court of First Instance, reversed and the Respondent-Appellee that the complaints for tax evasion filed by the Commissioner should be regarded as
absolved from the complaint. With costs against the Petitioner-Appellant. a decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson,
On March 21, 1995, the Court of Appeals reversed the trial court’s decision and 2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION TO
reinstated the criminal complaints. The appellate court held that, in a criminal PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND
prosecution for tax evasion, assessment of tax deficiency is not required because the SARA S. DE LOS REYES; and
offense of tax evasion is complete or consummated when the offender has
knowingly and willfully filed a fraudulent return with intent to evade the tax.9 It 3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE
ruled that private respondents filed false and fraudulent returns with intent to evade COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX
taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S.
Department of Justice, without an accompanying assessment of the tax deficiency of DE LOS REYES.
private respondents, in order to commence criminal action against the latter for tax
The case of CIR v. Pascor Realty, et al.11 is relevant. In this case, then BIR
evasion.10
Commissioner Jose U. Ong authorized revenue officers to examine the books of
Private respondents filed a Motion for Reconsideration, but the trial court denied accounts and other accounting records of Pascor Realty and Development
the motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising Corporation (PRDC) for 1986, 1987 and 1988. This resulted in a recommendation
the following issues: for the issuance of an assessment in the amounts of ₱7,498,434.65 and
₱3,015,236.35 for the years 1986 and 1987, respectively.
1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS ERRED
IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May 30, 1980, 97 On March 1, 1995, the Commissioner filed a criminal complaint before the DOJ
SCRA 877) TO THE CASE AT BAR. against PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging
evasion of taxes in the total amount of ₱10,513,671.00. Private respondents filed an
2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment
CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC. and tax liability.
3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE The Commissioner denied the urgent request for reconsideration/reinvestigation
COMMISSIONER IN THE CASE AT BAR. because she had not yet issued a formal assessment.
4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN Private respondents then elevated the Decision of the Commissioner to the CTA on a
IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER. petition for review. The Commissioner filed a Motion to Dismiss the petition on the
ground that the CTA has no jurisdiction over the subject matter of the petition, as
5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX there was yet no formal assessment issued against the petitioners. The CTA denied
EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO BASIS the said motion to dismiss and ordered the Commissioner to file an answer within
FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE PAYMENT OF A thirty (30) days. The Commissioner did not file an answer nor did she move to
TAX. reconsider the resolution. Instead, the Commissioner filed a petition for review of
the CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA
6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES V. order. However, this Court reversed the Court of Appeals decision and the CTA order,
FLOJO (No. L-46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION SHIPPING and ordered the dismissal of the petition. We held:
CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE TO THE
CASE AT BAR. 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
7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER THE interests begin to accrue against the taxpayer. To enable the taxpayer to determine
DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE TAXPAYER. his remedies thereon, due process requires that it must be served on and received by
the taxpayer. Accordingly, an affidavit, which was executed by revenue officers
In parallel circumstances, the following events preceded G.R. No. 124557: stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax
evasion, cannot be deemed an assessment that can be questioned before the Court of
On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. Tax Appeals.
de los Reyes filed a letter request for re-investigation with the Commissioner of the
"Examiner’s Findings" earlier issued by the Bureau of Internal Revenue (BIR), which Neither the NIRC nor the revenue regulations governing the protest of assessments 12
pointed out the tax deficiencies. provide a specific definition or form of an assessment. However, the NIRC defines
the specific functions and effects of an assessment. To consider the affidavit attached
On March 15, 1994 before the Commissioner could act on their letter-request, AMC, to the Complaint as a proper assessment is to subvert the nature of an assessment
Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition and to set a bad precedent that will prejudice innocent taxpayers.
for Review with the CTA. They assailed the Commissioner’s finding of tax evasion
against them. The Commissioner moved to dismiss the petition, on the ground that it True, as pointed out by the private respondents, an assessment informs the taxpayer
was premature, as she had not yet issued a formal assessment of the tax liability of that he or she has tax liabilities. But not all documents coming from the BIR
therein petitioners. On September 19, 1994, the CTA denied the Motion to Dismiss. It containing a computation of the tax liability can be deemed assessments.
considered the criminal complaint filed by the Commissioner with the DOJ as an
implied formal assessment, and the filing of the criminal informations with the RTC To start with, an assessment must be sent to and received by a taxpayer, and must
as a denial of petitioners’ protest regarding the tax deficiency. demand payment of the taxes described therein within a specific period. Thus, the
NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer
The Commissioner repaired to the Court of Appeals on the ground that the CTA fails to pay the deficiency tax within the time prescribed for its payment in the
acted with grave abuse of discretion. She contended that, with regard to the protest notice of assessment. Likewise, an interest of 20 percent per annum, or such higher
provided under Section 229 of the NIRC, there must first be a formal assessment rate as may be prescribed by rules and regulations, is to be collected from the date
issued by the Commissioner, and it must be in accord with Section 6 of Revenue prescribed for its payment until the full payment. 13
Regulation No. 12-85. She maintained that she had not yet issued a formal
assessment of tax liability, and the tax deficiency amounts mentioned in her criminal The issuance of an assessment is vital in determining the period of limitation
complaint with the DOJ were given only to show the difference between the tax regarding its proper issuance and the period within which to protest it. Section
returns filed and the audit findings of the revenue examiner. 20314 of the NIRC provides that internal revenue taxes must be assessed within three
years from the last day within which to file the return. Section 222,15 on the other
The Court of Appeals sustained the CTA’s denial of the Commissioner’s Motion to hand, specifies a period of ten years in case a fraudulent return with intent to evade
Dismiss. Thus, the Commissioner filed the petition for review under G.R. No. 124557, was submitted or in case of failure to file a return. Also, Section 22816 of the same
raising the following issues: law states that said assessment may be protested only within thirty days from
receipt thereof. Necessarily, the taxpayer must be certain that a specific document
1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR constitutes an assessment. Otherwise, confusion would arise regarding the period
FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT OF A within which to make an assessment or to protest the same, or whether interest and
CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING; penalty may accrue thereon.
2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT BAR
CAN PROCEED WITHOUT AN ASSESSMENT;
"A notice to the effect that the amount therein stated is due as tax and a demand for The next issue is whether the filing of the criminal complaints against the private
payment thereof."18 respondents by the DOJ is premature for lack of a formal assessment.
"Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:
the proper presentation of tax rolls."19
Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-
Even these definitions fail to advance private respondents’ case. That the BIR (a) In the case of a false or fraudulent return with intent to evade tax or of failure to
examiners’ Joint Affidavit attached to the Criminal Complaint contained some details file a return, the tax may be assessed, or a proceeding in court after the collection of
of the tax liabilities of private respondents does not ipso facto make it an such tax may be begun without assessment, at any time within ten years after the
assessment. The purpose of the Joint Affidavit was merely to support and discovery of the falsity, fraud or omission: Provided, That in a fraud assessment
substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a which has become final and executory, the fact of fraud shall be judicially taken
notice of the tax due and a demand to the private respondents for payment thereof. cognizance of in the civil or criminal action for collection thereof…
The fact that the Complaint itself was specifically directed and sent to the The law is clear. When fraudulent tax returns are involved as in the cases at bar, a
Department of Justice and not to private respondents shows that the intent of the proceeding in court after the collection of such tax may be begun without
commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Here, the private respondents had already filed the capital gains tax
assessment. Although the revenue officers recommended the issuance of an return and the VAT returns, and paid the taxes they have declared due therefrom.
assessment, the commissioner opted instead to file a criminal case for tax evasion. Upon investigation of the examiners of the BIR, there was a preliminary finding of
What private respondents received was a notice from the DOJ that a criminal case gross discrepancy in the computation of the capital gains taxes due from the sale of
for tax evasion had been filed against them, not a notice that the Bureau of Internal two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The
Revenue had made an assessment. examiners also found that the VAT had not been paid for VAT-liable sale of services
for the third and fourth quarters of 1990. Arguably, the gross disparity in the taxes
Private respondents maintain that the filing of a criminal complaint must be due and the amounts actually declared by the private respondents constitutes
preceded by an assessment. This is incorrect, because Section 222 of the NIRC badges of fraud.
specifically states that in cases where a false or fraudulent return is submitted or in
cases of failure to file a return such as this case, proceedings in court may be Thus, the applicability of Ungab v. Cusi25 is evident to the cases at bar. In this seminal
commenced without an assessment. Furthermore, Section 205 of the same Code case, this Court ruled that there was no need for precise computation and formal
clearly mandates that the civil and criminal aspects of the case may be pursued assessment in order for criminal complaints to be filed against him. It quoted
simultaneously. In Ungab v. Cusi,20 petitioner therein sought the dismissal of the Merten’s Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus:
criminal Complaints for being premature, since his protest to the CTA had not yet
been resolved. The Court held that such protests could not stop or suspend the An assessment of a deficiency is not necessary to a criminal prosecution for willful
criminal action which was independent of the resolution of the protest in the CTA. attempt to defeat and evade the income tax. A crime is complete when the violator
This was because the commissioner of internal revenue had, in such tax evasion has knowingly and willfully filed a fraudulent return, with intent to evade and defeat
cases, discretion on whether to issue an assessment or to file a criminal case against the tax. The perpetration of the crime is grounded upon knowledge on the part of
the taxpayer or to do both. 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
Private respondents insist that Section 222 should be read in relation to Section 255 of the crime.
of the NIRC,21 which penalizes failure to file a return. They add that a tax assessment
should precede a criminal indictment. We disagree. To reiterate, said Section 222 This hoary principle still underlies Section 269 and related provisions of the present
states that an assessment is not necessary before a criminal charge can be filed. This Tax Code.
is the general rule. Private respondents failed to show that they are entitled to an
exception. Moreover, the criminal charge need only be supported by a prima facie We now go to the issue of whether the CTA has no jurisdiction to take cognizance of
showing of failure to file a required return. This fact need not be proven by an both the criminal and civil cases here at bar.1avvphi1
assessment.
Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as
The issuance of an assessment must be distinguished from the filing of a complaint. amended, the rulings of the Commissioner are appealable to the CTA, thus:
Before an assessment is issued, there is, by practice, a pre-assessment notice sent to
the taxpayer. The taxpayer is then given a chance to submit position papers and SEC. 7. Jurisdiction. – The Court of Tax Appeals shall exercise exclusive appellate
documents to prove that the assessment is unwarranted. If the commissioner is jurisdiction to review by appeal, as herein provided -
unsatisfied, an assessment signed by him or her is then sent to the taxpayer
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
informing the latter specifically and clearly that an assessment has been made
assessments, refunds of internal revenue taxes, fees or other charges, penalties
against him or her. In contrast, the criminal charge need not go through all these.
imposed in relation thereto, or other matters arising under the National Internal
The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified
Revenue Code or other laws or part of law administered by the Bureau of Internal
that a criminal case had been filed against him, not that the commissioner has issued
Revenue;
an assessment. It must be stressed that a criminal complaint is instituted not to
demand payment, but to penalize the taxpayer for violation of the Tax Code. Republic Act No. 8424, titled "An Act Amending the National Internal Revenue Code,
As Amended, And For Other Purposes," later expanded the jurisdiction of the
In the cases at bar, the Commissioner denied that she issued a formal assessment of
Commissioner and, correspondingly, that of the CTA, thus:
the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de
los Reyes. She admits though that she wrote the recommendation letter22 addressed SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. –
to the Secretary of the DOJ recommending the filing of criminal complaints against The power to interpret the provisions of this Code and other tax laws shall be under
AMC and the aforecited persons for fraudulent returns and tax evasion. the exclusive and original jurisdiction of the Commissioner, subject to review by the
Secretary of Finance.
The first issue is whether the Commissioner’s recommendation letter can be
considered as a formal assessment of private respondents’ tax liability. The power to decide disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under
In the context in which it is used in the NIRC, an assessment is a written notice and
this Code or other laws or portions thereof administered by the Bureau of Internal
demand made by the BIR on the taxpayer for the settlement of a due tax liability that
Revenue is vested in the Commissioner, subject to the exclusive appellate
is there definitely set and fixed. A written communication containing a computation
jurisdiction of the Court of Tax Appeals.
by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to
contest or disprove the BIR examiner’s findings is not an assessment since it is yet The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282. 26
indefinite.23 It provides:
We rule that the recommendation letter of the Commissioner cannot be considered a SEC. 7. Section 7 of the same Act is hereby amended to read as follows:
formal assessment. Even a cursory perusal of the said letter would reveal three key
points: Sec. 7. Jurisdiction. — The CTA shall exercise:
1. It was not addressed to the taxpayers. (a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(3) Decisions, orders or resolutions of the Regional Trial Courts in local No costs.
tax cases originally decided or resolved by them in the exercise of their
original or appellate jurisdiction; SO ORDERED.
(1) Exclusive original jurisdiction over all criminal offenses arising from G.R. No. 104151 March 10, 1995
violations of the National Internal Revenue Code or Tariff and Customs
Code and other laws administered by the Bureau of Internal Revenue or COMMISSIONER OF INTERNAL REVENUE, petitioner,
the Bureau of Customs: Provided, however, That offenses or felonies vs.
mentioned in this paragraph where the principal amount of taxes and COURT OF APPEALS, ATLAS CONSOLIDATED MINING AND DEVELOPMENT
fees, exclusive of charges and penalties, claimed is less than One million CORPORATION and COURT OF TAX APPEALS, respondents.
pesos (P1,000,000.00) or where there is no specified amount claimed
shall be tried by the regular courts and the jurisdiction of the CTA shall G.R No. 105563 March 10, 1995
be appellate. Any provision of law or the Rules of Court to the contrary
ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner,
notwithstanding, the criminal action and the corresponding civil action
vs.
for the recovery of civil liability for taxes and penalties shall at all times
COURT OF APPEALS COMMISSIONER OF INTERNAL REVENUE and COURT OF
be simultaneously instituted with, and jointly determined in the same
TAX APPEALS, respondents.
proceeding by the CTA, the filing of the criminal action being deemed to
necessarily carry with it the filing of the civil action, and no right to
reserve the filling of such civil action separately from the criminal action
will be recognized. REGALADO, J.:
(2) Exclusive appellate jurisdiction in criminal offenses: Before us for joint adjudication are two petitions for review on certiorari separately
filed by the Commissioner of Internal Revenue in G.R. No. 104151, and by Atlas
(a) Over appeals from the judgments, resolutions or orders of the Consolidated Mining and Development Corporation in G.R. No. 105563, which
Regional Trial Courts in tax cases originally decided by them, in their respectively seek the aside of the judgments of respondent Court of Appeals in CA-
respected territorial jurisdiction. G.R. SP No. 25945 promulgated on February 12, 1992 1 and in CA-G.R. SP No. 26087
promulgated on May 22, 1992. 2
(b) Over petitions for review of the judgments, resolutions or orders of
the Regional Trial Courts in the exercise of their appellate jurisdiction Atlas Consolidated Mining and Development Corporation (herein also referred to as
over tax cases originally decided by the Metropolitan Trial Courts, ACMDC) is a domestic corporation which owns and operates a mining concession at
Municipal Trial Courts and Municipal Circuit Trial Courts in their Toledo City, Cebu, the products of which are exported to Japan and other foreign
respective jurisdiction. countries. On April 9, 1980, the Commissioner of Internal Revenue (also
Commissioner, for brevity), acting on the basis of the report of the examiners of the
(c) Jurisdiction over tax collection cases as herein provided:
Bureau of Internal Revenue (BIR), caused the service of an assessment notice and
(1) Exclusive original jurisdiction in tax collection cases demand for payment of the amount of P12,391,070.51 representing deficiency ad
involving final and executory assessments for taxes, fees, valorem percentage and fixed taxes, including increments, for the taxable year 1975
charges and penalties: Provided, however, That collection against ACMDC. 3
cases where the principal amount of taxes and fees,
Likewise, on the basis. of the BIR examiner's report in another investigation
exclusive of charges and penalties, claimed is less than One
separately conducted, the Commissioner had another assessment notice, with a
million pesos (₱1,000,000.00) shall be tried by the proper
demand for payment of the amount of P13,531,466.80 representing the 1976
Municipal Trial Court, Metropolitan Trial Court and Regional
deficiency ad valorem and business taxes with P5,000.00 compromise penalty,
Trial Court.
served on ACMDC on September 23, 1980. 4
(2) Exclusive appellate jurisdiction in tax collection cases:
ACMDC protested both assessments but the. same were denied, hence it filed two
separate petitions for review in the Court of Tax Appeals (also, tax court) where they
(a) Over appeals from the judgments,
were docketed as C.T.A. Cases Nos. 3467 and 3825. These two cases, being
resolutions or orders of the Regional Trial
substantially identical in most respects except for the taxable periods and the
Courts in tax collection cases originally decided
amounts involved, were eventually consolidated.
by them, in their respective territorial
jurisdiction.
On May 31, 1991, the Court of Tax Appeals rendered a consolidated decision holding,
inter alia, that ACMDC was not liable for deficiency ad valorem taxes on copper and
(b) Over petitions for review of the judgments,
silver for 1975 and 1976 in the respective amounts of P11,276,540.79 and
resolutions or orders of the Regional Trial
P12,882,760.80 thereby effectively sustaining the theory of ACMDC that in
Courts in the exercise of their appellate
computing the ad valorem tax on copper mineral, the refining and smelting charges
jurisdiction over tax collection cases originally
should be deducted, in addition to freight and insurance charges, from the London
decided by the Metropolitan Trial Courts,
Metal Exchange (LME) price of manufactured copper.
Municipal Trial Courts and Municipal Circuit
Trial Courts, in their respective jurisdiction.
However, the tax court held ACMDC liable for the amount of P1,572,637.48, exclusive
of interest, consisting of 25% surcharge for late payment of the ad valorem tax and
These laws have expanded the jurisdiction of the CTA. However, they did not change
late filing of notice of removal of silver, gold and pyrite extracted during certain
the jurisdiction of the CTA to entertain an appeal only from a final decision or
periods, and for alleged deficiency manufacturer's sales tax and contractor's tax.
assessment of the Commissioner, or in cases where the Commissioner has not acted
within the period prescribed by the NIRC. In the cases at bar, the Commissioner has
The particulars of the reduced amount of said tax obligation is enumerated in detail
not issued an assessment of the tax liability of private respondents.
in the dispositive portion of the questioned judgment of the tax court, thus:
Finally, we hold that contrary to private respondents’ stance, the doctrines laid down
WHEREFORE, petitioner should and is hereby ORDERED to pay the total
in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at bar.
amount of the following:
In these earlier cases, the Commissioner already rendered an assessment of the tax
liabilities of the delinquent taxpayers, for which reason the Court ruled that the a) P297,900.39 as 25% surcharge on silver extracted during
the period November 1, 1974 to December 31, 1975.
This view was subsequently affirmed in the resolution of the Court denying the B. Refining —
motion for reconsideration of its aforesaid decision, 13 reiterated that the pertinent
part of which reiterated that — (1) Casting Wheel — Blister copper is treated in an anode
furnace where. copper requiring further treatment is sent to
. . . the ad valorem tax in question should be based on the actual market the casting wheel to produce cathode copper.
value of the quarried minerals used in producing cement, . . . the law
intended to impose the ad valorem tax upon the market value of the (2) Electrolytic Refining — Anode copper is further refined
component mineral products in their original state before processing by electrolytic refining to produce cathode copper.
into cement. . . . the law does not impose a tax on cement qua cement,
C. Fabricating —
but on mineral products at least 80% of which must be minerals
extracted by the lessee, concessionaire or owner of mineral lands. (1) Rolling — Fire refined or electroly-tic copper-and/or
brass (a mixture Of copper and zinc) is made into tubes,
The Court did not, and could not, rule that cement is a manufactured
sheets, rods and wire.
product subject to sales tax, for the reason that such liability had never
been litigated by the parties. What it did declare is that, while cement is (2) Extruding — Sheet tubes, rods and wire are further
a mineral product, it is no longer in the state or condition contemplated fabricated into the copper articles in everyday use.
by the law; hence the market value of the cement could not be the basis
for computing the ad valorem tax, since the ad valorem tax is a severance The records show that cathodes, with purity of 99.985% are cast or
tax i.e., a charge upon the privilege of severing or extracting minerals fabricated into various shapes, depending on their industrial
from the earth, (Dec. p. 4) and is due and payable upon removal of the destination. Cathodes are metal sheets of copper 1 meter x 1 meter x 16-
mineral product from its bed or mine (Tax Code s. 245). 16 millimeter thick and 160 kilograms in weight, although this thickness
is not uniform for all the sheets. Cathodes sheets are not suitable for
Therefore, the imposable ad valorem tax should be based on the selling price of the direct fabrication, hence, are further fabricated into the desired shape,
quarried minerals, which is its actual market value, and not on the price of the like wire bar, billets and cakes. (p. 1, deposition, London,) Wire bars are
manufactured product. If the market value chosen for the reckoning is the value of rectangular pieces, 100 millimeter x 100 millimeter x 1.37 meters long
the manufactured. or finished product, as in the case at bar, then all expenses of and weigh some 125 kilos. They are suited for copper wires and copper
processing or manufacturing should be deducted in order to approximate as closely rods. Billets are fabricated into tubes and heavy electric sections. Cakes
as is humanly possible the actual market value of the raw mineral at the mine site. are in the form of thick sheets and strips. (pp. 13, 18-21, deposition,
Japan, Exhs. "C" & "G", Japan, pp. 1-2, deposition, London, see pp. 70-72,
It was copper ore that was extracted by ACMDC from its mine site which, through a
CTA records.) 14
simple physical process of removing impurities therefrom, was converted into
copper concentrate In turn, this copper concentrate underwent the process of Significantly, the finding that copper wire bar is a product of a manufacturing
smelting and refining, and the finished product is called copper cathode or copper process finds support in the definition of a "manufacturer" in Section 194 (x) of the
wire bar. aforesaid tax code which provides:
The copper wire bar is the manufactured copper. It is not the mineral extracted from "Manufacturer" includes every person who by physical or chemical
the mine site nor can it be considered a mineral product since it has undergone a process alters the exterior texture or form or inner substance of any raw
manufacturing process, to wit: material or manufactured or partially manufactured product in such a
manner as to prepare it for a special use or uses to which it could not
I. The physical process involved in the production of copper concentrate
have been put in its original condition, or who by any such process
are the following (p. 19, BIR records; Exh. ‘H’, p. 43, Folder I of Exhibits.)
alters the quality of any such raw material or manufactured or partially
A Mining Process — manufactured product so as to reduce it to marketable shape or prepare
it for any of the uses of industry, or who by any such process combines
(1) Blasting — The ore body is broken up by blasting. any such raw material or manufactured or partially manufactured
products with other materials: or products of the same or different
(2) Loading — The ore averaging about 1/2 percent kinds and in such manner that the finished product of such process or
copper is loaded into ore trucks by electric shovels. manufacture can be put to a special use or uses to which such raw
material or manufactured or partially manufactured products, or
(3) Hauling — The trucks of ore are hauled to the mill. combines the same to produce such finished products for the purpose of
their sale or distribution to others and not for his own use or
B Milling Process — consumption.
(1) Crushing — The ore is crushed to pieces the size of Moreover, it is also worth noting at this point that the decision of the tax court was
peanuts. based on its previous ruling in the case of Atlas Consolidated Mining and
Development Corporation vs. Commissioner of Internal Revenue, 15 dated January 23,
(2) Grinding — The crushed ore is ground to powder form. 1981, which we quote with approval:
(3) Concentrating — The mineral bearing particles in the . . . The controlling law is clear and specific; it should therefore be
powdered ore are concentrated. applied as Since the mineral or mineral product removed from its bed or
mine at Toledo City by petitioner is copper concentrate as admitted by
The ores or rocks, transported by conveyors, are crushed repeatedly by respondent himself, not copper wire bar, the actual market value of such
steel balls into size of peanuts, when they are ground and pulverized. copper concentrate in its condition at the time of such removal without
The powder is fed into concentrators where it is mixed with water and any deduction from mining, milling, refining, transporting, handling,
other reagents. This is known in the industry as a flotation phase. The marketing, or any other expenses should be the basis of the 2% ad
copper-bearing materials float while the non-copper materials in the valorem tax.
rock sink. The material that floats is scooped and dried and piled. This is
known as copper concentrate. The material at the bottom is waste, and The conclusion reached is rendered clearer when it is taken into
is known in the industry as tailings. In Toledo City, tailings are disposed consideration that the ad valorem tax is a severance tax, a charge upon
of through metal pipes from the flotation mills to the open sea. Copper the privilege of severing or extracting minerals from the earth, and is
concentrate of petitioner contains 28-31% copper. The concentrate is due and payable upon removal of the mineral product from its bed or
loaded in ocean vessels and shipped to Mitsubishi Metal Corporation mine, the tax being computed on the basis of the market value of the
mills in Japan, where the smelting, refining and fabricating processes are mineral in its condition at the time of such removal and before its being
done. (Memorandum of petitioner, p. 71, CTA records.) substantially changed by chemical or manufacturing (as distinguished
from purely physical) processing. (Cebu Portland Cement Co. vs.
II. The chemical or manufacturing process in the production of wire bar Commissioner of Internal Revenue, supra.) Copper wire bars, as
is as follows: (Exh. 'H', p. 43, Folder I of exhibits.) discussed above,, have already undergone chemical or manufacturing
processing in Japan, they are not extracted or produced from the earth
A. Smelting —
by petitioner in its mine site at Toledo City. Since the ad valorem tax is
In resume: Sec. 245. Time and manner of payment of royalties or ad valorem taxes. —
The royalties or ad valorem taxes as the case may be, shall be due and
1. The mineral or mineral product of petitioner the payable upon the removal of the mineral products from the locality
extraction or severance from the soil. of which the ad where mined. However, the output of the mine may be removed from
valorem tax is directed is copper concentrate. such locality without the pre-payment of such royalties or ad valorem
taxes if the lessee, owner, or operator shall file a bond in the form and
2. The ad valorem tax is computed on the basis of the actual amount and with such sureties as the Commissioner of Internal Revenue
market value of the copper concentrate in its condition at may require,. conditioned upon the payment of such royalties or ad
the time of removal from the earth and before substantially valorem taxes, in which case it shall be the duty of every lessee, owner,
changed by chemical or manufacturing process without any or operator of a mine to make a true and complete return in duplicate
deduction milling, refining, from mining, transporting, under oath setting forth the quantity and the actual market value of the
handling, marketing, or any other expenses. However, since output of his mine removed during each calendar quarter and pay the
the copper concentrate is sold abroad by petitioner under royalties or ad valorem taxes due thereon within twenty days after the
C.I.F. terms, the actual cost of ocean freight and insurance is close of said quarter.
deductible.
In case the royalties or ad valorem taxes are not paid within the period
3. There being no market price quotation of copper prescribed above, there shall be added thereto a surcharge of twenty-
concentrate locally or in the commodity exchanges or five per centum. Where a false or fraudulent return is made, there shall
markets of the world, the London Metal Exchange price be added to the royalties or ad valorem taxes a surcharge of fifty per
quotation of copper wire bar, which is used by petitioner centum of their amount. The surcharge So, added: shall be collected in
and Mitsubishi Metal Corporation as reference to determine the same manner and as part of the royalties or ad valorem taxes, as the
the selling price of copper concentrate, may likewise be case may be.
employed in this case as reference point in ascertaining the
actual market value of copper concentrate for ad valorem Under the aforesaid provision, the payment of the ad valorem tax shall be made
tax purposes. By deducting from the London Metal upon removal of the mineral products from the mine site or if payment cannot be
Exchange price quotation of copper wire bar all charges and made, by filing a bond in the form and amount to be approved by the Commissioner
costs incurred after the copper concentrate has been conditioned upon the payment of the said tax.
shipped from Toledo City to the time the same has been
manufactured into wire bar, namely, smelting, electrolytic In the instant case, the records show that the payment of the ad valorem tax on gold,
refining and fabricating, the remainder represents to a silver and pyrite was belatedly made. ACMDC, however, maintains that it should not
reasonable degree the actual market value of the copper be required to pay the 25% surcharge because the correct quantity of gold and silver
concentrate in its condition at the time of extraction or could be determined only after the copper concentrates had gone through the
removal from its bed in Toledo City for the purposes of the process of smelting and refining in Japan while the amount of pyrite cannot be
ad valorem tax. determined until after the flotation process separating the copper mineral from the
waste material was finished.
The Commissioner of Internal Revenue argues that the ruling in the case above
stated is not binding, considering that the incumbent Commissioner of Internal Prefatorily, it must not be lost sight of that bad faith is ; not essential for the
Revenue is not bound by decisions or rulings of his predecessor when he finds that a imposition of the 25% surcharge for late payment of the ad valorem tax. Hence,
different construction of the law should be adopted, invoking therefor the doctrine
enunciated in Hilado vs. Collector of internal Revenue, et a1, 16 This trenches on MISSING PAGE 19
specious reasoning. What was involved in the Hilado case was a previous ruling of a
Q. Now, what do you do with the result of your analysis?
former Commissioner of Internal Revenue. In the case at bar, the Commissioner
A. These are tabulated and then averaged out to represent
based his findings on a previous decision rendered by the Court of Tax Appeals itself.
one shipment.
The Court of Tax Appeals is not a mere superior administrative agency or tribunal Q. Will you tell this Honorable Court whether in that
but is a part of the judicial system of the Philippines. 17 It was created by Congress laboratory testing you physically separate the gold, you
pursuant to Republic Act No. 1125, effective June 16, 1954, as a centralized court physically separate the silver and you physically separate
specializing in tax cases. It is a regular court vested with exclusive appellate the copper content of that 40 to 50 kilos?
jurisdiction over cases arising under the National Internal Revenue Code, the Tariff A. No, no, we analyze this in one sample. This sample is
and Customs Code, and the Assessment Law. 18 analyzed for gold, silver, and copper, but there is no recovery
made.
Although only the decisions of the Supreme Court establish jurisprudence or Q. You mean there is no physical separation?
doctrines in this jurisdiction, nonetheless the decisions of subordinate courts have a A. No, no physical separation.
persuasive effect and may serve as judicial guides. It is even possible that such a Q. So these three minerals — copper, gold and silver — are
conclusion or pronouncement can be raised to the status of a doctrine if, after it has in that same powder that you have tested?
been subjected to test in the crucible of analysis and revision the Supreme Court A Yes, it is in the same powder.
should find that it has merits and qualities sufficient for its consecration as a rule of Q. Now how do you reflect the results of the testing?
jurisprudence. 19 A. You mean in analysis?
Q. In the analysis, yes.
Furthermore, as a matter of practice and principle, the Supreme Court will not set A. Copper is reported in percent.
aside the conclusion reached by an agency such as the Court of Tax Appeals, which Q. Percentage?
is, by the very nature of its function, dedicated exclusively to the study and A. Yes.
consideration of tax problems and has necessarily developed an expertise on the Q. How about gold?
subject, unless there has been an abuse or improvident exercise of authority on its A. Gold and silver part is represented as grams per dmt or
part. 20 parts per million.
Q. Based on the results of your data gathered in the
II. G.R. No. 105563 laboratory?
A. Yes.
The petition herein raises the following issues for resolution: Q. Now where do you submit the results of the laboratory
testing?
A. Whether or not petitioner is liable for payment, of the 25% surcharge for A When a shipment is made we prepare a certificate of
alleged late filing of notice of removal/late payment of the ad valorem tax on analysis signed by me and then which (sic) is sent to Manila.
silver, gold and pyrite extracted during the taxable year 1976. Q. Now, as far as you know in connection with your duty do
you know what Manila what do you say, Manila, ACMDC?
B. Whether or not petitioner is liable for payment of the manufacturer' s sales A. Makati.
tax and surcharge during the taxable year 1975, plus interest, on grinding Q. Makati. What does Makati ACMDC do with your assay
steel balls borrowed by its competitor; and report?
A. As far as I know it is used as the basis for the payment of
C. 'Whether or not petitioner is liable for payment of the contractor's tax and
ad valorem tax. 24
surcharge on the alleged lease of personal property during the taxable years
The above-quoted testimony accordingly supports these findings of the tax court in
1975 and 1976 plus interest. 21
its decision in this case:
Finally, we deem it opportune to emphasize the oft-repeated rule that tax statutes I
are to receive a reasonable construction with a view to carrying out their purposes
and intent. 43 They should not be construed as to permit the taxpayer to easily THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE LETTER OF
evade the payment of the tax. 44 On this note, and under the confluence of the ASSESSMENT DATED JULY 16, 1955, EXHIBIT "A," WAS RECEIVED BY PRIVATE
weighty. considerations and authorities earlier discussed, the challenged assessment RESPONDENT IN THE ORDINARY COURSE OF THE MAIL PURSUANT TO SECTION 8,
against ACMDC for contractor's tax must be upheld. RULE 13 OF THE REVISED RULES OF COURT.
It is therefore, again requested that payment of the aforesaid amount of Sales Tax x x x
P15,649.00 be made to the City Treasurer, Manila within five (5) days
from your receipt hereof so that this case may be closed. Forest Charges
You are further requested to pay the sum of P150.00 as compromise Forest charges and surcharges for the year 1949 appealed to the
suggested in our letter to you dated February 24, 1955, it appearing that Secretary of Agriculture and Natural Resources P15,443.55
the same has not as yet been paid up to the present.
xxx xxx xxx
Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court
Total amount due & payable P33,595.26
of Tax Appeals within thirty (30) days from receipt of the letter. The taxpayer's
failure to appeal in due time, as in the case at bar, makes the assessment in question Demand is hereby made upon you to pay the aforesaid amount of P
final, executory and demandable. Thus, private respondent is now barred from 33,595.26 to the City Treasurer of Manila or this office within ten (10)
disputing the correctness of the assessment or from invoking any defense that days from receipt hereof so that this case may be closed.
would reopen the question of its liability on the merits. 10
xxx xxx xxx
In Mamburao Lumber Co. vs. Republic, 11 this Court further said:
The aforesaid letter was acknowledged to have been received by petitioner on
In a suit for collection of internal revenue taxes, as in this case, where the September 19, 1958. 3 On October 18, 1958, petitioner requested for a
assessment has already become final and executory, the action to collect is akin to an reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959,
action to enforce a judgment. No inquiry can be made therein as to the merits of the respondent Commissioner of Internal Revenue give petitioner a period of twenty
original case or the justness of the judgment relied upon. ... (20) days from receipt thereof to submit the results of its verification of payments
with a warning that failure to comply therewith would be construed as an
ACCORDINGLY, the appealed decision is hereby reversed. The decision of the Court a
abandonment of the request for reinvestigation.
quo is hereby reinstated. No costs.
For failure of petitioner to comply with the above letter-request and/or to pay its tax
SO ORDERED.
liability despite demands for the payment thereof, respondent Commissioner of
Internal Revenue filed. a complaint for collection in the Court of First Instance of
SECOND DIVISION Manila on August 25, 1961. 4
GR. No. L-37061 September 5, 1984 After trial, judgment was rendered by the trial court, the dispositive portion of
which reads —
MAMBULAO LUMBER COMPANY, petitioner,
vs. WHEREFORE, judgment is rendered —
REPUBLIC OF THE PHILIPPINES, respondent.
(a) Ordering both defendants, jointly and severally, to pay plaintiff the
CUEVAS, J.: amount of P1,219.95 plus legal interest thereon from August 25, 1961,
the date of the filing of the original complaint until fully paid, or in case
Petitioner in this appeal by certiorari, seeks the reversal of the decision of the
of failure to Pay the said amount, ordering the forfeiture of GISCOR Bond
defunct Court of Appeals which affirmed the judgment of the then Court of First
No. 35 to the amount of P1,219.95; and
Instance of Manila ordering petitioner to pay respondent the amount of P15,739.80
representing its tax liability not secured by any bond, with legal interest thereon (b) Ordering defendant Mambulao Lumber Company to pay the plaintiff
from August 25, 1961 until fully paid. the amount of P15,739.80 representing its tax liability not secured by
any bond, with legal interest thereon from August 25, 1961, until paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal Revenue,
Regional District No. 6, Bicol Region, Naga City, conducted an examination of the With costs against defendants.
books of accounts of herein petitioner Mambulao number Company for the purpose
of determining said taxpayer's forest charges and percentage tax liabilities. From the aforesaid decision, petitioner appealed to the Court of Appeals 5 that
portion of the trial court's decision ordering it to pay the amount of P15,443.55
On July 31, 1957, Agent Banzuela submitted his report wherein it was stated among representing forest charges and surcharges due for the year 1949.
others that —
As herein earlier stated, the then Court of Appeals affirmed the decision of the trial
xxx xxx xxx court. Petitioner filed a motion for reconsideration which was denied by the said
court in its Resolution dated June 7, 1973. Hence, the instant appeal, petitioner
xxx xxx xxx
presenting the lone issue of whether or not the right of plaintiff (respondent herein)
xxx xxx xxx to file a judicial action for the collection of the amount of P15,443.55 as forest
charges and surcharges due from the petitioner Mambulao Lumber Company for the
It can be stated in this connection that sometime in the early part of year 1949 has already prescribed.
1949, the personnel of the local office of the Bureau of Forestry in Daet,
Camarines Norte, manifested under the name of the subject taxpayer Relying on the provisions of Section 332 of the National Internal Revenue Code
2,052.48 cubic meters of timber, with the corresponding forest charges which reads-
in the total amount of P15,443.65 including surcharges. The Bureau of
Section 332. Exemptions as to period of limitation of assessment and
Forestry then demanded for the payment of said forest charges on
collection of taxes —
January 15, 1949. However, the subject taxpayer, for one reason or the
I S S U E S. Keeping the foregoing statement of facts, issues, and law before us, the present case
offers no serious difficulty. The plaintiff was not of course personally liable for any
Does the lien follow the property subject to the tax into the hands of a third party part of the internal revenue taxes due the Government from Pujalte & Co. On the
when at the time of transfer, no demand for payment had been made and when the date the railroad ties were transferred from Pujalte & Co. to the Hongkong &
purchaser had no notice of the existence of the lien? Counsel for plaintiff argues that Shanghai Banking Corporation no demand for payment of the tax had been made.
it does not. Or, does the lien follow the property subject to the tax even though The bonds in favor of the Government were still presumably subsisting. No demand
transferred to a third party who had no notice of the existence of the lien so as to in fact was made until over a year later when distraint proceedings were initiated.
make this property respond for the specific unpaid internal revenue taxes due on it? When the Hongkong & Shanghai Banking Corporation purchased and acquired these
The trial court so found. Or, does the lien follow the property subject to the tax even 2,000 ties in February, 1915, there was nothing to show that Pujalte & Co. were
though transferred to a third party who had no notice of the existence of the lien so delinquent tax payers. No public record could be consulted to protect the purchaser
as to make this property respondent for all the unpaid internal revenue taxes due from loss by reason of the existence of a secret lien. A businessman of ordinary
from the vendor? The government so opines. prudence could not be expected to foresee that the personal property which he had
taken in satisfaction of a debt was burdened by a tax. On this date, because no
This brings us to a statement of the following demand had been made and because the plaintiff had no notice of the tax, there was
no valid subsisting lien upon the ties.
O P I N I O N.
2. Minor Issue; Interest upon Judgments to Recover Taxes. — Plaintiff-appellant in
1. Major Issue; Tax Liens. — Taxation is an attribute of sovereignty. The power to tax
assignment of error No. 4 also claims interest upon the amount of the judgment
is the strongest of all the powers of government. If approximate equality in taxation
from the 3d day of June, 1916, in place and instead of allowing interest thereon from
is to be attained, all property subject to a tax must respond, or there is resultant
the first day of February, 1917. The first date is that of the illegal exaction; the
inequality. Under the most favorable circumstances, an enormous amount of
second date is that of the commencement of the action. Interest should be allowed
property escapes taxation altogether. To prevent such a lamentable situation, the law
from the day when the taxpayer lost the income from the funds by payment under
ordains that the claim of the State upon the property of the tax debtor shall be
protest, or not at all. (Viuda e Hijos De Pedro P. Roxas vs. Rafferty [1918], 37 Phil.,
superior to that of any other creditor.
957; H. E. Heacock Co. vs. Collector of Customs [1918], 37 Phil., 970.)
A lien in its modern-acceptation is understood to denote a legal claim or charge on
On the other hand, the second assignment of error of the defendant-appellant is to
property, either real or personal, as security for the payment of some debt or
the effect that no interest at all should have been allowed by the trial court because
obligation. Its meaning is more extensive than the jus retentionis (derecho de
of section 1579 of the present Administrative Code. Plaintiff-appellant in answer
retencion) of the civil law. (2 Giorgi, Teoria de las Obligaciones, 419; Ames vs. Dyer, 41
challenges the validity of this section.
Me., 397.) Unless the statute is otherwise, the rule is that a valid lien created on real
or personal estate is enforceable against property in the hands of any person, other Section 1579 of the Administrative Code of 1917 in part authorizes the taxpayer
than a bona fide purchaser for value without notice, who subsequently acquires the who has paid an internal revenue tax under protest, at any time within two years
estate. (25 Cyc., 680, citing cases.) after the payment of the tax, "to bring an action against the Collector of Internal
Revenue for the recovery without interest of the sum alleged to have been illegally
The general rule of the Civil Law may be different. Possession of movables is not
collected." As this provision was enacted by the Philippine Legislature subsequent to
necessary to the validity of a lien, whether created by contract or by act of law. Such
the institution of the present action in the lower court, and subsequent to the
lien will attach upon movable property, even in the hands of a bona fide purchaser
judgment therein rendered, we do not feel that the law should be given a retroactive
without notice. (Tatham vs. Andree [1863], 1 Moore, P.C. [N. S.], 386; The Bold
effect. Whether section 1579 of the Administrative Code is valid or not is left for
Buccleugh [1850], 7 Moore, P.C., 267.)
decision when a case arises after the Code became effective. In this instance, we
The law of taxation establishes principles which generally, although not exactly, allow interest at the legal rate from the date of payment.
conform to the law of liens. The tax lien does not establish itself upon property
3. Minor Issue; Costs against the Government. — Plaintiff-appellant further claims
which has been transferred to an innocent purchaser prior to demand. In a decision
that the trial court erred in declining to allow the recovery of costs.
relating to the United States Internal Revenue Law, Mr. Justice Miller held that a
demand is necessary to create and bring the lien into operation. (U. S. vs. Pacific The right to recover costs is governed by statute. In the United States, the rule is that
Railroad Co. [1877], Fed. Cas. No. 15,984; U. S. vs. Pacific Railroad Co. [1880], 1 Fed., unless expressly authorized by statute, a judgment for costs, either in a civil or
97.) Where a statute makes taxes on personal property a lien thereon, a purchaser of criminal case, cannot be rendered against the United States or a State. The principle
such property takes the same free from any lien for taxes if the title passes before is that the sovereign power is not amenable to judgments for damages or costs
such a lien attaches by levy, distraint, or otherwise. (Shelby vs. Tiddy [1896], 118 N. without its consent. (U. S. vs. Barker [1817], 2 Wheat., 395; Stanley vs. Schwalby
C., 792.) [1896], 162 U. S., 255; State vs. Williams [1905], 101 Md., 529; 4 A. & E. Ann. Cas.,
970; Deneen vs. Unverzagt [1907], 225 Ill., 378; 8 A. & E. Ann. Cas., 396 and note;
In order that the lien may follow the property into the hands of a third party, it is
Townsend's Succession [1888], 40 La. Ann., 66.)
further essential that the latter should have notice, either actual or constructive. The
reason is the benevolence of our Constitution which prohibits the taking of property The Code of Civil Procedure of the Philippine Islands provides that costs shall
without due process of law. In the case of real estate or special assessment taxation a ordinarily follow the result of the suit. They are to be recovered by "the prevailing
man cannot get rid of his liability to a tax by buying without notice. (City of Seattle party." (Code of Civil Procedure, chapter 21.) In the ordinary case between private
vs. Kelleher [1904], 195 U. S., 351.) The rule, however, is different where the vendee individuals or entities, or where the government is successful, no particular
has no knowledge of the taxes on personality existing at the time, or had no means difficulty is experienced applying the Code provisions. The practice has, however,
of knowing from the public records that such taxes had accrued. been not to allow costs in cases in which the Government of the Philippine Islands or
a nominal representative of the Government is the unsuccessful party. And this is
In its questioned Order of 17 November 1980, the trial court held that the above- Turning first to special preferred credits under Articles 2241 and 2242, it should be
enumerated claims of USTC and FOITAF (hereafter collectively referred to as the noted at once that these credits constitute liens or encumbrances on the specific
"Unions") for separation pay of their respective members embodied in final awards movable or immovable property to which they relate. Article 2243 makes clear that
of the National Labor Relations Commission were to be preferred over the claims of these credits "shall be considered as mortgages or pledges of real or personal
the Bureau of Customs and the Bureau of Internal Revenue. The trial court, in so property, or liens within the purview of legal provisions governing insolvency." It
ruling, relied primarily upon Article 110 of the Labor Code which reads thus: should be emphasized in this connection that "duties, taxes and fees due [on specific
movable property of the insolvent] to the State or any subdivision thereof" (Article
Article 110. Worker preference in case of bankruptcy — In 2241 [1]) and "taxes due upon the [insolvent's] land or building (2242 [1])"stand
the event of bankruptcy or liquidation of an employer's first in preference in respect of the particular movable or immovable property to
business, his workers shall enjoy first preference as regards which the tax liens have attached. Article 2243 is quite explicit: "[T]axes mentioned
wages due them for services rendered during the period in number 1, Article 2241 and number 1, Article 2242 shall first be satisfied. " The
prior to the bankruptcy or liquidation, any provision of law claims listed in numbers 2 to 13 in Article 2241 and in numbers 2 to 10 in Articles
to the contrary notwithstanding. Union paid wages shall be 2242, all come after taxes in order of precedence; such claims enjoy their privileged
paid in full before other creditors may establish any claim to character as liens and may be paid only to the extent that taxes have been paid from
a share in the assets of the employer. the proceeds of the specific property involved (or from any other sources) and only
in respect of the remaining balance of such proceeds. What is more, these other
The Solicitor General, in seeking the reversal of the questioned Orders, argues that (non-tax) credits, although constituting liens attaching to particular property, are
Article 110 of the Labor Code is not applicable as it speaks of "wages," a term which not preferred one over another inter se. Provided tax liens shall have been satisfied,
he asserts does not include the separation pay claimed by the Unions. "Separation non-tax liens or special preferred credits which subsist in respect of specific
pay," the Solicitor General contends, movable or immovable property are to be treated on an equal basis and to be
satisfied concurrently and proportionately. 8 Put succintly, Articles 2241 and 2242
is given to a laborer for a separation from employment computed on the basis of the jointly with Articles 2246 to 2249 establish a two-tier order of preference. The first
number of years the laborer was employed by the employer; it is a form of penalty or tier includes only taxes, duties and fees due on specific movable or immovable
damage against the employer in favor of the employee for the latter's dismissal or property. All other special preferred credits stand on the same second tier to be
separation from service. 3 satisfied, pari passu and pro rata, out of any residual value of the specific property to
which such other credits relate.
Article 97 (f) of the Labor Code defines "wages" in the following terms:
Credits which are specially preferred because they constitute liens (tax or non-tax)
Wage' paid to any employee shall mean the remuneration or in turn, take precedence over ordinary preferred credits so far as concerns the
earnings, however designated, capable of being expressed in property to which the liens have attached. The specially preferred credits must be
terms of money, whether fixed or ascertained on a time, discharged first out of the proceeds of the property to which they relate, before
task, piece, or commission basis, or other method of ordinary preferred creditors may lay claim to any part of such proceeds. 9
calculating the same, which is payable by an employer to an
(a) taxes and assessments due to the national government, Article 110 of the Labor Code does not purport to create a lien in favor of workers or
excluding those which result in tax liens under Articles 2241 employees for unpaid wages either upon all of the properties or upon any particular
No. 1 and 2242 No. 1 but including the balance thereof not property owned by their employer. Claims for unpaid wages do not therefore fall at
satisfied out of the movable or immovable property to all within the category of specially preferred claims established under Articles 2241
which such liens attached, are ninth in priority; and 2242 of the Civil Code, except to the extent that such claims for unpaid wages are
already covered by Article 2241, number 6. "claims for laborers' wages, on the goods
(b) taxes and assessments due any province, excluding those manufactured or the work done;" or by Article 2242, number 3: "claims of laborers
impressed as tax liens under Articles 2241 No. 1 and 2242 and other workers engaged in the construction, reconstruction or repair of
No. 1, but including the balance thereof not satisfied out of buildings, canals and other works, upon said buildings, canals or other works." To
the movable or immovable property to which such liens the extent that claims for unpaid wages fall outside the scope of Article 2241,
attached, are tenth in priority; and number 6 and 2242, number 3, they would come within the ambit of the category of
ordinary preferred credits under Article 2244.
(c) taxes and assessments due any city or municipality,
excluding those impressed as tax liens under Articles 2241 Applying Article 2241, number 6 to the instant case, the claims of the Unions for
No. I and 2242 No. 2 but including the balance thereof not separation pay of their members constitute liens attaching to the processed leaf
satisfied out of the movable or immovable property to tobacco, cigars and cigarettes and other products produced or manufactured by the
which such liens attached, are eleventh in priority. Insolvent, but not to other assets owned by the Insolvent. And even in respect of
such tobacco and tobacco products produced by the Insolvent, the claims of the
It is within the framework of the foregoing rules of the Civil Code that the question Unions may be given effect only after the Bureau of Internal Revenue's claim for
of the relative priority of the claims of the Bureau of Customs and the Bureau of unpaid tobacco inspection fees shall have been satisfied out of the products so
Internal Revenue, on the one hand, and of the claims of the Unions for separation manufactured by the Insolvent.
pay of their members, on the other hand, is to be resolved. A related vital issue is
what impact Article 110 of the labor Code has had on those provisions of the Civil Article 2242, number 3, also creates a lien or encumbrance upon a building or other
Code. real property of the Insolvent in favor of workmen who constructed or repaired such
building or other real property. Article 2242, number 3, does not however appear
A. Claim of the Bureau of Customs for Unpaid Customs Duties and Taxes- relevant in the instant case, since the members of the Unions to whom separation
pay is due rendered services to the Insolvent not (so far as the record of this case
Under Section 1204 of the Tariff and Customs Code, 12 the liability of an importer would show) in the construction or repair of buildings or other real property, but
rather, in the regular course of the manufacturing operations of the Insolvent. The
for duties, taxes and fees and other charges attaching on importation constitute a
Unions' claims do not therefore constitute a lien or encumbrance upon any
personal debt due from the importer to the government which can be discharged
immovable property owned by the Insolvent, but rather, as already indicated, upon
only by payment in full of all duties, taxes, fees and other charges legally accruing It
the Insolvent's existing inventory (if any of processed tobacco and tobacco products.
also constitutes a lien upon the articles imported which may be enforced while such
articles are in the custody or subject to the control of the government. (emphasis We come to the question of what impact Article 110 of the Labor Code has had upon
supplied) the complete scheme of classification, concurrence and preference of credits in
insolvency set out in the Civil Code. We believe and so hold that Article 110 of the
Clearly, the claim of the Bureau of Customs for unpaid customs duties and taxes
Labor Code did not sweep away the overriding preference accorded under the
enjoys the status of a specially preferred credit under Article 2241, No. 1, of the Civil
scheme of the Civil Code to tax claims of the government or any subdivision thereof
Code. only in respect of the articles importation of which by the Insolvent resulted in
which constitute a lien upon properties of the Insolvent. It is frequently said that
the assessment of the unpaid taxes and duties, and which are still in the custody or
taxes are the very lifeblood of government. The effective collection of taxes is a task
subject to the control of the Bureau of Customs. The goods imported on one occasion
of highest importance for the sovereign. It is critical indeed for its own survival. It
are not subject to a lien for customs duties and taxes assessed upon other
follows that language of a much higher degree of specificity than that exhibited in
importations though also effected by the Insolvent. Customs duties and taxes which
Article 110 of the Labor Code is necessary to set aside the intent and purpose of the
remain unsatisfied after levy upon the imported articles on which such duties and
legislator that shines through the precisely crafted provisions of the Civil Code. It
taxes are due, would have to be paid out of the Insolvent's "free property" in
cannot be assumed simpliciter that the legislative authority, by using in Article 110
accordance with the order of preference embodied in Article 2244 of the Civil Code.
the words "first preference" and "any provision of law to the contrary
Such unsatisfied customs duties and taxes would fall within Article 2244, No. 9, of
notwithstanding" intended to disrupt the elaborate and symmetrical structure set
the Civil Code and hence would be ninth in priority.
up in the Civil Code. Neither can it be assumed casually that Article 110 intended to
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees — subsume the sovereign itself within the term "other creditors" in stating that
"unpaid wages shall be paid in full before other creditors may establish any claim to
Under Section 315 of the National Internal Revenue Code ("old Tax Code"), 13 later a share in the assets of employer." Insistent considerations of public policy prevent
reenacted in Identical terms as Section 301 of the Tax Code of 1977, 14 an unpaid us from giving to "other creditors" a linguistically unlimited scope that would
"internal revenue tax," together with related interest, penalties and costs, constitutes embrace the universe of creditors save only unpaid employees.
a lien in favor of the Government from the time an assessment therefor is made and
until paid, "upon all property and rights to property belonging to the taxpayer." We, however, do not believe that Article 110 has had no impact at all upon the
provisions of the Civil Code. Bearing in mind the overriding precedence given to
Tobacco inspection fees are specifically mentioned as one of the miscellaneous taxes taxes, duties and fees by the Civil Code and the fact that the Labor Code does not
imposed under the National Internal Revenue Code, specifically Title VIII, Chapter IX impress any lien on the property of an employer, the use of the phrase "first
of the old Tax Code and little VIII, Chapter VII of the Tax Code of 1977. 15 Tobacco preference" in Article 110 indicates that what Article 110 intended to modify is the
inspection fees are collected both for purposes of regulation and control and for order of preference found in Article 2244, which order relates, as we have seen, to
purposes of revenue generation: half of the said fees accrues to the Tobacco property of the Insolvent that is not burdened with the liens or encumbrances
Inspection Fund created by Section 12 of Act No. 2613, as amended by Act No. 3179, created or recognized by Articles 2241 and 2242. We have noted that Article 2244,
while the other half accrues to the Cultural Center of the Philippines. Tobacco number 2, establishes second priority for claims for wages for services rendered by
inspection fees, in other words, are imposed both as a regulatory measure and as a employees or laborers of the Insolvent "for one year preceding the commencement
revenue-raising measure. In Commissioner of Internal Revenue us. Guerrero, et al 16 of the proceedings in insolvency." Article 110 of the Labor Code establishes "first
this Court held, through Mr. Chief Justice Concepcion, that the term "tax" is used in preference" for services rendered "during the period prior to the bankruptcy or
Section 315 of the old Tax Code: liquidation, " a period not limited to the year immediately prior to the bankruptcy or
liquidation. Thus, very substantial effect may be given to the provisions of Article
Turning to (b), should the Bureau of Customs no longer have any importations by
1945 P135.83
the Insolvent still within customs custody or control, or should the importations still
held by the Bureau of Customs be or have become insufficient in value for the 1946 436.95
purpose, customs duties and taxes remaining unpaid would have only ninth priority Real estate dealer's fixed tax 4th
by virtue of Article 2244, number 9. In respect therefore of the Insolvent's "free quarter of 1946 and whole year of
property, " the claims of the Unions will enjoy first priority under Article 2244 as 1947 P187.50
modified and will be paid ahead of the claims of the Bureau of Customs for any
The Commissioner of Internal Revenue has appealed to Us and has proposed to hold
customs duties and taxes still remaining unsatisfied.
Manuel B. Pineda liable for the payment of all the taxes found by the Tax Court to be
It is understood that the claims of the Unions referred to above do not include the due from the estate in the total amount of P760.28 instead of only for the amount of
10% claim for attorney's fees. Attorney's fees incurred by the Unions do not stand taxes corresponding to his share in the estate.1awphîl.nèt
on the same footing as the Unions' claims for separation pay of their members.
Manuel B. Pineda opposes the proposition on the ground that as an heir he is liable
WHEREFORE, the petition for review is granted and the Orders dated 17 November for unpaid income tax due the estate only up to the extent of and in proportion to
1980 and 19 January 1981 of the trial court are modified accordingly. This case is any share he received. He relies on Government of the Philippine Islands v.
hereby remanded to the trial court for further proceedings in insolvency compatible Pamintuan2 where We held that "after the partition of an estate, heirs and
with the rulings set forth above. No pronouncement as to costs. distributees are liable individually for the payment of all lawful outstanding claims
against the estate in proportion to the amount or value of the property they have
SO ORDERED. respectively received from the estate."
We hold that the Government can require Manuel B. Pineda to pay the full amount of
EN BANC
the taxes assessed.
G.R. No. L-22734 September 15, 1967
Pineda is liable for the assessment as an heir and as a holder-transferee of property
COMMISSIONER OF INTERNAL REVENUE, petitioner, belonging to the estate/taxpayer. As an heir he is individually answerable for the
vs. part of the tax proportionate to the share he received from the inheritance. 3 His
MANUEL B. PINEDA, as one of the heirs of deceased ATANASIO PINEDA, liability, however, cannot exceed the amount of his share. 4
respondent.
As a holder of property belonging to the estate, Pineda is liable for he tax up to the
BENGZON, J.P., J.: amount of the property in his possession. The reason is that the Government has a
lien on the P2,500.00 received by him from the estate as his share in the inheritance,
On May 23, 1945 Atanasio Pineda died, survived by his wife, Felicisima Bagtas, and for unpaid income taxes4a for which said estate is liable, pursuant to the last
15 children, the eldest of whom is Manuel B. Pineda, a lawyer. Estate proceedings paragraph of Section 315 of the Tax Code, which we quote hereunder:
were had in the Court of First Instance of Manila (Case No. 71129) wherein the
surviving widow was appointed administratrix. The estate was divided among and If any person, corporation, partnership, joint-account (cuenta en
awarded to the heirs and the proceedings terminated on June 8, 1948. Manuel B. participacion), association, or insurance company liable to pay the
Pineda's share amounted to about P2,500.00. income tax, neglects or refuses to pay the same after demand, the
amount shall be a lien in favor of the Government of the Philippines
After the estate proceedings were closed, the Bureau of Internal Revenue from the time when the assessment was made by the Commissioner of
investigated the income tax liability of the estate for the years 1945, 1946, 1947 and Internal Revenue until paid with interest, penalties, and costs that may
1948 and it found that the corresponding income tax returns were not filed. accrue in addition thereto upon all property and rights to property
Thereupon, the representative of the Collector of Internal Revenue filed said returns belonging to the taxpayer: . . .
for the estate on the basis of information and data obtained from the aforesaid
estate proceedings and issued an assessment for the following: By virtue of such lien, the Government has the right to subject the property in
Pineda's possession, i.e., the P2,500.00, to satisfy the income tax assessment in the
1. Deficiency income tax sum of P760.28. After such payment, Pineda will have a right of contribution from
his co-heirs,5 to achieve an adjustment of the proper share of each heir in the
1945 P135.83
distributable estate.
1946 436.95
1947 1,206.91 P1,779.69 All told, the Government has two ways of collecting the tax in question. One, by going
Add: 5% surcharge 88.98 after all the heirs and collecting from each one of them the amount of the tax
1% monthly interest from November 30, 1953 proportionate to the inheritance received. This remedy was adopted in Government
to April 15, 1957 720.77 of the Philippine Islands v. Pamintuan, supra. In said case, the Government filed an
action against all the heirs for the collection of the tax. This action rests on the
Compromise for late filing 80.00
concept that hereditary property consists only of that part which remains after the
Compromise for late payment 40.00 settlement of all lawful claims against the estate, for the settlement of which the
entire estate is first liable.6 The reason why in case suit is filed against all the heirs
Total amount due P2,707.44 the tax due from the estate is levied proportionately against them is to achieve
=========== thereby two results: first, payment of the tax; and second, adjustment of the shares
P14.50 of each heir in the distributed estate as lessened by the tax.
2. Additional residence tax for 1945
===========
3. Real Estate dealer's tax for the fourth quarter of 1946 P207.50 Another remedy, pursuant to the lien created by Section 315 of the Tax Code upon all
and the whole year of 1947 =========== property and rights to property belonging to the taxpayer for unpaid income tax, is
WHEREFORE, the decision appealed from is modified. Manuel B. Pineda is hereby Very truly yours,
ordered to pay to the Commissioner of Internal Revenue the sum of P760.28 as
deficiency income tax for 1945 and 1946, and real estate dealer's fixed tax for the PADILLA LAW OFFICE
fourth quarter of 1946 and for the whole year 1947, without prejudice to his right of
contribution for his co-heirs. No costs. So ordered. By:
(signed)
SECOND DIVISION
SABINO PADILLA, JR. 5
G.R. No. 139736 October 17, 2005
Petitioner BPI did not receive any immediate reply to its protest letter. However, on
BANK OF THE PHILIPPINE ISLANDS, Petitioner, 15 October 1992, the BIR issued a Warrant of Distraint and/or Levy 6 against
vs. petitioner BPI for the assessed deficiency DST for taxable year 1985, in the amount
COMMISSIONER OF INTERNAL REVENUE, Respondent.
of ₱27,720.00 (excluding the compromise penalty of ₱300.00). It served the Warrant
DECISION on petitioner BPI only on 23 October 1992.7
CHICO-NAZARIO, J.: 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
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of Civil Commissioner Liwayway Vinzons-Chato, denying its "request for reconsideration,"
Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP No. 51271, and addressing the points raised by petitioner BPI in its protest letter, dated 16
dated 11 August 1999,1 which reversed and set aside the Decision of the Court of Tax November 1989, thus –
Appeals (CTA), dated 02 February 1999,2 and which reinstated Assessment No. FAS-
5-85-89-002054 requiring petitioner Bank of the Philippine Islands (BPI) to pay the 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
amount of ₱28,020.00 as deficiency documentary stamp tax (DST) for the taxable
above argument to be legally untenable. It is admitted that while industry practice or
year 1985, inclusive of the compromise penalty.
market convention has the force of law between the members of a particular
There is hardly any controversy as to the factual antecedents of this Petition. 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
Petitioner BPI is a commercial banking corporation organized and existing under collecting revenues necessary to defray the expenses of the government. (Art. 11 in
the laws of the Philippines. On two separate occasions, particularly on 06 June 1985 relation to Art. 1306 of the New Civil Code.)
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. 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
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. 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
FAS-5-85-89-002054,3 finding petitioner BPI liable for deficiency D ST
on its in substance state:
afore-mentioned sales of foreign bills of exchange to the 1. BIR Unnumbered Ruling dated May 30, 1977 –
Central Bank, computed as follows –
"x x x Documentary stamp taxes are payable by either person, signing, issuing,
1985 Deficiency Documentary Stamp Tax 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
Foreign Bills of Exchange………………………….. P 18,480,000.00
not exempt should be liable."
Tax Due Thereon: 27,720.00
₱18,480,000.00 x ₱0.30 (Sec. 182 NIRC). 2. BIR Ruling No. 144-84 dated September 3, 1984 –
₱200.00
Add: Suggested compromise penalty………….…… 300.00 "x x x Thus, where one party to the contract is exempt from said tax, the other party,
TOTAL AMOUNT DUE AND COLLECTIBLE…. P 28,020.00 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
Petitioner BPI received the Assessment, together with the attached Assessment
the expenses incidental to the registration in the vendee’s name of the property sold,
Notice,4 on 20 October 1989.
is not exempt from said tax, then it is the one liable therefore, pursuant to Sec. 245
Petitioner BPI, through its counsel, protested the Assessment in a letter dated 16 (now Sec. 196), in relation to Sec. 222 (now Sec. 173), both of the Tax Code of 1977,
November 1989, and filed with the BIR on 17 November 1989. The said protest as amended."
letter is reproduced in full below –
Premised on all the foregoing considerations, your request for reconsideration is
November 16, 1989 hereby DENIED.8
The Commissioner of Internal Revenue 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
Quezon City Commissioner, represented by the Office of the Solicitor General, filed an Answer on
08 December 1997.10
Attention of: Mr. Pedro C. Aguillon
Petitioner BPI raised in its Petition for Review before the CTA, in addition to the
Asst. Commissioner for Collection 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
Sir: 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
On behalf of our client, Bank of the Philippine Islands (BPI), we have the honor to years and nine months to deny the protest. In her Answer and subsequent
protest your assessment against it for deficiency documentary stamp tax for the year Memorandum, respondent BIR Commissioner merely reiterated her position, as
1985 in the amount of ₱28,020.00, arising from its sale to the Central Bank of U.S. stated in her letter to petitioner BPI, dated 13 August 1997, which denied the latter’s
$500,000.00 on June 6, 1985 and another U.S. $500,000.00 on June 14, 1985. protest; and remained silent as to the expiration of the prescriptive period for
collection of the assessed deficiency DST.
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 After due trial, the CTA rendered a Decision on 02 February 1999, in which it
any party, the cost of documentary stamp tax is added to the total price or charge to identified two primary issues in the controversy between petitioner BPI and
the buyer and the seller affixes the corresponding documentary stamp on the respondent BIR Commissioner: (1) whether or not the right of respondent BIR
document. Similarly, when the Central Bank sells foreign exchange to BPI, it charges Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable
BPI for the cost of the documentary stamp on the transaction.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89-002054 ...
was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI.
Although the Warrant was issued on 15 October 1992, previous to the expiration of (b) If before the expiration of the time prescribed in the preceding section for the
the period for collection on 19 October 1992, the same was served on petitioner BPI assessment of the tax, both the Commissioner and the taxpayer have agreed in
only on 23 October 1992. 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
Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the agreement made before the expiration of the period previously agreed upon.
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
(d) Any internal revenue tax which has been assessed within the period agreed upon
suspended by reason of the voluntary desistance of the respondent BIR
as provided in paragraph (b) hereinabove may be collected by distraint or levy or by
Commissioner. Existing jurisprudence establishes that distraint and levy
a proceeding in court within the period agreed upon in writing before the expiration
proceedings are validly begun or commenced by the issuance of the Warrant and
of the three-year period. The period so agreed upon may be extended by subsequent
service thereof on the taxpayer. 22 It is only logical to require that the Warrant of
written agreements made before the expiration of the period previously agreed
Distraint and/or Levy be, at the very least, served upon the taxpayer in order to
upon.27
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 The agreements so described in the afore-quoted provisions are often referred to as
of the denial by the BIR of any pending protest of the said taxpayer, and the resolute waivers of the statute of limitations. The waiver of the statute of limitations, whether
intention of the BIR to collect the tax assessed. 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
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23
and the BIR to extend the period to a date certain, within which the latter could still
October 1992 was already beyond the prescriptive period for collection of the
assess or collect taxes due. The waiver does not mean that the taxpayer relinquishes
deficiency DST, which had expired on 19 October 1992, then what more the letter of
the right to invoke prescription unequivocally. 28
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 A valid waiver of the statute of limitations under paragraphs (b) and (d) of Section
and requesting payment of the deficiency DST? Even later and more unequivocally 223 of the Tax Code of 1977, as amended, must be: (1) in writing; (2) agreed to by
barred by prescription on collection was the demand made by respondent BIR both the Commissioner and the taxpayer; (3) before the expiration of the ordinary
Commissioner for payment of the deficiency DST in her Answer to the Petition for prescriptive periods for assessment and collection; and (4) for a definite period
Review of petitioner BPI before the CTA, filed on 08 December 1997.23 beyond the ordinary prescriptive periods for assessment and collection. The period
agreed upon can still be extended by subsequent written agreement, provided that it
II
is executed prior to the expiration of the first period agreed upon. The BIR had
There is no valid ground for the suspension of the running of the prescriptive period issued Revenue Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down
for collection of the assessed DST under the Tax Code of 1977, as amended. 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
In their Decisions, both the CTA and the Court of Appeals found that the filing by followed, and any revenue official who fails to comply therewith resulting in the
petitioner BPI of a protest letter suspended the running of the prescriptive period prescription of the right to assess and collect shall be administratively dealt with.
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 This Court had consistently ruled in a number of cases that a request for
suspending the running of the prescriptive period for collection of the deficiency reconsideration or reinvestigation by the taxpayer, without a valid waiver of the
DST assessed against petitioner BPI. 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
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. 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-
Though the statute of limitations on assessment and collection of national internal 002054. In fact, an internal memorandum of the Chief of the Legislative, Ruling &
revenue taxes benefits both the Government and the taxpayer, it principally intends Research Division of the BIR to her counterpart in the Collection Enforcement
to afford protection to the taxpayer against unreasonable investigation. The Division, dated 15 October 1992, expressly noted that, "The taxpayer fails to execute
indefinite extension of the period for assessment is unreasonable because it a Waiver of the Statute of Limitations extending the period of collection of the said
deprives the said taxpayer of the assurance that he will no longer be subjected to tax up to December 31, 1993 pending reconsideration of its protest. . ."30 Without a
further investigation for taxes after the expiration of a reasonable period of time.24 valid waiver, the statute of limitations on collection by the BIR of the deficiency DST
As aptly explained in Republic of the Philippines v. Ablaza 25 – could not have been suspended under paragraph (d) of Section 223 of the Tax Code
of 1977, as amended.
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 C. The protest filed by petitioner BPI did not constitute a request for reinvestigation,
officers would be obliged to act promptly in the making of assessment, and to granted by the respondent BIR Commissioner, which could have suspended the running
citizens because after the lapse of the period of prescription citizens would have a of the statute of limitations on collection of the assessed deficiency DST under Section
feeling of security against unscrupulous tax agents who will always find an excuse to 224 of the Tax Code of 1977, as amended.
inspect the books of taxpayers, not to determine the latter’s real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens. Without The Tax Code of 1977, as amended, also recognizes instances when the running of
such a legal defense taxpayers would furthermore be under obligation to always the statute of limitations on the assessment and collection of national internal
keep their books and keep them open for inspection subject to harassment by revenue taxes could be suspended, even in the absence of a waiver, under Section
unscrupulous tax agents. The law on prescription being a remedial measure should 224 thereof, which reads –
be interpreted in a way conducive to bringing about the beneficent purpose of
SEC. 224. Suspension of running of statute. – The running of the statute of limitation
affording protection to the taxpayer within the contemplation of the Commission
provided in Section[s] 203 and 223 on the making of assessment and the beginning
which recommend the approval of the law.
of distraint or levy or a proceeding in court for collection, in respect of any
In order to provide even better protection to the taxpayer against unreasonable deficiency, shall be suspended for the period during which the Commissioner is
investigation, the Tax Code of 1977, as amended, identifies specifically in Sections prohibited from making the assessment or beginning distraint or levy or a
223 and 22426 thereof the circumstances when the prescriptive periods for assessing proceeding in court and for sixty days thereafter; when the taxpayer requests for a
and collecting taxes could be suspended or interrupted. 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
To give effect to the legislative intent, these provisions on the statute of limitations assessed or collected: Provided, That, if the taxpayer informs the Commissioner of
on assessment and collection of taxes shall be construed and applied liberally in any change in address, the running of the statute of limitations will not be
favor of the taxpayer and strictly against the Government. 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
B. The statute of limitations on assessment and collection of national internal revenue discretion, and no property could be located; and when the taxpayer is out of the
taxes may be waived, subject to certain conditions, under paragraphs (b) and (d) of Philippines.31
Based on the foregoing, petitioner BPI contends that the declaration made in the The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive period
later case of Wyeth Suaco, that the statute of limitations on collection is suspended for collection is interrupted or suspended when the taxpayer files a request for
once the taxpayer files a request for reconsideration or reinvestigation, runs counter reinvestigation, provided that, as clarified and qualified herein, such request is
to the ruling made by this Court in the Suyoc case. granted by the BIR Commissioner.
B. Although this Court is not compelled to abandon its decision in the Wyeth Suaco Thus, this Court finds no compelling reason to abandon its decision in the Wyeth
case, it finds that Wyeth Suaco is not applicable to the Petition at bar because of the Suaco case. It also now rules that the said case is not applicable to the Petition at bar
distinct facts involved herein. 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,
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing to remit which merely required a review of existing evidence and the legal basis for the
withholding taxes on royalties and dividend declarations, as well as, for deficiency assessment. Respondent BIR Commissioner did not require, neither did petitioner
sales tax. The BIR issued two assessments, dated 16 December 1974 and 17 BPI offer, additional evidence on the matter. After petitioner BPI filed its request for
December 1974, both received by taxpayer Wyeth Suaco on 19 December 1974. reconsideration, there was no other communication between it and respondent BIR
Taxpayer Wyeth Suaco, through its tax consultant, SGV & Co., sent to the BIR two Commissioner or any of the authorized representatives of the latter. There was no
(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 Total Tax P 699,125.17
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 Add 50% surcharge 349,562.59
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, Total amount due and collectible P1,048,687.76
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 Petitioner through counsel filed a motion to quash the criminal action
could have persuaded the respondent BIR Commissioner to delay collection, and against her and during the pendency of the same, she amended on
that would have prevented or estopped petitioner BPI from setting up the defense of December 20, 1947, her original war profits tax returns making it to
prescription against collection of the tax assessed, as required in the Suyoc case. appear that her true net worth on February 26, 1945 was P315,438.32
while her net worth on December 8, 1941 was left unchanged at
This is a simple case wherein respondent BIR Commissioner and other BIR officials P409,581.57. According to the amended return, there was therefore a
failed to act promptly in resolving and denying the request for reconsideration filed decrease in net worth in the amount of P94,143.25 instead of an
by petitioner BPI and in enforcing collection on the assessment. They presented no increase of P22,302.43 as originally reported.
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 On February 9, 1948, the motion of petitioner to quash the information
precisely intends to protect the taxpayer from such prolonged and unreasonable was denied by the Court of First Instance of Manila. At the sheduled
assessment and investigation by the BIR. hearing of the case on the merits on March 7, 1949, the City Fiscal of
Manila manifested in open court that after a re-investigation of the case
Considering that the right of the respondent BIR Commissioner to collect from "the amount of the tax due and for which the accused stands charged for
petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had evading payment is only about P700,000.00, instead of P1,048,687.76 as
already prescribed, then, there is no more need for this Court to make a stated in the information." However, at the continuation of the hearing of
determination on the validity and correctness of the said Assessment for the latter the case on February 22, 1950, Supervising Examiner Felipe Aquino of
would only be unenforceable. the Bureau of Internal Revenue, who testified for the prosecution,
declared in answer to questions propounded by the City Fiscal "that as a
Wherefore, based on the foregoing, the instant Petition is GRANTED. The Decision of
result of a detailed reinvestigation conducted by his office, it was found
the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August 1999, which
out that no war profits tax was due from the accused in connection with
reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner BPI to pay the
the present case." Whereupon, City Fiscal Angeles moved for the
amount of ₱28,020.00 as deficiency documentary stamp tax for the taxable year dismissal of the case. Finding the petition for dismissal to be well taken,
1985, inclusive of the compromise penalty, is REVERSED and SET ASIDE. the Court of First Instance of Manila, in an Order dated February 22,
Assessment No. FAS-5-85-89-002054 is hereby ordered CANCELED. 1950, dismissed Criminal Case No. 4976 against petitioner.
SO ORDERED. After the dismissal of the Criminal Case, another report was submitted
by the same Supervising Examiner Felipe Aquino to his superiors
EN BANC wherein he changed his previous stand taken before the Court of First
Instance of Manila, on the basis of which report another letter of
G.R. No. L-12174 April 26, 1962
demand for P2,008,293.53 as war profits tax was issued against
petitioner on January 24, 1950. Barely one month thereafter, another
MARIA B. CASTRO, petitioner,
report was again submitted by the same Supervising Examiner Felipe
vs.
Aquino to his superiors, on the basis of which another letter of demand
THE COLLECTOR OF INTERNAL REVENUE, respondent.
for war profits tax was issued by respondent against petitioner for the
REYES, J.B.L., J.: sum of P2,229,976.94 or an increase of P221,683.31 over that
assessment of January 24, 1950. The case was again referred to the City
Appeal from a decision of the Court of Tax Appeals (in its C.T.A. Case 141) holding Fiscal's Office for another prosecution based on the earlier demand but
petitioner Maria B. Castro liable under the War Profits Tax Law, Republic Act No. 55, the same was again dropped.
and ordering her to pay a deficiency war profits tax (including surcharges and
interest) in the amount of P1,360,514.66, and costs. Following insistent requests of petitioner for reinvestigation of her case,
the then Secretary of Finance Pio Pedrosa created a committee on April
The background of this case is set forth in great detail in the decision appealed from. 11, 1950 to review or re-examine the assessment for war profits tax
We quote: issued against the petitioner. This committee, otherwise known as the
Pedrosa Committee, was chairmanned by Atty. Artemio M. Lobrin of the
Petitioner Maria B. Castro, who is authorized to manage her own Bureau of Internal Revenue, with Messrs. Melecio R. Domingo and
property, is a duly licensed merchant. Pursuant to the provisions of Roman M. Umali of the same office, Vivencio L. de Peralta of the General
Section 4 (b) and (c) of Republic Act No. 55, she filed with the Bureau of Auditing Office and Jose P. Alejandro of the Office of the Solicitor
Internal Revenue on February 28, 1947, her war profits tax returns General, as members. After a thorough investigation of the case, the
which showed a net worth on February 26, 1945 in the amount of Pedrosa Committee on September 12, 1950, submitted its report,
In the meantime, petitioner filed on December 10, 1951, Civil Case No. 15316 with
15% surcharge 343,371.09 the Court of First Instance of Manila against the respondent Collector of Internal
Revenue for the recovery of the properties advertised for saleon November 22 and
At this juncture, it should be stated that again on December 22, 1951, an additional
war profits tax was assessed against the petitioner in the sum of P20,425.00 based
allegedly on certain amounts receivable which petitioner received from Magdalena
Estate, Inc. Consequently, the total war profits taxliability of petitioner, exclusive of
surcharge and interest, as found by the Pedrosa Committee was increased to
P1,546,518.75, itemized as follows: .1äwphï1.ñët
To satisfy, fully the amount of the war profits tax assessed against petitioner, the
respondent on September 29, 1954, caused to be advertised for sale at public
auction for November 2, 1954, other real properties of petitioner situated in Manila.
These properties are described in detail in Appendix B of the petition for review
filed with this Court. According to the "Amended Notice of Sale" (Appendix B,
Petition for Review), the properties were seized, distrained and levied upon from
petitioner "in satisfaction of internal revenue taxes and penalties amounting to
P4,539,556.26, computed as of April 30, 1954" due from her in favor of the Republic
of the Philippines. For lack of bidders at the time of the scheduled sale on November
2, 1954, the properties in question were forfeited to the Government under Section
328 of the National Internal Revenue Code for the total amount of P3,547,892.41
which was allegedly the balance of petitioner's tax liability as of that date.
Before the expiration of the one-year period provided for in Section 328 of the
National Internal Revenue Code within which petitioner may redeem the real
properties forfeited in favor of the Government in the sale at public auction held on
November 2, 1954, the petitioner filed with this Court on September 30, 1955, a
petition for the annulment of said sale and forfeiture on the ground that her
properties were advertised for sale on tax claim of the Government far in excess of
the alleged war profits tax, surcharges and penalties fixed by respondent.
Respondent filed his opposition to the petition and after due hearing where
evidence was adduced in support of the petition as well as opposition thereto, this
Court, in a resolution dated October 31, 1955, declared the auction sale of November
2, 1954 as well as the resulting forfeiture, null and void and of no legal force and
effect because of the admitted discrepancy in the amount of tax stated in the notice
of sale for which the properties were auctioned and the actual amount of tax
assessed and demanded.
The said resolution being without prejudice to such action and proceedings a
respondent may take in accordance with law, respondent demanded from petitioner
the amount of P3,594,881.51 not later than November 10, 1955 or he would again
proceed with the resale of her properties on December 12, 1955. To stop the sale,
petitioner filed a petition for injunction with this Court on November 22, 1955
requesting that respondent be enjoined from proceeding with the resale of her
properties scheduled on December 12, 1955; that the said properties be released to
her; and that she be declared not liable for the war profits tax assessed and
demanded of her. After due hearing of this petition and the opposition thereto, this
Court, in a resolution dated December 10, 1955, denied the injunction and held in
abeyance the determination of other questions until after the case shall have been
heard on the merits. The properties were therefore advertised for sale on December
12, 1955 to answer for a war profits tax liability of petitioner to the Republic of the
Philippines for the alleged amount of P3,594,307.51 computed as of that date. For
lack of bidders, the same were forfeited to the Government. Those properties and
the amounts for which they were forfeited are as follows:.
Total P3,594,801.51
P4,453,241.51
After due hearing and reception of evidence, the Tax Court annulled the last tax sale
of December, 1955, covering the found Manila buildings, on account of irregularities
in the notices of sale; but for the rest, it found against petitioner and assessed her
tax liability as follows: .
Total taxable increase in net worth P1,707,703.95 The analysis of petitioner's transactions for 1945 and 1946 merely laid the basis for
determining the undisclosed cash funds in her possession as of February 26, 1945
War Profits tax due thereon: (amounting to P1,807,444.61), and it is this cash thatwas found subject to the war
profits tax.
On P50,000.00 (P6,000.00
P 22,000.00
Exempt) @ 50% It is urged, however, that even if this finding were correct, still, under Republic Act
No. 55, only "cash in banks" is expressly mentioned as taxable, and appellant infers
50,000.00 @ 60% 30,000.00 that cash on hand not so deposited was not intended to be subject to war profits tax.
This thesis appears unmeritorious: cash heldby the taxpayer on February 26, 1945
200,000.00 @ 70% 140,000.00 clearly falls under the description of "assets, including real and personal property"
that section 2 of the Act expressly order included in determining the taxable net
200,000.00 @ 80% 160,000.00 worth. If "cash in banks" is expressly mentioned by the Act, it is not because cash on
hand was intended to be excluded, but because "cash in banks" is not, strictly,
500,000.00 @ 90% 450,000.00 speaking, part of the assets of the taxpayer, but assets of the banks where the cash is
deposited. It is well established that a so-called "bank deposit" is in reality a loan to
707,703.95 @ 95% 672,318.75 the bank, the latter acquiring title to the amount "deposited", subject to its
withdrawal (or recall of the loan) on the dates specified. Taxpayer's "assets",
therefore, would not per se include cash deposited in banks by the taxpayer; and its
Total . . . . . . . . . . . . . P1,474,318.75
inclusion had to be expressly prescribed by the statute in order to remove all doubt
as to its taxability.
50% surcharge on P1,474,318.75 P 737,159.37
Petitioner endeavored to show (Errors VII to XI) that part of the amount of cash thus
15% surcharge on P1,474,318.75 221,147.81
arrived at actually originated in receipts from transactions made by her after
February 26, 1945 but which were not disclosed in the books and accounts. Aside
1% monthly on P1,474,318.75 from 4/l/47 to 11/22/50 644,768.73
from the fact that this claim in her behalf contradicted her admission to the Pedrosa
Committee that all her 1946 receipts were recorded in her books (v. Respondent's
Total amount collectible on 11/22/50 . . . . . . . . P3,077,394.66 Exhibit 6-A), it lay within the exclusive discretion of the Tax Court to believe or not
to believe her evidence and statements, and those of her witnesses regarding the
source of the cash in question; and the rule is well settled that in cases of this kind,
Less: Values of properties sold: only errors of law, and not rulings on the weight of evidence, are reviewable by this
Court. The same principle precludes us from interfering with the Tax Court's refusal
On Nov. 22, 1950 P1,556,000 to credit the other deductions claimed by petitioner as amounts obtained from loans
from various individuals. The Court of Tax Appeals found those items unproved,
On Nov. 27, 1950 150,900 except the P76,000.00 payable to Lao Kang Suy, which is accepted, although it had
been rejected by the Pedrosa Committee.
April 20, 1954 9,980 1,716,880.00
Similarly, the finding that the petitioner had disbursed in 1946 P1,025,000.00 on
account of her subscription to the stock of the Marvel Building Corporation (Error
XII) may not be disturbed by us.
(c) The third main ground of appeal is predicated on the acquittal of petitioner in
case No. 4976 of the Court of First Instance of Manila, wherein she was criminally
prosecuted for failure to render a true and accurate return of the war profits tax due
from her, with intent to evade payment of the tax. She contends (Assignments of
On 4 April 1957 the petitioner filed an amended petition to review the decision of Any association organized under this Act shall not be subject to the
the respondent, alleging the fact of payment of the sum P3,69,0.53 and request for it payment of the merchant's sales tax, the income tax, and all others
refund. On 16 May 1957 the respondent filed an amended answer to the amended percentage taxes of whatever nature and description.
petition.
Any exemptions under any and all existing laws applying to agricultural
On 11 December 1957 the parties entered into a stipulation the Court. The said products in the possession or under the control of the individual
Stipulation of facts and submitted it to the Court. The said stipulation provides: producer, shall apply similarly and completely to agricultural products
delivered by the farmer members to the association, or which are in the
COME NOW the herein parties thru their respective under signed possession or under the control of the association.
counsel, and to this Honorable Court respectfully submit the following
Statement of Facts, to wit: Sections 1, 3, 6 and 7 of Act No. 3425, as amended, provide:
1. That attached hereto are the lists of names of persons who brought Section 1. This Act shall be known and may be cited as "The Cooperative
and milled palay in the petitioner's ricemill between March 2 to 31, Marketing Law". Every association incorporated under this Law shall be
1953, copied from Exhs. D and D-1, together with their respective operated primarily for the mutual benefit of the members thereof, as
identification or relation to the members of the petitioner-organization; producers, and should aim to promote, foster, and encourage the
intelligent and orderly marketing of agricultural products through
2. That said lists of names were copied from Exhs. D and D-1, which cooperation; to make the distribution of agricultural products between
formed part of the Bureau of Internal Revenue records embodied in the producer and consumer as direct as can be efficiently done; and to
records of this case; stabilize the marketing of agricultural products.
3. That the column opposite or following the lists of names identify said Sec. 3. Fifteen or more persons, a majority of whom are residents of the
persons, whether they are members, brothers, sisters, sons, daughters Philippine Islands, engaged in the production of agricultural products,
or close relatives, or helpers of members of the petitioner-organization; may form a Cooperative marketing association, with or without capital
stock, under the provisions of this Act, by the adoption of and filing with
4. That said persons will, respectively testify that they were known the Bureau of Commerce and Industry articles of incorporation and by-
and/or called in the community by the names or nicknames appearing laws in the same manner as is required of other corporations organized
in the attached lists; that they brought their palay to be milled under the Corporation Law, Act Numbered One thousand four hundred
themselves being members of the petitioner-organization, or that they fifty-nine as amended, except as herein Provided.
were respectively requested by members, who are their fathers,
mothers, brothers, sisters, or close relatives or their landlords or Sec. 6 . . . (a) . . . No association, organized under this Act, shall handle
employers to bring his or her palay to the ricemill of the petitioner- the agricultural products of any non-member except for storage.
organization to be milled between March 2 to 31, 1953 and that they
were given receipts which were placed in the names with which they Sec. 7. Under the terms and conditions prescribed in the by-laws
were commonly known or called in the community; adopted by it, an association shall admit as members, or issue common
stock only to persons engaged in the production of the agricultural
5. That they know Fermin Domingo who is the Checker and the one in- products to be handled by or through the association, including the
charge of the petitioner-organization's ricemill and that they were in lessees and tenants of land used for the production of such products and
turn known to him; that they were issued receipts which they kept, any lessors and landlords who received as rent all or part of the crop
being members, or which they surrendered and delivered to their raised on the leased premises.
fathers, mothers, brothers, sisters, or close relatives, or employers, who
are members of the said petitioner-organization and who requested It is plain from the foregoing provisions of the Cooperative Marketing Law that a
them to mill their palay in the ricemill of said petitioner; cooperative marketing association should be organized by and composed of persons
engaged in the production of agricultural products for the benefit of producers-
6. That the testimonies of the said persons appearing in the attached members and the association should aim to Promote, foster, and encourage the
lists will merely be the same and/or corroborative to those that have intelligent and orderly marketing of agricultural products through cooperation; to
already testified; make the distribution of agricultural products between producer and consumer as
direct as can be efficiently done; and to stabilize the marketing of agricultural
7. That in order to abbreviate this proceedings and to avoid a lengthy products." If the association fails to comply with these requirements, it cannot be
and costly litigation, said persons appearing in the attached lists will no Considered as an association on organized under the Cooperative Marketing Law. It
longer be presented to testify in this case. cannot be gain said that once the association admits as member persons who are not
engaged in the production of agricultural products, the reason for its existence
WHEREFORE, it is respectfully prayed that this Stipulation of Facts be under the law ceases to operate and the privilege of exemption, from the payment of
approved by this Honorable Court. taxes provided for in section 48 of the Law is withdrawn from it. A person not
engaged in the production of agricultural products has no direct relation to and
After hearing and after the parties had filed their respective memoranda and the common cause with one who is so engaged to bring about an intelligent and orderly
petitioner a reply to the respondent's memorandum, on 14 August 1958 the Court marketing, a direct and efficient distribution between producers an consumer and
rendered judgment declaring that the "petitioner can not be considered as having he stabilization of the marketing of agricultural products through cooperation with
been organized in accordance with Act No. 3425, and its claim for exemption under his fellow producers.
Section 18 of said Act can not be sustained." The dispositive part of the judgment
provides: Section 1, Article IV, of the unamended by-laws of the petitioner association
provides:
FOR THE FOREGOING CONSIDERATIONS, we are of he opinion that the
sum of P3,590.53, representing the fixed and percentage taxes, plus Any person, residing in the municipality in which the association is
surcharge, was validly collected from petitioner as operator of a rice organized (Santa Cruz, Laguna), who pays a membership fee of P1.00
mill, and its claim for refund hereof must be, as the same is hereby, and buys at least a share of stock in his name, may become a member of
denied. With respect to he sum of P100.00 as compromise penalty, the the Association PROVIDED, HOWEVER, That before becoming a member
collection thereof being unauthorized and illegal, respondent is ordered he shall file an application for membership addressed to the Board of
to refund he said amount, plus interest at the legal rate. No Directors of the Association, which shall decide whether or not he is to
pronouncement as to costs. (Annex A) be ac accepted as member. (Exhibit A-1, pp. 80-85, BIR rec.)
On 3 September 1958 the petitioner filed a motion for reconsideration, on 29 It goes without saying that any resident municipality of Santa Cruz, Laguna, who pay
September 1958 the respondent, an objection thereto, and on 2 October 1958 the to of the petitioner association a membership fee of P1 and buys in his name at lease
The judgment under review is affirmed, with costs against the petitioner. 25% surcharge for discharging without
permit . . . . . . . . . . . . . . . . . 12.20
EN BANC
25% surcharge for late payment . . . . . . . . . . . . . . . . . . . . . .
G.R. No. L-19074 January 31, 1967 ....... 12.20
It is true that the dispositive portion of our decision in the first case expressly
sustained the concurring and dissenting opinion of a member of the Court of Tax
While this case was being heard in the Court of Tax
Appeals in the appealed decision thereof and that the writer of the opinion Appeals, certain documents were discovered, tending to
maintained that forest charges are internal revenue taxes. A careful perusal of the
text of the decision of the Supreme Court therein shows, however, that said show that Guerrero had evaded the payment of forest
dissenting opinion is not the ratio decidendi of the aforementioned decision. It charges on certain logs (other than those heretofore
should be noted that the Collector of Internal Revenue contested the jurisdiction of
the Court of Tax Appeals to entertain the appeal taken by Lacson from the mentioned), which had been shipped and sold by him to
assessment made by said officer involving forest charges, and that the Supreme
Court upheld the authority of the tax court to hear and decide said appeal, because the company. Said documents, which were found in the
the issue therein was the validity of said assessment. From the viewpoint of the possession of the latter, covered logs shipped and sold
Supreme Court, this issue was decisive on the question of jurisdiction of the Court of
Tax Appeals, regardless of whether forest charges were taxes or not. thereto as follows:
At this juncture, it may not be amiss to advert to a problem of semantics arising from
Exhibit Date Volume Invoice Page
the operation of Section 1588 of the Revised Administrative Code, the counterpart of
which is now Section 315 of the National Internal Revenue Code, pursuant to which:
8-I-2 May 9, 1949 4.966 Cu. m. 12272263 156 (BIR Rec.)
Every internal revenue tax on property or on any business or
8-I-3 May 9, 1949 2.151 Cu. m. 12272263 155 " "
occupation, and every tax on resources and receipts, and any increment
to any of them incident to delinquency, shall constitute a lien superior to
8-BB-1 May 20, 1949 5.20 Cu. m. 6578041 77 " "
all other charges or liens not only on the property itself upon which
such tax may be imposed but also upon the property used in any 8-AA-1 May 21, 1949 4.63 Cu. m. A-6578048 81 " "
business or occupation upon which the tax is imposed and upon all
property rights therein. The aforementioned documents consist of auxiliary invoices — purporting to have
been issued by Concessionaire Segundo Agustin to Guerrero as consignee of the logs
xxx xxx xxx therein mentioned — which are not included in Agustin's certificate (Exhibit 00, p.
32 BIR record) of the invoices covering logs sold by him to Guerrero, thus showing
The enforcement of this lien by the Commissioner (formerly Collector) of Internal that the said invoices (Exhibits 8-I-2, 8-I-3, 8-BB-1 and 8-AA-1) are spurious; that
Revenue, has often induced the parties adversely affected thereby to raise the the logs therein described must have been obtained by Guerrero from illegal
question whether a given charge is a tax or not, on the theory that there would be no sources; and that the forest charges and the sale and percentage taxes thereon have
lien if said question were decided in the negative. In connection therewith, said not been paid. Although these charges and taxes are not included in the original and
parties had tended to distinguish between taxes, on the one hand — as burdens revised assessments made in this case, petitioner herein maintains that Guerrero
imposed upon persons and/or properties, by way of contributions to the support of may nevertheless be held liable therefor, inasmuch as:
the Government, in consideration of general benefits derived from its operation —
and license fees — charged in the exercise of the regulatory authority of the state, Where plaintiffs themselves show facts upon which they should not
under its police power — and other charges — for specific things or special or recover, whether defendant pleaded such fact as a defense or not, their
particular benefits received from the Government — on the other hand. claim should be dismissed. Evidence introduced without objection
becomes property of the case and all the parties are amenable to any
It is high time to stress that the term "tax," as it appears in said Section 1588 of the favorable or unfavorable effects resulting from the evidence. (Emphasis
Revised Administrative Code and Section 315 of the National Internal Revenue Code, ours; Beam vs. Yatco, 82 Phil. 30.)
is used in these provisions, not in the limited sense adverted to above, but, in a
broad sense encompassing all Government revenues collectible by the Commissioner of Petitioner's contention is untenable. The foregoing doctrine deals with plaintiff's
Internal Revenue under said Code, whether involving taxes, in the strict technical right to recover, when his own evidence proves the contrary. In short, it refers to a
sense thereof, or not. Thus, under the heading "injunction not available to restrain point in issue. In the case at bar, the additional logs under consideration were not
collection of tax", Section 305 of said Code — which is the first provision of Title IX included in the contested assessments. Since the jurisdiction of the Court of Tax
(entitled "General Administrative Provisions"), Chapter I (entitled "Remedies in Appeals is purely appellate, said Court correctly declined to make an award thereon,
General) thereof — provides: for lack of jurisdiction over the same.
No court shall have authority to grant an injunction to restrain the With reference to the last two (2) items of P120.00 and P50.00, the Court of Tax
collection of any national internal-revenue tax, fee, or charge imposed Appeals did not sentence Guerrero to pay the same upon the ground that he had not
by this Code. entered into a compromise agreement with the Government. The record shows,
however, that Guerrero had expressed his willingness to pay "any compromise
Similarly, under the heading "Civil remedies for the collection of delinquent taxes," penalty which may be imposed by the Honorable Court."
Section 316 of the same Code ordains;
In short we find that the Court of Tax Appeals has erred in not sentencing Antonio G.
The civil remedies for the collection of internal revenue taxes, fees, or Guerrero to pay, besides the sum of P3,775.66 awarded in the decision appealed
charges, and any increment thereto resulting from delinquency shall be from, the aforementioned additional sums of P1,192.51, P120.00 and P50.00. Thus
(a) by distraint of goods, chattels, or effects, and other personal property modified, with the addition of these sums in the award in favor of the Government
of whatever character, including stocks and other securities, debts, and against Antonio G. Guerrero, the decision appealed from is hereby affirmed,
credits, bank accounts, and interest in and rights to personal property, therefore, in all other respect, with costs against the latter. It is so ordered.
and by levy upon real property and interest in or rights to real property;
Viewed in the light of the foregoing reasons for the State grant of tax exemption, We
are firmly convinced that petitioner was granted tax exemption in the manufacture
and sale "of machines for making cigarette paper, pails, lead washers, nails, rivets,
candies, etc.", as explicitly stated in the Certificate of Exemption (Annex A of the
petition in G.R. No. L-22805), but certainly not for the manufacture and sale of the
articles produced by those machines.
That such was the intention of the State when it granted tax exemption to the
petitioner in the manufacture of machines for making certain products could be
deduced from the following:
"Sirs:
Aside from the clarity of the State's intention in granting tax exemption to petitioner
in so far as it manufactures machines for making certain products, as manifested in
the acts of its duly authorized representatives in the Executive branch of the
government, it is quite difficult for Us to believe that the manufacture of steel chairs,
jeep parts, and other articles not constituting machines for making certain products
would fall under the classification of "new and necessary" industries envisioned in
Republic Acts 35 and 901 as to entitle the petitioner to tax exemption.
There is no way to dispute the "cardinal rule in taxation that exemptions therefrom
are highly disfavored in law and he who claims tax exemption must be able to justify
his claim or right thereto by the dearest grant of organic or statute law" as succinctly
stated in the decision of the respondent Court of Tax Appeals in C.T.A. No. 1265 (L-
27858).1äwphï1.ñët
WHEREFORE, the decisions of respondent Court of Tax Appeals in these two cases
are affirmed. Costs against the petitioner in both cases.