CIR V.

MENGUITO
Before the Court is a Petition for Review on Certiorari under
Rule 45 of the Rules of Court, assailing the March 31, 2005
Decision[1] of the Court of Appeals (CA) which reversed and
set aside the Court of Tax Appeals (CTA) April 2, 2002
Decision[2] and October 10, 2002 Resolution[3] ordering
Dominador Menguito (respondent) to pay the Commissioner
of Internal Revenue (petitioner) deficiency income and
percentage taxes and delinquency interest.
Based on the Joint Stipulation of Facts and Admissions [4] of the
parties, the CTA summarized the factual and procedural
antecedents of the case, the relevant portions of which read:
Petitioner Dominador Menguito [herein
respondent] is a Filipino citizen, of legal age, married to
Jeanne Menguito and is engaged in the restaurant
and/or cafeteria business. For the years 1991, 1992
and 1993, its principal place of business was at
Gloriamaris, CCP Complex, Pasay City and later
transferred to Kalayaan Bar (Copper Kettle Cafeteria
Specialist
or
CKCS),
Departure
Area, Ninoy Aquino InternationalAirport, Pasay City. D
uring the same years, he also operated a branch at
Club John Hay, Baguio City carrying the business
name of Copper Kettle Cafeteria Specialist (Joint
Stipulation of Facts and Admissions, p. 133, CTA
records).
xxxx
Subsequently, BIR Baguio received information
that Petitioner [herein respondent] has
undeclared income from Texas Instruments and
Club John Hay, prompting the BIR to conduct
another investigation. Through a letter dated
July 28, 1997, Spouses Dominador Menguito
and Jeanne Menguito (Spouses Menguito) were
informed by the Assessment Division of the said
office that they have underdeclared sales
totaling P48,721,555.96 (Exhibit 11, p. 83, BIR
records). This was followed by a Preliminary Ten
(10) Day Letter dated August 11, 1997,
informing Petitioner [herein respondent] that in
the investigation of his 1991, 1992 and 1993
income, business and withholding tax case, it
was found out that there is still due from him
the total sum of P34,193,041.55 as deficiency
income and percentage tax.
On September 2, 1997, the assessment notices
subject of the instant petition were issued.
These were protested by Ms. Jeanne Menguito,
through
a
letter
dated September
28,
1997 (Exhibit 14, p. 112, BIR Records), on the
ground that the 40% deduction allowed on their
computed gross revenue, is unrealistic. Ms.
Jeanne Menguito requested for a period of
thirty (30) days within which to coordinate with
the BIR regarding the contested assessment.
On October 10, 1997, BIR Baguio replied, informing the
Spouses Menguito that the source of assessment was
not through the disallowance of claimed expenses but
on data received from Club John Hay and Texas
Instruments Phils., Inc. Said letter gave the spouses ten
(10) days to present evidence (Exhibit 15, p. 110, BIR
Records).

In an effort to clear an alleged confusion

regarding Copper Kettle Cafeteria Specialist
(CKCS) being a sole proprietorship owned by the
Spouses, and Copper Kettle Catering Services,
Inc. (CKCS, Inc.) being a corporation with whom
Texas Instruments and Club John Hay entered
into a contract, Petitioner [respondent]
submitted to BIR Baguio a photocopy of the SEC
Registration of Copper Kettle Catering Services,
Inc. on March 23, 1999 (pp. 134-141, BIR
Records).
On April 12, 1999, BIR Baguio wrote a letter to Spouses
Menguito, informing the latter that a reinvestigation or
reconsideration cannot be given due course by the
mere submission of an uncertified photocopy of the
Certificate of Incorporation. Thus, it avers that the
amendment issued is still valid and enforceable.
On May 26, 1999, Petitioner [respondent] filed the
present case, praying for the cancellation and
withdrawal of the deficiency income tax and
percentage tax assessments on account of
prescription, whimsical factual findings, violation of
procedural due process on the issuance of assessment
notices, erroneous address of notices and multiple
credit/ investigation by the Respondent [petitioner] of
Petitioner's [respondents] books of accounts and other
related records for the same tax year.
Instead of filing an Answer, Respondent [herein
petitioner] moved to dismiss the instant petition on July
1, 1999, on the ground of lack of jurisdiction. According
to Respondent [petitioner], the assessment had long
become final and executory when Petitioner
[respondent] failed to comply with the letter
dated October 10, 1997.
Petitioner opposed said motion on July 21, 1999,
claiming that the final decision on Petitioner's
[respondents] protest is the April 12, 1999 letter of the
Baguio Regional Office; therefore, the filing of the
action within thirty (30) days from receipt of the said
letter was seasonably filed. Moreover, Petitioner
[respondent] asserted that granting that the April 12,
1999 letter in question could not be construed to mean
as a denial or final decision of the protest, still
Petitioner's [respondents] appeal was timely filed since
Respondent [petitioner] issued a Warrant of Distraint
and/or Levy against the Petitioner [respondent] on May
3, 1999, which warrant constituted a final decision of
the Respondent [petitioner] on the protest of the
taxpayer.
On September 3, 1999, this Court denied
Respondent's [petitioners] 'Motion to
Dismiss' for lack of merit.
Respondent [petitioner] filed his
Answer on September 24, 1999, raising the
following Special and Affirmative Defenses:
xxxx
5. Investigation disclosed that for taxable years 1991,
1992 and 1993, petitioner [respondent] filed false or

fraudulent income and percentage tax returns with

intent to evade tax by under declaring his sales.
6. The alleged duplication of investigation of petitioner
[respondent] by the BIR Regional Office in Baguio City
and by the Revenue District Office in Pasay City is
justified by the finding of fraud on the part of the
petitioner [respondent], which is an exception to the
provision in the Tax Code that the examination and
inspection of books and records shall be made only
once in a taxable year (Section 235, Tax Code). At any
rate, petitioner [respondent], in a letter dated July 18,
1994, waived his right to the consolidation of said
investigation.
7. The aforementioned falsity or
fraud was discovered on August 5,
1997. The assessments were issued
on September 2, 1997, or within ten
(10) years from the discovery of
such falsity or fraud (Section 223,
Tax Code). Hence, the assessments
have not prescribed.
8. Petitioner's
[respondents]
allegation that the
assessments were not
properly addressed is
rendered moot and
academic
by
his
acknowledgment in his
protest
letter
dated September 28,
1997 that he received
the assessments.
9. Respondent [petitioner] complied with the
provisions of Revenue Regulations No. 12-85 by
informing petitioner [respondent] of the
findings of the investigation in letters dated July
28, 1997 and August 11, 1997 prior to the
issuance of the assessments.
10. Petitioner [respondent] did not allege in his
administrative protest that there was a
duplication
of
investigation,
that
the
assessments have prescribed, that they were
not properly addressed, or that the provisions
of Revenue Regulations No. 12-85 were not
observed. Not having raised them in the
administrative level, petitioner [respondent]
cannot raise the same for the first time on
appeal
(Aguinaldo
Industries
Corp.
vs.
Commissioner of Internal Revenue, 112 SCRA
136).
11. The assessments were issued in accordance with
law and regulations.
12. All presumptions are in favor of the correctness of
tax assessments (CIR vs. Construction Resources of
Asia, Inc., 145 SCRA 67), and the burden to prove
otherwise is upon petitioner [respondent].[5] (Emphasis
supplied)
On April 2, 2002, the CTA rendered a Decision, the
dispositive portion of which reads:

Accordingly, Petitioner [herein respondent]

is ORDERED to PAY the
Respondent
[herein
petitioner]
the
amount
of P11,333,233.94 and P2,573,655.82 as
deficiency income and percentage tax
liabilities, respectively for taxable years
1991, 1992 and 1993 plus 20% delinquency
interest from October 2, 1997 until full
payment thereof.
SO ORDERED.[6]
Respondent filed a motion for reconsideration but the CTA
denied the same in its Resolution of October 10, 2002.[7]
Through a Petition for Review[8] filed with the CA,
respondent questioned the CTA Decision and Resolution
mainly on the ground that Copper Kettle Catering Services,
Inc. (CKCS, Inc.) was a separate and distinct entity from
Copper Kettle Cafeteria Specialist (CKCS); the sales and
revenues of CKCS, Inc. could not be ascribed to CKCS; neither
may the taxes due from one, charged to the other; nor the
notices to be served on the former, coursed through the
latter.[9] Respondent cited the Joint Stipulation in which
petitioner acknowledged that its (respondents) business was
called Copper Kettle Cafeteria Specialist, not Copper Kettle
Catering Services, Inc.[10]
Based on the unrefuted[11] CTA summary, the CA
rendered the Decision assailed herein, the dispositive portion
of which reads:
WHEREFORE, the instant petition is GRANTED.
Reversing the assailed Decision dated April 2,
2002 and Resolution dated October 10, 2002, the
deficiency income tax and percentage income tax
assessments against petitioner in the amounts
of P11,333,233.94 and P2,573,655.82 for taxable
years 1991, 1992 and 1993 plus the 20%
delinquency interest thereon are annulled.
SO ORDERED.[12]
Hence, herein recourse to the Court for the reversal of the CA
decision and resolution on the following grounds:
I
The Court of Appeals erred in reversing the
decision of the Court of Tax Appeals and in
holding that Copper Kettle Cafeteria
Specialist owned by respondent and Copper
Kettle Catering Services, Inc. owned and
managed by respondent's wife are not one
and the same.
II
The Court of Appeals erred in holding that
respondent was denied due process for
failure of petitioner to validly serve
respondent with the post-reporting and preassessment notices as required by law.
On the first issue, the CTA has ruled that CKCS, Inc. and CKCS
are one and the same corporation because [t]he contract
between Texas Instruments and Copper Kettle was signed by
petitioners [respondents] wife, Jeanne Menguito as
proprietress.[14]

However, the CA reversed the CTA on these grounds:

Respondents [herein petitioners] allegation
that Copper Kettle Catering Services, Inc.
and Copper Kettle Cafeteria Specialists are
not distinct entities and that the underdeclared sales/revenues of Copper Kettle
Catering Services, Inc. pertain to Copper
Kettle Cafeteria Specialist are belied by the
evidence on record. In the Joint Stipulation
of Facts submitted before the tax court,
respondent [petitioner] admitted that
petitioners [herein respondents] business
name is Copper Kettle Cafeteria Specialist.
Also, the Certification of Club John Hay and
Letter dated July 9, 1997 of Texas
Instruments both addressed to respondent
indicate that these companies transacted
with Copper Kettle Catering Services, Inc.,
owned and managed by JEANNE G.
MENGUITO, NOT petitioner Dominador
Menguito. The alleged under-declared sales
income subject of the present assessments
were shown to have been earned
by Copper Kettle Catering Services, Inc. in
its commercial transaction with Texas
Instruments and Camp John Hay; NOT by
petitioners dealing with these companies. In
fact, there is nothing on record which shows
that Texas Instruments and Camp John Hay
conducted business relations with Copper
Kettle Cafeteria Specialist, owned by herein
petitioner Dominador Menguito. In the
absence, therefore, of clear and convincing
evidence showing that Copper Kettle
Cafeteria Specialist and Copper Kettle
Catering Services, Inc. are one and the
same, respondent can NOT validly impute
alleged underdeclared sales income earned
by Copper Kettle Catering Services, Inc. as
sales income of Copper Kettle Cafeteria
Specialist.[15] (Emphasis supplied)
Respondent is adamant that the CA is correct. Many times in
the past, the BIR had treated CKCS separately from CKCS,
Inc.: from May 1994 to June 1995, the BIR sent audit teams to
examine the books of account and other accounting records
of CKCS, and based on said audits, respondent was held liable
for deficiency taxes, all of which he had paid.[16] Moreover, the
certifications[17] issued by Club John Hay and Texas
Instruments identify the concessionaire operating therein
as CKCS, Inc., owned and managed by his spouse Jeanne M
enguito, and not
CKCS.[18]
Petitioner impugns the findings of the CA, claiming
that these are contradicted by evidence on record consisting
of a reply to the September 2, 1997 assessment notice of BIR
Baguio which Jeanne Menguito wrote on September 28,
1997, to wit:
We are in receipt of the assessment notice
you have sent us, dated September 2,
1997. Having taken hold of the same only
now following our travel overseas, we
were not able to respond immediately
and manifest our protest. Also, with the

impending termination of our businesses

at 19th Tee, Club John Hay and at Texas
Instruments, Loakan, Baguio City, we
have already started the transfer of
our records and books in Baguio City
to Manila that we will need more time to
review and sort the records that may have
to be presented relative to the assessment
x x x.[19] (Emphasis supplied)
Petitioner insists that said reply confirms that the assessment
notice is directed against the businesses which she and her
husband, respondent herein, own and operate at Club John
Hay and Texas Instruments, and establishes that she is
protesting said notice not just for herself but also for
respondent.[20]
Moreover, petitioner argues that if it were true that
CKCS, Inc. and CKCS are separate and distinct entities,
respondent could have easily produced the articles of
incorporation of CKCS, Inc.; instead, what respondent
presented was merely a photocopy of the incorporation
articles.[21] Worse, petitioner adds, said document was not
offered in evidence before the CTA, but was presented only
before the CA.[22]
Petitioner further insists that CKCS, Inc. and CKCS are
merely employing the fiction of their separate corporate
existence to evade payment of proper taxes; that the CTA
saw through their ploy and rightly disregarded their corporate
individuality, treating them instead as one taxable entity with
the same tax base and liability;[23] and that the CA should
have sustained the CTA.[24]
In effect, petitioner would have the Court resolve a
purely factual issue[25] of whether or not there is substantial
evidence that CKCS, Inc. and CKCS are one and the same
taxable entity.
As a general rule, the Court does not venture into a
trial of facts in proceedings under Rule 45 of the Rules of
Courts, for its only function is to review errors of law.[26] The
Court declines to inquire into errors in the factual assessment
of the CA, for the latters findings are conclusive, especially
when these are synonymous to those of the CTA.[27] But when
the CA contradicts the factual findings of the CTA, the Court
deems it necessary to determine whether the CA was justified
in doing so, for one basic rule in taxation is that the factual
findings of the CTA, when supported by substantial evidence,
will not be disturbed on appeal unless it is shown that the CTA
committed gross error in its appreciation of facts.[28]
The Court finds that the CA gravely erred when it ignored the
substantial evidence on record and reversed the CTA.
In a number of cases, the Court has shredded the veil of
corporate identity and ruled that where a corporation is
merely an adjunct, business conduit or alter ego of another
corporation or when they practice fraud on our internal
revenue laws,[29] the fiction of their separate and distinct
corporate identities shall be disregarded, and both
entities treated as one taxable person, subject to assessment
for the same taxable transaction.
The Court considers the presence of the following
circumstances, to wit: when the owner of one directs and
controls the operations of the other, and the payments
effected or received by one are for the accounts due from or

payable to the other;[30] or when the properties or products of

one are all sold to the other, which in turn immediately sells
them to the public,[31] as substantial evidence in support of the
finding that the two are actually one juridical taxable
personality.
In the present case, overwhelming evidence supports the CTA
in disregarding the separate identity of CKCS, Inc. from CKCS
and in treating them as one taxable entity.
First, in respondents Petition for Review before the
CTA, he expressly admitted that he is engaged in restaurant
and/or cafeteria business and that [i]n 1991, 1992 and
1993, he also operated a branch at Club John Hay,
Baguio City with a business name of Copper Kettle
Cafeteria
Specialist.[32] Respondent
repeated
such
admission in the Joint Stipulation.[33] And then in Exhibit
1[34] for petitioner, a July 18, 1994 letter sent by Jeanne
Menguito to BIR, Baguio City, she stated thus:
in connection with the investigation
of Copper
Kettle
Cafeteria
Specialist which is located at 19th Tee Club
John Hay, Baguio City under letter of
authority nos. 0392897, 0392898, and
0392690
dated May
16,
1994,
investigating myincome, business, and
withholding taxes for the years 1991, 1992,
and 1993.[35] (Emphasis supplied)
Jeanne Menguito signed the letter as proprietor of Copper
Kettle Cafeteria Specialist.[36]
Related to Exhibit 1 is petitioner's Exhibit 14, which is
another letter dated September 28, 1997, in which
Jeanne Menguito protested
the September
2,
1997 assessment notices directed at Copper Kettle Cafeteria
Specialist and referred to the latter as our business at 19th Tee
Club John Hay and at Texas Instruments. [37] Taken along with
the Joint Stipulation, Exhibits A through C and the August 3,
1993 Certification of Camp John Hay, Exhibits 1 and 14,
confirm that respondent, together with his spouse
Jeanne Menguito, own, operate and manage a branch of
Copper Kettle Cafeteria Specialist, also called Copper Kettle
Catering Services at Camp John Hay.
Moreover, in Exhibits A to A-1,[38] Exhibits B to B1[39] and Exhibits C to C-1[40] which are lists of concessionaires
that operated in Club John Hay in 1992, 1993 and 1991,
respectively,[41] it appears that there is no outlet with the
name Copper Kettle Cafeteria Specialist as claimed by
respondent. The name that appears in the lists is 19th TEE
CAFETERIA (Copper Kettle, Inc.). However, in the light of the
express admission of respondent that in 1991, 1992 and
1993, he operated a branch called Copper Kettle Cafeteria
Specialist in Club John Hay, the entries in Exhibits A through C
could only mean that said branch refers to 19th Tee Cafeteria
(Copper Kettle, Inc.). There is no evidence presented by
respondent that contradicts this conclusion.
In addition, the August 9, 1993 Certification issued
by Club John Hay that COPPER KETTLE CATERING SERVICES
owned and managed by MS. JEANNE G. MENGUITO is a
concessionaire in John Hay since July 1991 up to the present
and is operating the outlet 19TH TEE CAFETERIA AND THE
TEE BAR[42] convincingly establishes that respondent's branch
which he refers to as Copper Kettle Cafeteria Specialist at
Club John Hay also appears in the latter's records as Copper

Kettle Catering Services with an outlet called 19 th Tee

Cafeteria and The Tee Bar.
Second, in Exhibit 8[43] and Exhibit E,[44] Texas Instruments
identified the concessionaire operating its canteen as Copper
Kettle Catering Services, Inc.[45] and/or COPPER KETTLE
CAFETERIA SPECIALIST SVCS.[46] It being settled that
respondent's Copper Kettle Cafeteria Specialist is also known
as Copper Kettle Catering Services, and that respondent and
JeanneMenguito both own, manage and act as proprietors of
the business, Exhibit 8 and Exhibit E further establish that,
through said business, respondent also had taxable
transactions with Texas Instruments.
In view of the foregoing facts and circumstances, the Articles
of Incorporation of CKCS, Inc. -- a certified true copy of which
respondent attached only to his Reply filed with the CA [47] -cannot insulate it from scrutiny of its real identity in relation to
CKCS. It is noted that said Articles of Incorporation of CKCS,
Inc. was issued in 1989, but documentary evidence indicate
that after said date, CKCS, Inc. has also assumed the name
CKCS, and vice-versa. The most concrete indication of this
practice is the 1991 Quarterly Percentage Tax Returns
covering the business name/trade 19th Tee Camp John Hay. In
said returns, the taxpayer is identified as Copper Kettle
Cafeteria Specialist[48] or CKCS, not CKCS, Inc. Yet, in several
documents already cited, the purported owner of 19th Tee Bar
at Club John Hay is CKCS, Inc.
All these pieces of evidence buttress the finding of the CTA
that in 1991, 1992 and 1993, respondent, together with his
spouse Jeanne Menguito, owned and operated outlets in Club
John Hay and Texas Instruments under the names Copper
Kettle Cafeteria Specialist or CKCS and Copper Kettle Catering
Services or Copper Kettle Catering Services, Inc..
Turning now to the second issue.
In respondent's Petition for Review with the CTA, he
questioned the validity of the Assessment Notices,[49] all dated
September 2, 1997, issued by BIR, Baguio City against him
on the following grounds:
1.

2.

3.

4.

The assessment notices, based on

income and percentage tax returns filed for
1991, 1992 and 1993, were issued beyond
the three-year prescriptive period under
Section 203 of the Tax Code;[50]
The
assessment
notices
were
addressed to Copper Kettle Specialist, Club
John Hay, Baguio City, despite notice to
petitioner that respondent's principal place
of
business
was
at
the
CCP
Complex, Pasay City.[51]
The assessment notices were issued
in violation of the requirement of Revenue
Regulations No. 12-85, dated November 27,
1985, that the taxpayer be issued a postreporting notice and pre-assessment
notice before the preliminary findings of
deficiency may ripen into a formal
assessment;[52] and
The assessment notices did not give
respondent a 15-day period to reply to the
findings of deficiency.[53]

The Court notes that nowhere in his Petition for Review did
respondent deny that he received the September 2,

1997 assessment
notices. Instead,
during
the
trial, respondent's witness, Ma. TheresaNalda (Nalda),
testified
that
she
informed
the
BIR, Baguio City that there was no Notice or letter, that we
did not receive,
perhaps, because they were
Mr. Menguito's head office.[54]

not

addressed

to

The CTA correctly upheld the validity of the assessment

notices. Citing Section 223 of the Tax Code which provides
that the prescriptive period for the issuance of assessment
notices based on fraud is 10 years, the CTA ruled that the
assessment notices issued against respondent on September
2, 1997 were timely because petitioner discovered the falsity
in respondent's tax returns for 1991, 1992 and 1993 only
on February 19, 1997.[55] Moreover, in accordance with
Section 2 of Revenue Regulation No. 12-85, which requires
that assessment notices be sent to the address indicated in
the taxpayer's return, unless the latter gives a notice of
change of address, the assessment notices in the present
case were sent by petitioner to Camp John Hay, for this was
the address respondent indicated in his tax returns. [56] As to
whether said assessment notices were actually received, the
CTA correctly held that since respondent did not testify that
he did not receive said notices, it can be presumed that the
same were actually sent to and received by the latter. The
Court agrees with the CTA in considering as hearsay the
testimony of Nalda that respondent did not receive the
notices, because Nalda was not competent to testify on the
matter, as she was employed by respondent only in June
1998, whereas the assessment notices were sent
on September 2, 1997.[57]
Anent compliance with the requirements of Revenue
Regulation No. 12-85, the CTA held:

compliance with Revenue Regulations No.

12-85 and the latter was amply given
opportunity to present his side x x x.[58]
The
CTA
further
held
that
respondent
was estopped from raising procedural issues against the
assessment notices, because these were not cited in
the September 28, 1997 letter-protest which his spouse
Jeanne Menguito filed with petitioner.[59]
On appeal by respondent,[60] the CA resolved the issue, thus:
Moreover, if the taxpayer denies ever
having received an assessment from
the BIR, it is incumbent upon the
latter to prove by competent evidence
that such notice was indeed received
by the addressee. Here, respondent
[petitioner herein] merely alleged that it
forwarded the assessment notices to
petitioner
[respondent
herein].
The
respondent did not show any proof of
mailing, registry receipt or acknowledgment
receipt signed by the petitioner [respondent
herein]. Since respondent [petitioner
herein] has not adduced sufficient
evidence that petitioner [respondent
herein] had in fact received the preassessment notice and post-reporting
notice required by law, it cannot be
assumed that petitioner [respondent
herein] had been served said notices.
[61]

No other ground was cited by the CA for the reversal of the

finding of the CTA on the issue.
The CA is gravely mistaken.

BIR records show that on July 28, 1997, a

letter was issued by BIR Baguio to
Spouses Menguito, informing the latter of
their supposed underdeclaration of sales
totaling P48,721,555.96 and giving them 5
days to communicate any objection to the
results of the investigation (Exhibit 11, p. 83,
BIR Records). Records likewise reveal the
issuance of a Preliminary Ten (10) Day Letter
on August 11, 1997, informing Petitioner
[respondent herein] that the sum
of P34,193,041.55 is due from him as
deficiency income and percentage tax
(Exhibit 13, p. 173, BIR Records). Said letter
gave the Petitioner [respondent herein] a
period of ten (10) days to submit his
objection to the proposed assessment,
either personally or in writing, together with
any evidence he may want to present.
xxxx
As to Petitioner's allegation that he was
given only ten (10) days to reply to the
findings of deficiency instead of fifteen (15)
days granted to a taxpayer under Revenue
Regulations No. 12-85, this Court believes
that when Respondent [petitioner herein]
gave the Petitioner [respondent herein] on
October 10, 1997 an additional period of ten
(10) days to present documentary evidence
or a total of twenty (20) days, there was

In their Petition for Review with the CTA, respondent expressly

stated that [s]ometime in September 1997, petitioner
[respondent herein] received various assessment notices, all
dated 02 September 1997, issued by BIR-Baguio for alleged
deficiency income and percentage taxes for taxable years
ending 31 December 1991, 1992 and 1993 x x x.[62] In their
September 28, 1997 protest to the September 2, 1997
assessment notices, respondent, through his spouses
Jeanne Menguito,
acknowledged
that [they]
are in
receipt of the assessment notice you have sent us, dated
September 2, 1997 x x x.[63]
Respondent is therefore estopped from denying actual
receipt of the September 2, 1997 assessment notices,
notwithstanding the denial of his witness Nalda.
As to the address indicated on the assessment notices,
respondent cannot question the same for it is the said
address which appears in its percentage tax returns.[64] While
respondent claims that he had earlier notified petitioner of a
change in his business address, no evidence of such written
notice was presented. Under Section 11 of Revenue
Regulation No. 12-85, respondent's failure to give written
notice of change of address bound him to whatever
communications were sent to the address appearing in the
tax returns for the period involved in the investigation.[65]
Thus, what remain in question now are: whether petitioner
issued and mailed a post-reporting notice and a pre-

assessment notice; and whether respondent actually received

them.
There is no doubt that petitioner failed to prove that it served
on respondent a post-reporting notice and a pre-assessment
notice. Exhibit 11[66] of petitioner is a mere photocopy of a July
28, 1997 letter it sent to respondent, informing him of the
initial outcome of the investigation into his sales, and the
release of a preliminary assessment upon completion of the
investigation, with notice for the latter to file any objection
within five days from receipt of the letter. Exhibit 13[67] of
petitioner is also a mere photocopy of an August 11, 1997
Preliminary Ten (10) Day Letter to respondent, informing him
that he had been found to be liable for deficiency income and
percentage tax and inviting him to submit a written objection
to the proposed assessment within 10 days from receipt of
notice. But nowhere on the face of said documents can be
found evidence that these were sent to and received by
respondent. Nor is there separate evidence, such as a registry
receipt of the notices or a certification from the Bureau of
Posts, that petitioner actually mailed said notices.
However, while the lack of a post-reporting notice and
pre-assessment notice is a deviation from the
requirements under Section 1[68] and Section 2[69] of
Revenue Regulation No. 12-85, the same cannot detract
from the fact that formal assessments were issued to and
actually received by respondents in accordance with Section
228 of the National Internal Revenue Code which was in
effect at the time of assessment.
It should be emphasized that the stringent requirement that
an assessment notice be satisfactorily proven to have been
issued and released or, if receipt thereof is denied, that said
assessment notice have been served on the taxpayer,
[70]
applies only to formal assessments prescribed under
Section 228 of the National Internal Revenue Code, but not to
post-reporting notices or pre-assessment notices. The
issuance of a valid formal assessment is a substantive
prerequisite to tax collection,[71] for it contains not only a
computation of tax liabilities but also a demand for payment
within a prescribed period, thereby signaling the time when
penalties and interests begin to accrue against the taxpayer
and
enabling
the
latter
to
determine
his
remedies therefor. Due process requires that it must be
served on and received by the taxpayer.[72]
A post-reporting notice and pre-assessment notice do not
bear the gravity of a formal assessment notice. The postreporting notice and pre-assessment notice merely hint at the
initial findings of the BIR against a taxpayer and invites the
latter
to
an
informal
conference
or clarificatory meeting. Neither notice contains a declaration
of the tax liability of the taxpayer or a demand for payment
thereof. Hence, the lack of such notices inflicts no prejudice
on the taxpayer for as long as the latter is properly served a
formal assessment notice. In the case of respondent, a formal
assessment notice was received by him as acknowledged in
his Petition for Review and Joint Stipulation; and, on the basis
thereof, he filed a protest with the BIR, Baguio City and
eventually a petition with the CTA.
WHEREFORE, the petition is GRANTED. The March 31,
2005
Decision of
the
Court
of
Appeals
is REVERSED and SET ASIDE and the April 2, 2002
Decision and October 10, 2002 Resolution of the Court of Tax
Appeals are REINSTATED.
SO ORDERED.

COMMISSIONER
OF
INTERNAL
REVENUE, petitioner, vs. METRO S
TAR SUPERAMA, INC., respondent.

This petition for review on certiorari under Rule 45 of

the Rules of Court filed by the petitioner Commissioner
of Internal Revenue (CIR) seeks to reverse and set
aside the 1] September 16, 2008 Decision 1 of the
Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A.
EB No. 306 and 2] its November 18, 2008
Resolution 2 denying
petitioner's
motion
for
reconsideration.
The CTA-En Banc affirmed in toto the decision of its
Second Division (CTA-Second Division) in CTA Case No.
7169 reversing the February 8, 2005 Decision of
the CIRwhich
assessed
respondent Metro Star Superama,
Inc. (Metro Star) of
deficiency value-added tax and withholding tax for the
taxable year 1999.
Based on a Joint Stipulation of Facts and Issues 3 of the
parties, the CTA Second Division summarized the
factual and procedural antecedents of the case, the
pertinent portions of which read:
Petitioner is a domestic corporation
duly organized and existing by virtue
of the laws of the Republic of the
Philippines, . . . .
On January 26, 2001, the Regional
Director of Revenue Region No. 10,
Legazpi City, issued Letter of
Authority No. 00006561 for Revenue
Officer Daisy G. Justiniana to examine
petitioner's books of accounts and
other accounting records for income
tax and other internal revenue taxes
for the taxable year 1999. Said Letter
of Authority was revalidated on
August 10, 2001 by Regional Director
Leonardo Sacamos.
For petitioner's failure to comply with
several requests for the presentation
of records and Subpoena Duces
Tecum, [the] OIC of BIR Legal Division
issued
an
Indorsement
dated
September
26,
2001
informing
Revenue District Officer of Revenue
Region No. 67, Legazpi City to
proceed with the investigation based
on the best evidence obtainable
preparatory to the issuance of
assessment notice.
On November 8, 2001, Revenue
District Officer Socorro O. RamosLafuente issued a Preliminary 15-day
Letter, which petitioner received on
November 9, 2001. The said letter
stated that a post audit review was
held and it was ascertained that
there was deficiency value-added

and withholding taxes due from

petitioner in the amount of P
292,874.16.
On April 11, 2002, petitioner received
a Formal Letter of Demand dated
April 3, 2002 from Revenue District
No. 67, Legazpi City, assessing
petitioner the amount of Two
Hundred Ninety Two Thousand Eight
Hundred Seventy Four Pesos and
Sixteen Centavos (P292,874.16.) for
deficiency
value-added
and
withholding taxes for the taxable
year 1999, computed as follows:
ASSESSMENT NOTICE NO. 067-99003-579-072
VALUE ADDED TAX
Gross Sales P1,697,718.90
Output Tax P154,338.08
Less: Input Tax
VAT Payable P154,338.08
Add: 25% Surcharge P38,584.54
20% Interest 79,746.49
Compromise Penalty
Late Payment P16,000.00
Failure
to
File
VAT
returns 2,400.00 18,400.00 136,731.01

TOTAL P291,069.09

WITHHOLDING TAX
Compensation 2,772.91
Expanded 110,103.92

Total Tax Due P112,876.83

Less: Tax Withheld 111,848.27
Deficiency Withholding Tax P1,028.56
Add: 20% Interest p.a. 576.51
Compromise Penalty 200.00

TOTAL P1,805.07

*Expanded Withholding Tax

Film Rental P1,949,334.25 x 5% 97,466.71
Audit Fee 10,000.25 x 10% 1,000.00
Rental Expense 193,261.20 x 5% 9,663.00
Security Service 41,272.73 x 1% 412.73
Service
Contractor 156,142.01 x 1% 1,561.42

Total P110,103.92

SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX P291,069.09
WITHHOLDING TAX 1,805.07

TOTAL P292,874.16
==========
Subsequently, Revenue District Office
No. 67 sent a copy of the Final Notice
of Seizure dated May 12, 2003, which
petitioner received on May 15, 2003,
giving the latter last opportunity to
settle its deficiency tax liabilities
within ten (10) [days] from receipt
thereof, otherwise respondent BIR

shall be constrained to serve and

execute the Warrants of Distraint
and/or Levy and Garnishment to
enforce collection. AHCcET
On February 6, 2004, petitioner
received from Revenue District Office
No. 67 a Warrant of Distraint and/or
Levy No. 67-0029-23 dated May 12,
2003
demanding
payment
of
deficiency value-added tax and
withholding tax payment in the
amount of P292,874.16.
On July 30, 2004, petitioner filed with
the
Office
of
respondent
Commissioner
a
Motion
for
Reconsideration pursuant to Section
3.1.5 of Revenue Regulations No. 1299.
On February 8, 2005, respondent
Commissioner, through its authorized
representative, Revenue Regional
Director of Revenue Region 10,
Legaspi City, issued a Decision
denying
petitioner's
Motion
for
Reconsideration. Petitioner, through
counsel received said Decision on
February 18, 2005.
xxx xxx xxx.
Denying that it received a Preliminary Assessment
Notice (PAN) and claiming that it was not accorded due
process, Metro Star filed a petition for review 4 with the
CTA. The parties then stipulated on the following issues
to be decided by the tax court:
1. Whether the respondent complied with the due
process requirement as provided under
the National
Internal
Revenue
Code and
Revenue Regulations No. 12-99 with regard to
the issuance of a deficiency tax assessment;
1.1 Whether petitioner is liable for the respective
amounts of P291,069.09 and P1,805.07 as
deficiency VAT and withholding tax for the year
1999;
1.2 Whether the assessment has become final and
executory and demandable for failure of
petitioner to protest the same within 30 days
from its receipt thereof on April 11, 2002,
pursuant to Section 228 of the National Internal
Revenue Code;
2. Whether the deficiency assessments issued by the
respondent are void for failure to state the law
and/or facts upon which they are based.
2.2 Whether petitioner was informed of the law and
facts on which the assessment is made in
compliance with Section 228 of the National
Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a
movie/cinema house, is subject to VAT on
sales of services under Section 108(A) of
the National Internal Revenue Code;

4. Whether or not the assessment is

based on the best evidence
obtainable
pursuant
to
Section 6(b) of the National
Internal
Revenue
Code. AEcIaH
The CTA-Second Division found merit in the petition
of Metro Star and, on March 21, 2007, rendered a
decision, the decretal portion of which reads:
WHEREFORE, premises considered,
the
Petition
for
Review
is
hereby GRANTED. Accordingly, the
assailed Decision dated February 8,
2005 is hereby REVERSED and SET
ASIDE and respondent is ORDERED
TO DESIST from collecting the subject
taxes against petitioner.
The CTA-Second Division opined that "[w]hile there [is]
a disputable presumption that a mailed letter [is]
deemed received by the addressee in the ordinary
course of mail, a direct denial of the receipt of mail
shifts the burden upon the party favored by the
presumption to prove that the mailed letter was indeed
received by the addressee." 5 It also found that there
was no clear showing that Metro Star actually received
the alleged PAN, dated January 16, 2002. It,
accordingly, ruled that the Formal Letter of Demand
dated April 3, 2002, as well as the Warrant of Distraint
and/or Levy dated May 12, 2003 were void,
as Metro Star was denied due process. 6
The CIR sought reconsideration 7 of the decision of the
CTA-Second Division, but the motion was denied in the
latter's July 24, 2007 Resolution. 8
Aggrieved, the CIR filed a petition for review 9 with the
CTA-En Banc, but the petition was dismissed after a
determination that no new matters were raised. The
CTA-En Banc disposed:
WHEREFORE, the instant Petition for
Review is hereby DENIED DUE
COURSE and DISMISSED for lack of
merit. Accordingly, the March 21,
2007 Decision and July 27, 2007
Resolution
of
the
CTA Second
Division in CTA Case No. 7169
entitled, "Metro Star Superama, Inc.,
petitioner vs.
Commissioner
of
Internal Revenue, respondent" are
hereby AFFIRMED in toto.
SO ORDERED.
The motion for reconsideration 10 filed by the CIR was
likewise denied by the CTA-En Banc in its November 18,
2008 Resolution. 11
The CIR, insisting that Metro Star received the PAN,
dated January 16, 2002, and that due process was
served nonetheless because the latter received the
Final Assessment Notice (FAN), comes now before this
Court
with
the
sole
issue
of
whether
or
not Metro Star was denied due process.
The general rule is that the Court will not lightly set
aside the conclusions reached by the CTA which, by the
very nature of its functions, has accordingly developed

an exclusive expertise on the resolution unless there

has been an abuse or improvident exercise of
authority. 12 In Barcelon, Roxas Securities, Inc. (now
known as UBP Securities, Inc.) v. Commissioner of
Internal Revenue, 13 the Court wrote: ScCIaA
Jurisprudence has consistently shown
that this Court accords the findings of
fact by the CTA with the highest
respect. In Sea-Land Service Inc. v.
Court of Appeals [G.R. No. 122605,
30 April 2001, 357 SCRA 441, 445446], this Court recognizes that the
Court of Tax Appeals, which by the
very nature of its function is
dedicated
exclusively
to
the
consideration of tax problems, has
necessarily developed an expertise
on the subject, and its conclusions
will not be overturned unless there
has been an abuse or improvident
exercise of authority. Such findings
can only be disturbed on appeal if
they are not supported by substantial
evidence or there is a showing of
gross error or abuse on the part of
the Tax Court. In the absence of any
clear and convincing proof to the
contrary, this Court must presume
that the CTA rendered a decision
which is valid in every respect.
On the matter of service of a tax assessment, a further
perusal of our ruling in Barcelon is instructive, viz.:
Jurisprudence is replete with cases
holding that if the taxpayer denies
ever
having
received
an
assessment from the BIR, it is
incumbent upon the latter to
prove by competent evidence
that such notice was indeed
received
by
the
addressee.
The onus probandi was shifted to
respondent to prove by contrary
evidence that the Petitioner
received the assessment in the
due course of mail. The Supreme
Court has consistently held that while
a mailed letter is deemed received
by the addressee in the course of
mail, this is merely a disputable
presumption subject to controversion
and a direct denial thereof shifts the
burden to the party favored by the
presumption to prove that the mailed
letter was indeed received by the
addressee (Republic vs. Court of
Appeals, 149 SCRA 351). Thus as
held
by
the
Supreme
Court
in Gonzalo P. Nava vs. Commissioner
of Internal Revenue, 13 SCRA 104,
January 30, 1965:
"The facts to be proved to
raise this presumption are
(a) that the letter was
properly addressed with
postage prepaid, and (b)

that it was mailed. Once

these facts are proved, the
presumption is that the letter
was
received
by
the
addressee as soon as it could
have been transmitted to him
in the ordinary course of the
mail. But if one of the said
facts fails to appear, the
presumption does not lie. (VI,
Moran, Comments on the
Rules of Court, 1963 ed, 5657 citing Enriquezvs. Sunlife
Assurance of Canada, 41 Phil.
269)."
. . . . What is essential to prove
the fact of mailing is the registry
receipt issued by the Bureau of
Posts or the Registry return card
which would have been signed
by
the
Petitioner
or
its
authorized representative. And if
said
documents
cannot
be
located, Respondent at the very
least, should have submitted to
the Court a certification issued
by the Bureau of Posts and any
other pertinent document which
is executed with the intervention
of the Bureau of Posts. This Court
does not put much credence to the
self serving documentations made by
the BIR personnel especially if they
are unsupported by substantial
evidence establishing the fact of
mailing. Thus:
"While we have held that an
assessment is made when
sent within the prescribed
period, even if received by
the
taxpayer
after
its
expiration
(Coll.
of
Int.
Rev. vs. Bautista, L-12250
and L-12259, May 27, 1959),
this ruling makes it the more
imperative that the release,
mailing or sending of the
notice
be
clearly
and
satisfactorily proved. Mere
notations made without the
taxpayer's
intervention,
notice or control, without
adequate
supporting
evidence
cannot
suffice;
otherwise,
the
taxpayer
would be at the mercy of the
revenue
offices,
without
adequate
protection
or
defense." (Nava vs. CIR, 13
SCRA
104,
January
30,
1965). IEHaSc
xxx xxx xxx.
The failure of the respondent to
prove receipt of the assessment by
the Petitioner leads to the conclusion

that no assessment was issued.

Consequently,
the
government's
right to issue an assessment for the
said period has already prescribed.
(Industrial Textile Manufacturing Co.
of the Phils., Inc. vs. CIR, CTA Case
4885, August 22, 1996). (Emphases
supplied.)
The Court agrees with the CTA that the CIR failed to
discharge its duty and present any evidence to show
that Metro Star indeed received the PAN dated January
16, 2002. It could have simply presented the registry
receipt or the certification from the postmaster that it
mailed the PAN, but failed. Neither did it offer any
explanation on why it failed to comply with the
requirement of service of the PAN. It merely accepted
the letter of Metro Star's chairman dated April 29,
2002, that stated that he had received the FAN dated
April 3, 2002, but not the PAN; that he was willing to
pay the tax as computed by the CIR; and that he just
wanted to clarify some matters with the hope of
lessening its tax liability.
This now leads to the question: Is the failure to strictly
comply with notice requirements prescribed under
Section 228 of the National Internal Revenue Code of
1997 and Revenue Regulations (R.R.) No. 12-99
tantamount to a denial of due process? Specifically, are
the requirements of due process satisfied if only the
FAN stating the computation of tax liabilities and a
demand to pay within the prescribed period was sent
to the taxpayer?
The answer to these questions require an examination
of Section 228 of the Tax Code which reads:
SEC. 228. Protesting of Assessment.
When the Commissioner or his
duly authorized representative
finds that proper taxes should be
assessed, he shall first notify the
taxpayer of his findings: provided,
however, that a preassessment
notice shall not be required in the
following cases:
(a) When
the
finding
for
any
deficiency tax is the result of
mathematical
error
in
the
computation of the tax as appearing
on the face of the return; or
(b) When a discrepancy has been
determined between the tax withheld
and the amount actually remitted by
the withholding agent; or
(c) When a taxpayer who opted to
claim a refund or tax credit of excess
creditable withholding tax for a
taxable period was determined to
have carried over and automatically
applied the same amount claimed
against the estimated tax liabilities
for the taxable quarter or quarters of
the succeeding taxable year; or

(d) When the excise tax due on

exciseable articles has not been paid;
or

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

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

3.1 Mode of
issuance
of
assessment:

The taxpayers shall be informed

in writing of the law and the
facts on which the assessment is
made;
otherwise,
the
assessment shall be void.
Within a period to be prescribed by
implementing rules and regulations,
the taxpayer shall be required to
respond to said notice. If the
taxpayer fails to respond, the
Commissioner or his duly authorized
representative
shall
issue
an
assessment based on his findings.
Such assessment may be protested
administratively by filing a request
for reconsideration or reinvestigation
within thirty (30) days from receipt of
the assessment in such form and
manner as may be prescribed by
implementing rules and regulations.
Within sixty (60) days from filing of
the protest, all relevant supporting
documents
shall
have
been
submitted;
otherwise,
the
assessment
shall
become
final. ETHIDa
If the protest is denied in whole or in
part, or is not acted upon within one
hundred eighty (180) days from
submission
of
documents,
the
taxpayer adversely affected by the
decision or inaction may appeal to
the Court of Tax Appeals within thirty
(30) days from receipt of the said
decision, or from the lapse of one
hundred eighty (180)-day period;
otherwise, the decision shall become
final, executory and demandable.
(Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires
that the taxpayer must first be informed that he is
liable for deficiency taxes through the sending of a
PAN. He must be informed of the facts and the law
upon which the assessment is made. The law imposes
a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of
the cardinal principle in administrative investigations
that taxpayers should be able to present their case and
adduce supporting evidence. 14
This is confirmed under the provisions R.R. No. 12-99 of
the BIR which pertinently provide:

procedures in
a
deficiency

the
tax

3.1.1 Notice for informal conference. The

Revenue Officer who audited the taxpayer's
records shall, among others, state in his report
whether or not the taxpayer agrees with his
findings that the taxpayer is liable for deficiency
tax or taxes. If the taxpayer is not amenable, based
on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in
writing, by the Revenue District Office or by the
Special Investigation Division, as the case may be
(in the case Revenue Regional Offices) or by the
Chief of Division concerned (in the case of the BIR
National Office) of the discrepancy or discrepancies
in the taxpayer's payment of his internal revenue
taxes, for the purpose of "Informal Conference," in
order to afford the taxpayer with an opportunity to
present his side of the case. If the taxpayer fails to
respond within fifteen (15) days from date of
receipt of the notice for informal conference, he
shall be considered in default, in which case, the
Revenue District Officer or the Chief of the Special
Investigation Division of the Revenue Regional
Office, or the Chief of Division in the National
Office, as the case may be, shall endorse the case
with the least possible delay to the Assessment
Division of the Revenue Regional Office or to the
Commissioner
or
his
duly
authorized
representative, as the case may be, for appropriate
review and issuance of a deficiency tax
assessment, if warranted. HESCcA
3.1.2 Preliminary Assessment Notice (PAN). If
after review and evaluation by the Assessment
Division or by the Commissioner or his duly
authorized representative, as the case may be, it is
determined that there exists sufficient basis to
assess the taxpayer for any deficiency tax or taxes,
the said Office shall issue to the taxpayer, at least
by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing
in detail, the facts and the law, rules and
regulations, or jurisprudence on which the
proposed assessment is based (see illustration in
ANNEX A hereof). If the taxpayer fails to respond
within fifteen (15) days from date of receipt of the
PAN, he shall be considered in default, in which
case, a formal letter of demand and assessment
notice shall be caused to be issued by the said
Office, calling for payment of the taxpayer's
deficiency tax liability, inclusive of the applicable
penalties.
3.1.3 Exceptions to Prior Notice of the
Assessment. The notice for
informal
conference
and
the
preliminary assessment notice shall
not be required in any of the
following cases, in which case,
issuance of the formal assessment
notice for the payment of the

taxpayer's deficiency
shall be sufficient:

tax

liability

(i) When the finding for any deficiency tax is

the result of mathematical error in the
computation of the tax appearing on
the face of the tax return filed by the
taxpayer; or
(ii) When a discrepancy has been determined
between the tax withheld and the
amount actually remitted by the
withholding agent; or
(iii) When a taxpayer who opted to claim a
refund or tax credit of excess creditable
withholding tax for a taxable period
was determined to have carried over
and automatically applied the same
amount claimed against the estimated
tax liabilities for the taxable quarter or
quarters of the succeeding taxable
year; or
(iv) When the excise tax due
on excisable articles
has not been paid; or
(v) When an article locally
purchased
or
imported
by
an
exempt person, such
as, but not limited to,
vehicles,
capital
equipment,
machineries
and
spare parts, has been
sold,
traded
or
transferred to nonexempt persons.
3.1.4 Formal Letter of Demand and
Assessment Notice. The formal
letter of demand and assessment
notice shall be issued by the
Commissioner or his duly authorized
representative. The letter of demand
calling for payment of the taxpayer's
deficiency tax or taxes shall state the
facts, the law, rules and regulations,
or jurisprudence on which the
assessment is based, otherwise, the
formal
letter
of
demand
and
assessment notice shall be void (see
illustration
in
ANNEX
B
hereof). IaSCTE
The same shall be sent to the
taxpayer only by registered mail or
by personal delivery.
If sent by personal delivery, the
taxpayer or his duly authorized
representative shall acknowledge
receipt thereof in the duplicate copy
of the letter of demand, showing the
following:
(a)
His
name;
(b)
signature;
(c)
designation
and
authority to act for and in behalf of
the
taxpayer,
if
acknowledged

received by a person other than the

taxpayer himself; and (d) date of
receipt thereof.
xxx xxx xxx.
From the provision quoted above, it is clear that the
sending of a PAN to taxpayer to inform him of the
assessment made is but part of the "due process
requirement in the issuance of a deficiency tax
assessment," the absence of which renders nugatory
any assessment made by the tax authorities. The use
of the word "shall" in subsection 3.1.2 describes the
mandatory nature of the service of a PAN. The
persuasiveness of the right to due process reaches
both substantial and procedural rights and the failure
of the CIR to strictly comply with the requirements laid
down by law and its own rules is a denial
of Metro Star's right to due process. 15 Thus, for its
failure to send the PAN stating the facts and the law on
which the assessment was made as required by
Section 228 of R.A. No. 8424, the assessment made by
the CIR is void.
The case of CIR v. Menguito 16 cited by the CIR in
support of its argument that only the non-service of the
FAN is fatal to the validity of an assessment, cannot
apply to this case because the issue therein was the
non-compliance with the provisions of R.R. No. 12-85
which sought to interpret Section 229 of the old tax
law. RA No. 8424has already amended the provision of
Section 229 on protesting an assessment. The old
requirement of merely notifying the taxpayer of
the CIR's findings
was
changed
in
1998
to informing the taxpayer of not only the law, but also
of the facts on which an assessment would be made.
Otherwise,
the
assessment
itself
would
be
invalid. 17The regulation then, on the other hand,
simply provided that a notice be sent to the respondent
in the form prescribed, and that no consequence would
ensue for failure to comply with that form.
The Court need not belabor to discuss the matter
of Metro Star's failure to file its protest, for it is wellsettled that a void assessment bears no fruit. 18
It is an elementary rule enshrined in the
1987 Constitution that no person shall be deprived of
property without due process of law. 19 In balancing
the scales between the power of the State to tax and
its inherent right to prosecute perceived transgressors
of the law on one side, and the constitutional rights of
a citizen to due process of law and the equal protection
of the laws on the other, the scales must tilt in favor of
the individual, for a citizen's right is amply protected
by the Bill of Rights under the Constitution. Thus, while
"taxes are the lifeblood of the government," the power
to tax has its limits, in spite of all its plenitude. Hence
in Commissioner of
Internal
Revenue v.
Algue,
Inc., 20 it was said HEcaIC
Taxes are the lifeblood of the
government and so should be
collected
without
unnecessary
hindrance. On the other hand, such
collection should be made in
accordance
with
law
as
any
arbitrariness will negate the very
reason for government itself. It is
therefore necessary to reconcile the

apparently conflicting interests of the

authorities and the taxpayers so that
the real purpose of taxation, which is
the promotion of the common good,
may be achieved.
xxx xxx xxx
It is said that taxes are what we pay
for civilized society. Without taxes,
the government would be paralyzed
for the lack of the motive power to
activate and operate it. Hence,
despite the natural reluctance to
surrender part of one's hard-earned
income to taxing authorities, every
person who is able to must
contribute his share in the running of
the government. The government for
its part is expected to respond in the
form of tangible and intangible
benefits intended to improve the
lives of the people and enhance their
moral and material values. This
symbiotic relationship is the rationale
of taxation and should dispel the
erroneous notion that it is an
arbitrary method of exaction by
those in the seat of power.
But even as we concede the
inevitability and indispensability
of taxation, it is a requirement in
all democratic regimes that it be
exercised reasonably and in
accordance with the prescribed
procedure. If it is not, then the
taxpayer has a right to complain and
the courts will then come to his
succor. For all the awesome power of
the tax collector, he may still be
stopped in his tracks if the taxpayer
can demonstrate . . . that the law has
not been observed. 21 (Emphasis
supplied).
WHEREFORE, the petition is DENIED.
SO ORDERED.

COMMISSIONER OF INTERNAL
REVENUE, Petitioner,
vs. BASF COATING + INKS PHILS.,
INC., Respondent.
Before the Court is a petition for review on certiorari
assailing the Decision1 of the Court of Tax Appeals
(CTA) En Banc, dated June 16, 2011, and
Resolution2 dated September 16, 2011, in C.T.A. EB No.
664 (C.T.A. Case No. 7125).
The pertinent factual and procedural antecedents of
the case are as follows:
Respondent was a corporation which was duly
organized under and by virtue of the laws of the

Republic of the Philippines on August 1, 1990 with a

term of existence of fifty (50) years. Its BIR-registered
address was at 101 Marcos Alvarez Avenue, Barrio
Talon, Las Pias City. In a joint special meeting held on
March 19, 2001, majorityof the members of the Board
of Directors and the stockholders representing more
than two-thirds (2/3) of the entire subscribed and
outstanding capital stock of herein respondent
corporation, resolved to dissolve the corporation by
shortening its corporate term to March 31,
2001.3 Subsequently, respondent moved out of its
address in Las Pias City and transferred to Carmelray
Industrial Park, Canlubang, Calamba, Laguna.
On June 26, 2001, respondent submitted two (2) letters
to the Bureau of Internal Revenue (BIR) Revenue
District Officer of Revenue District Office (RDO) No. 53,
Region 8, in Alabang, Muntinlupa City. The first letter,
dated April 26, 2001, was a notice of respondent's
dissolution, in compliance with the requirements of
Section 52(c) of the National Internal Revenue
Code.4 On the other hand, the second letter, dated June
22, 2001, was a manifestation indicating the
submission of various documents supporting
respondent's dissolution, among which was BIR Form
No. 1905, which refers to an update of information
contained in its tax registration.5
Thereafter, in a Formal Assessment Notice (FA N) dated
January 17, 2003, petitioner assessed respondent the
aggregate amount of P18,671,343.14 representing
deficiencies in income tax, value added tax,
withholding tax on compensation, expanded
withholding tax and documentary stamp tax, including
increments, for the taxable year 1999.6 The FAN was
sent by registered mail on January 24, 2003 to
respondent's former address in Las Pias City.
On March 5, 2004, the Chief of the Collection Section of
BIR Revenue Region No. 7, RDO No. 39, South Quezon
City, issued a First Notice Before Issuance of Warrant of
Distraint and Levy, which was sent to the residence of
one of respondent's directors.7
On March 19, 2004, respondent filed a protest letter
citing lack of due process and prescription as
grounds.8 On April 16, 2004, respondent filed a
supplemental letter of protest.9 Subsequently, on June
14, 2004, respondent submitted a letter wherein it
attached documents to prove the defenses raised in its
protest letters.10
On January 10, 2005, after 180 dayshad lapsed without
action on the part of petitioner on respondent's protest,
the latter filed a Petition for Review 11 with the CTA.
Trial on the merits ensued.
On February 17, 2010, the CTA Special First Division
promulgated its Decision,12 the dispositive portion of
which reads, thus:

WHEREFORE, the Petition for Review is hereby

GRANTED. The assessments for deficiency income tax
in the amount of P14,227,425.39, deficiency valueadded tax of P3,981,245.66, deficiency withholding tax
on compensation of P49,977.21, deficiency expanded
withholding tax of P156,261.97 and deficiency
documentary stamp tax of P256,432.91, including
increments, in the aggregate amount
of P18,671,343.14 for the taxable year 1999 are
hereby CANCELLED and SET ASIDE.
SO ORDERED.13
The CTA Special First Division ruled that since
petitioner was actually aware of respondent's new
address, the former's failure to send the Preliminary
Assessment Notice and FAN to the said address should
not be taken against the latter. Consequently, since
there are no valid notices sent to respondent, the
subsequent assessments against it are considered
void. Aggrieved by the Decision, petitioner filed a
Motion for Reconsideration, but the CTA Special First
Division denied it in its Resolution14 dated July 13,
2010.
Petitioner then filed a Petition for Review with the CTA
En Banc.15
On June 16, 2011, the CTA En Banc promulgated its
assailed Decision denying petitioner's Petition for
Review for lack of merit. The CTA En Banc held that
petitioner's right to assess respondent for deficiency
taxes for the taxable year 1999 has already prescribed
and that the FAN issued to respondent never attained
finality because respondent did not receive it.
Petitioner filed a Motion for Reconsideration, but the
CTA En Banc denied it in its Resolution dated
September 16, 2011.
Hence, the present petition with the following
Assignment of Errors:
I
THE HONORABLE CTA EN BANC ERRED IN RULING THAT
THE RIGHT OF PETITIONER TO ASSESS HEREIN
RESPONDENT FOR DEFICIENCY INCOME TAX,
VALUEADDED TAX, WITHHOLDING TAX ON
COMPENSATION, EXPANDED WITHHOLDING TAX AND
DOCUMENTARY STAMP TAX, FOR TAXABLE YEAR 1999
IS BARRED BY PRESCRIPTION.
II
THE HONORABLE COURT OF TAX APPEALS, EN BANC,
ERRED IN RULING THAT THE FORMAL ASSESSMENT
NOTICE (FAN) FOR RESPONDENT'S DEFICIENCY INCOME
TAX, VALUE-ADDED TAX, WITHHOLDING TAX ON
COMPENSATION, EXPANDED WITHHOLDING TAX AND
DOCUMENTARY STAMP TAX FOR TAXABLE YEAR 1999

HAS NOT YET BECOME FINAL, EXECUTORY AND

DEMANDABLE.16
The petition lacks merit.
Petitioner contends that, insofar as respondent's
alleged deficiency taxes for the taxable year1999 are
concerned, the running of the three-year prescriptive
period to assess, under Sections 203 and 222 of the
National Internal Revenue Act of 1997 (Tax Reform Act
of 1997) was suspended when respondent failed to
notify petitioner, in writing, of its change of address,
pursuant to the provisions of Section 223 of the same
Act and Section 11 of BIR Revenue Regulation No. 1285.
Sections 203, 222 and 223 of the Tax Reform Act of
1997 provide, respectively:
Sec. 203. Period of Limitation Upon Assessment and
Collection. Except as provided in Section 222,internal
revenue taxes shall be assessed within three (3) years
after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment
for the collection of such taxes shall be begun after the
expiration of such period: Provided, That in a case
where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from the
day the return was filed. For purposes of this Section, a
return filed before the last day prescribed by law for
the filing thereof shall be considered as filed on such
last day. (emphasis supplied)
Sec. 222. Exceptions as to Period of Limitation of
Assessment and Collection of Taxes. (a) In the case of a false or fraudulent return
with intent to evade tax or of failure to file a
return, the tax may be assessed, or a
proceeding in court for the collection of such
tax may be filed without assessment, at any
time within ten (10) years after the discovery
of the falsity, fraud or omission: Provided, That
in a fraud assessment which has become final
and executory, the fact of fraud shall be
judicially taken cognizance of in the civil or
criminal action for the collection thereof.
(b) If before the expiration of the time
prescribed in Section 203 for the assessment of
the tax, both the Commissioner and the
taxpayer have agreed in writing to its
assessment after such time, the tax may be
assessed within the period agreed upon.
The period so agreed upon may be extended
by subsequent written agreement made before
the expiration of the period previously agreed
upon.
(c) Any internal revenue tax which has been
assessed within the period of limitation as

prescribed in paragraph (a) hereof may be

collected by distraint or levy or by a
proceeding in court within five (5) years
following the assessment of the tax.
(d) Any internal revenue tax, which has been
assessed within the period agreed upon as
provided in paragraph (b) hereinabove, may be
collected bydistraint or levy or by a proceeding
in court within the period agreed upon in
writing before the expiration of the five (5)
-year period. The period so agreed upon may
be extended by subsequent written
agreements made before the expiration of the
period previously agreed upon.
(e) Provided, however, That nothing in the
immediately preceding and paragraph (a)
hereof shall be construed to authorize the
examination and investigation or inquiry into
any tax return filed in accordance with the
provisions of any tax amnesty law or decree.
Sec. 223. Suspension of Running of Statute of
Limitations. - The running of the Statute of Limitations
provided in Sections 203 and 222 on the making of
assessment and the beginning of distraint or levy a
proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during
which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court and for sixty (60) days thereafter;
when the taxpayer requests for a reinvestigation which
is granted by the Commissioner; when the taxpayer
cannot be located in the address given by him in the
return filed upon which a tax is being assessed or
collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of
the Statute of Limitations will not be suspended; when
the warrant of distraint or levy is duly served upon the
taxpayer, his authorized representative, or a member
of his household with sufficient discretion, and no
property could be located; and when the taxpayer is
out of the Philippines. (emphasis supplied)

It is true that, under Section 223 of the Tax Reform Act

of 1997, the running of the Statute of Limitations
provided under the provisions of Sections 203 and 222
of the same Act shall be suspended when the taxpayer
cannot be located in the address given by him in the
return filed upon which a tax is being assessed or
collected. In addition, Section 11 of Revenue
Regulation No. 12-85 states that, in case of change of
address, the taxpayer is required to give a written
notice thereof to the Revenue District Officer or the
district having jurisdiction over his former legal
residence and/or place of business. However, this Court
agrees with both the CTA Special First Division and the
CTA En Banc in their ruling that the above mentioned
provisions on the suspension of the three-year period
to assess apply only if the BIR Commissioner is not
aware of the whereabouts of the taxpayer.
In the present case, petitioner, by all indications, is well
aware that respondent had moved to its new address
in Calamba, Laguna, as shown by the following
documents which form partof respondent's records
with the BIR:
1) Checklist on Income Tax/Withholding
Tax/Documentary Stamp Tax/Value-Added Tax
and Other Percentage Taxes;17
2) General Information (BIR Form No. 23-02);18
3) Report on Taxpayer's Delinquent Account,
dated June 27, 2002;19
4) Activity Report, dated October 17, 2002;20
5) Memorandum Report of Examiner, dated
June 27, 2002;21
6) Revenue Officer's Audit Report on Income
Tax;22
7) Revenue Officer's Audit Report on ValueAdded Tax;23

In addition, Section 11 of BIR Revenue Regulation No.

12-85 states:

8) Revenue Officer's Audit Report on

Compensation Withholding Taxes;24

Sec. 11. Change of Address. In case of change of

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

9) Revenue Officer's Audit Report on Expanded

Withholding Taxes;25
10) Revenue Officer's Audit Report on
Documentary Stamp Taxes.26
The above documents, all of which were accomplished
and signed by officers of the BIR, clearly show that
respondent's address is at Carmelray Industrial Park,
Canlubang, Calamba, Laguna. The CTA also found that
BIR officers, at various times prior to the issuance of
the subject FAN, conducted examination and
investigation of respondent's tax liabilities for 1999 at

the latter's new address in Laguna as evidenced by the

following, in addition to the above mentioned records:
1) Letter, dated September 27, 2001, signed by
Revenue Officer I Eugene R. Garcia;27
2) Final Request for Presentation of Records
Before Subpoena Duces Tecum, dated March
20, 2002, signed by Revenue Officer I Eugene
R. Garcia.28
Moreover, the CTA found that, based on records, the
RDO sent respondent a letter dated April 24, 2002
informing the latter of the results of their investigation
and inviting it to an informal
conference.29 Subsequently, the RDO also sent
respondent another letter dated May 30, 2002,
acknowledging receipt of the latter's reply to his April
24, 2002 letter.30 These two letters were sent to
respondent's new address in Laguna. Had the RDO not
been informed or was not aware of respondent's new
address, he could not have sent the said letters to the
said address.
Furthermore, petitioner should have been alerted by
the fact that prior to mailing the FAN, petitioner sent to
respondent's old address a Preliminary Assessment
Notice but it was "returned to sender." This was
testified to by petitioner's Revenue Officer II at its
Revenue District Office 39 in Quezon City.31 Yet, despite
this occurrence, petitioner still insisted in mailing the
FAN to respondent's old address.
Hence, despite the absence of a formal written notice
of respondent's change of address, the fact remains
that petitioner became aware of respondent's new
address as shown by documents replete in its records.
As a consequence, the running of the three-year period
to assess respondent was not suspended and has
already prescribed.
It bears stressing that, in a number of cases, this Court
has explained that the statute of limitations on the
collection of taxes primarily benefits the taxpayer. In
these cases, the Court exemplified the detrimental
effects that the delay in the assessment and collection
of taxes inflicts upon the taxpayers. Thus, in
Commissioner of Internal Revenue v. Philippine Global
Communication, Inc.,32 this Court echoed Justice
Montemayor's disquisition in his dissenting opinion in
Collector of Internal Revenue v. Suyoc Consolidated
Mining Company,33 regarding the potential loss to the
taxpayer if the assessment and collection of taxes are
not promptly made, thus:
Prescription in the assessment and in the collection of
taxes is provided by the Legislature for the benefit of
both the Government and the taxpayer; for the
Government for the purpose of expediting the
collection of taxes, so that the agency charged with the
assessment and collection may not tarry too long or
indefinitely tothe prejudice of the interests of the

Government, which needs taxes to run it; and for the

taxpayer so that within a reasonable time after filing
his return, hemay know the amount of the assessment
he is required to pay, whether or not such assessment
is well founded and reasonable so that he may either
pay the amount of the assessment or contest its
validity incourt x x x. It would surely be prejudicial to
the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and
the collection because by the time the collecting
agency finally gets around to making the assessment
or making the collection, the taxpayer may then have
lost his papers and books to support his claim and
contest that of the Government, and what is more, the
tax is in the meantime accumulating interest which the
taxpayer eventually has to pay.34
Likewise, in Republic of the Philippines v. Ablaza, 35 this
Court elucidated that the prescriptive period for the
filing of actions for collection of taxes is justified by the
need to protect law-abiding citizens from possible
harassment. Also, in Bank of the Philippine Islands v.
Commissioner of Internal Revenue,36 it was held that
the statute of limitations on the assessment and
collection of taxes is principally intended to afford
protection to the taxpayer against unreasonable
investigations as the indefinite extension of the period
for assessment deprives the taxpayer of the assurance
that he will no longer be subjected to further
investigation for taxes after the expiration of a
reasonable period of time. Thus, in Commissioner of
Internal Revenue v. B.F. Goodrich Phils., Inc.,37 this
Court ruled that the legal provisions on prescription
should be liberally construed to protect taxpayers and
that, as a corollary, the exceptions to the rule on
prescription should be strictly construed.
It might not also be amiss to point out that petitioner's
issuance of the First Notice Before Issuance of Warrant
of Distraint and Levy38 violated respondent's right to
due process because no valid notice of assessment
was sent to it. An invalid assessment bears no valid
fruit. The law imposes a substantive, not merely a
formal, requirement. To proceed heedlessly with tax
collection without first establishing a valid assessment
is evidently violative of the cardinal principle
inadministrative investigations: that taxpayers should
be able to present their case and adduce supporting
evidence.39 In the instant case, respondent has not
properly been informed of the basis of its tax liabilities.
Without complying with the unequivocal mandate of
first informing the taxpayer of the governments claim,
there can be no deprivation of property, because no
effective protest can be made.
It is true that taxes are the lifeblood of the
government. However, in spite of all its plenitude, the
power to tax has its limits.40 Thus, in Commissioner of
Internal Revenue v. Algue, Inc.,41 this Court held:
Taxes are the lifeblood of the government and so
should be collected without unnecessary
hindrance.1wphi1 On the other hand, such collection

should be made in accordance with law as any

arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile
the apparently conflicting interests of the authorities
and the taxpayers so that the real purpose of taxation,
which is the promotion of the common good, may be
achieved.

June 16, 2011, and its Resolution dated September 16,

2011, in C.T.A. EB No. 664 (C.T.A. Case No. 7125), are
AFFIRMED.
SO ORDERED.
DAYRIT V. CRUZ SYLLABUS

xxxx
It is said that taxes are what we pay for civilized
society. Without taxes, the government would be
paralyzed for the lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to
surrender part of ones hard-earned income to taxing
authorities, every person who is able to must
contribute his share in the running of the government.
The government for its partis expected torespond in
the form of tangible and intangible benefits intended to
improve the lives of the people and enhance their
moral and material values. This symbiotic relationship
is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and
indispensability of taxation, it is a requirement in all
democratic regimes that it be exercised reasonably and
in accordance with the prescribed procedure. If it is
not, then the taxpayer has a right to complain and the
courts will then come to his succor. For all the
awesome power of the tax collector, he may still be
stopped in his tracks if the taxpayer can demonstrate x
x x that the law has not been observed.42
It is an elementary rule enshrined in the 1987
Constitution that no person shall be deprived of
property without due process of law. In balancing the
scales between the power of the State to tax and its
inherent right to prosecute perceived transgressors of
the law on one side, and the constitutional rights of a
citizen todue process of law and the equal protection of
the laws on the other, the scales must tilt in favor of
the individual, for a citizens right is amply protected
by the Bill of Rights under the Constitution.43
As to the second assigned error, petitioner's reliance
on the provisions of Section 3.1.7 of BIR Revenue
Regulation No. 12-9944 as well as on the case of Nava v.
Commissioner of Internal Revenue45 is misplaced,
because in the said case, one of the requirements ofa
valid assessment notice is that the letter or notice
must be properly addressed. It is not enough that the
notice is sent by registered mail as provided under the
said Revenue Regulation. In the instant case, the FAN
was sent tothe wrong address. Thus, the CTA is correct
in holding that the FAN never attained finality because
respondent never received it, either actually or
constructively.
WHEREFORE, the instant petition is DENIED. The
Decision of the Court of Tax Appeals En Banc, dated

1. TAXATION; DEFICIENCY ESTATE AND INHERITANCE

TAXES ASSESSMENT; PRESUMED CORRECT AND MADE
IN GOOD FAITH; FAILURE TO CONTEST THE SAME AND
UPON DENIAL THEREOF TO APPEAL IN DUE TIME MADE
THE ASSESSMENTS FINAL AND EXECUTORY.
Considering that tax assessments are presumed
correct unless proven otherwise, the failure of the party
affected to contest the assessments and, upon a denial
thereof to appeal within 30 days to the Court of Tax
Appeals, made the assessments in question, final
executory and demandable.
2. ID.; ID.; COURT OF FIRST INSTANCE ACQUIRED
JURISDICTION IN CASES OF FINAL AND EXECUTORY
ASSESSMENTS. The assessments having become
final and executory, the CFI properly acquired
jurisdiction.
3. ID.; ID.; EXCLUSIVE JURISDICTION ON THE COURT OF
TAX APPEALS; APPLICABLE ONLY IN CASES OF
DISPUTED ASSESSMENTS. The exclusive jurisdiction
of the Court of Tax Appeals arises only in cases of
disputed assessments.
4. ID.;
ID.;
RESOLUTION
OF
REQUEST
FOR
RECONSIDERATION
OF
ASSESSMENTS
NOT
A
CONDITION PRECEDENT TO THE FILING OF AN ACTION
FOR COLLECTION OF TAXES. In Republic vs. Lim Tian
Teng Sons & Co., Inc., this Court had occasion to rule
that a decision on a request for reinvestigation is not a
condition precedent to the filing of an action for
collection of taxes already assessed. This Court ruled
that "nowhere in the Tax Code is the Collector of
Internal Revenue required to rule first on a taxpayer's
request for reconsideration before he can go to court
for the purpose of collecting the tax assessed. On the
contrary, Section 305 of the same Code withheld from
all courts, except the Court of Tax Appeals under
Republic Act No. 1125, the authority to restrain the
collection of any national internal revenue tax, fee or
charge, thereby indicating the legislative policy to
allow the Collector of Internal Revenue much latitude
on the speedy and prompt collection of taxes."
5. ID.; ID.; ACTION TO COLLECT INTERNAL REVENUE
TAXES WHERE ASSESSMENT HAS BECOME FINAL AND
EXECUTORY SIMILAR TO AN ACTION TO ENFORCE THE
JUDGMENT. This Court ruled earlier that a suit for the
collection of internal revenue taxes, as in this case,
where the assessment has already become final and
executory, the action to collect is akin to an action to
enforce the judgment. No inquiry can be made therein
as to the merits of the original case or the justness of
the judgment relied upon.
6. ID.; ID.; TAX AMNESTY UNDER P.D. No. 23;
VOLUNTARY DISCLOSURE OF A PREVIOUSLY UNTAXED
INCOME, ONE OF ITS REQUISITES; TIME FRAME TO
CLAIM BENEFIT NOT STRETCHABLE. With respect to

the petitioners' plea that the estate is at any rate

entitled to tax amnesty, a reading of P.D. No.
23 reveals that in order to avail of tax amnesty, it is
required, among others, that there should be a
voluntary disclosure of a previously untaxed income.
This was the pronouncement of this Court
in Nepomuceno vs. Montecillo with
respect
to P.D.
370 which was decreed as a complement of P.D. Nos.
23 and 157. In addition thereto, said income must have
been earned or realized prior to 1972 and the tax
return must be filed on or before March 31, 1973.
Considering that P.D. No. 23 was issued on October 16,
1972, the court rules that the said decree embraces
only those income declared in pursuance thereof within
the taxable year 1972. The time frame cannot be
stretched to include declarations made prior to the
issuance of the said decree or those made outside of
the time frame as envisioned in the said decree. Thus,
the estates of the Teodoro spouses which have been
declared separately sometime in the 1960's are clearly
outside the coverage of the tax amnesty provision.
7. ID.; ID.; P.D. No. 23 AND P.D. No. 67 COMPARED AND
ANALYZED. Even if P.D. No. 67, as an amendment
to P.D. 23, enlarges the coverage of tax amnesty to
include wealth such as earnings, receipts, gifts,
bequests or any other acquisitions from any source
whatsoever, said decree reiterates the need of
voluntary disclosure on the part of the taxpayer filing
the return in order to avail of the tax amnesty. The only
noticeable departure from P.D. No. 23 is the extension
of the date for the filing of the return from March 31,
1972 to March 31, 1973. Thus, this Court finds that the
same policy observed in the issuance of P.D. No. 23,
governs P.D. No. 67. In addition thereto, it gives the tax
evaders who failed to avail of the provisions of P.D. No.
23 a chance to reform themselves. An examination of
both decrees does not show that taxpayers availing of
the tax amnesty in accordance with P.D. No. 67, are
entitled to blanket coverage of declarations made prior
to the issuance of said decrees. A reading of P.D. No.
67 reveals that tax amnesty is extendible only to those
declarations made pursuant to said decree.

DECISION

GANCAYCO, J p:
The application of tax amnesty to the estate of the
Teodoros is the issue in this case.
Petitioners are the legitimate children and heirs of the
deceased spouses Marta J. Teodoro who died intestate
on July 1, 1965 and Don Toribio Teodoro who died
testate on August 30, 1965. Thereafter, the heirs of the
deceased filed separate estate and inheritance tax
returns for the estates of the late spouses with the
Bureau of Internal Revenue. *
In the meantime, testate and intestate proceedings for
the settlement of the decedents' estates were
filed 1 by Cecilia Teodoro-Dayrit, one of the petitioners
herein, in the then Court of First Instance of Caloocan
City, ** Branch XII docketed as Special Proceedings No.
C-113. 2 On August 14, 1968, said petitioner was

appointed administratrix of the estate of Doa Marta

and letters testamentary was issued in her favor as
executrix of the estate of Don Toribio.
On August 9, 1972, the respondent Commissioner of
Internal Revenue issued the following deficiency estate
and inheritance tax assessments: 3
Estate of Doa Estate of Don
Marta Toribio ***
Estate Tax &
penalties P1,662,072.34 P1,542,293.01
Inheritance Tax &
interests 1,747,790.94 1,518,458.72.
The aforementioned notice of deficiency assessments
was received by petitioner Dayrit on August 14, 1972.
In a letter dated October 7, 1972, **** petitioners
through counsel asked for a reconsideration of the said
assessments alleging that the same are contrary to law
and not supported by sufficient evidence. 4 In the
same letter, petitioners requested a period of thirty
(30) days within which to submit their position paper in
support of their claim.
Meanwhile, on October 16, 1972, Presidential Decree
(P.D) No. 23, entitled "Proclaiming Tax Amnesty Subject
to Certain Conditions," was issued by then President
Ferdinand E. Marcos, quoted hereunder as follows:
xxx xxx xxx
"1. In all cases of voluntary disclosure
of
previously
untaxed
income
realized here or abroad by any
taxpayer, natural or juridical, the
collection of the income tax and
penalties incident to nonpayment, as
well as all criminal and civil liabilities
under the National Internal Revenue
Code, the Revised Penal Code, the
Anti-Graft and Corrupt Practices Act
or any other law applicable thereto,
is hereby condoned and, in lieu
thereof, a tax of TEN PERCENTUM
(10%) on such previously untaxed
income is hereby imposed, subject to
the following conditions:
(a) Such
previously
untaxed income must have
been earned or realized prior
to 1972;
(b) The taxpayer must file a notice
and return with the Commissioner of Internal
Revenue on or before March 31, 1972
showing such previously untaxed income; . . .
2. The tax imposed under Paragraph 1
hereof, shall be paid within the following
period:
(a) If the amount does not exceed
P10,000.00 the tax must be paid at the time
of the filing of notice and return but not later
than March 31, 1973;
(b) If the amount exceeds P10,000.00
the tax may be paid in two (2) installments,

the first installment to be paid upon the filing

of the notice and return but not later than
March 31, 1973; and the second installment
within three (3) months from the date of the
filing of the return but not later than June 30,
1973 . . ."
On November 24, 1972, P.D. No. 67, was issued
amending paragraphs 1 and 3 of P.D. No. 23, to read as
follows:
"xxx xxx xxx
"1. In all cases of voluntary disclosures of
previously untaxed income and/or wealth such as
earnings, receipts, gifts, bequests or any other
acquisitions from any source whatsoever which
are taxable under the National Internal Revenue
Code, as amended, realized here or abroad by any
taxpayer, natural or juridical; the collection of all
internal revenue taxes including the increments or
penalties on account of non-payment as well as all
civil, criminal or administrative liabilities arising
from or incident to such disclosures under the
National Internal Revenue Code, the Revised Penal
Code, the Anti-Graft and Corrupt Practices Act, the
Revised Administrative Code, the Civil Service
laws and regulations, laws and regulations on
Immigration and Deportation, or any other
applicable law or proclamation, are hereby
condoned and, in lieu thereof, a tax of ten per
centum (10%) on such previously untaxed income
or wealth is hereby imposed, subject to the
following conditions:
a. Such
previously
untaxed
income and/or wealth must have been
earned or realized prior to 1972;
b. The taxpayer must file a return
with the Commissioner of Internal
Revenue on or before March 31, 1973,
showing such previously untaxed income
and/or wealth; . . ."

In a tax return dated March 31, 1973, petitioner Cecilia

Teodoro-Dayrit declared an additional amount of
P3,655,595.78 as part of the estates of the Teodoro
spouses, for additional valuation over and above the
amount declared in the previous return for estates and
inheritance taxes of the said late spouses. 5 The
Bureau of Internal Revenue issued tax payment
acceptance
order
Nos.
1127185-86
and
1533011. 6 Pursuant to the aforesaid tax acceptance
orders, the estates and heirs of the deceased spouses
Teodoro paid the amounts of P5,000.00, P30,046.68
and P250,000.00 per official receipts Nos. 73201,
774037 and 964467 dated April 2, 1973, July 17, 1973
and October 31, 1973, respectively, 7 amounting to a
total of P285,046.68.
On March 14, 1974, respondent Commissioner of
Internal Revenue filed a motion for Allowance of Claim
against the estates of spouses Teodoro and for an order
of payment of taxes in S.P. No. C-113 with the then
Court of First Instance of Rizal, Branch XII, praying that
petitioner Dayrit be ordered to pay the Bureau of
Internal Revenue the sum of P6,470,396.81 plus
surcharges and interest. 8 Petitioners filed two (2)

separate oppositions alleging that the estate and

inheritance taxes sought to be collected have already
been settled in accordance with the provisions of P.D.
No. 23, as amended by P.D. No. 67 and that at any
rate, the assessments have not become final and
executory. 9 In reply thereto, respondent Commissioner
alleged that petitioners could not avail of the tax
amnesty in view of the existence of a prior
assessment. 10 Petitioners insisted that the tax
amnesty could still be availed of invoking Section 4,
BIR Revenue Regulation No. 8-72. 11
On July 10, 1974, respondent Judge issued an order
approving the claim of respondent Commissioner and
directing the payment of the estate and inheritance
taxes. 12Dissatisfied with the decision, petitioners filed
a motion for reconsideration 13 but it was denied 14 in
an order dated September 30, 1974. *****
Hence, the present petition.
Petitioners contend that respondent Judge acted
without jurisdiction or in excess of jurisdiction or with
grave abuse of discretion amounting to lack of
jurisdiction in granting the respondent Commissioner's
claim for estate and inheritance taxes against the
estates of the Teodoro spouses on the ground that due
to the pendency of their motion for reconsideration of
the
deficiency
assessments
issued
by
the
Commissioner, said tax assessments are not yet final
and executory. Petitioners stressed that the absence of
a decision on the disputed assessments was a bar
against collection of taxes. Finally, petitioners insist
that their act of filing an estate and inheritance tax
return of a previously untaxed wealth of the estates
entitles said estates to tax amnesty under P.D. No. 23,
as amended by P.D. 67 and hence, it is an error to
grant respondent Commissioner's claim for collection
of estate and inheritance taxes.
On the other hand, respondent Commissioner contends
that petitioners cannot avail of the tax amnesty in view
of the prior existing assessments issued against the
estates of the deceased spouses before the
promulgation of P.D. No. 23. In support thereof,
respondent cited Section 4 of Revenue Regulation No.
15-72, amending Section 4 of Regulation No. 8-12.
Respondent Commissioner contends further that
neither may petitioners' act of filing a return of a
previously untaxed income or wealth in the amount of
P3,655,595.98 entitled the estates to tax amnesty
where petitioners failed to pay the 10% tax in full
within the time frame required under P.D. No. 23, and
that to allow petitioners to avail of the tax amnesty will
render nugatory the provisions of P.D. No. 68.
Moreover, said respondent argues that certiorari is not
the proper remedy in that respondent Judge committed
no grave abuse of discretion in allowing the claim for
collection of taxes and that if at all, it was merely an
error of judgment which can be corrected only on
appeal, and in which case the reglementary period for
the same has already prescribed.
The main issue in this petition is whether an estate
may avail of tax amnesty under Presidential Decree No.
23 where there is already an existing assessment made
prior to the issuance of the said decree on the basis of
the submitted estate and inheritance tax returns by
merely filing separate estate tax returns of an

undeclared and untaxed income over and above the

original amount of the estate declared.
Anent petitioners' claim that the tax assessments
against the estates of the Teodoro spouses are not yet
final, the court finds the claim untenable. In petitioners'
motion for reconsideration of the aforementioned
assessments, petitioners requested then Commissioner
Misael P. Vera for a period of thirty (30) days from
October 7, 1972 within which to submit a position
paper that would embody their grounds for
reconsideration. However, no position paper was ever
filed. 15 Such failure to file a position paper may be
construed as abandonment of the petitioners' request
for reconsideration. The court notes that it took the
respondent Commissioner a period of more than one
(1) year and five (5) months, from October 7, 1972 to
March 14, 1974, before finally instituting the action for
collection. Under the circumstances of the case, the act
of the Commissioner in filing an action for allowance of
the claim for estate and inheritance taxes, may be
considered as an outright denial of petitioners' request
for reconsideration.
From the date of receipt of the copy of the
Commissioner's letter for collection of estate and
inheritance taxes against the estates of the late
Teodoro spouses, petitioners must contest or dispute
the same and, upon a denial thereof, the petitioners
have a period of thirty (30) days within which to appeal
the case to the Court of Tax Appeals. 16 This they
failed to avail of.
Tax assessments made by tax examiners are presumed
correct and made in good faith. A taxpayer has to
prove otherwise. 17 Failure of the petitioners to appeal
to the Court of Tax Appeals in due time made the
assessments in question, final, executory and
demandable. 18
The petitioners' allegation that the Court of First
Instance (CFI) lacks jurisdiction over the subject of the
case is likewise untenable. The assessments having
become final and executory, the CFI properly acquired
jurisdiction. 19 Neither is there merit in petitioners'
claim that the exclusive jurisdiction of the Court of Tax
Appeals (CTA) applies in the case. The aforesaid
exclusive jurisdiction of the CTA arises only in cases of
disputed tax assessments. 20 As noted earlier,
petitioners' letter dated October 7, 1972 asking for
reconsideration of the questioned assessments cannot
be considered as one disputing the assessments
because petitioners failed to substantiate their claim
that the deficiency assessments are contrary to law.
Petitioners asked for a period of thirty (30) days within
which to submit their position paper but they failed to
submit the same nonetheless. Hence, petitioners' letter
for a reconsideration of the assessments is nothing but
a mere scrap of paper.
Petitioners' contention that the absence of a decision
on their request for reconsideration of the assessments
is a bar to granting the claim for collection is likewise
without merit. In Republic vs. Lim Tian Teng Sons &
Co., Inc., 21 this Court had occasion to rule that a
decision on a request for reinvestigation is not a
condition precedent to the filing of an action for
collection of taxes already assessed. This Court ruled
that "nowhere in the Tax Code is the Collector of
Internal Revenue required to rule first on a taxpayer's

request for reconsideration before he can go to court

for the purpose of collecting the tax assessed. On the
contrary, Section 305 of the same Code withheld from
all courts, except the Court of Tax Appeals under
Republic Act No. 1125, 22 the authority to restrain the
collection of any national internal revenue tax, fee or
charge, thereby indicating the legislative policy to
allow the Collector of Internal Revenue much latitude
on the speedy and prompt collection of taxes."
Petitioners argue, however, that the Commissioner of
Internal Revenue must first rule on the taxpayer's
protest against tax assessment so as not to deprive the
taxpayer of the remedy of appeal and that it is only
from the receipt of the decision that the right to appeal
to the Court of Tax Appeals should run, citing for the
purpose San
Juan vs. Velasquez 23 as
well
as Commissioner of Internal Revenue vs. Gonzales. 24
The aforementioned cases are both not in point. In San
Juan, the taxpayer concerned, through his accountant,
disputed the assessments of income tax and deficiency
income tax by adducing the reasons and explanations
why said assessments of income tax were not due and
owing from the taxpayer. Thus, it was therein ruled that
having disputed the assessments at the opportune
time, the Commissioner of Internal Revenue cannot
ignore the disputed assessments by immediately
bringing an action to collect. By the same token
in Commissioner of Internal Revenue vs. Gonzales, the
assessments of estate and inheritance taxes were
disputed by the taxpayer by invoking prescription as a
defense claiming that the assessments were made
after the lapse of more than five (5) years.
Payment of taxes being admittedly a burden, taxpayers
should not be left without any recourse when they feel
aggrieved due to the erroneous and burdensome
assessments made by a Bureau of Internal Revenue
agent or by the Commissioner. Said right is vested
upon adversely affected taxpayers under Republic
Act No. 1125. It cannot be rendered nugatory through
the Commissioner's act of immediately filing an action
for collection without ruling beforehand on the disputed
assessments. 25However, the remedy of an aggrieved
taxpayer is not without any limitation. A taxpayer's
right to contest assessments, particularly the right to
appeal to the Court of Tax Appeals, may be waived or
lost as in this case. 26

The requirement for the Commissioner to rule on

disputed assessments before bringing an action for
collection is applicable only in cases where the
assessment was actually disputed, adducing reasons in
support thereto. In the present case where the
petitioners did not actually contest the assessments by
stating the basis thereof, the respondent Commissioner
need not rule on their request.
Taxes are the lifeblood of the nation through which the
government agencies continue to operate and with
which the State effects its functions for the welfare of
its constituents. We cannot tolerate taxpayers
hampering expedient collection of taxes by their failure
to act within a reasonable period. No government could
exist if all litigants were permitted to delay the
collection of its taxes. 27 Thus, this Court ruled earlier
that a suit for the collection of internal revenue taxes,

as in this case, where the assessment has already

become final and executory, the action to collect is
akin to an action to enforce the judgment. No inquiry
can be made therein as to the merits of the original
case or the justness of the judgment relied upon. 28
In view of the foregoing discussions, petitioners'
allegation of grave abuse of discretion on the part of
the respondent judge must perforce fall. Considering
further that the court a quo properly acquired
jurisdiction over the subject matter of the case,
petitioners should have appealed the case. The order
of the court a quo dated September 30, 1974, was
received by the petitioners on October 16, 1974.
Petitioners should have appealed within a period of
fifteen (15) days from receipt thereof but they failed to
do so. ****** As petitioners failed to file a timely appeal
from the order of the trial court, they can no longer
avail of the remedy of a special civil action for
certiorari in lieu of appeal. There is no error of
jurisdiction committed by the trial court. 29
On the other hand with respect the petitioners' plea
that the estate is at any rate entitled to tax amnesty, a
reading of P.D. No. 23 30 reveals that in order to avail
of tax amnesty, it is required, among others, that there
should be a voluntary disclosure of a previously
untaxed income. This was the pronouncement of this
Court inNepomuceno vs. Montecillo 31 with respect
to P.D. 370 32 which was decreed as a complement of
P.D. Nos. 23 and 157. In addition thereto, said income
must have been earned or realized prior to 1972 and
the tax return must be filed on or before March 31,
1973. Considering that P.D. No. 23 was issued on
October 16, 1972, the court rules that the said decree
embraces only those income declared in pursuance
thereof within the taxable year 1972. The time frame
cannot be stretched to include declarations made prior
to the issuance of the said decree or those made
outside of the time frame as envisioned in the said
decree. Thus, the estates of the Teodoro spouses which
have been declared separately sometime in the 1960's
are clearly outside the coverage of the tax amnesty
provision.
Petitioners argue, however, that even if a notice of
deficiency assessment had already been issued, the
estates may still avail of tax amnesty if the basis of
such deficiency assessment is either the failure to file a
return or the omission of items of taxable income for a

return already filed or the under declaration of said

return, citing P.D. No. 67 and Section 4 of BIR Revenue
Regulation No. 8-72.
There is no merit in this contention. Even if P.D. No. 67,
as an amendment to P.D. 23, enlarges the coverage of
tax amnesty to include wealth such as earnings,
receipts, gifts, bequests or any other acquisitions from
any source whatsoever, said decree reiterates the need
of voluntary disclosure on the part of the taxpayer
filing the return in order to avail of the tax amnesty.
The only noticeable departure from P.D. No. 23 is the
extension of the date for the filing of the return from
March 31, 1972 to March 31, 1973. Thus, this Court
finds that the same policy observed in the issuance
of P.D. No. 23, governs P.D. No. 67. In addition thereto,
it gives the tax evaders who failed to avail of the
provisions of P.D. No. 23 a chance to reform
themselves. An examination of both decrees does not
show that taxpayers availing of the tax amnesty in
accordance with P.D. No. 67, are entitled to blanket
coverage of declarations made prior to the issuance of
said decrees.
Petitioners argue that the estates of their parents
declared for estate tax valuation sometime in the
1960's can avail of the tax amnesty when petitioners
declared an additional amount of the estates over and
above that which was previously declared. A reading
of P.D. No. 67 reveals that tax amnesty is extendible
only to those declarations made pursuant to said
decree. Thus, if at all, it is only the estates in the
amount of P3,655,595.78 declared pursuant to P.D. No.
67 that is covered, upon payment of 10% of the said
amount within the period prescribed under P.D. No. 23,
which was up to June 30, 1973. Considering that there
has been partial compliance with the said requirement
by the payment of P285,046.68, petitioner may claim
the benefit of amnesty for said declared amount upon
payment of the balance of 10% thereof required to be
paid.
WHEREFORE, with the above modification of the
questioned order of July 10, 1974, said order is hereby
affirmed in all other respect. No pronouncement as to
costs.
SO ORDERED.
||| (Dayrit v. Cruz, G.R. No. L-39910, [September 26,
1988], 248 PHIL 12-25)