3rd-Batch DIGESTS

FIRST DIVISION
Q-91-17322 was raffled to Branch 86, then presided over by Judge Antonio P.
Solano. The identical informations read as follows:
[G.R. No. 127777. October 1, 1999]

PETRONILA C. TUPAZ, petitioner, vs. HONORABLE BENEDICTO B. ULEP
Presiding Judge of RTC Quezon City, Branch 105, and PEOPLE OF
THE PHILIPPINES, respondents.
DECISION
PARDO, J.:
The case before us is a special civil action for certiorari with application for
temporary restraining order seeking to enjoin respondent Judge Benedicto B. Ulep
of the Regional Trial Court, Quezon City, Branch 105, from trying Criminal Case
No. Q-91-17321, and to nullify respondent judges order reviving the information
therein against petitioner, for violation of the Tax Code, as the offense charged has
prescribed or would expose petitioner to double jeopardy.
The facts are as follows:
On June 8, 1990, State Prosecutor (SP) Esteban A. Molon, Jr. filed with the
Metropolitan Trial Court (MeTC), Quezon City, Branch 33, an information against
accused Petronila C. Tupaz and her late husband Jose J. Tupaz, Jr., as corporate
officers of El Oro Engravers Corporation, for nonpayment of deficiency corporate
income tax for the year 1979, amounting to P2,369,085.46, in violation of Section
51 (b) in relation to Section 73 of the Tax Code of 1977. [1] On September 11, 1990,
the MeTC dismissed the information for lack of jurisdiction. On November 16,
1990, the trial court denied the prosecutions motion for reconsideration.
On January 10, 1991, SP Molon filed with the Regional Trial Court, Quezon
City, two (2) informations, docketed as Criminal Case Nos. Q-91-17321 [2] and Q-9117322,[3] against accused and her late husband, for the same alleged nonpayment of
deficiency corporate income tax for the year 1979. Criminal Case No. Q-91-17321
was raffled to Branch 105,[4] presided over by respondent Judge Benedicto B. Ulep;
That in Quezon City, Metro Manila and within the jurisdiction of this Honorable
Court and upon verification and audit conducted by the Bureau of Internal Revenue
on the 1979 corporate annual income tax return and financial statements of El Oro
Engravers Corp., with office address at 809 Epifanio delos Santos Avenue, Quezon
City, Metro Manila, it was ascertained that said corporation was found liable to pay
the amount of P2,369,085.46, as deficiency corporate income tax for the year 1979
and that, despite demand of the payment of the aforesaid deficiency tax by the
Bureau of Internal Revenue and received by said corporation, which demand has
already become final, said El Oro Engravers Corp., through above-named accused,
the responsible corporate-officers of said corporation, failed and refused, despite
repeated demands, and still fail and refuse to pay said tax liability.
CONTRARY TO LAW.[5]
On September 25, 1991, both accused posted bail bond in the sum of
P1,000.00 each, for their provisional liberty.
On November 6, 1991, accused filed with the Regional Trial Court, Quezon
City, Branch 86, a motion to dismiss/quash[6] information (Q-91-17322) for the
reason that it was exactly the same as the information against the accused pending
before RTC, Quezon City, Branch 105 (Q-91-17321). However, on November 11,
1991, Judge Solano denied the motion.[7]
In the meantime, on July 25, 1993, Jose J. Tupaz, Jr. died in Quezon City.
Subsequently, accused Petronila C. Tupaz filed with the Regional Trial Court,
Quezon City, Branch 105, a petition for reinvestigation, which Judge Ulep granted
in an order dated August 30, 1994.[8]
On September 5, 1994, Senior State Prosecutor Bernelito R. Fernandez stated
that no new issues were raised in the request for reinvestigation, and no cogent
reasons existed to alter, modify or reverse the findings of the investigating
prosecutor. He considered the reinvestigation as terminated, and recommended the

prompt arraignment and trial of the accused. [9]
On September 20, 1994, the trial court (Branch No. 105) arraigned accused
Petronila C. Tupaz in Criminal Case No. Q-91-17321, and she pleaded not guilty to
the information therein.
On October 17, 1994, the prosecution filed with the Regional Trial Court,
Quezon City, Branch 105, a motion for leave to file amended information in
Criminal Case No. Q91-17321 to allege expressly the date of the commission of the
offense, to wit: on or about August 1984 or subsequently thereafter. Despite
opposition of the accused, on March 2, 1995, the trial court granted the motion and
admitted the amended information.[10] Petitioner was not re-arraigned on the
amended information. However, the amendment was only on a matter of form.
[11]
Hence, there was no need to re-arraign the accused. [12]
On December 5, 1995, accused filed with the Regional Trial Court, Quezon
City, Branch 105, a motion for leave to file and admit motion for
reinvestigation. The trial court granted the motion in its order dated December 13,
1995.
Prior to this, on October 18, 1995, Judge Ulep issued an order directing the
prosecution to withdraw the information in Criminal Case No. Q-91-17322, pending
before Regional Trial Court, Quezon City, Branch 86, after discovering that said
information was identical to the one filed with Regional Trial Court, Quezon City,
Branch 105. On April 16, 1996, State Prosecutor Alfredo P. Agcaoili filed with the
trial court a motion to withdraw information in Criminal Case No. Q-9117321. Prosecutor Agcaoili thought that accused was charged in Criminal Case No.
Q-91-17321, for nonpayment of deficiency contractors tax, but found that accused
was exempted from paying said tax.
On May 15, 1996, Prosecutor Agcaoili filed with the Regional Trial Court,
Quezon City, Branch 86, a motion for consolidation of Criminal Case No. Q-9117322 with Criminal Case No. Q-91-17321 pending before the Regional Trial Court,
Quezon City, Branch 105. On the same date, the court[13] granted the motion for
consolidation.
On May 20, 1996, Judge Ulep of Regional Trial Court, Quezon City, Branch
105, granted the motion for withdrawal of the information in Criminal Case No. Q91-17321 and dismissed the case, as prayed for by the prosecution.
On May 28, 1996, Prosecutor Agcaoili filed with the Regional Trial Court,
Quezon City, Branch 105, a motion to reinstate information in Criminal Case Q-9117321,[14] stating that the motion to withdraw information was made through
palpable mistake, and was the result of excusable neglect. He thought that Criminal
Case No. Q-91-17321 was identical to Criminal Case No Q-90-12896, wherein
accused was charged with nonpayment of deficiency contractors tax, amounting to
P346,879.29.
Over the objections of accused, on August 6, 1996, the Regional Trial Court,
Quezon City, Branch 105, granted the motion and ordered the information in
Criminal Case No. Q-91-17321 reinstated.[15]On September 24, 1996, accused filed
with the trial court a motion for reconsideration. On December 4, 1996, the trial
court denied the motion.
Hence, this petition.
On July 9, 1997, we required respondents to comment on the petition within
ten (10) days from notice. On October 10, 1997, the Solicitor General filed his
comment.[16]
On October 26, 1998, the Court resolved to give due course to the petition and
required the parties to file their respective memoranda within twenty (20) days from
notice. The parties have complied.
Petitioner submits that respondent judge committed a grave abuse of
discretion in reinstating the information in Criminal Case No. Q-91-17321 because
(a) the offense has prescribed; or (b) it exposes her to double jeopardy.
As regards the issue of prescription, petitioner contends that: (a) the period of
assessment has prescribed, applying the three (3) year period provided under Batas
Pambansa No. 700; (b) the offense has prescribed since the complaint for
preliminary investigation was filed with the Department of Justice only on June 8,
1989, and the offense was committed in April 1980 when she filed the income tax
return covering taxable year 1979.
Petitioner was charged with nonpayment of deficiency corporate income tax

for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the
Bureau of Internal Revenue (BIR) issued a notice of assessment. Petitioner contends
that the July 16, 1984 assessment was made out of time.
is to ascertain the amount that each taxpayer is to pay.[18] An assessment is a notice to

the effect that the amount therein stated is due as tax and a demand for payment
thereof.[19] Assessments made beyond the prescribed period would not be binding on
the taxpayer.[20]
Petitioner avers that while Sections 318 and 319 of the NIRC of 1977 provide
a five (5) year period of limitation for the assessment and collection of internal
revenue taxes, Batas Pambansa Blg. 700, enacted on February 22, 1984, amended
the two sections and reduced the period to three (3) years. As provided under B.P.
Blg. 700, the BIR has three (3) years to assess the tax liability, counted from the last
day of filing the return, or from the date the return is filed, whichever comes
later. Since the tax return was filed in April 1980, the assessment made on July 16,
1984 was beyond the three (3) year prescriptive period.
We agree with the Solicitor General that the shortened period of three (3)
years prescribed under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700,
effective April 5, 1984, specifically states that the shortened period of three years
shall apply to assessments and collections of internal revenue taxes beginning
taxable year 1984. Assessments made on or after April 5, 1984 are governed by the
five-year period if the taxes assessed cover taxable years prior to January 1, 1984.
[21]
The deficiency income tax under consideration is for taxable year 1979. Thus, the
period of assessment is still five (5) years, under the old law. The income tax return
was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within
the prescribed period of five (5) years, from the last day of filing the return, or from
the date the return is filed, whichever comes later.
Petitioner submits that B.P. Blg. 700 must be given retroactive effect since it is
favorable to the accused. Petitioner argues that Article 22 of the Revised Penal Code,
regarding the allowance of retroactive application of penal laws when favorable to
the accused shall apply in this case.
The Solicitor General, in his comment, maintains that the prescriptive period
for assessment and collection of petitioners deficiency corporate income tax was
five (5) years. The Solicitor General asserts that the shortened period of three (3)
years provided under B.P. Blg. 700 applies to assessments and collections of internal
revenue taxes beginning taxable year 1984. Since the deficiency corporate income
tax was for taxable year 1979, then petitioner was still covered by the five (5) year
period. Thus, the July 16, 1984 tax assessment was made within the prescribed
period.
At the outset, it must be stressed that internal revenue taxes are self-assessing
and no further assessment by the government is required to create the tax
liability. An assessment, however, is not altogether inconsequential; it is relevant in
the proper pursuit of judicial and extra judicial remedies to enforce taxpayer
liabilities and certain matters that relate to it, such as the imposition of surcharges
and interest, and in the application of statues of limitations and in the establishment
of tax liens.[17]
An assessment contains not only a computation of tax liabilities, but also a
demand for payment within a prescribed period. The ultimate purpose of assessment
Article 22 of the Revised Penal Code finds no application in this case for the
simple reason that the provisions on the period of assessment can not be considered
as penal in nature.
Petitioner also asserts that the offense has prescribed. Petitioner invokes
Section 340 (now 281 of 1997 NIRC) of the Tax Code which provides that
violations of any provision of the Code prescribe in five (5) years. Petitioner asserts
that in this case, it began to run in 1979, when she failed to pay the correct corporate
tax due during that taxable year. Hence, when the BIR instituted criminal
proceedings on June 8, 1989, by filing a complaint for violation of the Tax Code
with the Department of Justice for preliminary investigation it was beyond the
prescriptive period of five (5) years. At most, the BIR had until 1984 to institute
criminal proceedings.
On the other hand, the Solicitor General avers that the information for
violation of the Tax Code was filed within the prescriptive period of five (5) years
provided in Section 340 (now 281 in 1997 NIRC) of the Code. It is only when the
assessment has become final and unappealable that the five (5) year period
commences to run. A notice of assessment was issued on July 16, 1984. When
petitioner failed to question or protest the deficiency assessment thirty (30) days
therefrom, or on August 16, 1984, it became final and unappealable. Consequently,
it was from this period that the prescriptive period of five (5) years
commenced. Thus, the complaint filed with the Department of Justice on June 8,
1989 was within the prescribed period.
We agree with the Solicitor General that the offense has not
prescribed. Petitioner was charged with failure to pay deficiency income tax after
repeated demands by the taxing authority. In Lim, Sr. v. Court of Appeals,[22] we
stated that by its nature the violation could only be committed after service of notice
and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot
be said that the offense has been committed as early as 1980, upon filing of the
income tax return. This is so because prior to the finality of the assessment, the
taxpayer has not committed any violation for nonpayment of the tax. The offense
was committed only after the finality of the assessment coupled with taxpayers
willful refusal to pay the taxes within the allotted period. In this case, when the
notice of assessment was issued on July 16, 1984, the taxpayer still had thirty (30)
days from receipt thereof to protest or question the assessment. Otherwise, the
assessment would become final and unappealable. [23] As he did not protest, the
assessment became final and unappealable on August 16, 1984. Consequently, when
the complaint for preliminary investigation was filed with the Department of Justice
on June 8, 1989, the criminal action was instituted within the five (5) year
prescriptive period.
Petitioner contends that by reinstating the information, the trial court exposed
her to double jeopardy. Neither the prosecution nor the trial court obtained her
permission before the case was dismissed. She was placed in jeopardy for the first
time after she pleaded to a valid complaint filed before a competent court and the
case was dismissed without her express consent. When the trial court reinstated the
information charging the same offense, it placed her in double jeopardy.
The Solicitor General further contends that, assuming arguendo that the case
was dismissed without petitioners consent, there was no valid dismissal of the case
since Prosecutor Agcaoili was under a mistaken assumption that it was a charge of
nonpayment of contractors tax.
We sustain petitioners contention. The reinstatement of the information would
expose her to double jeopardy. An accused is placed in double jeopardy if he is
again tried for an offense for which he has been convicted, acquitted or in another
manner in which the indictment against him was dismissed without his consent. In
the instant case, there was a valid complaint filed against petitioner to which she
pleaded not guilty. The court dismissed the case at the instance of the prosecution,
without asking for accused-petitioners consent. This consent cannot be implied or
presumed.[24] Such consent must be expressed as to have no doubt as to the accuseds
conformity.[25] As petitioners consent was not expressly given, the dismissal of the
case must be regarded as final and with prejudice to the re-filing of the case.
[26]
Consequently, the trial court committed grave abuse of discretion in reinstating
the information against petitioner in violation of her constitutionally protected right
against double jeopardy.
WHEREFORE, we GRANT the petition. We enjoin the lower court, the
Regional Trial Court of Quezon City, Branch 105, from trying Criminal Case No. Q91-17321 and order its dismissal. Costs de oficio.
SO ORDERED.
Puno, Kapunan, and Ynares-Santiago, JJ., concur.
Davide, Jr., C.J., (Chairman), see dissenting opinion.
Petitioner also asserts that the trial court gravely erred when, over her
objections, it admitted the amended information. She submits that the amendment is
substantial in nature, and would place her in double jeopardy.
On the other hand, the Solicitor General contends that reinstating the
information does not violate petitioners right against double jeopardy. He asserts that
petitioner induced the dismissal of the complaint when she sought the
reinvestigation of her tax liabilities. By such inducement, petitioner waived or was
estopped from claiming her right against double jeopardy.
Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 185371
December 8, 2010
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
METRO STAR SUPERAMA, INC., Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court filed
by the petitioner Commissioner of Internal Revenue (CIR) seeks to reverse
and set aside the 1] September 16, 2008 Decision1 of the Court of Tax
Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 306 and 2] its November
18, 2008 Resolution2 denying petitioners motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second Division (CTASecond Division) in CTA Case No. 7169 reversing the February 8, 2005
Decision of the CIR which assessed respondent Metro Star Superama, Inc.
(Metro Star) of deficiency value-added tax and withholding tax for the
taxable year 1999.
On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente

issued a Preliminary 15-day Letter, which petitioner received on November
9, 2001. The said letter stated that a post audit review was held and it was
ascertained that there was deficiency value-added and withholding taxes
due from petitioner in the amount of P 292,874.16.
On April 11, 2002, petitioner received a Formal Letter of Demand dated April
3, 2002 from Revenue District No. 67, Legazpi City, assessing petitioner the
amount of Two Hundred Ninety Two Thousand Eight Hundred Seventy Four
Pesos and Sixteen Centavos (P292,874.16.) for deficiency value-added and
withholding taxes for the taxable year 1999, computed as follows:
ASSESSMENT NOTICE NO. 067-99-003-579-072
VALUE ADDED TAX
Gross Sales
P1,697,718.90
Output Tax
P 154,338.08
Less: Input Tax

Based on a Joint Stipulation of Facts and Issues3 of the parties, the CTA
Second Division summarized the factual and procedural antecedents of the
case, the pertinent portions of which read:
_____________
VAT Payable
P 154,338.08
Add: 25% Surcharge
Petitioner is a domestic corporation duly organized and existing by virtue of

the laws of the Republic of the Philippines, x x x.
20% Interest
On January 26, 2001, the Regional Director of Revenue Region No. 10,
Legazpi City, issued Letter of Authority No. 00006561 for Revenue Officer
Daisy G. Justiniana to examine petitioners books of accounts and other
accounting records for income tax and other internal revenue taxes for the
taxable year 1999. Said Letter of Authority was revalidated on August 10,
2001 by Regional Director Leonardo Sacamos.
Late Payment
For petitioners failure to comply with several requests for the presentation of
records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued
an Indorsement dated September 26, 2001 informing Revenue District
Officer of Revenue Region No. 67, Legazpi City to proceed with the
investigation based on the best evidence obtainable preparatory to the
issuance of assessment notice.
Compensation
P 38,584.54
79,746.49
Compromise Penalty
Failure to File VAT

returns
TOTAL
P16,000.00
2,400.00
18,400.00
136,731.01
P 291,069.09
WITHHOLDING TAX
Expanded
Total Tax Due
Less: Tax Withheld
2,772.91
110,103.92
P 112,876.83
111,848.27
Compromise Penalty
P 1,028.56 On February 8, 2005, respondent Commissioner, through its authorized

representative, Revenue Regional Director of Revenue Region 10, Legaspi
576.51 City, issued a Decision denying petitioners Motion for Reconsideration.
Petitioner, through counsel received said Decision on February 18, 2005.
200.00
TOTAL
P 1,805.07 x x x.
Deficiency Withholding Tax

Add: 20% Interest p.a.
*Expanded
Withholding Tax
97,466.71 Denying that it received a Preliminary Assessment Notice (PAN) and

claiming that it was not accorded due process, Metro Star filed a petition for
4
1,000.00 review with the CTA. The parties then stipulated on the following issues to
be decided by the tax court:
9,663.00
P1,949,334.25
x 5%
10,000.25
x 10%
193,261.20
x 5%
Rental Expense
41,272.73
x 1%
412.73
Security Service
156,142.01
x 1%
1,561.42
Film Rental
Audit Fee
Service Contractor
P 110,103.92
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;
Total
SUMMARIES OF DEFICIENCIES
VALUE ADDED TAX
P 291,069.09
WITHHOLDING TAX
1,805.07
TOTAL
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;
P 292,874.16
Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice
of Seizure dated May 12, 2003, which petitioner received on May 15, 2003,
giving the latter last opportunity to settle its deficiency tax liabilities within ten
(10) [days] from receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of Distraint and/or Levy and
Garnishment to enforce collection.
On February 6, 2004, petitioner received from Revenue District Office No. 67
a Warrant of Distraint and/or Levy No. 67-0029-23 dated May 12, 2003
demanding payment of deficiency value-added tax and withholding tax
payment in the amount of P292,874.16.
On July 30, 2004, petitioner filed with the Office of respondent
Commissioner a Motion for Reconsideration pursuant to Section 3.1.5 of
Revenue Regulations No. 12-99.
1.2. Whether the assessment has become final and

executory and demandable for failure of petitioner to
protest the same within 30 days from its receipt thereof on
April 11, 2002, pursuant to Section 228 of the National
Internal Revenue Code;
2. Whether the deficiency assessments issued by the respondent
are void for failure to state the law and/or facts upon which they are
based.
2.2 Whether petitioner was informed of the law and facts
on which the assessment is made in compliance with
Section 228 of the National Internal Revenue Code;
3. Whether or not petitioner, as owner/operator of a movie/cinema
house, is subject to VAT on sales of services under Section 108(A)
of the National Internal Revenue Code;
4. Whether or not the assessment is based on the best evidence
obtainable pursuant to Section 6(b) of the National Internal
Revenue Code.
The CTA-Second Division found merit in the petition of Metro Star and, on
March 21, 2007, rendered a decision, the decretal portion of which reads:
WHEREFORE, premises considered, the Petition for Review is hereby
GRANTED. Accordingly, the assailed Decision dated February 8, 2005 is
hereby REVERSED and SET ASIDE and respondent is ORDERED TO
DESIST from collecting the subject taxes against petitioner.
The CTA-Second Division opined that "[w]hile there [is] a disputable
presumption that a mailed letter [is] deemed received by the addressee in
the ordinary course of mail, a direct denial of the receipt of mail shifts the
burden upon the party favored by the presumption to prove that the mailed
letter was indeed received by the addressee."5 It also found that there was
no clear showing that Metro Star actually received the alleged PAN, dated
January 16, 2002. It, accordingly, ruled that the Formal Letter of Demand
dated April 3, 2002, as well as the Warrant of Distraint and/or Levy dated
May 12, 2003 were void, as Metro Star was denied due process.6
The CIR sought reconsideration7 of the decision of the CTA-Second Division,
but the motion was denied in the latters July 24, 2007 Resolution.8
Aggrieved, the CIR filed a petition for review9 with the CTA-En Banc, but the
petition was dismissed after a determination that no new matters were
raised. The CTA-En Banc disposed:
WHEREFORE, the instant Petition for Review is hereby DENIED DUE
COURSE and DISMISSED for lack of merit. Accordingly, the March 21, 2007
Decision and July 27, 2007 Resolution of the CTA Second Division in CTA
Case No. 7169 entitled, "Metro Star Superama, Inc., petitioner vs.
Commissioner of Internal Revenue, respondent" are hereby AFFIRMED in
toto.
SO ORDERED.
The motion for reconsideration10 filed by the CIR was likewise denied by the
CTA-En Banc in its November 18, 2008 Resolution.11
The CIR, insisting that Metro Star received the PAN, dated January 16,
2002, and that due process was served nonetheless because the latter
received the Final Assessment Notice (FAN), comes now before this Court
with the sole issue of whether or not Metro Star was denied due process.
The general rule is that the Court will not lightly set aside the conclusions
reached by the CTA which, by the very nature of its functions, has
accordingly developed an exclusive expertise on the resolution unless there
has been an abuse or improvident exercise of authority.12 In Barcelon, Roxas
Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of
Internal Revenue,13 the Court wrote:
Jurisprudence has consistently shown that this Court accords the findings of
fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of
Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this
Court recognizes that the Court of Tax Appeals, which by the very nature of
its function is dedicated exclusively to the consideration of tax problems, has
necessarily developed an expertise on the subject, and its conclusions will
not be overturned unless there has been an abuse or improvident exercise
of authority. Such findings can only be disturbed on appeal if they are not
supported by substantial evidence or there is a showing of gross error or
abuse on the part of the Tax Court. In the absence of any clear and
convincing proof to the contrary, this Court must presume that the CTA
rendered a decision which is valid in every respect.
On the matter of service of a tax assessment, a further perusal of our ruling
in Barcelon is instructive, viz:
Jurisprudence is replete with cases holding that if the taxpayer denies ever
having received an assessment from the BIR, it is incumbent upon the latter
to prove by competent evidence that such notice was indeed received by the
addressee. The onus probandi was shifted to respondent to prove by
contrary evidence that the Petitioner received the assessment in the due
course of mail. The Supreme Court has consistently held that while a mailed
letter is deemed received by the addressee in the course of mail, this is
merely a disputable presumption subject to controversion and a direct denial
thereof shifts the burden to the party favored by the presumption to prove
that the mailed letter was indeed received by the addressee (Republic vs.
Court of Appeals, 149 SCRA 351). Thus as held by the Supreme Court
in Gonzalo P. Nava vs. Commissioner of Internal Revenue, 13 SCRA 104,
January 30, 1965:
"The facts to be proved to raise this presumption are (a) that the letter was
properly addressed with postage prepaid, and (b) that it was mailed. Once
these facts are proved, the presumption is that the letter was received by the
addressee as soon as it could have been transmitted to him in the ordinary
course of the mail. But if one of the said facts fails to appear, the
presumption does not lie. (VI, Moran, Comments on the Rules of Court,
1963 ed, 56-57 citing Enriquez vs. Sunlife Assurance of Canada, 41 Phil
269)."
x x x. What is essential to prove the fact of mailing is the registry receipt
issued by the Bureau of Posts or the Registry return card which would have
been signed by the Petitioner or its authorized representative. And if said
documents cannot be located, Respondent at the very least, should have
submitted to the Court a certification issued by the Bureau of Posts and any
other pertinent document which is executed with the intervention of the
Bureau of Posts. This Court does not put much credence to the self serving
documentations made by the BIR personnel especially if they are
unsupported by substantial evidence establishing the fact of mailing. Thus:
"While we have held that an assessment is made when sent within the
prescribed period, even if received by the taxpayer after its expiration (Coll.
of Int. Rev. vs. Bautista, L-12250 and L-12259, May 27, 1959), this ruling
makes it the more imperative that the release, mailing or sending of the
notice be clearly and satisfactorily proved. Mere notations made without the
taxpayers intervention, notice or control, without adequate supporting
evidence cannot suffice; otherwise, the taxpayer would be at the mercy of
the revenue offices, without adequate protection or defense." (Nava vs. CIR,
13 SCRA 104, January 30, 1965).
x x x.
The failure of the respondent to prove receipt of the assessment by the
Petitioner leads to the conclusion that no assessment was issued.
Consequently, the governments right to issue an assessment for the said
period has already prescribed. (Industrial Textile Manufacturing Co. of the
Phils., Inc. vs. CIR CTA Case 4885, August 22, 1996). (Emphases supplied.)
The Court agrees with the CTA that the CIR failed to discharge its duty and
present any evidence to show that Metro Star indeed received the PAN
dated January 16, 2002. It could have simply presented the registry receipt
or the certification from the postmaster that it mailed the PAN, but failed.
Neither did it offer any explanation on why it failed to comply with the
requirement of service of the PAN. It merely accepted the letter of Metro
Stars chairman dated April 29, 2002, that stated that he had received the
FAN dated April 3, 2002, but not the PAN; that he was willing to pay the tax
as computed by the CIR; and that he just wanted to clarify some matters
with the hope of lessening its tax liability.
This now leads to the question: Is the failure to strictly comply with notice
requirements prescribed under Section 228 of the National Internal Revenue
Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a
denial of due process? Specifically, are the requirements of due process
satisfied if only the FAN stating the computation of tax liabilities and a
demand to pay within the prescribed period was sent to the taxpayer?
The answer to these questions require an examination of Section 228 of the
Tax Code which reads:
SEC. 228. Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he
shall first notify the taxpayer of his findings: provided, however, that a
preassessment notice shall not be required in the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on
the face of the return; or
(b) When a discrepancy has been determined between the tax
withheld and the amount actually remitted by the withholding agent;
or
(c) When a taxpayer who opted to claim a refund or tax credit of
excess creditable withholding tax for a taxable period was
determined to have carried over and automatically applied the
same amount claimed against the estimated tax liabilities for the
taxable quarter or quarters of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been
paid; or
(e) When the article locally purchased or imported by an exempt
person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred
to non-exempt persons.
The taxpayers shall be informed in writing of the law and the facts on which
the assessment is made; otherwise, the assessment shall be void.
Within a period to be prescribed by implementing rules and regulations, the
taxpayer shall be required to respond to said notice. If the taxpayer fails to
respond, the Commissioner or his duly authorized representative shall issue

an assessment based on his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by
implementing rules and regulations. Within sixty (60) days from filing of the
protest, all relevant supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted upon within one
hundred eighty (180) days from submission of documents, the taxpayer
adversely affected by the decision or inaction may appeal to the Court of Tax
Appeals within thirty (30) days from receipt of the said decision, or from the
lapse of one hundred eighty (180)-day period; otherwise, the decision shall
become final, executory and demandable. (Emphasis supplied).
Indeed, Section 228 of the Tax Code clearly requires that the taxpayer must
first be informed that he is liable for deficiency taxes through the sending of
a PAN. He must be informed of the facts and the law upon which the
assessment is made. The law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first
establishing a valid assessment is evidently violative of the cardinal principle
in administrative investigations - that taxpayers should be able to present
their case and adduce supporting evidence.14
This is confirmed under the provisions R.R. No. 12-99 of the BIR which
pertinently provide:
SECTION 3. Due Process Requirement in the Issuance of a Deficiency Tax
Assessment.
3.1 Mode of procedures in the issuance of a deficiency tax
assessment:
3.1.1 Notice for informal conference. The Revenue Officer who
audited the taxpayer's records shall, among others, state in his
report whether or not the taxpayer agrees with his findings that the
taxpayer is liable for deficiency tax or taxes. If the taxpayer is not
amenable, based on the said Officer's submitted report of
investigation, the taxpayer shall be informed, in writing, by the
Revenue District Office or by the Special Investigation Division, as
the case may be (in the case Revenue Regional Offices) or by the
Chief of Division concerned (in the case of the BIR National Office)
of the discrepancy or discrepancies in the taxpayer's payment of his
internal revenue taxes, for the purpose of "Informal Conference," in
order to afford the taxpayer with an opportunity to present his side
of the case. If the taxpayer fails to respond within fifteen (15) days
from date of receipt of the notice for informal conference, he shall
be considered in default, in which case, the Revenue District Officer
or the Chief of the Special Investigation Division of the Revenue
Regional Office, or the Chief of Division in the National Office, as
the case may be, shall endorse the case with the least possible
delay to the Assessment Division of the Revenue Regional Office or
to the Commissioner or his duly authorized representative, as the
case may be, for appropriate review and issuance of a deficiency
tax assessment, if warranted.
3.1.2 Preliminary Assessment Notice (PAN). If after review and
evaluation by the Assessment Division or by the Commissioner or
his duly authorized representative, as the case may be, it is
determined that there exists sufficient basis to assess the taxpayer
for any deficiency tax or taxes, the said Office shall issue to the
taxpayer, at least by registered mail, a Preliminary Assessment
Notice (PAN) for the proposed assessment, showing in detail, the
facts and the law, rules and regulations, or jurisprudence on which
the proposed assessment is based (see illustration in ANNEX A
hereof). If the taxpayer fails to respond within fifteen (15) days from
date of receipt of the PAN, he shall be considered in default, in
which case, a formal letter of demand and assessment notice shall
be caused to be issued by the said Office, calling for payment of
the taxpayer's deficiency tax liability, inclusive of the applicable
penalties.
3.1.3 Exceptions to Prior Notice of the Assessment. The notice
for informal conference and the preliminary assessment notice shall
not be required in any of the following cases, in which case,
issuance of the formal assessment notice for the payment of the
taxpayer's deficiency tax liability shall be sufficient:
(i) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax appearing
on the face of the tax return filed by the taxpayer; or
(ii) When a discrepancy has been determined between the

tax withheld and the amount actually remitted by the
withholding agent; or
(iii) When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period was determined to have carried over and
automatically applied the same amount claimed against
the estimated tax liabilities for the taxable quarter or
quarters of the succeeding taxable year; or
(iv) When the excise tax due on excisable articles has not
been paid; or
(v) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles,
capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
3.1.4 Formal Letter of Demand and Assessment Notice. The
formal letter of demand and assessment notice shall be issued by
the Commissioner or his duly authorized representative. The letter
of demand calling for payment of the taxpayer's deficiency tax or
taxes shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based, otherwise, the
formal letter of demand and assessment notice shall be void (see
illustration in ANNEX B hereof).
The same shall be sent to the taxpayer only by registered mail or by
personal delivery.
If sent by personal delivery, the taxpayer or his duly authorized
representative shall acknowledge receipt thereof in the duplicate copy of the
letter of demand, showing the following: (a) His name; (b) signature; (c)
designation and authority to act for and in behalf of the taxpayer, if
acknowledged received by a person other than the taxpayer himself; and (d)
date of receipt thereof.
x x x.
From the provision quoted above, it is clear that the sending of a PAN to
taxpayer to inform him of the assessment made is but part of the "due
process requirement in the issuance of a deficiency tax assessment," the

absence of which renders nugatory any assessment made by the tax
authorities. The use of the word "shall" in subsection 3.1.2 describes the
mandatory nature of the service of a PAN. The persuasiveness of the right to
due process reaches both substantial and procedural rights and the failure of
the CIR to strictly comply with the requirements laid down by law and its own
rules is a denial of Metro Stars right to due process.15 Thus, for its failure to
send the PAN stating the facts and the law on which the assessment was
made as required by Section 228 of R.A. No. 8424, the assessment made
by the CIR is void.
The case of CIR v. Menguito16 cited by the CIR in support of its argument
that only the non-service of the FAN is fatal to the validity of an assessment,
cannot apply to this case because the issue therein was the non-compliance
with the provisions of R. R. No. 12-85 which sought to interpret Section 229
of the old tax law. RA No. 8424 has already amended the provision of
Section 229 on protesting an assessment. The old requirement of
merelynotifying the taxpayer of the CIRs findings was changed in 1998
to informing the taxpayer of not only the law, but also of the facts on which
an assessment would be made. Otherwise, the assessment itself would be
invalid.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.1avvphi1
The Court need not belabor to discuss the matter of Metro Stars failure to
file its protest, for it is well-settled that a void assessment bears no fruit.18
It is an elementary rule enshrined in the 1987 Constitution that no person
shall be deprived of property without due process of law.19 In balancing the
scales between the power of the State to tax and its inherent right to
prosecute perceived transgressors of the law on one side, and the
constitutional rights of a citizen to due process of law and the equal
protection of the laws on the other, the scales must tilt in favor of the
individual, for a citizens right is amply protected by the Bill of Rights under
the Constitution. Thus, while "taxes are the lifeblood of the government," the
power to tax has its limits, in spite of all its plenitude. Hence in
Commissioner of Internal Revenue v. Algue, Inc.,20 it was said
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance. On the other hand, such collection should be made
in accordance with law as any arbitrariness will negate the very reason for
government itself. It is therefore necessary to reconcile the apparently
conflicting interests of the authorities and the taxpayers so that the real
purpose of taxation, which is the promotion of the common good, may be

achieved.
xxx
xxx

vs.
AZUCENA T. REYES, Respondent.
xxx
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for the lack of the motive power to activate
and operate it. Hence, despite the natural reluctance to surrender part of
ones hard-earned income to taxing authorities, every person who is able to
must contribute his share in the running of the government. The government
for its part is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral
and material values. This symbiotic relationship is the rationale of taxation
and should dispel the erroneous notion that it is an arbitrary method of
exaction by those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is
a requirement in all democratic regimes that it be exercised reasonably and
in accordance with the prescribed procedure. If it is not, then the taxpayer
has a right to complain and the courts will then come to his succor. For all
the awesome power of the tax collector, he may still be stopped in his tracks
if the taxpayer can demonstrate x x x that the law has not been
observed.21 (Emphasis supplied).
x -- -- -- -- -- -- -- -- -- -- -- -- -- x
G.R. No. 163581
January 27, 2006
AZUCENA T. REYES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
DECISION
PANGANIBAN, CJ.:
Under the present provisions of the Tax Code and pursuant to elementary
due process, taxpayers must be informed in writing of the law and the facts
upon which a tax assessment is based; otherwise, the assessment is void.
Being invalid, the assessment cannot in turn be used as a basis for the
perfection of a tax compromise.
WHEREFORE, the petition is DENIED.

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

Associate Justice

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 159694
January 27, 2006
"WHEREFORE, the petition is GRANTED. The assailed decision of the

Court of Tax Appeals is ANNULLED and SET ASIDE without prejudice to the
action of the National Evaluation Board on the proposed compromise
settlement of the Maria C. Tancinco estates tax liability."4
The Facts
The CA narrated the facts as follows:
"On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292
square-meter residential lot and an old house thereon (or subject property)
located at 4931 Pasay Road, Dasmarias Village, Makati City.
"On the basis of a sworn information-for-reward filed on February 17, 1997
by a certain Raymond Abad (or Abad), Revenue District Office No. 50
(South Makati) conducted an investigation on the decedents estate (or
estate). Subsequently, it issued a Return Verification Order. But without the
required preliminary findings being submitted, it issued Letter of Authority
No. 132963 for the regular investigation of the estate tax case. Azucena T.
Reyes (or [Reyes]), one of the decedents heirs, received the Letter of
Authority on March 14, 1997.
"On February 12, 1998, the Chief, Assessment Division, Bureau of Internal
Revenue (or BIR), issued a preliminary assessment notice against the
estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the
decedent (or heirs) received a final estate tax assessment notice and a
demand letter, both dated April 22, 1998, for the amount of P14,912,205.47,
inclusive of surcharge and interest.
"On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the
assessment [o]n behalf of the heirs on the ground that the subject property
had already been sold by the decedent sometime in 1990.
"On November 12, 1998, the Commissioner of Internal Revenue (or [CIR])
issued a preliminary collection letter to [Reyes], followed by a Final Notice
Before Seizure dated December 4, 1998.
"On January 5, 1999, a Warrant of Distraint and/or Levy was served upon
the estate, followed on February 11, 1999 by Notices of Levy on Real
Property and Tax Lien against it.
"On March 2, 1999, [Reyes] protested the notice of levy. However, on March
11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.
"In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay
50% of the basic tax due, citing the heirs inability to pay the tax assessment.
On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since
the estate tax is a charge on the estate and not on the heirs, the latters
financial incapacity is immaterial as, in fact, the gross value of the estate
amounting to P32,420,360.00 is more than sufficient to settle the tax liability.
Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or
before April 15, 2000[;] otherwise, the notice of sale of the subject property
would be published.
"On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to
pay 100% of the basic tax due in the amount of P5,313,891.00. She
reiterated the proposal in a letter dated May 18, 2000.
"As the estate failed to pay its tax liability within the April 15, 2000 deadline,
the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6,
2000 that the subject property would be sold at public auction on August 8,
2000.
"On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division.
Assailing the scheduled auction sale, she asserted that x x x the
assessment, letter of demand[,] and the whole tax proceedings against the
estate are void ab initio. She offered to file the corresponding estate tax
return and pay the correct amount of tax without surcharge [or] interest.
"Without acting on [Reyess] protest and offer, [the CIR] instructed the
Collection Enforcement Division to proceed with the August 8, 2000 auction
sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview
with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124.
"On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of
Preliminary Injunction or Status Quo Order, which was granted by the CTA
on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount
ofP27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering [the CIR] to desist and refrain from proceeding with the auction sale
of the subject property or from issuing a [W]arrant of [D]istraint or
[G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/or unless a contrary order is issued.
"[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the
CTA no longer has jurisdiction over the case[,] because the assessment
against the estate is already final and executory; and (ii) that the petition was
filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied
[the CIRs] motion.
"During the pendency of the [P]etition for [R]eview with the CTA, however,
the BIR issued Revenue Regulation (or RR) No. 6-2000 and Revenue
Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with
delinquent accounts and disputed assessments an opportunity to
compromise their tax liability.
"On November 25, 2000, [Reyes] filed an application with the BIR for the
compromise settlement (or compromise) of the assessment against the
estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No.
6-2000 and RMO No. 42-2000.
"On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement
of the hearing before the CTA scheduled on January 9, 2001, citing her
pending application for compromise with the BIR. The motion was granted
and the hearing was reset to February 6, 2001.
"On January 29, 2001, [Reyes] moved for postponement of the hearing set
on February 6, 2001, this time on the ground that she had already paid the
compromise amount of P1,062,778.20 but was still awaiting approval of the
National Evaluation Board (or NEB). The CTA granted the motion and reset
the hearing to February 27, 2001.
"On February 19, 2001, [Reyes] filed a Motion to Declare Application for the
Settlement of Disputed Assessment as a Perfected Compromise. In said
motion, she alleged that [the CIR] had not yet signed the compromise[,]
because of procedural red tape requiring the initials of four Deputy
Commissioners on relevant documents before the compromise is signed by
the [CIR]. [Reyes] posited that the absence of the requisite initials and
signature[s] on said documents does not vitiate the perfected compromise.
"Commenting on the motion, [the CIR] countered that[,] without the approval
of the NEB, [Reyess] application for compromise with the BIR cannot be
considered a perfected or consummated compromise.
"On March 9, 2001, the CTA denied [Reyess] motion, prompting her to file a
Motion for Reconsideration Ad Cautelam. In a [R]esolution dated April 10,
2001, the CTA denied the [M]otion for [R]econsideration with the suggestion
that[,] for an orderly presentation of her case and to prevent piecemeal
resolutions of different issues, [Reyes] should file a [S]upplemental [P]etition
for [R]eview[,] setting forth the new issue of whether there was already a
perfected compromise.
"On May 2, 2001, [Reyes] filed a Supplemental Petition for Review with the
CTA, followed on June 4, 2001 by its Amplificatory Arguments (for the
Supplemental Petition for Review), raising the following issues:
1. Whether or not an offer to compromise by the [CIR], with the
acquiescence by the Secretary of Finance, of a tax liability pending in court,
that was accepted and paid by the taxpayer, is a perfected and
consummated compromise.
2. Whether this compromise is covered by the provisions of Section 204 of
the Tax Code (CTRP) that requires approval by the BIR [NEB].
"Answering the Supplemental Petition, [the CIR] averred that an application
for compromise of a tax liability under RR No. 6-2000 and RMO No. 42-2000
requires the evaluation and approval of either the NEB or the Regional
Evaluation Board (or REB), as the case may be.
"On June 14, 2001, [Reyes] filed a Motion for Judgment on the Pleadings;
the motion was granted on July 11, 2001. After submission of memoranda,
the case was submitted for [D]ecision.
"On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of
which pertinently reads:
WHEREFORE, in view of all the foregoing, the instant [P]etition for [R]eview
is hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY
deficiency estate tax in the amount of Nineteen Million Five Hundred Twenty
Four Thousand Nine Hundred Nine and 78/100 (P19,524,909.78), computed
as follows:
xxxxxxxxx
[Reyes] is likewise ORDERED to PAY 20% delinquency interest on
deficiency estate tax due of P17,934,382.13 from January 11, 2001 until full
payment thereof pursuant to Section 249(c) of the Tax Code, as amended.
conditio sine qua non to the perfection and consummation of any

compromise.8 Besides, the CA pointed out, Section 204(A) of the Tax Code
applied to all compromises, whether government-initiated or not.9 Where the
law did not distinguish, courts too should not distinguish.
Hence, this Petition.10
"In arriving at its decision, the CTA ratiocinated that there can only be a
perfected and consummated compromise of the estates tax liability[,] if the
NEB has approved [Reyess] application for compromise in accordance with
RR No. 6-2000, as implemented by RMO No. 42-2000.
"Anent the validity of the assessment notice and letter of demand against the
estate, the CTA stated that at the time the questioned assessment notice
and letter of demand were issued, the heirs knew very well the law and the
facts on which the same were based. It also observed that the petition was
not filed within the 30-day reglementary period provided under Sec. 11 of
Rep. Act No. 1125 and Sec. 228 of the Tax Code."5
Ruling of the Court of Appeals
In partly granting the Petition, the CA said that Section 228 of the Tax Code
and RR 12-99 were mandatory and unequivocal in their requirement. The
assessment notice and the demand letter should have stated the facts and
the law on which they were based; otherwise, they were deemed void.6 The
appellate court held that while administrative agencies, like the BIR, were
not bound by procedural requirements, they were still required by law and
equity to observe substantive due process. The reason behind this
requirement, said the CA, was to ensure that taxpayers would be duly
apprised of -- and could effectively protest -- the basis of tax assessments
against them.7 Since the assessment and the demand were void, the
proceedings emanating from them were likewise void, and any order
emanating from them could never attain finality.
The appellate court added, however, that it was premature to declare as
perfected and consummated the compromise of the estates tax liability. It
explained that, where the basic tax assessed exceeded P1 million, or where
the settlement offer was less than the prescribed minimum rates, the
National Evaluation Boards (NEB) prior evaluation and approval were the
The Issues
In GR No. 159694, petitioner raises the following issues for the Courts
consideration:
"I.
Whether petitioners assessment against the estate is valid.
"II.
Whether respondent can validly argue that she, as well as the other heirs,
was not aware of the facts and the law on which the assessment in question
is based, after she had opted to propose several compromises on the estate
tax due, and even prematurely acting on such proposal by paying 20% of the
basic estate tax due."11
The foregoing issues can be simplified as follows: first, whether the
assessment against the estate is valid; and, second, whether the
compromise entered into is also valid.
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Validity of the Assessment Against the Estate
The second paragraph of Section 228 of the Tax Code12 is clear and
mandatory. It provides as follows:
The procedure for protesting an assessment under the Tax Code is found in
Chapter III of Title VIII, which deals with remedies. Being procedural in
nature, can its provision then be applied retroactively? The answer is yes.
"Sec. 228. Protesting of Assessment. -xxxxxxxxx

"The taxpayers shall be informed in writing of the law and the facts on which
the assessment is made: otherwise, the assessment shall be void."
In the present case, Reyes was not informed in writing of the law and the
facts on which the assessment of estate taxes had been made. She was
merely notified of the findings by the CIR, who had simply relied upon the
provisions of former Section 22913 prior to its amendment by Republic Act
(RA) No. 8424, otherwise known as the Tax Reform Act of 1997.
First, RA 8424 has already amended the provision of Section 229 on
protesting an assessment. The old requirement of merely notifying the
taxpayer of the CIRs findings was changed in 1998 to informing the
taxpayer of not only the law, but also of the facts on which an assessment
would be made; otherwise, the assessment itself would be invalid.
It was on February 12, 1998, that a preliminary assessment notice was
issued against the estate. On April 22, 1998, the final estate tax assessment
notice, as well as demand letter, was also issued. During those dates, RA
8424 was already in effect. The notice required under the old law was no
longer sufficient under the new law.
To be simply informed in writing of the investigation being conducted and of
the recommendation for the assessment of the estate taxes due is nothing
but a perfunctory discharge of the tax function of correctly assessing a
taxpayer. The act cannot be taken to mean that Reyes already knew the law
and the facts on which the assessment was based. It does not at all conform
to the compulsory requirement under Section 228. Moreover, the Letter of
Authority received by respondent on March 14, 1997 was for the sheer
purpose of investigation and was not even the requisite notice under the law.
The general rule is that statutes are prospective. However, statutes that are
remedial, or that do not create new or take away vested rights, do not fall
under the general rule against the retroactive operation of statutes.14Clearly,
Section 228 provides for the procedure in case an assessment is protested.
The provision does not create new or take away vested rights. In both
instances, it can surely be applied retroactively. Moreover, RA 8424 does not
state, either expressly or by necessary implication, that pending actions are
excepted from the operation of Section 228, or that applying it to pending
proceedings would impair vested rights.
Second, the non-retroactive application of Revenue Regulation (RR) No. 1299 is of no moment, considering that it merely implements the law.
A tax regulation is promulgated by the finance secretary to implement the
provisions of the Tax Code.15 While it is desirable for the government
authority or administrative agency to have one immediately issued after a
law is passed, the absence of the regulation does not automatically mean
that the law itself would become inoperative.
At the time the pre-assessment notice was issued to Reyes, RA 8424
already stated that the taxpayer must be informed of both the law and facts
on which the assessment was based. Thus, the CIR should have required
the assessment officers of the Bureau of Internal Revenue (BIR) to follow
the clear mandate of the new law. The old regulation governing the issuance
of estate tax assessment notices ran afoul of the rule that tax regulations -old as they were -- should be in harmony with, and not supplant or modify,
the law.16
It may be argued that the Tax Code provisions are not self-executory. It
would be too wide a stretch of the imagination, though, to still issue a
regulation that would simply require tax officials to inform the taxpayer, in
any manner, of the law and the facts on which an assessment was based.
That requirement is neither difficult to make nor its desired results hard to
achieve.
Moreover, an administrative rule interpretive of a statute, and not declarative

of certain rights and corresponding obligations, is given retroactive effect as
of the date of the effectivity of the statute.17 RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was issued only on
September 6, 1999, this regulation was to retroact to January 1, 1998 -- a
date prior to the issuance of the preliminary assessment notice and demand
letter.
Third, neither Section 229 nor RR 12-85 can prevail over Section 228 of the
Tax Code.
No doubt, Section 228 has replaced Section 229. The provision on
protesting an assessment has been amended. Furthermore, in case of
discrepancy between the law as amended and its implementing but old
regulation, the former necessarily prevails.18 Thus, between Section 228 of
the Tax Code and the pertinent provisions of RR 12-85, the latter cannot
stand because it cannot go beyond the provision of the law. The law must
still be followed, even though the existing tax regulation at that time provided
for a different procedure. The regulation then simply provided that notice be
sent to the respondent in the form prescribed, and that no consequence
would ensue for failure to comply with that form.
Even a cursory review of the preliminary assessment notice, as well as the

demand letter sent, reveals the lack of basis for -- not to mention the
insufficiency of -- the gross figures and details of the itemized deductions
indicated in the notice and the letter. This Court cannot countenance an
assessment based on estimates that appear to have been arbitrarily or
capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as
any arbitrariness will negate the very reason for government itself."21
Fifth, the rule against estoppel does not apply. Although the government
cannot be estopped by the negligence or omission of its agents, the
obligatory provision on protesting a tax assessment cannot be rendered
nugatory by a mere act of the CIR .
Tax laws are civil in nature.22 Under our Civil Code, acts executed against
the mandatory provisions of law are void, except when the law itself
authorizes the validity of those acts.23 Failure to comply with Section 228
does not only render the assessment void, but also finds no validation in any
provision in the Tax Code. We cannot condone errant or enterprising tax
officials, as they are expected to be vigilant and law-abiding.
Second Issue:
Fourth, petitioner violated the cardinal rule in administrative law that the
taxpayer be accorded due process. Not only was the law here disregarded,
but no valid notice was sent, either. A void assessment bears no valid fruit.
The law imposes a substantive, not merely a formal, requirement. To
proceed heedlessly with tax collection without first establishing a valid
assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and
adduce supporting evidence.19 In the instant case, respondent has not been
informed of the basis of the estate tax liability. Without complying with the
unequivocal mandate of first informing the taxpayer of the governments
claim, there can be no deprivation of property, because no effective protest
can be made.20 The haphazard shot at slapping an assessment, supposedly
based on estate taxations general provisions that are expected to be known
by the taxpayer, is utter chicanery.
Validity of Compromise
It would be premature for this Court to declare that the compromise on the
estate tax liability has been perfected and consummated, considering the
earlier determination that the assessment against the estate was void.
Nothing has been settled or finalized. Under Section 204(A) of the Tax Code,
where the basic tax involved exceeds one million pesos or the settlement
offered is less than the prescribed minimum rates, the compromise shall be
subject to the approval of the NEB composed of the petitioner and four
deputy commissioners.
Finally, as correctly held by the appellate court, this provision applies to all
compromises, whether government-initiated or not. Ubi lex non distinguit,
nec nos distinguere debemos. Where the law does not distinguish, we
should not distinguish.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision

AFFIRMED. No pronouncement as to costs.
SO ORDERED.
2. That petitioner filed its income tax returns for the years 1948,
1949, 1950, and 1951, on February 28, 1949, March 31, 1950,
March 31, 1951, and March 1, 1952, respectively, and the amounts
assessed thereon as per return, were promptly paid.
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson, First Division

SUPREME COURT
Manila
EN BANC
G.R. No. L-18993
1. That petitioner is a corporation, engaged in the business of

purchase, sale, barter and exchange of urban estates, and their
improvement and subdivision into residential lots for resale to the
public, ....
April 30, 1964
COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
CAPITOL SUBDIVISION, INC., respondent.
Office of the Solicitor General for petitioner.
San Juan, Africa and Benedicto for respondent.
BARRERA, J.:
This is an appeal from the decision of the Court of Tax Appeals (in CTA Case
No. 711) reversing the decision of petitioner Commissioner of Internal
Revenue which held respondent Capitol Subdivision, Inc. liable for
deficiency income taxes for 1948, 1949, 1950, and 1951 in the amounts of
P2,927.69, P3,952.19, P5,927.00, and P14,406.00, respectively, or a total of
P27,212.88.
The case was submitted for decision to the Court of Tax Appeals, on the
following stipulation of facts:
3. That in an investigation conducted by an examiner of the

respondent, it was recommended in the memorandum report dated
June 30, 1952 of the examiner, that petitioner should pay the
following deficiency income tax, as follows:
For the year ended Dec. 31, 1948 ...................................
P2,927.69
3,952.19
5,927.00
14,406.00
4. That respondent sent income tax assessment notices dated April

8, 1953, requesting payment of the aforesaid amounts due and
collectible, the said taxes being based on disallowed deductions,
and over-claimed depreciations, as shown on pages 12, 19, 39,
and 45, BIR records.
5. That petitioner, upon receipt of the said Income Tax Assessment
Notices, on May 30, 1953, requested for the breakdown of the
amounts reflected under the heading General Expenses in the said
notices, ....
6. That on June 21, 1955, respondent sent petitioner circular letters
making inquiry as to whether payment was already made on
Assessment No. 35-5-125329-48-2, No. 35-5-125371-49-2, No. 355-125346-50-2, No. 35-5-52-51-2 for the years 1948, 1949, 1950
and 1951; ....
7. That on July 1, 1955, petitioner in reply to above circular letters
of respondent, reiterated its request of May 30 1953 ....
8. That on September 20, 1955, respondent replied to petitioner's

letter dated July 1, 1955, and at the same time reiterated his
demand for payment of the income tax assessment for the years
1948, 1949, 1950 and, 1951, plus a surcharge of 5%, 1% monthly
interest and compromise fees of P20.00 each for the years 1948,
1949, 1950, and P40.00 for 1951 ....
9. That petitioner in the letter dated October 15, 1955 to
respondent, explained the disallowed items and requested for reinvestigation ....
10. That after reinvestigation, the examiner in a memorandum
report dated October 26, 1955 submitted to the Acting Provincial
Revenue Officer reiterating his findings and recommended that the
previous assessments be affirmed.1wph1.t
11. That in a letter dated September 2, 1959, respondent
demanded of petitioner the payment of the said deficiency income
taxes for the years 1948, 1949, 1950 and 1951, respectively ....
12. That in its letter dated September 16, 1959, ... petitioner
invoked the defense of prescription, and on that ground, denied
liability for the deficiency income taxes for the aforesaid years.
13. That in the respondent's letter dated October 13, 1959, the
original of which was received by petitioner on October 21, 1959,
respondent denied the request for cancellation, alleging that the 5year period was suspended by the various requests for reinvestigation filed with respondent and demanded the payment of
the deficiency income tax assessments from 1948 to 1951 ....
xxx
xxx
xxx
On the basis of the foregoing stipulation of facts, the Court of Tax Appeals
rendered the decision above adverted to, in part stating:
follows that the right of respondent Commissioner to collect said

deficiencies has already prescribed.
The only question to be determined in this appeal is whether petitioner's
right to collect respondent's deficiency income tax assessments in question
has already prescribed under Section 332 (c) of the National Internal
Revenue Code, which reads:
SEC. 332. Exceptions as to period of limitation of assessment and
collection of taxes. ....
(c) Where the assessment of any internal revenue tax has been
made within the period of limitation above prescribed, such tax may
be collected by distraint or levy or by a proceeding in court, but only
if begun (1)within five years after the assessment of the tax, or (2)
prior to the expiration of any period for collection agreed upon in
writing by the Collector of Internal Revenue and the taxpayer before
the expiration of such five-year period. The period so agreed upon
may be extended by subsequent agreements in writing made
before the expiration of the period previously agreed upon.
(Emphasis supplied)
It is not disputed that on April 8, 1953, petitioner demanded from respondent
payment of deficiency income taxes for 1948-1951. On May 30, 1953
respondent requested for a breakdown of the amounts reflected under the
heading "General Expenses" in a letter reading as follows:
This will acknowledge receipt of the Income Tax Assessment
Notices for the years 1948, 1949, 1950 and 1951.
In going over the items disallowed, we noted under the heading
General Expenses, the following:
1948 P695.00 35-AACR-1253329-52/48
1949 1,615.00 35-ACR-125371-52/49
It appearing that deficiency assessments in question were made on

April 8, 1953 and the respondent's answer to the instant petition for
review, which is tantamount to a judicial action for collection
(Collector v. Solano, et al., supra; Collector v. Clement, et al., L12194, Jan. 24, 1959; Collector v. Pineda, supra), was filed on
December 29, 1959, or 6 years, 8 months and 21 days thereafter, it
1950 2,075.30 35-ACR-125346-52/50

1951 4,219.50 35-ACR-52-52/51
We have no way of determining the items composing above and we

kindly request that we be furnished with an itemized information of
the same for our study with the assurance that should we find them
satisfactory, we will be much obliged to make initial payments,
otherwise, we will give you our own explanation on the subject
matter.
On June 21, 1955 petitioner sent respondent circular letters inquiring
whether it has already paid said assessments. In reply to said letters,
respondent, on July 1, 1955, reiterated its request of May 30, 1953.
Petitioner replied to said letter on September 20, 1955 reiterating the
demand for payment from respondent. Respondent, in its letter of October
15, 1955, explained the disallowed items in detail, and stated in closing:
In view of the foregoing circumstances and reasons, we beg you to
reconsider your stand and consider the above items as proper and
ordinary expenses of the business. If necessary, we request reinvestigation of the item under General Expenses to convince you
of its reasonableness as expenses of the business. (Emphasis
supplied.)
Whether a formal investigation pursuant to respondent's request was
actually made by petitioner, is not shown by the records. It appears,
however, that on October 26, 1955, BIR Examiner 103 submitted to the
Acting Provincial Revenue Examiner, Bacolod City, a Memorandum, which in
part states:
The undersigned is submitted hereunder his comments on the
disallowances he made on the income tax case of the Capitol
Subdivision Incorporated which is herein being contested.
1. General Expenses disallowed consist of contributions and gifts to
various persons, are not ordinary and necessary expenses of the
company in carrying out their real estate business.
xxx
xxx
xxx
On September 2, 1959, petitioner made another demand on respondent for

payment of the deficiency income tax assessment, with the warning that
should the aforesaid obligation remain unsettled in 10 days, judicial action
for collection thereof will be instituted immediately without further notice.
On September 16, 1959, respondent taxpayer tasked the Commissioner of

Internal Revenue for the cancellation of the assessment in a letter in part
reading as follows:
Please be informed that from the time we received your deficiency
assessments all dated April 8, 1953, we have contested the
correctness of same, insisting all the time that the items being
disallowed are ordinary, necessary, and legitimate expenses of the
business. This stand of ours have been reiterated to various men
from your office who called on us to collect. No action was taken by
your office to dispute our contention, thus making us believe you
subscribe to our stand.
From April 8, 1953 to date, more than six year have already lapsed,
and we therefore submit that under Sections 331 and 332 C of the
Internal Revenue Code your right to collect has already prescribed.
This is in line with the decisions rendered in the cases of Santiago
Gancayco vs. Collector of Internal Revenue, CTA Case No. 287,
November 14, 1957; Manuel Pineda vs. The Collector of Internal
Revenue, CTA Case No. 364, August 30, 1958; and Collector of
Internal Revenue vs. Florencio Solano, G.R. No. L-11475, July 31,
1958 to mention a few.
In view of the above, we respectfully request that your assessment
be cancelled. (Emphasis supplied.)
Upon its denial, said respondent initiated the instant proceeding in the Court
of Tax Appeals.
The right to enforce collection of the disputed assessment has not yet been
lost. There is no question that the period commenced to run on April 8, 1953
when the assessment was made. The same, however, was interrupted when
the respondent taxpayer, by letter of May 30, 1953, requested for an
itemized information on the disallowed items. While it is true that the said
letter did not specifically use the words "review" or "reconsideration," the
request itself for an explanation of the disallowances made in the
assessment in effect was an exception to the correctness thereof. That the
taxpayer actually assailed the correctness of such assessment "from the
start" was specifically admitted in the aforequoted letter of September 16,
1959. This request for reconsideration or review of the assessment was
denied when petitioner demanded for payment of the alleged deficiency tax
on June 21, 1955. The period for collection then started to run again, but it
was tolled when the taxpayer reiterated its request for explanation of the
disallowances on July 1, 1955 or after 10 days. This request was denied on

September 20, 1955, and a span of 25 days elapsed until October 15, 1955
when the taxpayer explained the disallowed items and requested for a
reinvestigation of the same. On September 2, 1959, petitioner denied the
request for reinvestigation when it reiterated its demand for collection of the
alleged deficiency tax. From this date until December 28, 1959, when the
answer to the taxpayer's petition wish filed in the Court of Tax Appeals, only
3 months and 26 days had passed. Clearly, although the assessment was
sent on April 8, 1953, by respondent taxpayer's own requests for review or
reconsideration of the disputed assessment, the period for collection thereof
had been interrupted. Therefore, deducting from the total period from April 8,
1953 (date of the deficiency assessment) to December 29, 1959 (date of
answer which is tantamount to a judicial action), or a total of 6 years, 8
months and 21 days, the period of interruption from May 30, 1953 (when
respondent filed its petition for clarification amounting to reconsideration or
review of the assessment) to June 21, 1955 (when the petitioner in effect
denied the petition by reiterating its demand for payment), or a total of 2
years and 21 days, there is left a period of 4 years and 8 months within
which judicial collection may be effected. Since the law allows 5 years for
thus purpose, the collection herein sought by the petitioner is still timely.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the decision of the
Court of Tax Appeals is hereby set aside and the taxpayer's petition to
declare null and void the deficiency income tax assessments for 1948, 1949,
and 1950, is dismissed. Without costs. So ordered.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes,
J.B.L., Paredes, Dizon and Makalintal, JJ., concur.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-45277 August 5, 1985
AUGUSTO BASA, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, represented by the Solicitor General,

and Judge GUILLERMO F. VILLASOR, Branch XV, Court of First
Instance of Manila, respondent.
Angel R. Gonzales for petitioner.
The Solicitor General for respondents.
AQUINO, J.:
The issue in this case is whether the decision of the Court of First Instance
of Manila (not the Tax Court) in an income tax case is reviewable by the
Appellate Court or by this Court.
In a demand letter dated August 31, 1967, the Commissioner of Internal
Revenue assessed against Augusto Basa deficiency income taxes for 1957
to 1960 totalling P16,353.12.*
As may be noted, the deficiencies were based on the taxpayer's failure to
report in full his capital gains on the sales of land. This omission or
underdeclaration of income justified the imposition of 50% surcharge.
The taxpayer did not contest the assessments in the Tax Court. The
Commissioner's letter-decision on the case was dated December 6, 1974.
On the assumption that the assessments had become final and
incontestable, the Commissioner on September 3, 1975 sued the taxpayer in
the Manila Court of First Instance for the collection of said amount.
The trial court in a decision dated April 20, 1976 affirmed the assessments
and ordered Basa to pay P16,353.12 plus 5% surcharge and one percent
monthly interest from August 31, 1967 to August 31, 1970.
Instead of appealing to this Court directly under Republic Act No. 5440, in
relation to Rules 41 and 45 of the Rules of Court, since no factual issues are
involved, Basa tried to appeal to the Court of Appeals. He did not perfect his
appeal within the reglementary period. The trial court dismissed it in its order
dated October 1, 1976.
FIRST DIVISION
On December 23, 1976 Basa filed the instant special civil action of certiorari
wherein he assailed the trial court's decision.
FISHWEALTH CANNING CORPORATION,

Petitioner,
G.R. No. 179343

Present:
We hold that the petition is devoid of merit. The trial court acted within its
jurisdiction in rendering its decision and dismissing Basa's appeal. He
should have appealed to this Court. His failure to do so rendered the
decision final and executory. He has no cause of action for certiorari.
The decision is correct. If he wanted to contest the assessments, he should
have appealed to the Tax Court. Not having done so, he could not contest
the same in the Court of First Instance.
The issue of prescription raised by him is baseless. The assessments were
predicated on the fact that his income tax returns, if not fraudulent, were
false because he underdeclared his income. In such a case, the deficiency
assessments may be made within ten years after the discovery of the falsity
or omission. The court action should be instituted within five years after the
assessment but this period is suspended during the time that the
Commission is prohibited from instituting a court action.**
As explained in the Solicitor General's memorandum, Basa's requests for
reinvestigation tolled the prescriptive period of five years within which court
action may be brought (Commissioner of Internal Revenue vs. Capitol
Subdivision, Inc., 119 Phil. 1051; Collector of Internal Revenue vs. Suyoc
Consolidated Mining Company, 104 Phil. 819). Moreover, the issue of
prescription should have been raised in the Tax Court.
WHEREFORE, the trial court's judgment is affirmed. No costs.
PUNO, C.J., Chairperson,

CARPIO MORALES,
LEONARDO-DE CASTRO,
BERSAMIN, and
VILLARAMA, JR., JJ.
- versus -
COMMISSIONER OF INTERNAL REVENUE,

Respondent.
Promulgated:
January 21, 2010
x--------------------------------------------------x
DECISION
CARPIO MORALES, J.:

The Commissioner of Internal Revenue (respondent), by Letter of
Authority dated May 16, 2000,[1] ordered the examination of the internal revenue
taxes for the taxable year 1999 of Fishwealth Canning Corp. (petitioner). The
investigation disclosed that petitioner was liable in the amount of P2,395,826.88
representing income tax, value added tax (VAT), withholding tax deficiencies and
other miscellaneous deficiencies. Petitioner eventually settled these obligations
SO ORDERED.
Makasiar, C.J., Concepcion, Jr., Escolin and Cuevas, JJ., concur.
Abad Santos, J., took no part
on August 30, 2000.[2]

On August 25, 2000, respondent reinvestigated petitioners books of accounts and
other records of internal revenue taxes covering the same period for the purpose of
which it issued a subpoena duces tecum requiring petitioner to submit its records and
By a Preliminary Collection Letter dated September 6, 2005, respondent
books of accounts. Petitioner requested the cancellation of the subpoena on the
demanded payment of petitioners tax liabilities, [9] drawing petitioner to file
ground that the same set of documents had previously been examined.
on October 20, 2005 a Petition for Review[10] before the CTA.
As petitioner did not heed the subpoena, respondent thereafter filed a
In his Answer,[11] respondent argued, among other things, that the petition
criminal complaint against petitioner for violation of Sections 5 (c) and 266 of the
was filed out of time which argument the First Division of the CTA upheld and
1997 Internal Revenue Code, which complaint was dismissed for insufficiency of
accordingly dismissed the petition.[12]
evidence.[3]
Petitioner filed a Motion for Reconsideration [13] which was denied.[14] The
Respondent sent, on August 6, 2003, petitioner a Final Assessment Notice
of income tax and VAT deficiencies totaling P67,597,336.75 for the taxable year
Resolution denying its motion for reconsideration was received by petitioner

on October 31, 2006.[15]
1999,[4] which assessment petitioner contested by letter of September 23, 2003. [5]
On November 21, 2006, petitioner filed a petition for review before the
Respondent thereafter issued a Final Decision on Disputed Assessment
dated August 2, 2005, which petitioner received on August 4, 2005, denying its letter
CTA En Banc[16] which, by Decision[17] of July 5, 2007, held that the petition before
the First Division, as well as that before it, was filed out of time.
of protest, apprising it of its income tax and VAT liabilities in the amounts
of P15,396,905.24 and P63,688,434.40 [sic], respectively, for the taxable year 1999,
[6]
and requesting the immediate payment thereof, inclusive of penalties incident to
delinquency. Respondent added that if petitioner disagreed, it may appeal to the Court
Hence, the present petition,[18] petitioner arguing that the CTA En Banc
erred in holding that the petition it filed before the CTA First Division as well as that
filed before it (CTA En Banc) was filed out of time.
of Tax Appeals (CTA) within thirty (30) days from date of receipt hereof, otherwise
our said deficiency income and value-added taxes assessments shall become final,
executory, and demandable.
The petition is bereft of merit.
[7]
Section 228 of the 1997 Tax Code provides that an assessment

Instead of appealing to the CTA, petitioner filed, on September 1, 2005, a
Letter of Reconsideration dated August 31, 2005.
[8]
x x x may be protested administratively by filing a request

for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and
regulations. Within sixty (60) days from filing of the protest,

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

Costs against petitioner.
SO ORDERED.
CONCHITA CARPIO MORALES
THIRD DIVISION
In the case at bar, petitioners administrative protest was denied by Final
Decision on Disputed Assessment dated August 2, 2005 issued by respondent and
which petitioner received on August 4, 2005. Under the above-quoted Section 228 of
RIZAL COMMERCIAL BANKING

CORPORATION,
G.R. No. 170257
the 1997 Tax Code, petitioner had 30 days to appeal respondents denial of its protest
to the CTA.
Petitioner,
Present:
Since petitioner received the denial of its administrative protest on August

4, 2005, it had until September 3, 2005 to file a petition for review before the CTA
VELASCO, JR., J., Chairperson,
Division. It filed one, however, on October 20, 2005, hence, it was filed out of
PERALTA,
time. For a motion for reconsideration of the denial of the administrative protest does
not toll the 30-day period to appeal to the CTA.
ABAD,
- versus VILLARAMA, JR., and
On petitioners final contention that it has a meritorious case in view of the

dismissal of the above-mentioned criminal case filed against it for violation of the
1997 Internal Revenue Code, [19] the same fails. For the criminal complaint was
instituted not to demand payment, but to penalize the taxpayer for violation of the
Tax Code.[20]
MENDOZA, JJ.
COMMISSIONER OF INTERNAL REVENUE,
authorizing a special audit team to examine the books of accounts and other
Promulgated:
accounting records for all internal revenue taxes from January 1, 1994 to December
Respondent.
31, 1995.[4]
September 7, 2011
On January 23, 1997, RCBC executed two Waivers of the Defense of

Prescription Under the Statute of Limitations of the National Internal Revenue Code
covering the internal revenue taxes due for the years 1994 and 1995, effectively
x --------------------------------------------------------------------------------------- x
extending the period of the Bureau of Internal Revenue (BIR) to assess up to

December 31, 2000.[5]
DECISION
Subsequently, on January 27, 2000, RCBC received a Formal Letter of
Demand together with Assessment Notices from the BIR for the following
deficiency tax assessments:[6]
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 seeking to set

aside the July 27, 2005 Decision [1] and October 26, 2005 Resolution[2] of the Court
of Tax AppealsEn Banc (CTA-En Banc) in C.T.A. E.B. No. 83 entitled Rizal
Commercial Banking Corporation v. Commissioner of Internal Revenue.
THE FACTS
Petitioner
Rizal
Commercial
Banking
Corporation (RCBC) is
corporation engaged in general banking operations. It seasonably filed its

Corporation Annual Income Tax Returns for Foreign Currency Deposit Unit for the
calendar years 1994 and 1995.
[3]
On August 15, 1996, RCBC received Letter of Authority No. 133959

issued by then Commissioner of Internal Revenue (CIR) Liwayway Vinzons-Chato,
Particulars
Deficiency
Income Tax
1995 (ST-INC95-0199-2000)
1994 (ST-INC94-0200-2000)
Deficiency Gross
Receipts Tax
1995 (ST-GRT95-0201-2000)
1994 (ST-GRT94-0202-2000)
Deficiency Final
Withholding Tax
1995 (ST-EWT95-0203-2000)
Basic Tax
Interest
Compromise
Penalties
252,150,988.01
191,496,585.96
25,000.00
443
216,478,397.90
207,819,261.99
25,000.00
424
13,697,083.68
12,428,696.21
2,819,745.52
28
2,488,462.38
2,755,716.42
25,000.00
64,365,610.12
58,757,866.78
25,000.00
123
1994 (ST-EWT94-0204-2000)
Deficiency Final
Tax on FCDU
Onshore Income
1995 (ST-OT95-0205-2000)
1994 (ST-OT94-0206-2000)
Deficiency
Expanded
Withholding Tax
1995 (ST-EWT95-0207-2000)
1994 (ST-EWT94-0208-2000)
Deficiency
Documentary
Stamp Tax
1995 (STDST1-95-02092000)
1995 (STDST2-95-02102000)
1994 (STDST3-94-02112000)
1994 (STDST4-94-02122000)
TOTALS
53,058,075.25
59,047,096.34
25,000.00
support it. Much later on November 20, 2000, it filed a petition for review before the
CTA, pursuant to Section 228 of the 1997 Tax Code.[7]
81,508,718.20
61,901,963,.52
25,000.00
34,429,503.10
33,052,322.98
25,000.00
On December 6, 2000, RCBC received another Formal Letter of Demand

with Assessment Notices dated October 20, 2000, following the reinvestigation it
requested, which drastically reduced the original amount of deficiency taxes to the
following:[8]
5,051,415.22
4,583,640.33
113,000.00
4,482,740.35
4,067,626.31
78,200.00
351,900,539.39
315,804,946.26
250,000.00
367,207,105.29
331,535,844.68
300,000.00
460,370,640.05
512,193,460.02
300,000.00
223,037,675.89
240,050,706.09
300,000.00
2,130,226,954.83
2,035,495,733.89
4,335,945.52
Disagreeing with the said deficiency tax assessment, RCBC filed a protest
on February 24, 2000 and later submitted the relevant documentary evidence to
Particulars
Deficiency Income
Tax
1995 (INC-95000003)
1994 (INC-94000002)
Deficiency Gross
Receipts Tax
1995 (GRT-95000004)
1994 (GRT-94000003)
Deficiency Final
Withholding Tax
1995 (FT-95000005)
1994 (FT-94000004)
Deficiency Final
Tax on FCDU
Onshore Income
1995 (OT-95000006)
1994 (OT-94-
Basic Tax
Interest
374,348.45
346,656.92
1,392,366.28
1,568,605.52
2,000,926.96
3,322,589.63
138,368.61
161,872.32
362,203.47
351,287.75
188,746.43
220,807.47
81,508,718.20
79,052,291.08
34,429,503.10
40,277,802.26
Surcharge &/
Compromise
1,367,222.04
000005)
Deficiency
Expanded
Withholding Tax
1995 (EWT-95000004)
1994 (EWT-94000003)
Deficiency
Documentary
Stamp Tax
1995 (DST-95000006)
1995 (DST2-95000002)
1994 (DST-94000005)
1994 (DST2-94000001)
TOTALS
RCBC, however, refused to pay the following assessments for deficiency onshore
tax and documentary stamp tax which remained to be the subjects of its petition for
520,869.72
505,171.80
25,000.00review:[10]
297,949.95
348,560.63
25,000.00
Particulars
Deficiency Final Tax
on FCDU Onshore
Income
Basic
149,972.68
Interest
599,890.72
Sub Total
6,238,460.62
Deficiency
Documentary Stamp
226,266.18
Tax
Basic
4,260,026.21
Surcharge
24,953,842.46
905,064.74
17,040,104.84
164,712,903.44
126,155,645.38
Sub Total
12,291,947.73
TOTALS
1994
1995
Total
34,429,503.10
40,277,802.26
81,508,718.20
79,052,291.08
115,938,221.30
119,330,093.34
74,707,305.36
160,561,009.28
235,268,314.64
17,040,104.84
4,260,026.21
24,953,842.46
6,238,460.62
41,993,947.30
10,498,486.83
21,300,131.05
31,192,303.08
52,492,434.13
96,007,436.41
191,753,312.36
287,760,748.77
On the same day, RCBC paid the following deficiency taxes as assessed
RCBC argued that the waivers of the Statute of Limitations which it
by the BIR:[9]
executed on January 23, 1997 were not valid because the same were not signed or
Particulars
1994
1995
Total
conformed to by the respondent CIR as required under Section 222(b) of the Tax
Deficiency Income Tax

Deficiency Gross Receipts
Tax
Deficiency Final
Withholding Tax
Deficiency Expanded
Withholding Tax
Deficiency Documentary
Stamp Tax
2,965,549.44
300,695.84
722,236.11
6,701,893.17
3,687,785.55
7,002,589.01
Code.[11] As regards the deficiency FCDU onshore tax, RCBC contended that
410,174.44
714,682.02
1,124,856.46
the borrower, constituted by law as the withholding agent, that was primarily liable
TOTALS
because the onshore tax was collected in the form of a final withholding tax, it was
for the remittance of the said tax.[12]

672,490.14
1,052,753.48
1,725,243.62
1,131,330.92
749,863.40
1,881,194.32
5,480,240.78
9,941,428.18
15,421,668.96
On December 15, 2004, the First Division of the Court of Tax

Appeals (CTA-First Division) promulgated its Decision[13] which partially granted
the petition for review. It considered as closed and terminated the assessments for
deficiency income tax, deficiency gross receipts tax, deficiency final withholding
In its Resolution[17] dated April 11, 2005, the CTA-First Division substantially
tax, deficiency expanded withholding tax, and deficiency documentary stamp tax
upheld its earlier ruling, except for its inadvertence in the addition of the total
(not an industry issue) for 1994 and 1995. [14] It, however, upheld the assessment for
amount of deficiency taxes. As such, it modified its earlier decision and ordered
deficiency final tax on FCDU onshore income and deficiency documentary stamp
RCBC to pay the amount of 132,654,261.69 plus 20% delinquency tax.[18]
tax for 1994 and 1995 and ordered RCBC to pay the following amounts plus 20%
delinquency tax:
[15]
Particulars
Deficiency Final Tax on
FCDU Onshore Income
Basic
Interest
Sub Total
Deficiency
Documentary Stamp
Tax (Industry Issue)
Basic
Surcharge
Sub Total
TOTALS
RCBC elevated the case to the CTA-En Banc where it raised the following
issues:
1994
1995
Total
22,356,324.43
26,153,837.08
16,067,952.86
15,583,713.19
115,938, 221.30
119,330,093.34
48,510,161.51
31,651,666.05
119,330,093.34
I.
Whether or not the right of the respondent to assess
deficiency onshore tax and documentary stamp tax for
taxable year 1994 and 1995 had already prescribed when it
issued the formal letter of demand and assessment notices
for the said taxable years.
II.
17,040,104.84
4,260,026.21
24,953,842.46
6,238,460.62
41,993,947.30
10,498,486.83
21,300,131.05
31,192,303.08
52,492,434.13
69,810,292.56
62,843,969.13
171,822,527.47
Whether or not petitioner is liable for deficiency onshore tax

for taxable year 1994 and 1995.
III.
Whether or not petitioners special savings account is subject
to documentary stamp tax under then Section 180 of the
1993 Tax Code.[19]
Unsatisfied, RCBC filed its Motion for Reconsideration on January 21, 2005,
arguing that: (1) the CTA erred in its addition of the total amount of deficiency taxes
The CTA-En Banc, in its assailed Decision, denied the petition for lack of
and the correct amount should only be 132,654,261.69 and not 171,822,527.47;
merit. It ruled that by receiving, accepting and paying portions of the reduced
(2) the CTA erred in holding that RCBC was estopped from questioning the validity
assessment, RCBC bound itself to the new assessment, implying that it recognized
of the waivers; (3) it was the payor-borrower as withholding tax agent, and not
the validity of the waivers. [20] RCBC could not assail the validity of the waivers after
RCBC, who was liable to pay the final tax on FCDU, and (4) RCBCs special
it had received and accepted certain benefits as a result of the execution of the said
savings account was not subject to documentary stamp tax.
[16]
waivers.[21] As to the deficiency onshore tax, it held that because the payor-borrower
was merely designated by law to withhold and remit the said tax, it would then
follow that the tax should be imposed on RCBC as the payee-bank. [22] Finally, in
relation to the assessment of the deficiency documentary stamp tax on petitioners
waivers with respect to the assessment of deficiency onshore

tax.[26]
special savings account, it held that petitioners special savings account was a
and
certificate of deposit and, as such, was subject to documentary stamp tax. [23]
Whether petitioner, as payee-bank, can be held liable for

deficiency onshore tax, which is mandated by law to be
collected at source in the form of a final withholding tax.[27]
Hence, this petition.
While awaiting the decision of this Court, RCBC filed its Manifestation
THE COURTS RULING
dated July 22, 2009, informing the Court that this petition, relative to the DST
deficiency assessment, had been rendered moot and academic by its payment of the
tax
deficiencies
on
Documentary
Stamp
Tax (DST) on
Special
Savings
Account (SSA) for taxable years 1994 and 1995 after the BIR approved its
Petitioner is estopped from

questioning the validity of the waivers
applications for tax abatement.[24]

RCBC assails the validity of the waivers of the statute of limitations on the
In its November 17, 2009 Comment to the Manifestation, the CIR pointed
ground that the said waivers were merely attested to by Sixto Esquivias, then
out that the only remaining issues raised in the present petition were those pertaining
Coordinator for the CIR, and that he failed to indicate acceptance or agreement of
to RCBCs deficiency tax on FCDU Onshore Income for taxable years 1994 and
the CIR, as required under Section 223 (b) of the 1977 Tax Code. [28] RCBC further
1995 in the aggregate amount of 80,161,827.56 plus 20% delinquency interest per
argues that the principle of estoppel cannot be applied against it because its payment
annum. The CIR prayed that RCBC be considered to have withdrawn its appeal with
of the other tax assessments does not signify a clear intention on its part to give up
respect to the CTA-En Banc ruling on its DST on SSA deficiency for taxable years
its right to question the validity of the waivers.[29]
1994 and 1995 and that the questioned CTA decision regarding RCBCs deficiency
tax on FCDU Onshore Income for the same period be affirmed. [25]
THE ISSUES
The Court disagrees.
Under Article 1431 of the Civil Code, the doctrine of estoppel is anchored
on the rule that an admission or representation is rendered conclusive upon the
Thus, only the following issues remain to be resolved by this Court:
person making it, and cannot be denied or disproved as against the person relying
thereon. A party is precluded from denying his own acts, admissions or
Whether petitioner, by paying the other tax assessment

covered by the waivers of the statute of limitations, is
rendered estopped from questioning the validity of the said
representations to the prejudice of the other party in order to prevent fraud and
falsehood.[30]
an income tax return for the particular income. (Emphasis

supplied)
Estoppel is clearly applicable to the case at bench. RCBC, through its
partial payment of the revised assessments issued within the extended period as
provided for in the questioned waivers, impliedly admitted the validity of those
waivers. Had petitioner truly believed that the waivers were invalid and that the
assessments were issued beyond the prescriptive period, then it should not have paid
the reduced amount of taxes in the revised assessment. RCBCs subsequent
action effectively belies its insistence that the waivers are invalid. The records show
that on December 6, 2000, upon receipt of the revised assessment, RCBC
immediately made payment on the uncontested taxes. Thus, RCBC is estopped from
questioning the validity of the waivers. To hold otherwise and allow a party to
gainsay its own act or deny rights which it had previously recognized would run
counter to the principle of equity which this institution holds dear.[31]
The petitioner is mistaken.
Before any further discussion, it should be pointed out that RCBC erred in citing the
abovementioned Revenue Regulations No. 2-98 because the same governs collection
at source on income paid only on or after January 1, 1998. The deficiency
withholding tax subject of this petition was supposed to have been withheld on
income paid during the taxable years of 1994 and 1995. Hence, Revenue
Regulations No. 2-98 obviously does not apply in this case.
In Chamber of Real Estate and Builders Associations, Inc. v. The Executive

Secretary,[32] the Court has explained that the purpose of the withholding tax system
is three-fold: (1) to provide the taxpayer with a convenient way of paying his tax
liability; (2) to ensure the collection of tax, and (3) to improve the governments
Liability for Deficiency

Onshore Withholding Tax
cashflow. Under the withholding tax system, the payor is the taxpayer upon whom
the tax is imposed, while the withholding agent simply acts as an agent or a collector
of the government to ensure the collection of taxes. [33]
RCBC is convinced that it is the payor-borrower, as withholding agent,

who is directly liable for the payment of onshore tax, citing Section 2.57(A) of
Revenue Regulations No. 2-98 which states:
(A) Final Withholding Tax. Under the final withholding
tax system the amount of income tax withheld by the
withholding agent is constituted as a full and final
payment of the income tax due from the payee on the said
income. The liability for payment of the tax rests primarily
on the payor as a withholding agent. Thus, in case of his
failure to withhold the tax or in case of under withholding,
the deficiency tax shall be collected from the
payor/withholding agent. The payee is not required to file
It is, therefore, indisputable that the withholding agent is merely a tax

collector and not a taxpayer, as elucidated by this Court in the case of Commissioner
of Internal Revenue v. Court of Appeals,[34] to wit:
In the operation of the withholding tax system, the
withholding agent is the payor, a separate entity acting no
more than an agent of the government for the collection of
the tax in order to ensure its payments; the payer is the
taxpayer he is the person subject to tax imposed by law;
and the payee is the taxing authority. In other words, the
withholding agent is merely a tax collector, not a
taxpayer. Under the withholding system, however, the
agent-payor becomes a payee by fiction of law. His (agent)

liability is direct and independent from the taxpayer,
because the income tax is still imposed on and due from the
latter. The agent is not liable for the tax as no wealth flowed
into him he earned no income. The Tax Code only makes
the agent personally liable for the tax arising from the
breach of its legal duty to withhold as distinguished from
its duty to pay tax since:
the governments cause of action against
the withholding agent is not for the
collection of income tax, but for the
enforcement of the withholding provision
of Section 53 of the Tax Code, compliance
with which is imposed on the
withholding agent and not upon the
taxpayer.[35] (Emphases supplied)
Based on the foregoing, the liability of the withholding agent is independent from
that of the taxpayer. The former cannot be made liable for the tax due because it is
the latter who earned the income subject to withholding tax. The withholding agent
is liable only insofar as he failed to perform his duty to withhold the tax and remit
the same to the government. The liability for the tax, however, remains with the
taxpayer because the gain was realized and received by him.
While the payor-borrower can be held accountable for its negligence in performing
its duty to withhold the amount of tax due on the transaction, RCBC, as the taxpayer
and the one which earned income on the transaction, remains liable for the payment
of tax as the taxpayer shares the responsibility of making certain that the tax is
properly withheld by the withholding agent, so as to avoid any penalty that may
arise from the non-payment of the withholding tax due.
RCBC cannot evade its liability for FCDU Onshore Tax by shifting the blame on the
payor-borrower as the withholding agent. As such, it is liable for payment of
deficiency onshore tax on interest income derived from foreign currency loans,
pursuant to Section 24(e)(3) of the National Internal Revenue Code of 1993:
Sec. 24. Rates of tax on domestic corporations.
xxxx
(e) Tax on certain incomes derived by domestic
corporations
xxxx
(3) Tax on income derived under the Expanded Foreign
Currency Deposit System. Income derived by a depository
bank under the expanded foreign currency deposit system
from foreign currency transactions with nonresidents,
offshore banking units in the Philippines, local
commercial banks including branches of foreign banks
that may be authorized by the Central Bank to transact
business with foreign currency depository system units
and other depository banks under the expanded foreign
currency deposit system shall be exempt from all taxes,
except taxable income from such transactions as may be
specified by the Secretary of Finance, upon
recommendation of the Monetary Board to be subject to
the usual income tax payable by banks: Provided, That
interest income from foreign currency loans granted by
such depository banks under said expanded system to
residents (other than offshore banking units in the
Philippines or other depository banks under the expanded
system) shall be subject to a 10% tax. (Emphasis supplied)
As a final note, this Court has consistently held that findings and
conclusions of the CTA shall be accorded the highest respect and shall be presumed
valid, in the absence of any clear and convincing proof to the contrary. [36] The CTA,
as a specialized court dedicated exclusively to the study and resolution of tax
problems, has developed an expertise on the subject of taxation. [37] As such, its
decisions shall not be lightly set aside on appeal, unless this Court finds that the
questioned decision is not supported by substantial evidence or there is a showing of
abuse or improvident exercise of authority on the part of the Tax Court. [38]
DEL CASTILLO, J.:
WHEREFORE, the petition is DENIED.
SO ORDERED.
The key to effective communication is clarity.
The Commissioner of Internal Revenue (CIR) as well as his duly authorized

representative must indicate clearly and unequivocally to the taxpayer whether an action
JOSE CATRAL MENDOZA
constitutes a final determination on a disputed assessment. [1] Words must be carefully chosen
Associate Justice
in order to avoid any confusion that could adversely affect the rights and interest of the
taxpayer.
Assailed in this Petition for Review on Certiorari[2] under Section 12 of Republic

Supreme Court
Manila
Act (RA) No. 9282,[3] in relation to Rule 45 of the Rules of Court, are the August 23, 2006
Decision[4] of the Court of Tax Appeals (CTA) and its October 17, 2006 Resolution [5] denying
SECOND DIVISION
ALLIED BANKING
CORPORATION,
petitioners Motion for Reconsideration.

G.R. No. 175097
Factual Antecedents
Petitioner,
Present:
On April 30, 2004, the Bureau of Internal Revenue (BIR) issued a Preliminary
CARPIO, J., Chairperson,
Assessment Notice (PAN) to petitioner Allied Banking Corporation for deficiency
BRION,
DEL CASTILLO,
Documentary Stamp Tax (DST) in the amount of P12,050,595.60 and Gross Receipts Tax
ABAD, and
PEREZ, JJ.
(GRT) in the amount of P38,995,296.76 on industry issue for the taxable year 2001.
- versus -
COMMISSIONER OF
INTERNAL REVENUE,
Promulgated:
Respondent.
February 5, 2010
x --------------------------------------------------------x
DECISION
[6]
Petitioner received the PAN onMay 18, 2004 and filed a protest against it on May 27, 2004.
[7]
On July 16, 2004, the BIR wrote a Formal Letter of Demand with Assessment
Notices to petitioner, which partly reads as follows:[8]
protest on the formal letter of demand with the corresponding

assessment notices. Hence, the assessments did not become disputed
assessments as subject to the Courts review under Republic Act No.
9282. (See alsoRepublic v. Liam Tian Teng Sons & Co., Inc., 16 SCRA
584.)
It is requested that the above deficiency tax be paid immediately upon

receipt hereof, inclusive of penalties incident to delinquency. This is our
final decision based on investigation. If you disagree, you may appeal
the final decision within thirty (30) days from receipt hereof, otherwise
said deficiency tax assessment shall become final, executory and
demandable.
WHEREFORE, the
Motion
to
Dismiss
is GRANTED. The Petition for Review is hereby DISMISSED for
lack of jurisdiction.
Petitioner received the Formal Letter of Demand with Assessment Notices on August 30,
2004.[9]
SO ORDERED.[16]
Aggrieved, petitioner moved for reconsideration but the motion was denied by the
Proceedings before the CTA First Division
First Division in its Resolution dated February 1, 2006.[17]

Proceedings before the CTA En Banc
On September 29, 2004, petitioner filed a Petition for Review [10] with the CTA
which was raffled to its First Division and docketed as CTA Case No. 7062.[11]
On February 22, 2006, petitioner appealed the dismissal to the CTA En Banc.
[18]
The case was docketed as CTA EB No. 167.
On December 7, 2004, respondent CIR filed his Answer.[12] On July 28, 2005, he
filed a Motion to Dismiss[13] on the ground that petitioner failed to file an administrative protest
on the Formal Letter of Demand with Assessment Notices. Petitioner opposed the Motion to
Dismiss on August 18, 2005.[14]
On October 12, 2005, the First Division of the CTA rendered a

Resolution
[15]
granting respondents Motion to Dismiss. It ruled:
Clearly, it is neither the assessment nor the formal demand

letter itself that is appealable to this Court. It is the decision of the
Commissioner of Internal Revenue on the disputed assessment that can
be appealed to this Court (Commissioner of Internal Revenue vs.
Villa, 22 SCRA 3). As correctly pointed out by respondent, a disputed
assessment is one wherein the taxpayer or his duly authorized
representative filed an administrative protest against the formal letter of
demand and assessment notice within thirty (30) days from date [of]
receipt thereof. In this case, petitioner failed to file an administrative
Finding
no
reversible
error in
the
Resolutions
dated October
12,
2005 and February 1, 2006 of the CTA First Division, the CTA En Banc denied the Petition
for Review[19]as well as petitioners Motion for Reconsideration.[20]
The CTA En Banc declared that it is absolutely necessary for the taxpayer to file an
administrative protest in order for the CTA to acquire jurisdiction. It emphasized that an
administrative protest is an integral part of the remedies given to a taxpayer in challenging the
legality or validity of an assessment. According to the CTA En Banc, although there are
exceptions to the doctrine of exhaustion of administrative remedies, the instant case does not
fall in any of the exceptions.
(1) Decisions of the Commissioner

of Internal Revenue in
cases involving disputed
assessments, refunds of
internal revenue taxes, fees
or other charges, penalties
in relation thereto, or other
matters arising under the
National Internal Revenue
Code or other laws
administered by the Bureau
of Internal Revenue;
Issue
Hence, the present recourse, where petitioner raises the lone issue of whether the
Formal Letter of Demand dated July 16, 2004 can be construed as a final decision of the CIR
appealable to the CTA under RA 9282.
Our Ruling
(2) Inaction by the Commissioner of

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

Section 7 of RA
9282 expressly
provides that
the
CTA
exercises
exclusive
appellate
jurisdiction to
review
by
appeal
decisions of the
CIR in cases
involving
disputed
assessments
xxxx
The CTA, being a court of special jurisdiction, can take cognizance only of
matters that are clearly within its jurisdiction.[21] Section 7 of RA 9282 provides:
The word decisions in the above quoted provision of RA 9282 has been interpreted
Sec. 7. Jurisdiction. The CTA shall exercise:
to mean the decisions of the CIR on the protest of the taxpayer against the assessments.
(a) Exclusive appellate jurisdiction to review by appeal, as

herein provided:
[22]
Corollary thereto, Section 228 of the National Internal Revenue Code (NIRC) provides for
the procedure for protesting an assessment. It states:
SECTION 228. Protesting of Assessment. When the

Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings:
Provided, however, That a preassessment notice shall not be required in
the following cases:
(a) When the finding for any deficiency tax is the result of
mathematical error in the computation of the tax as appearing on the
face of the return; or
documents, the taxpayer adversely affected by the decision or inaction

may appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of the one hundred eighty
(180)-day period; otherwise, the decision shall become final, executory
and demandable.
(b) When a discrepancy has been determined between the

tax withheld and the amount actually remitted by the withholding agent;
or
response thereto, the BIR issued a Formal Letter of Demand with Assessment
(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
the assessments by filing an administrative protest within 30 days from receipt
(d) When the excise tax due on excisable articles has not
been paid; or
(e) When an article locally purchased or imported by an
exempt person, such as, but not limited to, vehicles, capital equipment,
machineries and spare parts, has been sold, traded or transferred to nonexempt persons.
In the instant case, petitioner timely filed a protest after receiving the PAN. In
Notices. Pursuant to Section 228 of the NIRC, the proper recourse of petitioner was to dispute
thereof. Petitioner, however, did not protest the final assessment notices. Instead, it filed a
Petition for Review with the CTA. Thus, if we strictly apply the rules, the dismissal of the
Petition for Review by the CTA was proper.
The case is an
exception to the
rule
on
exhaustion of
administrative
remedies
The taxpayers shall be informed in writing of the law and the

facts on which the assessment is made; otherwise, the assessment shall
be void.
Within a period to be prescribed by implementing rules and
regulations, the taxpayer shall be required to respond to said notice. If
the taxpayer fails to respond, the Commissioner or his duly authorized
representative shall issue an assessment based on his findings.
Such assessment may be protested administratively by filing
a request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment in such form and manner as may be
prescribed by implementing rules and regulations. Within sixty (60)
days from filing of the protest, all relevant supporting documents shall
have been submitted; otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not acted
upon within one hundred eighty (180) days from submission of
However, a careful reading of the Formal Letter of Demand with Assessment

Notices leads us to agree with petitioner that the instant case is an exception to the rule on
exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency
concerned.
In the case of Vda. De Tan v. Veterans Backpay Commission,[23] the respondent

contended that before filing a petition with the court, petitioner should have first exhausted all
administrative remedies by appealing to the Office of the President. However, we ruled that
respondent was estopped from invoking the rule on exhaustion of administrative remedies
related transactions pursuant to Sections 180 and 181 of NIRC, as

amended.
considering that in its Resolution, it said, The opinions promulgated by the Secretary of Justice
are advisory in nature, which may either be accepted or ignored by the office seeking the
The 25% surcharge and 20% interest have been imposed pursuant to the
provision of Section 248(A) and 249(b), respectively, of the National
Internal Revenue Code, as amended.
opinion, and any aggrieved party has the court for recourse. The statement of the respondent in
said case led the petitioner to conclude that only a final judicial ruling in her favor would be
It is requested that the above deficiency tax be paid immediately upon

receipt hereof, inclusive of penalties incident to delinquency. This is our
final decision based on investigation. If you disagree, you may
appeal this final decision within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment shall become final,
executory and demandable.[24] (Emphasis supplied)
accepted by the Commission.
Similarly, in this case, we find the CIR estopped from claiming that the filing of the
Petition for Review was premature because petitioner failed to exhaust all administrative
remedies.
It appears from the foregoing demand letter that the CIR has already made a final
decision on the matter and that the remedy of petitioner is to appeal the final decision within 30
The Formal Letter of Demand with Assessment Notices reads:

Based on your letter-protest dated May 26, 2004, you alleged the
following:
1.
That the said assessment has already prescribed

in accordance with the provisions of Section 203 of the
Tax Code.
2.
That since the exemption of FCDUs from all

taxes found in the Old Tax Code has been deleted, the
wording of Section 28(A)(7)(b) discloses that there are
no other taxes imposable upon FCDUs aside from the
10% Final Income Tax.
Contrary to your allegation, the assessments covering GRT and DST for
taxable year 2001 has not prescribed for [sic] simply because no returns
were filed, thus, the three year prescriptive period has not lapsed.
With the implementation of the CTRP, the phrase exempt from all taxes
was deleted. Please refer to Section 27(D)(3) and 28(A)(7) of the new
Tax Code. Accordingly, you were assessed for deficiency gross receipts
tax on onshore income from foreign currency transactions in accordance
with the rates provided under Section 121 of the said Tax Code.
Likewise, deficiency documentary stamp taxes was [sic] also assessed
on Loan Agreements, Bills Purchased, Certificate of Deposits and
days.
In Oceanic Wireless Network, Inc. v. Commissioner of Internal Revenue,[25] we

considered the language used and the tenor of the letter sent to the taxpayer as the final decision
of the CIR.
In this case, records show that petitioner disputed the PAN but not the Formal Letter
of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a
protest against the Formal Letter of Demand with Assessment Notices since the language used
and the tenor of the demand letter indicate that it is the final decision of the respondent on the
matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal
language, whether his action on a disputed assessment constitutes his final determination
thereon in order for the taxpayer concerned to determine when his or her right to appeal to the
tax court accrues.[26] Viewed in the light of the foregoing, respondent is now estopped from
claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a
final decision.
What we are saying in this particular case is that, the Formal Letter of Demand with
Moreover, we cannot ignore the fact that in the Formal Letter of Demand with
Assessment Notices which was not administratively protested by the petitioner can be
Assessment Notices, respondent used the word appeal instead of protest, reinvestigation, or
considered a final decision of the CIR appealable to the CTA because the words used,
reconsideration. Although there was no direct reference for petitioner to bring the matter
specifically the words final decision and appeal, taken together led petitioner to believe that the
directly to the CTA, it cannot be denied that the word appeal under prevailing tax laws refers to
Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on
the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner, under
the letter-protest it filed and that the available remedy was to appeal the same to the CTA.
Section 228 of the NIRC, the terms protest, reinvestigation and reconsideration refer to the
administrative remedies a taxpayer may take before the CIR, while the term appeal refers to
We note, however, that during the pendency of the instant case, petitioner availed of
the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section
the provisions of Revenue Regulations No. 30-2002 and its implementing Revenue
11 of RA 1125,
[27]
likewise uses the term appeal when referring to the action a taxpayer must
Memorandum Order by submitting an offer of compromise for the settlement of the GRT,
take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then,
DST and VAT for the period 1998-2003, as evidenced by a Certificate of Availment
petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA
dated November 21, 2007.[30]Accordingly, there is no reason to reinstate the Petition for
merely took the cue from respondent. Besides, any doubt in the interpretation or use of the
Review in CTA Case No. 7062.
word appeal in the Formal Letter of Demand with Assessment Notices should be resolved in
favor of petitioner, and not the respondent who caused the confusion.
WHEREFORE, the petition is hereby GRANTED. The assailed August 23,

2006 Decision and the October 17, 2006 Resolution of the Court of Tax Appeals
To be clear, we are not disregarding the rules of procedure under Section 228 of the
NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99.
[28]
are REVERSED andSET ASIDE. The Petition for Review in CTA Case No. 7062 is
It is the
hereby DISMISSED based solely on the Bureau of Internal Revenues acceptance of
Formal Letter of Demand and Assessment Notice that must be administratively protested or
petitioners offer of compromise for the settlement of the gross receipts tax, documentary stamp
disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement
tax and value added tax, for the years 1998-2003.
in St. Stephens Chinese Girls School v. Collector of Internal Revenue,[29] that the counting of
the 30 days within which to institute an appeal in the CTA commences from the date of receipt
SO ORDERED.
of the decision of the CIR on the disputed assessment, not from the date the assessment was
issued.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 166018
HSBCs investor-clients maintain Philippine peso and/or foreign currency

accounts, which are managed by HSBC through instructions given through
electronic messages. The said instructions are standard forms known in the
banking industry as SWIFT, or "Society for Worldwide Interbank Financial
Telecommunication." In purchasing shares of stock and other investment in
securities, the investor-clients would send electronic messages from abroad
instructing HSBC to debit their local or foreign currency accounts and to pay
the purchase price therefor upon receipt of the securities.7
June 4, 2014
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent;
Pursuant to the electronic messages of its investor-clients, HSBC purchased

and paid Documentary Stamp Tax (DST) from September to December 1997
and also from January to December 1998 amounting toP19,572,992.10
and P32,904,437.30, respectively, broken down as follows:
x-----------------------x
G.R. No. 167728
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITEDPHILIPPINE BRANCHES, Petitioner,
vs.
DECISION
LEONARDO-DE CASTRO, J.:
These petitions for review on certiorari1 assail the Decision2 and Resolution
dated July 8, 2004 and October 25, 2004, respectively, of the Court of
Appeals in CA-G.R. SP No. 77580, as well as the Decision3 and Resolution
dated September 2, 2004 and April 4, 2005, respectively, of the Court of
Appeals in CA-G.R. SP No. 70814. The respective Decisions in the said
cases similarly reversed and set aside the decisions of the Court of Tax
Appeals (CTA) in CTA Case Nos. 59514 and 6009,5 respectively, and
dismissed the petitions of petitioner Hongkong and Shanghai Banking
Corporation Limited-Philippine Branches (HSBC). The corresponding
Resolutions, on the other hand, denied the respective motions for
reconsideration of the said Decisions.
HSBC performs, among others, custodial services on behalf of its investorclients, corporate and individual, resident or non-resident of the Philippines,
with respect to their passive investments in the Philippines, particularly
investments in shares of stocks in domestic corporations. As a custodian
bank, HSBC serves as the collection/payment agent with respect to
dividends and other income derived from its investor-clients passive
investments.6
A. September to December 1997

September 1997
P 6,981,447.90
October 1997
6,209,316.60
November 1997
3,978,510.30
December 1997
2,403,717.30
Total
P19,572,992.10
B. January to December 1998
January 1998
P 3,328,305.60
February 1998
4,566,924.90
March 1998
5,371,797.30
April 1998
4,197,235.50
May 1998
2,519,587.20
June 1998
2,301,333.00
July 1998
1,586,404.50
August 1998
1,787,359.50
September 1998
1,231,828.20
October 1998
1,303,184.40
November 1998
2,026,379.70
December 1998
2,684,097.50
Total
(ii) receive funds from another bank in the Philippines for

deposit into its account and to pay a named recipient in
the Philippines."
The foregoing transactions are carried out under instruction from abroad and
P32,904,437.30 [do] not involve actual fund transfer since the funds are already in the
Philippine accounts. The instructions are in the form of electronic messages
(i.e., SWIFT MT100 or MT 202 and/or MT 521). In both cases, the payment
On August 23, 1999, the Bureau of Internal Revenue (BIR), thru its then
is against the delivery of investments purchased. The purchase of
Commissioner, Beethoven Rualo, issued BIR Ruling No. 132-99 to the effect
investments and the payment comprise one single transaction. DST has
that instructions or advises from abroad on the management of funds
already been paid under Section 176 for the investment purchase.
located in the Philippines which do not involve transfer of funds from abroad
are not subject to DST. BIR Ruling No. 132-99 reads:
B. Other transactions:
Date: August 23, 1999
FERRY TOLEDO VICTORINO GONZAGA
& ASSOCIATES
G/F AFC Building, Alfaro St.
Salcedo Village, Makati
Metro Manila
Attn: Atty. Tomas C. Toledo
Tax Counsel
Gentlemen:
This refers to your letter dated July 26, 1999 requesting on behalf of your
clients, the CITIBANK & STANDARD CHARTERED BANK, for a ruling as to
whether or not the electronic instructions involving the following transactions
of residents and non-residents of the Philippines with respect to their local or
foreign currency accounts are subject to documentary stamp tax under
Section 181 of the 1997 Tax Code, viz:
A. Investment purchase transactions:
An overseas client sends instruction to its bank in the Philippines to either:
(i) debit its local or foreign currency account and to pay a
named recipient in the Philippines; or
An overseas client sends an instruction to its bank in the Philippines to

either:
(i) debit its local or foreign currency account and to pay a
named recipient, who may be another bank, a corporate
entity or an individual in the Philippines; or
(ii) receive funds from another bank in the Philippines for
deposit to its account and to pay a named recipient, who
may be another bank, a corporate entity or an individual in
the Philippines."
The above instruction is in the form of an electronic message (i.e., SWIFT
MT 100 or MT 202) or tested cable, and may not refer to any particular
transaction.
The opening and maintenance by a non-resident of local or foreign currency
accounts with a bank in the Philippines is permitted by the Bangko Sentral
ng Pilipinas, subject to certain conditions.
In reply, please be informed that pursuant to Section 181 of the 1997 Tax
Code, which provides that
SEC. 181. Stamp Tax Upon Acceptance of Bills of Exchange and Others.
Upon any acceptance or payment of any bill of exchange or order for the
payment of money purporting to be drawn in a foreign country but payable in
the Philippines, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (P200), or fractional part
thereof, of the face value of any such bill of exchange, or order, or Philippine
equivalent of such value, if expressed in foreign currency. (Underscoring
supplied.)
a documentary stamp tax shall be imposed on any bill of exchange or order
for payment purporting to be drawn in a foreign country but payable in the
Philippines.
Under the foregoing provision, the documentary stamp tax shall be levied on
the instrument, i.e., a bill of exchange or order for the payment of money,
which purports to draw money from a foreign country but payable in the
Philippines. In the instant case, however, while the payor is residing outside
the Philippines, he maintains a local and foreign currency account in the
Philippines from where he will draw the money intended to pay a named
recipient. The instruction or order to pay shall be made through an electronic
message, i.e., SWIFT MT 100 or MT 202 and/or MT 521. Consequently,
there is no negotiable instrument to be made, signed or issued by the payee.
In the meantime, such electronic instructions by the non-resident payor
cannot be considered as a transaction per se considering that the same do
not involve any transfer of funds from abroad or from the place where the
instruction originates. Insofar as the local bank is concerned, such
instruction could be considered only as a memorandum and shall be entered
as such in its books of accounts. The actual debiting of the payors account,
local or foreign currency account in the Philippines, is the actual transaction
that should be properly entered as such.
Under the Documentary Stamp Tax Law, the mere withdrawal of money from
a bank deposit, local or foreign currency account, is not subject to DST,
unless the account so maintained is a current or checking account, in which
case, the issuance of the check or bank drafts is subject to the documentary
stamp tax imposed under Section 179 of the 1997 Tax Code. In the instant
case, and subject to the physical impossibility on the part of the payor to be
present and prepare and sign an instrument purporting to pay a certain
obligation, the withdrawal and payment shall be made in cash. In this light,
the withdrawal shall not be subject to documentary stamp tax. The case is
parallel to an automatic bank transfer of local funds from a savings account
to a checking account maintained by a depositor in one bank.
Likewise, the receipt of funds from another bank in the Philippines for
deposit to the payees account and thereafter upon instruction of the nonresident depositor-payor, through an electronic message, the depository
bank to debit his account and pay a named recipient shall not be subject to
documentary stamp tax.
It should be noted that the receipt of funds from another local bank in the
Philippines by a local depository bank for the account of its client residing
abroad is part of its regular banking transaction which is not subject to
documentary stamp tax. Neither does the receipt of funds makes the
recipient subject to the documentary stamp tax. The funds are deemed to be
part of the deposits of the client once credited to his account, and which,
thereafter can be disposed in the manner he wants. The payor-clients
further instruction to debit his account and pay a named recipient in the
Philippines does not involve transfer of funds from abroad. Likewise, as
stated earlier, such debit of local or foreign currency account in the
Philippines is not subject to the documentary stamp tax under the
aforementioned Section 181 of the Tax Code.
In the light of the foregoing, this Office hereby holds that the instruction
made through an electronic message by non-resident payor-client to debit
his local or foreign currency account maintained in the Philippines and to pay
a certain named recipient also residing in the Philippines is not the
transaction contemplated under Section 181 of the 1997 Tax Code. Such
being the case, such electronic instruction purporting to draw funds from a
local account intended to be paid to a named recipient in the Philippines is
not subject to documentary stamp tax imposed under the foregoing Section.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation it shall be disclosed that the
facts are different, this ruling shall be considered null and void.
Very truly yours,
(Sgd.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue8
With the above BIR Ruling as its basis, HSBC filed on October 8, 1999 an
administrative claim for the refund of the amount of P19,572,992.10
allegedly representing erroneously paid DST to the BIR for the period
covering September to December 1997.
Subsequently, on January 31, 2000, HSBC filed another administrative claim
for the refund of the amount ofP32,904,437.30 allegedly representing
erroneously paid DST to the BIR for the period covering January to
December 1998.
As its claims for refund were not acted upon by the BIR, HSBC subsequently
brought the matter to the CTA as CTA Case Nos. 5951 and 6009,
respectively, in order to suspend the running of the two-year prescriptive
period.
of P30,360,570.75 representing erroneous payment of documentary stamp

tax for the taxable year 1998.10
The CTA Decisions dated May 2, 2002 in CTA Case No. 6009 and dated
December 18, 2002 in CTA Case No. 5951 favored HSBC. Respondent
Commissioner of Internal Revenue was ordered to refund or issue a tax
credit certificate in favor of HSBC in the reduced amounts of P30,360,570.75
in CTA Case No. 6009 andP16,436,395.83 in CTA Case No. 5951,
representing erroneously paid DST that have been sufficiently substantiated
with documentary evidence. The CTA ruled that HSBC is entitled to a tax
refund or tax credit because Sections 180 and 181 of the 1997 Tax Code do
not apply to electronic message instructions transmitted by HSBCs nonresident investor-clients:
WHEREFORE, in the light of the foregoing, the instant petition is hereby

partially granted. Accordingly, respondent is hereby ORDERED to REFUND,
or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the
petitioner in the reduced amount of P16,436,395.83 representing
erroneously paid documentary stamp tax for the months of September 1997
to December 1997.11
The instruction made through an electronic message by a nonresident

investor-client, which is to debit his local or foreign currency account in the
Philippines and pay a certain named recipient also residing in the Philippines
is not the transaction contemplated in Section 181 of the Code. In this case,
the withdrawal and payment shall be made in cash. It is parallel to an
automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank. The act of debiting the
account is not subject to the documentary stamp tax under Section 181.
Neither is the transaction subject to the documentary stamp tax under
Section 180 of the same Code. These electronic message instructions
cannot be considered negotiable instruments as they lack the feature of
negotiability, which, is the ability to be transferred (Words and Phrases).
These instructions are considered as mere memoranda and entered as such
in the books of account of the local bank, and the actual debiting of the
payors local or foreign currency account in the Philippines is the actual
transaction that should be properly entered as such.9
The respective dispositive portions of the Decisions dated May 2, 2002 in
CTA Case No. 6009 and dated December 18, 2002 in CTA Case No. 5951
read:
II. CTA Case No. 6009
WHEREFORE, in the light of all the foregoing, the instant Petition for Review
is PARTIALLY GRANTED. Respondent is hereby ORDERED to REFUND or
ISSUE A TAX CREDIT CERTIFICATE in favor of Petitioner the amount
II. CTA Case No. 5951
However, the Court of Appeals reversed both decisions of the CTA and ruled
that the electronic messages of HSBCs investor-clients are subject to DST.
The Court of Appeals explained:
At bar, [HSBC] performs custodial services in behalf of its investor-clients as
regards their passive investments in the Philippines mainly involving shares
of stocks in domestic corporations. These investor-clients maintain
Philippine peso and/or foreign currency accounts with [HSBC]. Should they
desire to purchase shares of stock and other investments securities in the
Philippines, the investor-clients send their instructions and advises via
electronic messages from abroad to [HSBC] in the form of SWIFT MT 100,
MT 202, or MT 521 directing the latter to debit their local or foreign currency
account and to pay the purchase price upon receipt of the securities (CTA
Decision, pp. 1-2; Rollo, pp. 41-42). Pursuant to Section 181 of the NIRC,
[HSBC] was thus required to pay [DST] based on its acceptance of these
electronic messages which, as [HSBC] readily admits in its petition filed
before the [CTA], were essentially orders to pay the purchases of securities
made by its client-investors (Rollo, p. 60).
Appositely, the BIR correctly and legally assessed and collected the [DST]
from [HSBC] considering that the said tax was levied against the
acceptances and payments by [HSBC] of the subject electronic
messages/orders for payment. The issue of whether such electronic
messages may be equated as a written document and thus be subject to tax
is beside the point. As We have already stressed, Section 181 of the law
cited earlier imposes the [DST] not on the bill of exchange or order for
payment of money but on the acceptance or payment of the said bill or
order. The acceptance of a bill or order is the signification by the drawee of
its assent to the order of the drawer to pay a given sum of money while
payment implies not only the assent to the said order of the drawer and a
recognition of the drawers obligation to pay such aforesaid sum, but also a
compliance with such obligation (Philippine National Bank vs. Court of

Appeals, 25 SCRA 693 [1968]; Prudential Bank vs. Intermediate Appellate
Court, 216 SCRA 257 [1992]). What is vital to the valid imposition of the
[DST] under Section 181 is the existence of the requirement of acceptance
or payment by the drawee (in this case, [HSBC]) of the order for payment of
money from its investor-clients and that the said order was drawn from a
foreign country and payable in the Philippines. These requisites are surely
present here.
It would serve the parties well to understand the nature of the tax being
imposed in the case at bar. In Philippine Home Assurance Corporation vs.
Court of Appeals (301 SCRA 443 [1999]), the Supreme Court ruled that
[DST is] levied on the exercise by persons of certain privileges conferred by
law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments, independently of the legal
status of the transactions giving rise thereto. In the same case, the High
Court also declared citing Du Pont vs. United States (300 U.S. 150, 153
[1936])
The tax is not upon the business transacted but is an excise upon the
privilege, opportunity, or facility offered at exchanges for the transaction of
the business. It is an excise upon the facilities used in the transaction of the
business separate and apart from the business itself. x x x.
To reiterate, the subject [DST] was levied on the acceptance and payment
made by [HSBC] pursuant to the order made by its client-investors as
embodied in the cited electronic messages, through which the herein parties
privilege and opportunity to transact business respectively as drawee and
drawers was exercised, separate and apart from the circumstances and
conditions related to such acceptance and subsequent payment of the sum
of money authorized by the concerned drawers. Stated another way, the
[DST] was exacted on [HSBCs] exercise of its privilege under its draweedrawer relationship with its client-investor through the execution of a specific
instrument which, in the case at bar, is the acceptance of the order for
payment of money. The acceptance of a bill or order for payment may be
done in writing by the drawee in the bill or order itself, or in a separate
instrument (Prudential Bank vs. Intermediate Appellate Court, supra.)Here,
[HSBC]s acceptance of the orders for the payment of money was veritably
done in writing in a separate instrument each time it debited the local or
foreign currency accounts of its client-investors pursuant to the latters
instructions and advises sent by electronic messages to [HSBC]. The [DST]
therefore must be paid upon the execution of the specified instruments or
facilities covered by the tax in this case, the acceptance by [HSBC] of the
order for payment of money sent by the client-investors through electronic

messages. x x x.12
Hence, these petitions.
HSBC asserts that the Court of Appeals committed grave error when it
disregarded the factual and legal conclusions of the CTA. According to
HSBC, in the absence of abuse or improvident exercise of authority, the
CTAs ruling should not have been disturbed as the CTA is a highly
specialized court which performs judicial functions, particularly for the review
of tax cases. HSBC further argues that the Commissioner of Internal
Revenue had already settled the issue on the taxability of electronic
messages involved in these cases in BIR Ruling No. 132-99 and reiterated
in BIR Ruling No. DA-280-2004.13
The Commissioner of Internal Revenue, on the other hand, claims that
Section 181 of the 1997 Tax Code imposes DST on the acceptance or
payment of a bill of exchange or order for the payment of money. The DST
under Section 18 of the 1997 Tax Code is levied on HSBCs exercise of a
privilege which is specifically taxed by law. BIR Ruling No. 132-99 is
inconsistent with prevailing law and long standing administrative practice,
respondent is not barred from questioning his own revenue ruling. Tax
refunds like tax exemptions are strictly construed against the taxpayer.14
The Court finds for HSBC.
The Court agrees with the CTA that the DST under Section 181 of the Tax
Code is levied on the acceptance or payment of "a bill of exchange
purporting to be drawn in a foreign country but payable in the Philippines"
and that "a bill of exchange is an unconditional order in writing addressed by
one person to another, signed by the person giving it, requiring the person to
whom it is addressed to pay on demand or at a fixed or determinable future
time a sum certain in money to order or to bearer." A bill of exchange is one
of two general forms of negotiable instruments under the Negotiable
Instruments Law.15
The Court further agrees with the CTA that the electronic messages of
HSBCs investor-clients containing instructions to debit their respective local
or foreign currency accounts in the Philippines and pay a certain named
recipient also residing in the Philippines is not the transaction contemplated
under Section 181 of the Tax Code as such instructions are "parallel to an
automatic bank transfer of local funds from a savings account to a checking
account maintained by a depositor in one bank." The Court favorably adopts
the finding of the CTA that the electronic messages "cannot be considered
negotiable instruments as they lack the feature of negotiability, which, is the
ability to be transferred" and that the said electronic messages are "mere
memoranda" of the transaction consisting of the "actual debiting of the
[investor-client-payors] local or foreign currency account in the Philippines"
and "entered as such in the books of account of the local bank," HSBC.16
More fundamentally, the instructions given through electronic messages that
are subjected to DST in these cases are not negotiable instruments as they
do not comply with the requisites of negotiability under Section 1 of the
Negotiable Instruments Law, which provides:
Sec. 1. Form of negotiable instruments. An instrument to be negotiable
must conform to the following requirements:
the Philippines, there shall be collected a documentary stamp tax of Thirty
centavos (P0.30) on each Two hundred pesos (P200), or fractional part
thereof, of the face value of any such bill of exchange, or order, or the
Philippine equivalent of such value, if expressed in foreign currency.
(Emphasis supplied.)
Section 230 of the 1977 Tax Code, as amended, which governs HSBCs
claim for tax refund for DST paid during the period September to December
1997 and subject of G.R. No. 166018, is worded exactly the same as its
counterpart provision in the 1997 Tax Code quoted above.
(c) Must be payable on demand, or at a fixed or determinable future

time;
The origin of the above provision is Section 117 of the Tax Code of
1904,17 which provided: SECTION 117. The acceptor or acceptors of any bill
of exchange or order for the payment of any sum of money drawn or
purporting to be drawn in any foreign country but payable in the Philippine
Islands, shall, before paying or accepting the same, place thereupon a
stamp in payment of the tax upon such document in the same manner as is
required in this Act for the stamping of inland bills of exchange or promissory
notes, and no bill of exchange shall be paid nor negotiated until such stamp
shall have been affixed thereto.18 (Emphasis supplied.)
(d) Must be payable to order or to bearer; and
It then became Section 30(h) of the 1914 Tax Code19:
(e) Where the instrument is addressed to a drawee, he must be

named or otherwise indicated therein with reasonable certainty.
SEC. 30. Stamp tax upon documents and papers. Upon documents,
instruments, and papers, and upon acceptances, assignments, sales, and
transfers of the obligation, right, or property incident thereto documentary
taxes for and in respect of the transaction so had or accomplished shall be
paid as hereinafter prescribed, by the persons making, signing, issuing,
accepting, or transferring the same, and at the time such act is done or
transaction had:
(a) It must be in writing and signed by the maker or drawer;

(b) Must contain an unconditional promise or order to pay a sum
certain in money;
The electronic messages are not signed by the investor-clients as supposed

drawers of a bill of exchange; they do not contain an unconditional order to
pay a sum certain in money as the payment is supposed to come from a
specific fund or account of the investor-clients; and, they are not payable to
order or bearer but to a specifically designated third party. Thus, the
electronic messages are not bills of exchange. As there was no bill of
exchange or order for the payment drawn abroad and made payable here in
the Philippines, there could have been no acceptance or payment that will
trigger the imposition of the DST under Section 181 of the Tax Code.
Section 181 of the 1997 Tax Code, which governs HSBCs claim for tax
refund for taxable year 1998 subject of G.R. No. 167728, provides:
xxxx
(h) Upon any acceptance or payment upon acceptance of any bill of
exchange or order for the payment of money purporting to be drawn in a
foreign country but payable in the Philippine Islands, on each two hundred
pesos, or fractional part thereof, of the face value of any such bill of
exchange or order, or the Philippine equivalent of such value, if expressed in
foreign currency, two centavos[.] (Emphasis supplied.)
It was implemented by Section 46 in relation to Section 39 of Revenue

Regulations No. 26,20 as amended:
order for the payment of money that was drawn abroad but payable in the
Philippines.
SEC. 39. A Bill of Exchange is one that "denotes checks, drafts, and all other
kinds of orders for the payment of money, payable at sight or on demand, or
after a specific period after sight or from a stated date."
DST is an excise tax on the exercise of a right or privilege to transfer

obligations, rights or properties incident thereto.23 Under Section 173 of the
1997 Tax Code, the persons primarily liable for the payment of the DST are
those (1) making, (2) signing, (3) issuing, (4) accepting, or (5) transferring
the taxable documents, instruments or papers.24
SEC. 46. Bill of Exchange, etc. When any bill of exchange or order for the
payment of money drawn in a foreign country but payable in this country
whether at sight or on demand or after a specified period after sight or from
a stated date, is presented for acceptance or payment, there must be affixed
upon acceptance or payment of documentary stamp equal to P0.02 for
each P200 or fractional part thereof. (Emphasis supplied.)
It took its present form in Section 218 of the Tax Code of 1939,21 which
provided:
the Philippines, there shall be collected a documentary stamp tax of four
centavos on each two hundred pesos, or fractional part thereof, of the face
value of any such bill of exchange or order, or the Philippine equivalent of
such value, if expressed in foreign currency. (Emphasis supplied.)
It then became Section 230 of the 1977 Tax Code,22 as amended by
Presidential Decree Nos. 1457 and 1959,which, as stated earlier, was
worded exactly as Section 181 of the current Tax Code:
SEC. 230. Stamp tax upon acceptance of bills of exchange and others.
the Philippines, there shall be collected a documentary stamp tax of thirty
centavos on each two hundred pesos, or fractional part thereof, of the face
value of any such bill of exchange, or order, or the Philippine equivalent of
such value, if expressed in foreign currency. (Emphasis supplied.)
The pertinent provision of the present Tax Code has therefore remained
substantially the same for the past one hundred years.1wphi1 The identical
text and common history of Section 230 of the 1977 Tax Code, as amended,
and the 1997 Tax Code, as amended, show that the law imposes DST on
either (a) the acceptance or (b) the payment of a foreign bill of exchange or
In general, DST is levied on the exercise by persons of certain privileges

conferred by law for the creation, revision, or termination of specific legal
relationships through the execution of specific instruments. Examples of
such privileges, the exercise of which, as effected through the issuance of
particular documents, are subject to the payment of DST are leases of lands,
mortgages, pledges and trusts, and conveyances of real property.25
As stated above, Section 230 of the 1977 Tax Code, as amended, now
Section 181 of the 1997 Tax Code, levies DST on either (a) the acceptance
or (b) the payment of a foreign bill of exchange or order for the payment of
money that was drawn abroad but payable in the Philippines. In other words,
it levies DST as an excise tax on the privilege of the drawee to accept or pay
a bill of exchange or order for the payment of money, which has been drawn
abroad but payable in the Philippines, and on the corresponding privilege of
the drawer to have acceptance of or payment for the bill of exchange or
order for the payment of money which it has drawn abroad but payable in
the Philippines.
Acceptance applies only to bills of exchange.26 Acceptance of a bill of
exchange has a very definite meaning in law.27 In particular, Section 132 of
the Negotiable Instruments Law provides:
Sec. 132. Acceptance; how made, by and so forth. The acceptance of a bill
[of exchange28] is the signification by the drawee of his assent to the order of
the drawer. The acceptance must be in writing and signed by the drawee. It
must not express that the drawee will perform his promise by any other
means than the payment of money.
Under the law, therefore, what is accepted is a bill of exchange, and the
acceptance of a bill of exchange is both the manifestation of the drawees
consent to the drawers order to pay money and the expression of the
drawees promise to pay. It is "the act by which the drawee manifests his
consent to comply with the request contained in the bill of exchange directed
to him and it contemplates an engagement or promise to pay."29 Once the
drawee accepts, he becomes an acceptor.30 As acceptor, he engages to pay

the bill of exchange according to the tenor of his acceptance.31
Acceptance is made upon presentment of the bill of exchange, or within 24
hours after such presentment.32Presentment for acceptance is the
production or exhibition of the bill of exchange to the drawee for the purpose
of obtaining his acceptance.33
Presentment for acceptance is necessary only in the instances where the
law requires it.34 In the instances where presentment for acceptance is not
necessary, the holder of the bill of exchange can proceed directly to
presentment for payment.
Presentment for payment is the presentation of the instrument to the person
primarily liable for the purpose of demanding and obtaining payment
thereof.35
Thus, whether it be presentment for acceptance or presentment for
payment, the negotiable instrument has to be produced and shown to the
drawee for acceptance or to the acceptor for payment.
Revenue Regulations No. 26 recognizes that the acceptance or payment (of
bills of exchange or orders for the payment of money that have been drawn
abroad but payable in the Philippines) that is subjected to DST under
Section 181 of the 1997 Tax Code is done after presentment for acceptance
or presentment for payment, respectively. In other words, the acceptance or
payment of the subject bill of exchange or order for the payment of money is
done when there is presentment either for acceptance or for payment of the
bill of exchange or order for the payment of money.
Applying the above concepts to the matter subjected to DST in these cases,
the electronic messages received by HSBC from its investor-clients abroad
instructing the former to debit the latter's local and foreign currency accounts
and to pay the purchase price of shares of stock or investment in securities
do not properly qualify as either presentment for acceptance or presentment
for payment. There being neither presentment for acceptance nor
presentment for payment, then there was no acceptance or payment that
could have been subjected to DST to speak of.
Indeed, there had been no acceptance of a bill of exchange or order for the
payment of money on the part of HSBC. To reiterate, there was no bill of
exchange or order for the payment drawn abroad and made payable here in
the Philippines. Thus, there was no acceptance as the electronic messages

did not constitute the written and signed manifestation of HSBC to a drawer's
order to pay money. As HSBC could not have been an acceptor, then it could
not have made any payment of a bill of exchange or order for the payment of
money drawn abroad but payable here in the Philippines. In other words,
HSBC could not have been held liable for DST under Section 230 of the
1977 Tax Code, as amended, and Section 181 of the 1997 Tax Code as it is
not "a person making, signing, issuing, accepting, or, transferring" the
taxable instruments under the said provision. Thus, HSBC erroneously paid
DST on the said electronic messages for which it is entitled to a tax refund.
WHEREFORE, the petitions are hereby GRANTED and the Decisions dated
May 2, 2002 in CTA Case No. 6009 and dated December 18, 2002 in CT A
Case No. 5951 of the Court of Tax Appeals are REINSTATED.
SO ORDERED.
TERESITA J. LEONARDO-DE CASTRO
Associate Justice

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 74965 November 9, 1994

vs.
NATIONAL LABOR RELATIONS COMMISSION, DEPUTY CITY SHERIFF
CARMELO V. CACHERO, MARITIME COMPANY OF THE PHILIPPINES,
DOMINGO C. NIANGAR, DANIEL C. SABINO, FERNANDO S. TULIAO
and TULMAR TRADING CORPORATION, respondents.
Reynaldo L. Libanan for respondent deputy sheriff.
Joaquin G. Chung, Jr. Law Office for respondent Tulmar Trading Corp.
property and deliver it upon order of the court or the Internal Revenue
Commissioner.
Eliodoro C. Cruz & Arsenio P. Dizon for Maritime Co. of the Philippines.
MENDOZA, J.:
This is a petition for certiorari to set aside the resolution dated April 4,
1986 1 of the National Labor Relations Commission in NLRC Case No. NCR12-4233-84 (Domingo C. Niangar v. Maritime Company of the Philippines),
affirming the denial by the Labor Arbiter 2 of petitioner's motion to annul the
sheriff's sale of four barges or, in the alternative, to order him to remit the
proceeds of his sale to the Bureau of the Internal Revenue for the
satisfaction of the tax liabilities of private respondent Maritime Company of
the Philippines.
The facts are as follows:
On January 12, 1984 the Commissioner of the Internal Revenue sent two
letters 3 of demand to the respondent Maritime Company of the Philippines
for deficiency common carrier's tax, fixed tax, 6% Commercial Broker's tax,
documentary stamp tax, income tax and withholding taxes in the total
amount of P17,284,882.45.
The assessment became final and executory as private respondent did not
contest it. But as private respondent did not pay its tax liability either, the
Commissioner of Internal Revenue issued warrants of distraint of personal
property and levy of real property of private respondent. Copies of the
warrants, both dated January 23, 1985, were served on January 28, 1985 on
Yoly T. Petrache, private respondent's accountant. 4
On April 16, 1985 a "Receipt for Goods, Articles, and Things Seized 5 under
Authority of the National Internal Revenue Code" was executed, covering,
among other things, six barges identified as MCP-1,2,3,4,5 and 6. This
receipt is required by 303 (now 206) of the NIRC as proof of the
constructive distraint of property. It is an undertaking by the taxpayer or
person in possession of the property covered that he will preserve the
The receipt was prepared by the BIR for the signature of a representative of
respondent Maritime Company of the Philippines, but it was not in fact
signed. Petitioner later explained that the individuals who had possession of
the barges had refused to sign the receipt.
This circumstance has given rise to the question in this case as it appears
that four of the barges placed under constructive distraint were levied upon
execution by respondent deputy sheriff of Manila on July 20, 1985 to satisfy
a judgment for unpaid wages and other benefits of employees of respondent
Maritime Company of the Philippines. More specifically, the question in this
case is the validity of the warrant of distraint served by the Revenue Seizure
Officer against the writ of execution subsequently levied upon the same
property by the deputy sheriff of Manila to satisfy the claims of employees in
NLRC Case No. NCR-12-4233-84 (Domingo C. Niangar, et al. v. Maritime
Company of the Philippines) for P490,749.21.
The four barges were sold by respondent deputy sheriff at a public auction
on August 12, 1985. The highest bidder, Daniel C. Sabino, subsequently
sold them to private respondents Fernando S. Tuliao and Tulmar Trading
Corporation.
On September 4, 1985, petitioner asked the Labor Arbiter to annul the sale
and to enjoin the sheriff from disposing of the proceeds of the sale or, in the
alternative, to remit them to the Bureau of Internal Revenue so that the
amount could be applied to the payment of private respondent Maritime
Company's tax liabilities.
In an order dated September 30, 1985, Labor Arbiter Ceferina Diosana
denied the motion on the ground that petitioner Commissioner of Internal
Revenue failed to show that the barges which were levied upon in execution
and sold at public auction had been validly placed under constructive
distraint. 6 The Labor Arbiter likewise rejected petitioner's contention that the
government's claim for taxes was preferred under Art. 2247, in relation to Art.
2241(1) of the Civil Code, on the ground that under this provisions only taxes
and fees which are due on specific movables enjoy preference, whereas the
taxes claimed by petitioner were not due on the four barges in question.
The order was appealed to the NLRC, which in resolution dated April 4,
1986, affirmed the denial of the Internal Revenue Commissioner's motion.
Hence this petition for certiorari.
For reasons to be presently stated, the petition is granted.
The National Internal Revenue Code provides for the collection of delinquent
taxes by any of the following remedies: (a) distraint of personal property or
levy of real property of the delinquent taxpayer and (b) civil or criminal
action.
With respect to the four barges in question, petitioner resorted to
constructive distraint pursuant to 303 (now 206) of the NLRC. This
provisions states:
Constructive distraint of the property of a taxpayer. To
safeguard the interest of the Government, the
Commissioner of Internal Revenue may place under
constructive distraint the property of a delinquent taxpayer
or any taxpayer who, in his opinion, is retiring from any
business subject to tax, or intends to leave the Philippines,
or remove his property therefrom, or hide or conceal his
property, or perform any act tending to obstruct the
proceedings, for collecting the tax due or which may be
due from him.
The constructive distraint of personal property shall be
effected by requiring the taxpayer or any person having
possession or control of such property to sign a receipt
covering the property distrained and obligate himself to
preserve the same intact and unaltered and not to dispose
of the same in any manner whatever without the express
authority of the Commissioner of Internal Revenue.
In case the taxpayer or the person having the possession

and control of the property sought to be placed under
constructive distraint refuses or fails to sign the receipt
herein referred to, the revenue officer effecting the
constructive distraint shall proceed to prepare a list of
such property and in the presence of two witnesses leave
a copy thereof in the premises where the property
distrained is located, after which the said property shall be
deemed to have been placed under constructive distraint..
Although the warrant of distraint in this case had been issued earlier
(January 23,1985) than the levy on execution in the labor case on July 20,
1985, the Labor Arbiter nevertheless held that there was no valid distraint of
personal property on the ground that the receipt of property distrained had
not been signed by the taxpayer as required above. In her order, which the
NLRC affirmed in toto, the Labor Arbiter said:
It is claimed by the Commissioner of the Internal Revenue
that on January 23, 1984, he issued a warrant of distraint
of personal property on respondent to satisfy the collection
of the deficiency taxes in the aggregate sum of
P17,284,882.45 and a copy of said warrant was served
upon Maritime Company on January 28, 1985 and
pursuant to the warrant, the Commissioner, through
Revenue Seizure Agent Roland L. Bombay, issued on
April 16, 1985, to Maritime Company a receipt for goods,
articles and things seized pursuant to authority granted to
him under the National Internal Revenue Code. Such
personal properties seized includes, among others, "Six
(6) units of barges MCI-6 . . . " However, his own receipts
for goods attached to his motions does not show that it
was received by Maritime; neither does it show any
signature of any of Maritime's Officers.
Apart from the foregoing, in his affidavit of 11 September
1985, Sheriff Cachero stated that before he sold the
subject four barges at public auction, he conducted an
investigation on the ownership of the said four barges. In
brief, he found out that the said four barges were

purchased by respondent through Makati Leasing and that
the whole purchase price has been paid by respondent. In
fact, the corresponding deed of sale has already been
signed. He did not find any lien or encumbrance on any of
the said four barges. Thus it cannot be true that the
Commissioner effected a valid warrant of distraint of
personal property on the four barges in question. 7
However, this case arose out of the same facts involved in Republic
v. Enriquez, 8 in which we sustained the validity of the distraint of the six
barges, which included the four involved in this case, against the levy on
execution made by another deputy sheriff of Manila in another case filed
against Maritime Company. Two barges (MCP-1 and MCP-4) were the
subject of a levy in the case. There we found that the "Receipt for Goods,
Articles and Things Seized under Authority of the National Internal Revenue
Code" covering the six barges had been duly executed, with the
Headquarters, First Coast Guard District, Farola Compound Binondo, Manila
acknowledging receipt of several barges, vehicles and two (2) bodegas of
spare parts belonging to Maritime Company of the Philippines.
Apparently, what had been attached to the petitioner's motion filed by the
government with the Labor Arbiter in this case was a copy, not the original
one showing the rubber stamp of the Coast Guard and duly signed by its
representative. A xerox copy of this signed receipt was submitted in the prior
case. 9 This could be due to the fact that, except for Solicitor Erlinda B.
Masakayan, the government lawyers who prepared the petition in the prior
case were different from those who filed the present petition. They admitted
that the receipt of property distrained had not been signed by the taxpayer or
person in possession of the taxpayer's property allegedly because they had
refused to do so. What apparently they did not know is that the receipt had
been acknowledged by the Coast Guard which obviously had the barges in
its possession.
In addition to the receipt duly acknowledged by the Coast Guard, the record
of the prior case also shows that on October 4, 1985, the Commissioner of
the Internal Revenue issued a "Notice of Seizure of Personal Property"
stating that the goods and chattels listed on its reverse side, among which
were the four barges (MCP-2, MCP-3, MCP-5, and MCP-6), had been
distrained by the Commissioner of Internal Revenue. 10
The "Notice of Seizure of Personal Property," a copy of which was received
by Atty. Redentor R. Melo in behalf of Maritime Company of the Philippines,
together with the receipt of the Coast Guard, belies the claim of respondent
deputy sheriff that when he levied upon the four barges there was no
indication that the barges had previously been placed under distraint by the
Commissioner of Internal Revenue.
Accordingly, what we said in the prior case 11 in upholding the validity of
distraint of two of the six barges (MCP Nos. 1 and 4), fully applies in this
case:
It is settled that the claim of the government predicated on
a tax lien is superior to the claim of a private litigant
predicated on a judgment. The tax lien attaches not only
from the service of the warrant of distraint of personal
property but from the time the tax became due and
payable. Besides, the distraint on the subject properties of
the Maritime Company of the Philippines as well as the
notice of their seizure were made by petitioner, through
the Commissioner of the Internal Revenue, long before the
writ of the execution was issued by the Regional Trial
Court of Manila, Branch 31. There is no question then that
at the time the writ of execution was issued, the two (2)
barges, MPC-1 and MCP-4, were no longer properties of
the Maritime Company of the Philippines. The power of
the court in execution of judgments extends only to
properties unquestionably belonging to the judgment
debtor. Execution sales affect the rights of the judgment
debtor only, and the purchaser in an auction sale acquires
only such right as the judgment debtor had at the time of
sale. It is also well-settled that the sheriff is not authorized
to attach or levy on property not belonging to the judgment
debtor.
Nor is there any merit in the contention of the NLRC that taxes are
absolutely preferred claims only with respect to movable or immovable
properties on which they are due and that since the taxes sought to be
collected in this case are not due on the barges in question the
government's claim cannot prevail over the claims of employees of the
Maritime Company of the Philippines which, pursuant to Art. 110 of the Labor
Code, "enjoy first preference."
In Republic v. Peralta 12 this Court rejected a similar contention. Through Mr.
Justice Feliciano we held:
. . . [T]he claim of the Bureau of Internal Revenue for
unpaid tobacco inspection fees constitutes a claim for
unpaid internal revenue taxes which gives rise to a tax lien
upon all the properties and assets, movable or
immovable, of the insolvent as taxpayer. Clearly, under
Articles 2241 No. 1, 2242 No. 1, and 2246-2249 of the
Civil Code, this tax claim must be given preference over
any other claim of any other creditor, in respect of any and
all properties of the insolvent.
xxx xxx xxx
Article 110 of the Labor Code does not purport to create a
lien in favor of workers or employees for unpaid wages
either upon all of the properties or upon any particular
property owned by their employer. Claims for unpaid
wages do not therefore fall at all within the category of
specially preferred claims established under Articles 2241
and 2242 of the Civil Code, except to the extent that such
claims for unpaid wages are already covered by Article
2241, number 6: "claims for laborer's wages, on the goods
manufactured or the work done," or by Article 2242,
number 3: "claims of laborers and other workers engaged
in the construction, reconstruction or repair of buildings,
canals and other works, upon said buildings, canals or
other works." To the extent that claims for unpaid wages
fall outside the scope of Article 2241, number 6 and 2242,
number 3, they would come with the ambit of the category

of ordinary preferred credits under Article 2244.
Applying Article 2241, number 6 to the instant case, the
claims of the Unions for separation pay of their members
constitute liens attaching to the processed leaf tobacco,
cigars and cigarettes and other products produced or
manufactured by the Insolvent, but not to other assets
owned by the Insolvent. And even in respect of such
tobacco and tobacco products produced by the Insolvent,
the claims of the Unions may be given effect only after the
Bureau of Internal Revenue's claim for unpaid tobacco
inspection fees shall have been satisfied out of the
products so manufactured by the Insolvent.
Article 2242, number 3, also creates a lien or
encumbrance upon a building or other real property of the
Insolvent in favor of workmen who constructed or repaired
such building or other real property. Article 2242, number
3, does not however appear relevant in the instant case,
since the members of the Unions to whom separation pay
is due rendered services to the Insolvent not (so far as the
record of this case would show) in the construction or
repair of buildings or other real property, but rather, in the
regular course of the manufacturing operations of the
Insolvent. The Unions' claims do not therefore constitute a
lien or encumbrance upon any immovable property owned
by the insolvent, but rather, as already indicated, upon the
Insolvent's existing inventory (if any) of processed tobacco
and tobacco products.
In addition, we have held 13 that Art. 110 of the Labor Code applies only in
case of bankruptcy or judicial liquidation of the employer. This is clear from
the text of the law.
Art. 110. Worker preference in case of bankruptcy. In
the event of bankruptcy or liquidation of an employer's
business, his workers shall enjoy first preference as
regards wages due them for services rendered during the

period prior to the bankruptcy or liquidation, any provision
of law to the contrary notwithstanding. Unpaid wages shall
be paid in full before other creditors may establish any
claims to a share in the assets of the employer.
This case does not involve the liquidation of the employer's business.
WHEREFORE, the petition for certiorari is GRANTED and the resolution
dated April 4, 1986 of respondent NLRC in NLRC Case No. NCR-12-423384 is SET ASIDE insofar as it denies the government's claim for taxes, and
respondent deputy sheriff Carmelo V. Cachero or his successor is
ORDERED to remit the proceeds of the auction sale to the Bureau of
Internal Revenue to be applied as part payment of respondent Maritime
Company's tax liabilities.
SO ORDERED.
Narvasa, C.J., Regalado and Puno, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-14575
PADILLA, J.:
This is an appeal under section 18, Republic Act No. 125, by the Mithi Ng
Bayan Cooperative Marketing Association Inc., from that part of a judgment
dated 14 August 1958 rendered by the Court of Tax Appeals upholding the
decision of the Collector of Internal Revenue that denied the petitioner's
claim for refund of the sum of P3,590.53 paid by it as privilege or fixed tax
upon business and percentage tax, and surcharge. due (Annex A) and the
resolution dated 8 October 1958, denying its motion r reconsideration.
On 3 July 1953, Pedro Guevarra, an agent of the Bureau of Internal
Revenue, assigned in San Pablo City, reported to the provincial revenue
agent that the petitioner, an, association of persons organized and
incorporated as a cooperative marketing association under the provisions of
the Cooperative Marketing Law Act No. 3425, as amended and the
Corporation Law, Act No. 1459, as amended, has been operating a ricemill
in barrio Calios, Santa Cruz, Laguna, where palay owned by members and
non members are milled, that a fee is charged and collected by the petitioner
from the owners for milling their palay; and that the petitioner paid the fixed
tax of P10 due for the year 1952 and the percentage tax of 2% due on the
total value of rice milled during the first and second quarters of 1952 but did
not pay the fixed tax due for the year 1953 and the percentage tax of 2%
due on the total value of rice milled during the third quarter of 1952 to the
first quarter of 1953. The agent recommended that a letter be sent payment
of the total Sum of to the petitioner demanding computed as follows:
P3,610.53. computed as follows:.
Fix tax C-19 for

1953 ..................................................................
P 10.00
July 31, 1961
MITHI NG BAYAN COOPERATIVE MARKETING ASSOCIATION,

INC., petitioner,
vs.
J. ANTONIO ARANETA, Collector of Internal Revenue, respondent.
Estanislao A. Fernandez and Leandro H. Fernandez for petitioner.
Office of the Solicitor General for respondent.
2% of P143,220.92 (value of rice removed from 3rd qrtr.

1952 to 1st qrtr. of
1953 ..........................................................
25% Surcharge
thereon ..........................................................
2,864.42
716.11
Compromise ........................................................................
.....
TOTAL TAX
LIABILITY ...................................................
20.00
P3,610.53
(Exhibit 1, pp. 2-3, BIR rec.). Acting upon the recommendation of the agent,
on 19 December 1953 the respondent Collector of Internal Revenue
demanded from the petitioner payment of the sum of P3,590.53 (less P20 for
compromise), within 30 days from receipt of the letter of demand and
informed it that if it be not agreeable to the assessment, it could take up the
matter with the Conference Staff of the Bureau of Internal Revenue by filing
within the same period of time a written notice of its in attention to appear
before the Staff either in person or by an attorney-at-law or a certified public
accountant as counsel and that if it be agreeable to extrajudicially settle the
penal liabilities arising from violations of the National Internal Revenue
Code, as amended, it could pay the sum of P100 as penalty in addition to
the sum of P3,590.53, or a total of P3,690.53 (Exhibit E). On 13 January
1954 the petitioner wrote to the respondent Collector informing him that it
was not agreeable to his proposal and filed its notice of intention to appear
before the Conference Staff (Exhibit F). After hearing, on 9 December 1954
the Conference Staff recommended to the respondent Collector the
enforcement of the assessment dated 19 December 1953 for taxes and
surcharge in the sum of P3,590.53 and suggested the imposition upon the
petitioner of a compromise penalty in the sum of P100 (Exhibit 9). The
respondent Collector approved the recommendation of the Conference staff
and on 4 January 1955 demanded payment of the tal sum of 690.53 within
ten day from receipt of the letter, otherwise it would enforce collection
through the summary remedies provided for by law (Exhibit G).
On 14 February 1955 the petitioner appealed under the revisions of section
11, Republic Act No. 1125, to the Court of Tax Appeals to have the decision
of the Collector of Internal Revenue reviewed. On 16 March 1955 the
respondent Collector filed under the provisions of Rule 7 of he Rules of the
Court of Tax Appeals his answer to the petition for review of the decision of
the respondent Collector.
On 6 December 1955 the respondent issued a warrant of distraint and levy

ordering the deputy provincial treasurer, through the provincial treasurer, "to
distraint the goods chatters or effects and other personal property of
whatever character, and levy upon the real property and interest in/or rights
to real property of the delinquent taxpayer, and sell so much of such
personal or real property as may be necessary to satisfied in full the sum or
sums due as set forth above (P3,690.53), and to cover such expenses as
may be incurred in making this distraint and levy." (Exhibit H). On 14 March
1956 the petitioner filed in the Court of Tax appeals an "urgent motion to
suspend execution of warrant of distraint and levy and collection of tax," on
the ground that the enforcement of the said warrant of distraint and levy and
collection of tax would jeopardize the interest of the petitioner because it is
exempt from the payment of the taxes sought to be collected. It offered to file
a bond for that purpose. On 21 March 1956 the respondent filed a objection
to the petitioner's motion. After hearing, the Court denied the petitioner's
motion.
On 20 June 1956 the petitioner paid to the deputy provincial treasurer in the
municipality of Santa Cruz, province of Laguna, the sum of P2,000 as partial
payment and on 11 July 1956 the sum of P1,690.53 as full payment of the
taxes and surcharge sought to be collected by the respondent (Exhibits I, I-1
and. 1-2). On 27 March 1957 the petitioner wrote to the respondent
requesting that the sum of P3,690.53 paid by it for taxes and Surcharge
assessed and sought to be collected by the latter be refunded to the former
(Exhibit J) The respondent did not act upon the petitioner's request.
On 4 April 1957 the petitioner filed an amended petition to review the
decision of the respondent, alleging the fact of payment of the sum
P3,69,0.53 and request for it refund. On 16 May 1957 the respondent filed
an amended answer to the amended petition.
On 11 December 1957 the parties entered into a stipulation the Court. The
said Stipulation of facts and submitted it to the Court. The said stipulation
provides:
COME NOW the herein parties thru their respective under signed
counsel, and to this Honorable Court respectfully submit the
following Statement of Facts, to wit:
1. That attached hereto are the lists of names of persons who
brought and milled palay in the petitioner's ricemill between March
2 to 31, 1953, copied from Exhs. D and D-1, together with their
respective identification or relation to the members of the petitionerorganization;

2. That said lists of names were copied from Exhs. D and D-1,
which formed part of the Bureau of Internal Revenue records
embodied in the records of this case;
3. That the column opposite or following the lists of names identify
said persons, whether they are members, brothers, sisters, sons,
daughters or close relatives, or helpers of members of the
petitioner-organization;
4. That said persons will, respectively testify that they were known
and/or called in the community by the names or nicknames
appearing in the attached lists; that they brought their palay to be
milled themselves being members of the petitioner-organization, or
that they were respectively requested by members, who are their
fathers, mothers, brothers, sisters, or close relatives or their
landlords or employers to bring his or her palay to the ricemill of the
petitioner-organization to be milled between March 2 to 31, 1953
and that they were given receipts which were placed in the names
with which they were commonly known or called in the community;
5. That they know Fermin Domingo who is the Checker and the one
in-charge of the petitioner-organization's ricemill and that they were
in turn known to him; that they were issued receipts which they
kept, being members, or which they surrendered and delivered to
their fathers, mothers, brothers, sisters, or close relatives, or
employers, who are members of the said petitioner-organization
and who requested them to mill their palay in the ricemill of said
petitioner;
6. That the testimonies of the said persons appearing in the
attached lists will merely be the same and/or corroborative to those
that have already testified;
7. That in order to abbreviate this proceedings and to avoid a
lengthy and costly litigation, said persons appearing in the attached
lists will no longer be presented to testify in this case.
WHEREFORE, it is respectfully prayed that this Stipulation of Facts
be approved by this Honorable Court.
After hearing and after the parties had filed their respective memoranda and
the petitioner a reply to the respondent's memorandum, on 14 August 1958
the Court rendered judgment declaring that the "petitioner can not be
considered as having been organized in accordance with Act No. 3425, and
its claim for exemption under Section 18 of said Act can not be sustained."
The dispositive part of the judgment provides:
FOR THE FOREGOING CONSIDERATIONS, we are of he opinion
that the sum of P3,590.53, representing the fixed and percentage
taxes, plus surcharge, was validly collected from petitioner as
operator of a rice mill, and its claim for refund hereof must be, as
the same is hereby, denied. With respect to he sum of P100.00 as
compromise penalty, the collection thereof being unauthorized and
illegal, respondent is ordered to refund he said amount, plus
interest at the legal rate. No pronouncement as to costs. (Annex A)
On 3 September 1958 the petitioner filed a motion for reconsideration, on 29
September 1958 the respondent, an objection thereto, and on 2 October
1958 the petitioner, a reply to the respondent's objection. On 8 October 1958
the Court denied the petitioner's motion for reconsideration on Hence this
appeal. The petitioner's appeal is only with respect to that part of the
judgment upholding the legality of the imposition of the sum of P3,590.53 as
taxes and surcharge due and denying its claim for refund of the said amount.
Is the petitioner an association organized under the provisions of the
Cooperative Marketing Law, Act No. 3425, as amended, exempt from the
payment of privilege tax or fixed tax upon business and percentage tax,
imposed by sections 178, 182, 183 and 189, of the National Internal
Revenue Code, as amended, is the question to be resolved in this appeal.
Section 48, Act No. 3425, as amended by Republic Act No. 702, exempting
cooperative associations organized under the said Law from payment of
merchant's sales tax, income tax and other percentage taxes, provides:
Any association organized under this Act shall not be subject to the
payment of the merchant's sales tax, the income tax, and all others
percentage taxes of whatever nature and description.
Any exemptions under any and all existing laws applying to
agricultural products in the possession or under the control of the
individual producer, shall apply similarly and completely to
agricultural products delivered by the farmer members to the
association, or which are in the possession or under the control of

the association.
Sections 1, 3, 6 and 7 of Act No. 3425, as amended, provide:
Section 1. This Act shall be known and may be cited as "The
Cooperative Marketing Law". Every association incorporated under
this Law shall be operated primarily for the mutual benefit of the
members thereof, as producers, and should aim to promote, foster,
and encourage the intelligent and orderly marketing of agricultural
products through cooperation; to make the distribution of
agricultural products between producer and consumer as direct as
can be efficiently done; and to stabilize the marketing of agricultural
products.
Sec. 3. Fifteen or more persons, a majority of whom are residents
of the Philippine Islands, engaged in the production of agricultural
products, may form a Cooperative marketing association, with or
without capital stock, under the provisions of this Act, by the
adoption of and filing with the Bureau of Commerce and Industry
articles of incorporation and by-laws in the same manner as is
required of other corporations organized under the Corporation
Law, Act Numbered One thousand four hundred fifty-nine as
amended, except as herein Provided.
Sec. 6 . . . (a) . . . No association, organized under this Act, shall
handle the agricultural products of any non-member except for
storage.
Sec. 7. Under the terms and conditions prescribed in the by-laws
adopted by it, an association shall admit as members, or issue
common stock only to persons engaged in the production of the
agricultural products to be handled by or through the association,
including the lessees and tenants of land used for the production of
such products and any lessors and landlords who received as rent
all or part of the crop raised on the leased premises.
It is plain from the foregoing provisions of the Cooperative Marketing Law
that a cooperative marketing association should be organized by and
composed of persons engaged in the production of agricultural products for
the benefit of producers-members and the association should aim to
Promote, foster, and encourage the intelligent and orderly marketing of
agricultural products through cooperation; to make the distribution of
agricultural products between producer and consumer as direct as can be

efficiently done; and to stabilize the marketing of agricultural products." If the
association fails to comply with these requirements, it cannot be Considered
as an association on organized under the Cooperative Marketing Law. It
cannot be gain said that once the association admits as member persons
who are not engaged in the production of agricultural products, the reason
for its existence under the law ceases to operate and the privilege of
exemption, from the payment of taxes provided for in section 48 of the Law
is withdrawn from it. A person not engaged in the production of agricultural
products has no direct relation to and common cause with one who is so
engaged to bring about an intelligent and orderly marketing, a direct and
efficient distribution between producers an consumer and he stabilization of
the marketing of agricultural products through cooperation with his fellow
producers.
Section 1, Article IV, of the unamended by-laws of the petitioner association
provides:
Any person, residing in the municipality in which the association is
organized (Santa Cruz, Laguna), who pays a membership fee of
P1.00 and buys at least a share of stock in his name, may become
a member of the Association PROVIDED, HOWEVER, That before
becoming a member he shall file an application for membership
addressed to the Board of Directors of the Association, which shall
decide whether or not he is to be ac accepted as member. (Exhibit
A-1, pp. 80-85, BIR rec.)
It goes without saying that any resident municipality of Santa Cruz, Laguna,
who pay to of the petitioner association a membership fee of P1 and buys in
his name at lease a share of stock of the association, even if he is not
engaged in the production of agricultural products may become a member of
the petitioner association. For that reason, the requirement of the law that
members of a cooperative marketing association should be engaged in the
production of agricultural products is not complied with.
Although the witnesses for the petitioner association, namely, Jose del
Mundo, Esteban Dayo, Pedro Calinagan, Jose Reyes, Miguel Carlos, Daniel
Panganiban and Fermin Domingo, testified that they were members of, the
petitioner association and were either owners of riceland or farmers who
milled their palay in the ricemill of the petitioner association, yet such
testimony alone does not establish the fact that all of the members of the
petitioner association are engaged in the production of agricultural products.
In the stipulation of facts submitted to the courts the parties merely agreed
that the persons who brought and milled their palay in the petitioner's ricemill
from 2 to 31 March 1953 listed in Exhibits D, D-1 and 10 and their respective
relation to the members of he petitioner-organization stated therein, would
testify that they were known or called in the community by the names or nick
names appearing therein; that they themselves brought their palay or had it
brought through their respective relatives landlords or employers to the
ricemill for milling; and that to abbreviate the proceeding and avoid a lengthy
and costly litigation, the said persons appearing in the list (Exhibits D, D-1
and 10), would no longer be present to testify at the hearing of the case. The
evidence at hand does not sufficiently establish the fact that all members of
the petitioner association are engaged in the production of agricultural
products. Hence, it cannot be said to have been organized as a cooperative
marketing association and entitled to exemption from the payment of taxes
provided for in section 48 of the Cooperative Marketing Law, Act No. 3425,
as amended.
Petitioner in this appeal by certiorari, seeks the reversal of the decision of

the defunct Court of Appeals which affirmed the judgment of the then Court
of First Instance of Manila ordering petitioner to pay respondent the amount
of P15,739.80 representing its tax liability not secured by any bond, with
legal interest thereon from August 25, 1961 until fully paid.
Sometime in 1957 Agent Nestor Banzuela of the Bureau of Internal
Revenue, Regional District No. 6, Bicol Region, Naga City, conducted an
examination of the books of accounts of herein petitioner Mambulao number
Company for the purpose of determining said taxpayer's forest charges and
percentage tax liabilities.
On July 31, 1957, Agent Banzuela submitted his report wherein it was stated
among others that
The judgment under review is affirmed, with costs against the petitioner.
Bengzon, C.J., Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes,
Dizon, De Leon and Natividad, JJ.,concur.
xxx xxx xxx

xxx xxx xxx
xxx xxx xxx

SUPREME COURT
Manila
SECOND DIVISION
GR. No. L-37061 September 5, 1984
MAMBULAO LUMBER COMPANY, petitioner,
vs.
REPUBLIC OF THE PHILIPPINES, respondent.
CUEVAS, J.:
It can be stated in this connection that sometime in the

early part of 1949, the personnel of the local office of the
Bureau of Forestry in Daet, Camarines Norte, manifested
under the name of the subject taxpayer 2,052.48 cubic
meters of timber, with the corresponding forest charges in
the total amount of P15,443.65 including surcharges. The
Bureau of Forestry then demanded for the payment of said
forest charges on January 15, 1949. However, the subject
taxpayer, for one reason or the other, contested this
assessment until this case reached the hands of the
Secretary of Agriculture and Natural Resources, the
undersigned cannot therefore include in his assessment
this amount in question, hence, due course is given,
recommending that this bureau take proper action
regarding this case.
Consequently, on August 29, 1958, the Acting Commissioner of Internal

Revenue addressed a letter to petitioner, the pertinent portion of which
reads-
this office within ten (10) days from receipt hereof so that
this case may be closed.
xxx xxx xxx
Mambulao Lumber Company

R-406 Samanillo Building
Escolta, Manila
Sgd.Melencio Dom
Acting Commission
of Internal Revenu
Gentlemen:
xxx xxx xxx
It was also ascertained that in 1949 you manifested
2,052.48 cubic meters of timber, the forest charges and
surcharges of which in the total amount of P15,443.55 was
demanded of you by the Bureau of Forestry on January
15, 1949. ...
In view thereof there is due from you the amount of
P33,595.26 as deficiency sales tax, forest charges and
surcharges, committed as follows:
Sales Tax x x x
Forest Charges
Forest charges and surcharges for the year 1949
appealed to the Secretary of Agriculture and Natural
Resources P15,443.55
xxx xxx xxx
Total amount due & payable P33,595.26
Demand is hereby made upon you to pay the aforesaid
amount of P 33,595.26 to the City Treasurer of Manila or
The aforesaid letter was acknowledged to have been received by petitioner

on September 19, 1958. 3 On October 18, 1958, petitioner requested for a
reinvestigation of its tax liability. Subsequently, in a letter dated July 8, 1959,
respondent Commissioner of Internal Revenue give petitioner a period of
twenty (20) days from receipt thereof to submit the results of its verification
of payments with a warning that failure to comply therewith would be
construed as an abandonment of the request for reinvestigation.
For failure of petitioner to comply with the above letter-request and/or to pay
its tax liability despite demands for the payment thereof, respondent
Commissioner of Internal Revenue filed. a complaint for collection in the
Court of First Instance of Manila on August 25, 1961. 4
After trial, judgment was rendered by the trial court, the dispositive portion of
which reads
WHEREFORE, judgment is rendered
(a) Ordering both defendants, jointly and severally, to pay
plaintiff the amount of P1,219.95 plus legal interest
thereon from August 25, 1961, the date of the filing of the
original complaint until fully paid, or in case of failure to
Pay the said amount, ordering the forfeiture of GISCOR
Bond No. 35 to the amount of P1,219.95; and
(b) Ordering defendant Mambulao Lumber Company to
pay the plaintiff the amount of P15,739.80 representing its
tax liability not secured by any bond, with legal interest
thereon from August 25, 1961, until paid.
With costs against defendants.

From the aforesaid decision, petitioner appealed to the Court of
Appeals 5 that portion of the trial court's decision ordering it to pay the
amount of P15,443.55 representing forest charges and surcharges due for
the year 1949.
As herein earlier stated, the then Court of Appeals affirmed the decision of
the trial court. Petitioner filed a motion for reconsideration which was denied
by the said court in its Resolution dated June 7, 1973. Hence, the instant
appeal, petitioner presenting the lone issue of whether or not the right of
plaintiff (respondent herein) to file a judicial action for the collection of the
amount of P15,443.55 as forest charges and surcharges due from the
petitioner Mambulao Lumber Company for the year 1949 has already
prescribed.
Relying on the provisions of Section 332 of the National Internal Revenue
Code which readsSection 332. Exemptions as to period of limitation of
assessment and collection of taxes
xxx xxx xxx
(c) Where the assessment of any internal revenue tax has
been made within the period of limitation above prescribed
such tax may be collected by distraint or levy or by a
proceeding in court, but only if begun (1) within five years
after the assessment of the tax, or (2) prior to the
expiration of any period for collection agreed upon in
writing by the Collector of Internal Revenue and the
taxpayer before the expiration of such five-year period.
The period so agreed upon may be extended by
subsequent agreements in writing made before the
expiration of the period previously agreed upon.
petitioner argues that counting from January 15, 1949 when the Bureau of
Forestry in Daet, Camarines Norte made an assessment and demand for
payment of the amount of P15,443.55 as forest charges and surcharges for

the year 1949, up to the filing of the complaint for collection before the lower
court on August 25, 196 1, more than five (5) years had already elapsed,
hence, the action had clearly prescribed.
Petitioner's aforesaid argument lacks merit. As correctly observed by the trial
court and the Court of Appeals in the appealed decision, the letter of
demand of the Acting Commissioner of Internal Revenue dated August 29,
1958 was the basis of respondent's complaint filed in this case and not the
demand letter of the Bureau of Forestry dated January 15, 1949. This must
be so because forest charges are internal revenue taxes 6 and the sole
power and duty to collect the same is lodged with the Bureau of Internal
Revenue 7 and not with the Bureau of Forestry. The computation and/or
assessment of forest charges made by the Bureau of Forestry may or may
not be adopted by the Commissioner of Internal Revenue and such
computation made by the Bureau of Forestry is not appealable to the Court
of Tax Appeals. 8 Therefore, for the purpose of computing the five-year
period within which to file a complaint for collection, the demand or even the
assessment made by the Bureau of Forestry is immaterial.
In the case at bar, the commencement of the five-year period should be
counted from August 29, 1958, the date of the letter of demand of the Acting
Commissioner of Internal Revenue 9 to petitioner Mambulao Lumber
Company. It is this demand or assessment that is appealable to the Court of
Tax Appeals. The complaint for collection was filed in the Court of First
Instance of Manila on August 25, 1961, very much within the five-year period
prescribed by Section 332 (c) of the Tax Code. Consequently, the right of the
Commissioner of Internal Revenue to collect the forest charges and
surcharges in the amount of P15,443.55 has not prescribed.
Furthermore, it is not disputed that on October 18, 1958, petitioner
requested for a reinvestigation of its tax liability. In reply thereto, respondent
in a letter dated July 8, 1959, gave petitioner a period of twenty (20) days
from receipt thereof to submit the results of its verification of payments and
failure to comply therewith would be construed as abandonment of the
request for reinvestigation. Petitioner failed to comply with this requirement.
Neither did it appeal to the Court of Tax Appeals within thirty (30) days from
receipt of the letter dated July 8, 1959, as prescribed under Section 11 of

Republic Act No. 1125, thus making the assessment final and executory.
Taxpayer's failure to appeal to the Court of Tax Appeals in
due time made the assessment in question final,
executory and demandable. And when the action was
instituted on September 2, 1958 to enforce the deficiency
assessment in question, it was already barred from
disputing the correctness of the assessment or invoking
any defense that would reopen the question of its tax
liability. Otherwise, the period of thirty days for appeal to
the Court of Tax Appeals would make little sense.
In a proceeding like this the taxpayer's defenses are
similar to those of the defendant in a case for the
enforcement of a judgment by judicial action under Section
6 of Rule 39 of the Rules of Court. No inquiry can be made
therein as to the merits of the original case or the justness
of the judgment relied upon, other than by evidence of
want of jurisdiction, of collusion between the parties, or of
fraud in the party offering the record with respect to the
proceedings. As held by this Court in Insular Government
vs. Nico the taxpayer may raise only the questions
whether or not the Collector of Internal Revenue had
jurisdiction to do the particular act, and whether any fraud
was committed in the doing of the act. In that case,
Doroteo Nico was fined by the Collector of Internal
Revenue for violation of sub-paragraphs (d), (e) and (g) of
Section 28 as well as Sections 36, 101 and 107 of Act
1189. Under Section 54 of the same Act, the taxpayer was
given the right to appeal from the decision of the Collector
of Internal Revenue to the Court of First Instance within a
period of ten days from notice of imposition of the fine.
Nico did not appeal, neither did he pay the fine. Pursuant
to Section 33 of the Act, the Collector of Internal Revenue
filed an action in the Court of First Instance to enforce his
decision and collect the fine. The decision of the Collector
of Internal Revenue having become final, this Court, on
appeal, allowed no further inquiry into the merits of the

same. 10
In a suit for 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 a judgment. No inquiry can be made therein as
to the merits of the original case or the justness of the judgment relied upon.
Petitioner is thus already precluded from raising the defense of prescription.
Where the taxpayer did not contest the deficiency income
tax assessed against him, the same became final and
properly collectible by means of an ordinary court action.
The taxpayer cannot dispute an assessment which is
being enforced by judicial action, He should have disputed
it before it was brought to court. 11
WHEREFORE, the decision appealed from is hereby AFFIRMED and the
petition DISMISSED. No costs.
SO ORDERED.
Abad Santos, Escolin and Gutierrez, Jr.,* JJ concur.
Makasiar, (Chairman) and Guerrero, JJ., are on leave.
Concepcion, Jr., J., took no part.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41919-24 May 30, 1980
QUIRICO P. UNGAB, petitioner,

vs.
HON. VICENTE N. CUSI, JR., in his capacity as Judge of the Court of
First Instance, Branch 1, 16TH Judicial District, Davao City, THE
COMMISSIONER OF INTERNAL REVENUE, and JESUS N. ACEBES, in
his capacity as State Prosecutor, respondents.
CONCEPCION JR., J:
Petition for certiorari and prohibition with preliminary injunction and
restraining order to annul and set aside the informations filed in Criminal
Case Nos. 1960, 1961, 1962, 1963, 1964, and 1965 of the Court of First
Instance of Davao, all entitled: "People of the Philippines, plaintiff, versus
Quirico Ungab, accused;" and to restrain the respondent Judge from further
proceeding with the hearing and trial of the said cases.
It is not disputed that sometime in July, 1974, BIR Examiner Ben Garcia
examined the income tax returns filed by the herein petitioner, Quirico P.
Ungab, for the calendar year ending December 31, 1973. In the course of
his examination, he discovered that the petitioner failed to report his income
derived from sales of banana saplings. As a result, the BIR District Revenue
Officer at Davao City sent a "Notice of Taxpayer" to the petitioner informing
him that there is due from him (petitioner) the amount of P104,980.81,
representing income, business tax and forest charges for the year 1973 and
inviting petitioner to an informal conference where the petitioner, duly
assisted by counsel, may present his objections to the findings of the BIR
Examiner. 1 Upon receipt of the notice, the petitioner wrote the BIR District
Revenue Officer protesting the assessment, claiming that he was only a
dealer or agent on commission basis in the banana sapling business and
that his income, as reported in his income tax returns for the said year, was
accurately stated. BIR Examiner Ben Garcia, however, was fully convinced
that the petitioner had filed a fraudulent income tax return so that he
submitted a "Fraud Referral Report," to the Tax Fraud Unit of the Bureau of
Internal Revenue. After examining the records of the case, the Special
Investigation Division of the Bureau of Internal Revenue found sufficient
proof that the herein petitioner is guilty of tax evasion for the taxable year
1973 and recommended his prosecution: t.hqw
(1) For having filed a false or fraudulent income tax return
for 1973 with intent to evade his just taxes due the
government under Section 45 in relation to Section 72 of
the National Internal Revenue Code;
(2) For failure to pay a fixed annual tax of P50.00 a year in
1973 and 1974, or a total of unpaid fixed taxes of P100.00
plus penalties of 175.00 or a total of P175.00, in
accordance with Section 183 of the National Internal
Revenue Code;
(3) For failure to pay the 7% percentage tax, as a producer
of banana poles or saplings, on the total sales of
P129,580.35 to the Davao Fruit Corporation, depriving
thereby the government of its due revenue in the amount
of P15,872.59, inclusive of surcharge. 2
In a second indorsement to the Chief of the Prosecution Division, dated
December 12, 1974, the Commissioner of Internal Revenue approved the
prosecution of the petitioner. 3
Thereafter, State Prosecutor Jesus Acebes who had been designated to
assist all Provincial and City Fiscals throughout the Philippines in the
investigation and prosecution, if the evidence warrants, of all violations of the
National Internal Revenue Code, as amended, and other related laws, in
Administrative Order No. 116 dated December 5, 1974, and to whom the
case was assigned, conducted a preliminary investigation of the case, and
finding probable cause, filed six (6) informations against the petitioner with
the Court of First Instance of Davao City, to wit: t.hqw
(1) Criminal Case No. 1960 Violation of Sec. 45, in
relation to Sec. 72 of the National Internal-Revenue Code,
for filing a fraudulent income tax return for the calendar
year ending December 31, 1973; 4
(2) Criminal Case No. 1961 Violation of Sec. 182 (a), in

relation to Secs. 178, 186, and 208 of the National Internal
Revenue Code, for engaging in business as producer of
saplings, from January, 1973 to December, 1973, without
first paying the annual fixed or privilege tax thereof; 5
relation to Secs. 186 and 209 of the National Internal
Revenue Code, for failure to render a true and complete
return on the gross quarterly sales, receipts and earnings
in his business as producer of banana saplings and to pay
the percentage tax due thereon, for the quarter ending
December 31, 1973; 6
return on the gross quarterly sales receipts and earnings
in his business as producer of saplings, and to pay the
percentage tax due thereon, for the quarter ending on
March 31, 1973; 7
in his business as producer of banana saplings for the
quarter ending on June 30, 1973, and to pay the
percentage tax due thereon; 8
as producer of banana saplings, for the quarter ending on
September 30, 1973, and to pay the percentage tax due
thereon. 9
On September 16, 1975, the petitioner filed a motion to quash the

informations upon the grounds that: (1) the informations are null and void for
want of authority on the part of the State Prosecutor to initiate and prosecute
the said cases; and (2) the trial court has no jurisdiction to take cognizance
of the above-entitled cases in view of his pending protest against the
assessment made by the BIR Examiner. 10 However, the trial court denied
the motion on October 22, 1975. 11 Whereupon, the petitioner filed the
instant recourse. As prayed for, a temporary restraining order was issued by
the Court, ordering the respondent Judge from further proceeding with the
trial and hearing of Criminal Case Nos. 1960, 1961, 1962, 1963, 1964, and
1965 of the Court of First Instance of Davao, all entitled: "People of the
Philippines, plaintiff, versus Quirico Ungab, accused."
The petitioner seeks the annulment of the informations filed against him on
the ground that the respondent State Prosecutor is allegedly without
authority to do so. The petitioner argues that while the respondent State
Prosecutor may initiate the investigation of and prosecute crimes and
violations of penal laws when duly authorized, certain requisites,
enumerated by this Court in its decision in the case of Estrella vs.
Orendain, 12should be observed before such authority may be exercised;
otherwise, the provisions of the Charter of Davao City on the functions and
powers of the City Fiscal will be meaningless because according to said
charter he has charge of the prosecution of all crimes committed within his
jurisdiction; and since "appropriate circumstances are not extant to warrant
the intervention of the State Prosecution to initiate the investigation, sign the
informations and prosecute these cases, said informations are null and
void." The ruling adverted to by the petitioner reads, as follows: t.hqw
In view of all the foregoing considerations, it is the ruling of
this Court that under Sections 1679 and 1686 of the
Revised Administrative Code, in any instance where a
provincial or city fiscal fails, refuses or is unable, for any
reason, to investigate or prosecute a case and, in the
opinion of the Secretary of Justice it is advisable in the
public interest to take a different course of action, the
Secretary of Justice may either appoint as acting
provincial or city fiscal to handle the investigation or
prosecution exclusively and only of such case, any
practicing attorney or some competent officer of the
Department of Justice or office of any city or provincial

fiscal, with complete authority to act therein in all respects
as if he were the provincial or city fiscal himself, or appoint
any lawyer in the government service, temporarily to assist
such city of provincial fiscal in the discharge of his duties,
with the same complete authority to act independently of
and for such city or provincial fiscal provided that no such
appointment may be made without first hearing the fiscal
concerned and never after the corresponding information
has already been filed with the court by the corresponding
city or provincial fiscal without the conformity of the latter,
except when it can be patently shown to the court having
cognizance of the case that said fiscal is intent on
prejudicing the interests of justice. The same sphere of
authority is true with the prosecutor directed and
authorized under Section 3 of Republic Act 3783, as
amended and/or inserted by Republic Act 5184. The
observation in Salcedo vs. Liwag, supra, regarding the
nature of the power of the Secretary of Justice over fiscals
as being purely over administrative matters only was not
really necessary, as indicated in the above relation of the
facts and discussion of the legal issues of said case, for
the resolution thereof. In any event, to any extent that the
opinion therein may be inconsistent herewith the same is
hereby modified.
The contention is without merit. Contrary to the petitioner's claim, the rule
therein established had not been violated. The respondent State Prosecutor,
although believing that he can proceed independently of the City Fiscal in
the investigation and prosecution of these cases, first sought permission
from the City Fiscal of Davao City before he started the preliminary
investigation of these cases, and the City Fiscal, after being shown
Administrative Order No. 116, dated December 5, 1974, designating the said
State Prosecutor to assist all Provincial and City fiscals throughout the
Philippines in the investigation and prosecution of all violations of the
National Internal Revenue Code, as amended, and other related laws,
graciously allowed the respondent State Prosecutor to conduct the
investigation of said cases, and in fact, said investigation was conducted in
the office of the City Fiscal. 13
The petitioner also claims that the filing of the informations was precipitate
and premature since the Commissioner of Internal Revenue has not yet
resolved his protests against the assessment of the Revenue District Officer;
and that he was denied recourse to the Court of Tax Appeals.
The contention is without merit. What is involved here is not the collection of
taxes where the assessment of the Commissioner of Internal Revenue may
be reviewed by the Court of Tax Appeals, but a criminal prosecution for
violations of the National Internal Revenue Code which is within the
cognizance of courts of first instance. While there can be no civil action to
enforce collection before the assessment procedures provided in the Code
have been followed, there is no requirement for the precise computation and
assessment of the tax before there can be a criminal prosecution under the
Code. t.hqw
The contention is made, and is here rejected, that an
assessment of the deficiency tax due is necessary before
the taxpayer can be prosecuted criminally for the charges
preferred. The crime is complete when the violator has, as
in this case, knowingly and willfully filed fraudulent returns
with intent to evade and defeat a part or all of the tax. 14
An assessment of a deficiency is not necessary to a
criminal prosecution for willful attempt to defeat and evade
the income tax. A crime is complete when the violator has
knowingly and willfuly filed a fraudulent return with intent
to evade and defeat the tax. The perpetration of the crime
is grounded upon knowledge on the part of the taxpayer
that he has made an inaccurate return, and the
government's failure to discover the error and promptly to
assess has no connections with the commission of the
crime. 15
Besides, it has been ruled that a petition for reconsideration of an
assessment may affect the suspension of the prescriptive period for the
collection of taxes, but not the prescriptive period of a criminal action for
violation of law. 16 Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for
violation of the National Internal Revenue Code. Accordingly, the respondent

Judge did not abuse his discretion in denying the motion to quash filed by
the petitioner.
Appeals 2("CTA") in C.T.A. Case No. 5015, entitled "Fortune Tobacco

Corporation vs. Liwayway Vinzons-Chato in her capacity as Commissioner
of Internal Revenue."
WHEREFORE, the petition should be, as it is hereby dismissed. The

temporary restraining order heretofore issued is hereby set aside. With costs
against the petitioner.
The facts, by and large, are not in dispute.

Fortune Tobacco Corporation ("Fortune Tobacco") is engaged in the
manufacture of different brands of cigarettes.
SO ORDERED.
Barredo (Chairman), Aquino, Abad Santos and De Castro, JJ.,
concur.1wph1.t

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 119761 August 29, 1996

vs.
HON. COURT OF APPEALS, HON. COURT OF TAX APPEALS and
FORTUNE TOBACCO CORPORATION,respondents.
VITUG, J.:p
The Commissioner of Internal Revenue ("CIR") disputes the decision, dated
31 March 1995, of respondent Court of Appeals 1 affirming the 10th August
1994 decision and the 11th October 1994 resolution of the Court of Tax
On various dates, the Philippine Patent Office issued to the corporation

separate certificates of trademark registration over "Champion," "Hope," and
"More" cigarettes. In a letter, dated 06 January 1987, of then Commissioner
of Internal Revenue Bienvenido A. Tan, Jr., to Deputy Minister Ramon Diaz
of the Presidential Commission on Good Government, "the initial position of
the Commission was to classify 'Champion,' 'Hope,' and 'More' as foreign
brands since they were listed in the World Tobacco Directory as belonging to
foreign companies. However, Fortune Tobacco changed the names of 'Hope'
to 'Hope Luxury' and 'More' to 'Premium More,' thereby removing the said
brands from the foreign brand category. Proof was also submitted to the
Bureau (of Internal Revenue ['BIR']) that 'Champion' was an original Fortune
Tobacco Corporation register and therefore a local brand." 3 Ad
Valorem taxes were imposed on these brands, 4 at the following rates:
BRAND AD VALOREM TAX RATE
E.O. 22 and E.O. 273 RA 6956
06-23-86 07-25-87 06-18-90
07-01-86 01-01-88 07-05-90
Hope Luxury M. 100's
Sec. 142, (c), (2) 40% 45%
Hope Luxury M. King
Sec. 142, (c), (2) 40% 45%
More Premium M. 100's
Sec. 142, (c), (2) 40% 45%
More Premium International
Sec. 142, (c), (2) 40% 45%
Champion Int'l. M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. 100's
Sec. 142, (c), (2) 40% 45%
Champion M. King
Sec. 142, (c), last par. 15% 20%
Champion Lights
Sec. 142, (c), last par. 15% 20% 5
A bill, which later became Republic Act ("RA") No. 7654, 6 was
enacted, on 10 June 1993, by the legislature and signed into law,
on 14 June 1993, by the President of the Philippines. The new law
became effective on 03 July 1993. It amended Section 142(c)(1) of
the National Internal Revenue Code ("NIRC") to read; as follows:
intended to cover the taxes, of cigarettes packed in

twenties does not exceed Four Pesos and eighty centavos
(P4.80) per pack, the rate shall be twenty percent
(20%). 7 (Emphasis supplied)
About a month after the enactment and two (2) days before the
effectivity of RA 7654, Revenue Memorandum Circular No. 37-93
("RMC 37-93"), was issued by the BIR the full text of which
expressed:
REPUBLIKA NG PILIPINAS
KAGAWARAN NG PANANALAPI
KAWANIHAN NG RENTAS INTERNAS
Sec. 142. Cigars and Cigarettes.

July 1, 1993
xxx xxx xxx
REVENUE MEMORANDUM CIRCULAR NO. 37-93
(c) Cigarettes packed by machine. There shall be
levied, assessed and collected on cigarettes packed by
machine a tax at the rates prescribed below based on the
constructive manufacturer's wholesale price or the actual
manufacturer's wholesale price, whichever is higher:
(1) On locally manufactured cigarettes which are currently
classified and taxed at fifty-five percent (55%) or the
exportation of which is not authorized by contract or
otherwise, fifty-five (55%) provided that the minimum tax
shall not be less than Five Pesos (P5.00) per pack.
(2) On other locally manufactured cigarettes, forty-five
percent (45%) provided that the minimum tax shall not be
less than Three Pesos (P3.00) per pack.
xxx xxx xxx
When the registered manufacturer's wholesale price or the
actual manufacturer's wholesale price whichever is higher
of existing brands of cigarettes, including the amounts
SUBJECT: Reclassification of Cigarettes Subject to Excise

Tax
TO: All Internal Revenue Officers and Others Concerned.
In view of the issues raised on whether "HOPE," "MORE"
and "CHAMPION" cigarettes which are locally
manufactured are appropriately considered as locally
manufactured cigarettes bearing a foreign brand, this
Office is compelled to review the previous rulings on the
matter.
Section 142 (c)(1) National Internal Revenue Code, as
amended by R.A. No. 6956, provides:
On locally manufactured cigarettes
bearing a foreign brand, fifty-five percent
(55%) Provided, That this rate shall
apply regardless of whether or not the
right to use or title to the foreign brand

was sold or transferred by its owner to
the local manufacturer. Whenever it has
to be determined whether or not a
cigarette bears a foreign brand, the
listing of brands manufactured in foreign
countries appearing in the current World
Tobacco Directory shall govern.
are the real owner/s thereof, then it follows that the same
shall be considered foreign brand for purposes of
determining the ad valorem tax pursuant to Section 142 of
the National Internal Revenue Code. As held in BIR Ruling
No. 410-88, dated August 24, 1988, "in cases where it
cannot be established or there is dearth of evidence as to
whether a brand is foreign or not, resort to the World
Tobacco Directory should be made."
Under the foregoing, the test for imposition of the 55% ad

valorem tax on cigarettes is that the locally manufactured
cigarettes bear a foreign brand regardless of whether or
not the right to use or title to the foreign brand was sold or
transferred by its owner to the local manufacturer. The
brand must be originally owned by a foreign manufacturer
or producer. If ownership of the cigarette brand is,
however, not definitely determinable, ". . . the listing of
brands manufactured in foreign countries appearing in the
current World Tobacco Directory shall govern. . . ."
In view of the foregoing, the aforesaid brands of

cigarettes, viz: "HOPE," "MORE" and "CHAMPION" being
manufactured by Fortune Tobacco Corporation are hereby
considered locally manufactured cigarettes bearing a
foreign brand subject to the 55% ad valorem tax on
cigarettes.
"HOPE" is listed in the World Tobacco Directory as being

manufactured by (a) Japan Tobacco, Japan and (b)
Fortune Tobacco, Philippines. "MORE" is listed in the said
directory as being manufactured by: (a) Fills de Julia Reig,
Andorra; (b) Rothmans, Australia; (c) RJR-Macdonald
Canada; (d) Rettig-Strenberg, Finland; (e) Karellas,
Greece; (f) R.J. Reynolds, Malaysia; (g) Rothmans, New
Zealand; (h) Fortune Tobacco, Philippines; (i) R.J.
Reynolds, Puerto Rico; (j) R.J. Reynolds, Spain; (k)
Tabacalera, Spain; (l) R.J. Reynolds, Switzerland; and (m)
R.J. Reynolds, USA. "Champion" is registered in the said
directory as being manufactured by (a) Commonwealth
Bangladesh; (b) Sudan, Brazil; (c) Japan Tobacco, Japan;
(d) Fortune Tobacco, Philippines; (e) Haggar, Sudan; and
(f) Tabac Reunies, Switzerland.
Since there is no showing who among the above-listed
manufacturers of the cigarettes bearing the said brands
Any ruling inconsistent herewith is revoked or modified

accordingly.
(SGD) LIWAYWA
VINZONS-CHAT
Commissioner
On 02 July 1993, at about 17:50 hours, BIR Deputy Commissioner
Victor A. Deoferio, Jr., sent via telefax a copy of RMC 37-93 to
Fortune Tobacco but it was addressed to no one in particular. On
15 July 1993, Fortune Tobacco received, by ordinary mail, a
certified xerox copy of RMC 37-93.
In a letter, dated 19 July 1993, addressed to the appellate division
of the BIR, Fortune Tobacco requested for a review, reconsideration
and recall of RMC 37-93. The request was denied on 29 July 1993.
The following day, or on 30 July 1993, the CIR assessed Fortune
Tobacco for ad valorem tax deficiency amounting to P9,598,334.00.
On 03 August 1993, Fortune Tobacco filed a petition for review with
the CTA. 8
On 10 August 1994, the CTA upheld the position of Fortune

Tobacco and adjudged:
WHEREFORE, Revenue Memorandum Circular No. 37-93
reclassifying the brands of cigarettes, viz: "HOPE,"
"MORE" and "CHAMPION" being manufactured by
Fortune Tobacco Corporation as locally manufactured
cigarettes bearing a foreign brand subject to the 55% ad
valorem tax on cigarettes is found to be defective, invalid
and unenforceable, such that when R.A. No. 7654 took
effect on July 3, 1993, the brands in question were not
CURRENTLY CLASSIFIED AND TAXED at 55% pursuant
to Section 1142(c)(1) of the Tax Code, as amended by
R.A. No. 7654 and were therefore still classified as other
locally manufactured cigarettes and taxed at 45% or 20%
as the case may be.
In the instant petition, the Solicitor General argues: That

I. RMC 37-93 IS A RULING OR
OPINION OF THE COMMISSIONER
OF INTERNAL REVENUE
INTERPRETING THE PROVISIONS OF
THE TAX CODE.
II. BEING AN INTERPRETATIVE
RULING OR OPINION, THE
PUBLICATION OF RMC 37-93, FILING
OF COPIES THEREOF WITH THE UP
LAW CENTER AND PRIOR HEARING
ARE NOT NECESSARY TO ITS
VALIDITY, EFFECTIVITY AND
ENFORCEABILITY.
Accordingly, the deficiency ad valorem tax assessment

issued on petitioner Fortune Tobacco Corporation in the
amount of P9,598,334.00, exclusive of surcharge and
interest, is hereby canceled for lack of legal basis.
III. PRIVATE RESPONDENT IS

DEEMED TO HAVE BEEN NOTIFIED
OR RMC 37-93 ON JULY 2, 1993.
Respondent Commissioner of Internal Revenue is hereby

enjoined from collecting the deficiency tax assessment
made and issued on petitioner in relation to the
implementation of RMC No. 37-93.
IV. RMC 37-93 IS NOT

DISCRIMINATORY SINCE IT APPLIES
TO ALL LOCALLY MANUFACTURED
CIGARETTES SIMILARLY SITUATED
AS "HOPE," "MORE" AND
"CHAMPION" CIGARETTES.
SO ORDERED. 9
In its resolution, dated 11 October 1994, the CTA dismissed for lack
of merit the motion for reconsideration.
The CIR forthwith filed a petition for review with the Court of
Appeals, questioning the CTA's 10th August 1994 decision and 11th
October 1994 resolution. On 31 March 1993, the appellate court's
Special Thirteenth Division affirmed in all respects the assailed
decision and resolution.
V. PETITIONER WAS NOT LEGALLY

PROSCRIBED FROM
RECLASSIFYING "HOPE," "MORE"
AND "CHAMPION" CIGARETTES
BEFORE THE EFFECTIVITY OF R.A.
NO. 7654.
VI. SINCE RMC 37-93 IS AN
INTERPRETATIVE RULE, THE
INQUIRY IS NOT INTO ITS VALIDITY,
EFFECTIVITY OR ENFORCEABILITY
BUT INTO ITS CORRECTNESS OR
PROPRIETY; RMC 37-93 IS
CORRECT. 10
In fine, petitioner opines that RMC 37-93 is merely an interpretative
ruling of the BIR which can thus become effective without any prior
need for notice and hearing, nor publication, and that its issuance is
not discriminatory since it would apply under similar circumstances
to all locally manufactured cigarettes.
The Court must sustain both the appellate court and the tax court.
Petitioner stresses on the wide and ample authority of the BIR in
the issuance of rulings for the effective implementation of the
provisions of the National Internal Revenue Code. Let it be made
clear that such authority of the Commissioner is not here doubted.
Like any other government agency, however, the CIR may not
disregard legal requirements or applicable principles in the exercise
of its quasi-legislative powers.
Let us first distinguish between two kinds of administrative
issuances a legislative rule and aninterpretative rule.
In Misamis Oriental Association of Coco Traders,
Inc., vs. Department of Finance Secretary, 11 the Court expressed:
. . . a legislative rule is in the nature of subordinate
legislation, designed to implement a primary legislation by
providing the details thereof . In the same way that laws
must have the benefit of public hearing, it is generally
required that before a legislative rule is adopted there
must be hearing. In this connection, the Administrative
Code of 1987 provides:
Public Participation. If not otherwise required by law, an
agency shall, as far as practicable, publish or circulate
notices of proposed rules and afford interested parties the
opportunity to submit their views prior to the adoption of

any rule.
(2) In the fixing of rates, no rule or final order shall be valid
unless the proposed rates shall have been published in a
newspaper of general circulation at least two (2) weeks
before the first hearing thereon.
(3) In case of opposition, the rules on contested cases
shall be observed.
In addition such rule must be published. On the other
hand, interpretative rules are designed to provide
guidelines to the law which the administrative agency is in
charge of enforcing. 12
It should be understandable that when an administrative rule is
merely interpretative in nature, its applicability needs nothing further
than its bare issuance for it gives no real consequence more than
what the law itself has already prescribed. When, upon the other
hand, the administrative rule goes beyond merely providing for the
means that can facilitate or render least cumbersome the
implementation of the law but substantially adds to or increases the
burden of those governed, it behooves the agency to accord at
least to those directly affected a chance to be heard, and thereafter
to be duly informed, before that new issuance is given the force and
effect of law.
A reading of RMC 37-93, particularly considering the circumstances
under which it has been issued, convinces us that the circular
cannot be viewed simply as a corrective measure (revoking in the
process the previous holdings of past Commissioners) or merely as
construing Section 142(c)(1) of the NIRC, as amended, but has, in
fact and most importantly, been made in order to place "Hope
Luxury," "Premium More" and "Champion" within the classification
of locally manufactured cigarettes bearing foreign brands and to
thereby have them covered by RA 7654. Specifically, the new law
would have its amendatory provisions applied to locally
manufactured cigarettes which at the time of its effectivity were not

so classified as bearing foreign brands. Prior to the issuance of the
questioned circular, "Hope Luxury," "Premium More," and
"Champion" cigarettes were in the category of locally manufactured
cigarettes not bearing foreign brand subject to 45% ad valorem tax.
Hence, without RMC 37-93, the enactment of RA 7654, would have
had no new tax rate consequence on private respondent's
products. Evidently, in order to place "Hope Luxury," "Premium
More," and "Champion" cigarettes within the scope of the
amendatory law and subject them to an increased tax rate, the now
disputed RMC 37-93 had to be issued. In so doing, the BIR not
simply intrepreted the law; verily, it legislated under its quasilegislative authority. The due observance of the requirements of
notice, of hearing, and of publication should not have been then
ignored.
Indeed, the BIR itself, in its RMC 10-86, has observed and
provided:
RMC NO. 10-86
Effectivity of Internal Revenue Rules and Regulations
It has been observed that one of the problem areas
bearing on compliance with Internal Revenue Tax rules
and regulations is lack or insufficiency of due notice to the
tax paying public. Unless there is due notice, due
compliance therewith may not be reasonably expected.
And most importantly, their strict enforcement could
possibly suffer from legal infirmity in the light of the
constitutional provision on "due process of law" and the
essence of the Civil Code provision concerning effectivity
of laws, whereby due notice is a basic requirement (Sec.
1, Art. IV, Constitution; Art. 2, New Civil Code).
In order that there shall be a just enforcement of rules and
regulations, in conformity with the basic element of due
process, the following procedures are hereby prescribed
for the drafting, issuance and implementation of the said

Revenue Tax Issuances:
(1) This Circular shall apply only to (a)
Revenue Regulations; (b) Revenue
Audit Memorandum Orders; and (c)
Revenue Memorandum Circulars and
Revenue Memorandum Orders bearing
on internal revenue tax rules and
regulations.
(2) Except when the law otherwise
expressly provides, the aforesaid
internal revenue tax issuances shall not
begin to be operative until after due
notice thereof may be fairly presumed.
Due notice of the said issuances may be
fairly presumed only after the following
procedures have been taken;
xxx xxx xxx
(5) Strict compliance with the foregoing
procedures is
enjoined. 13
Nothing on record could tell us that it was either impossible or
impracticable for the BIR to observe and comply with the above
requirements before giving effect to its questioned circular.
Not insignificantly, RMC 37-93 might have likewise infringed on
uniformity of taxation.
Article VI, Section 28, paragraph 1, of the 1987 Constitution
mandates taxation to be uniform and equitable. Uniformity requires
that all subjects or objects of taxation, similarly situated, are to be
treated alike or put on equal footing both in privileges and
liabilities. 14 Thus, all taxable articles or kinds of property of the

same class must be taxed at the same rate 15 and the tax must
operate with the same force and effect in every place where the
subject may be found.
Apparently, RMC 37-93 would only apply to "Hope Luxury,"
"Premium More" and "Champion" cigarettes and, unless petitioner
would be willing to concede to the submission of private respondent
that the circular should, as in fact my esteemed colleague Mr.
Justice Bellosillo so expresses in his separate opinion, be
considered adjudicatory in nature and thus violative of due process
following the Ang Tibay 16 doctrine, the measure suffers from lack of
uniformity of taxation. In its decision, the CTA has keenly noted that
other cigarettes bearing foreign brands have not been similarly
included within the scope of the circular, such as
1. Locally manufactured by ALHAMBRA INDUSTRIES,
INC.
(a) "PALM TREE" is listed as
manufactured by office of Monopoly,
Korea (Exhibit "R")
2. Locally manufactured by LA SUERTE CIGAR and
CIGARETTE COMPANY
(a) "GOLDEN KEY" is listed being
manufactured by United Tobacco,
Pakistan (Exhibit "S")
(b) "CANNON" is listed as being
manufactured by Alpha Tobacco,
Bangladesh (Exhibit "T")
3. Locally manufactured by LA PERLA INDUSTRIES, INC.
(a) "WHITE HORSE" is listed as being

manufactured by Rothman's, Malaysia
(Exhibit "U")
(b) "RIGHT" is listed as being
manufactured by SVENSKA, Tobaks,
Sweden (Exhibit "V-1")
4. Locally manufactured by MIGHTY CORPORATION
(a) "WHITE HORSE" is listed as being
manufactured by Rothman's, Malaysia
(Exhibit "U-1")
5. Locally manufactured by STERLING TOBACCO
CORPORATION
(a) "UNION" is listed as being
manufactured by Sumatra Tobacco,
Indonesia and Brown and Williamson,
USA (Exhibit "U-3")
(b) "WINNER" is listed as being
manufactured by Alpha Tobacco,
Bangladesh; Nangyang, Hongkong; Joo
Lan, Malaysia; Pakistan Tobacco Co.,
Pakistan; Premier Tobacco, Pakistan
and Haggar, Sudan (Exhibit "U-4"). 17
The court quoted at length from the transcript of the hearing
conducted on 10 August 1993 by the Committee on Ways and
Means of the House of Representatives; viz:
THE CHAIRMAN. So you have specific information on
Fortune Tobacco alone. You don't have specific
information on other tobacco manufacturers. Now, there
are other brands which are similarly situated. They are
locally manufactured bearing foreign brands. And may I
enumerate to you all these brands, which are also listed in

the World Tobacco Directory . . . Why were these brand
not reclassified at 55 if your want to give a level playing
filed to foreign manufacturers?
MS. CHATO. Mr. Chairman, in fact, we have already
prepared a Revenue Memorandum Circular that was
supposed to come after RMC No. 37-93 which have really
named specifically the list of locally manufactured
cigarettes bearing a foreign brand for excise tax purposes
and includes all these brands that you mentioned at 55
percent except that at that time, when we had to come up
with this, we were forced to study the brands of Hope,
More and Champion because we were given documents
that would indicate the that these brands were actually
being claimed or patented in other countries because we
went by Revenue Memorandum Circular 1488 and we
wanted to give some rationality to how it came about but
we couldn't find the rationale there. And we really found
based on our own interpretation that the only test that is
given by that existing law would be registration in the
World Tobacco Directory. So we came out with this
proposed revenue memorandum circular which we
forwarded to the Secretary of Finance except that at that
point in time, we went by the Republic Act 7654 in Section
1 which amended Section 142, C-1, it said, that on locally
manufactured cigarettes which are currently classified and
taxed at 55 percent. So we were saying that when this law
took effect in July 3 and if we are going to come up with
this revenue circular thereafter, then I think our action
would really be subject to question but we feel that . . .
Memorandum Circular Number 37-93 would really cover
even similarly situated brands. And in fact, it was really
because of the study, the short time that we were given to
study the matter that we could not include all the rest of
the other brands that would have been really classified as
foreign brand if we went by the law itself. I am sure that by
the reading of the law, you would without that ruling by
Commissioner Tan they would really have been included
in the definition or in the classification of foregoing brands.

These brands that you referred to or just read to us and in
fact just for your information, we really came out with a
proposed revenue memorandum circular for those brands.
(Emphasis supplied)
(Exhibit "FF-2-C," pp. V-5 TO V-6, VI-1 to VI-3).
xxx xxx xxx
MS. CHATO. . . . But I do agree with you now that it
cannot and in fact that is why I felt that we . . . I wanted to
come up with a more extensive coverage and precisely
why I asked that revenue memorandum circular that
would cover all those similarly situated would be prepared
but because of the lack of time and I came out with a
study of RA 7654, it would not have been possible to
really come up with the reclassification or the proper
classification of all brands that are listed there. . .
(emphasis supplied) (Exhibit "FF-2d," page IX-1)
xxx xxx xxx
HON. DIAZ. But did you not consider that there are
similarly situated?
MS. CHATO. That is precisely why, Sir, after we have
come up with this Revenue Memorandum Circular No. 3793, the other brands came about the would have also
clarified RMC 37-93 by I was saying really because of the
fact that I was just recently appointed and the lack of time,
the period that was allotted to us to come up with the right
actions on the matter, we were really caught by the July 3
deadline. But in fact, We have already prepared a revenue
memorandum circular clarifying with the other . . . does
not yet, would have been a list of locally manufactured
cigarettes bearing a foreign brand for excise tax purposes
which would include all the other brands that were
mentioned by the Honorable Chairman. (Emphasis

supplied) (Exhibit "FF-2-d," par. IX-4). 18
All taken, the Court is convinced that the hastily promulgated RMC 37-93
has fallen short of a valid and effective administrative issuance.
WHEREFORE, the decision of the Court of Appeals, sustaining that of the
Court of Tax Appeals, is AFFIRMED. No costs.
SO ORDERED.
Kapunan, J., concurs.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 166786
May 3, 2006
MICHEL J. LHUILLER Pawnshop, Inc. Petitioner,

vs.
DECISION
The facts show that petitioner, a corporation engaged in the pawnshop

business, received Assessment Notice Nos. 81-VAT-13-97-99-12-118 and
81-DST-13-97-99-12-119, issued by the Chief Assessment Division,
Revenue Region No. 13, Cebu City, for deficiency VAT in the amount of
P19,961,636.09 and deficiency DST in the amount of P13,142,986.02, for
the year 1997. Petitioner filed a motion for reconsideration of said
assessment notices but was denied by respondent Commissioner of Internal
Revenue (CIR).
On petition for review with the Court of Tax Appeals, the latter rendered
decision in favor of petitioner setting aside the assessment notices issued by
the CIR. It ruled, inter alia, that the subject of a DST under Section 195 of
the National Internal Revenue Code (NIRC) is the document evidencing the
covered transaction. Holding that a pawn ticket is neither a security nor a
printed evidence of indebtedness, the tax court concluded that such pawn
ticket cannot be the subject of a DST. The dispositive portion thereof, states:
WHEREFORE, in view of all the foregoing, the instant Petition for Review is
hereby GRANTED. Accordingly, Assessment Notices Nos. 81-VAT-13-97-9912-118 and 81-DST-13-97-99-11-119 are hereby CANCELLED and SET
ASIDE.
SO ORDERED.3
Respondent filed a petition for review with the Court of Appeals which
reversed the CTA decision and sustained the assessments against
petitioner. It ratiocinated, among others, that a pawn ticket, per se, is not
subject to DST; rather, it is the transaction involved, which in this case is
pledge, that is being taxed. Hence, petitioner was properly assessed to pay
DST. The decretal portion thereof, provides:
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the June 29, 2004
Decision1 of the Court of Appeals in CA-G.R. SP No. 67667, which reversed
the October 24, 2001 Decision2 of the Court Tax Appeals and ordered
petitioner Michel J. Lhuillier Pawnshop, Inc., to pay (1) P19,961,636.09 as
deficiency Value Added Tax (VAT); and (2) P3,142,986.02 as deficiency
Documentary Stamp Tax (DST), for the year 1997.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the

Court of Tax Appeals dated October 24, 2001 is REVERSED and SET
ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is
ORDERED TO PAY: (1) P19,961636.09, as deficiency Value-Added Tax,
inclusive of surcharge and interest; and (2) P3,142,986.02, as deficiency
Documentary Stamp Tax, inclusive of surcharge and interest, for the year
1997. No pronouncement as to cost.
SO ORDERED.4
Respondent filed a motion for partial reconsideration praying that petitioner
be ordered to pay deficiency interest of 20% per annum for failure to pay the
same on January 2, 2000, as indicated in the notices. On December 29,
2004, the Court of Appeals granted the motion and modified the June 29,
2004 decision as follows:
WHEREFORE, the instant petition is hereby GRANTED. The decision of the
Court of Tax Appeals dated October 24, 2001 is REVERSED and SET
ASIDE. In lieu thereof, respondent Michel J. Lhuillier Pawnshop, Inc., is
ORDERED TO PAY: (1) 19,961,636.09, as deficiency Value-Added Tax,
inclusive of surcharge and interest; (2) P3,142,986.02, as deficiency
Documentary Stamp Tax, inclusive of surcharge and interest, for the year
1997; and (3) Delinquency Interest at the rate of 20% per annum from
January 2, 2000, until the deficiency assessment are fully paid, pursuant to
Section 249 of the National Internal Revenue Code. No pronouncement as
to costs.
SO ORDERED.
On January 25, 2005, petitioner elevated the case to this Court.

Subsequently, it filed a motion to withdraw the petition with respect to the
issue of VAT.6 Petitioner manifested that the Chamber of Pawnbrokers of the
Philippines, where it is a member, entered into a Memorandum of
Agreement7 with the Bureau of Internal Revenue (BIR) allowing the
pawnshop industry to compromise the issue of VAT on pawnshops.
Considering that petitioner already paid the agreed amount of settlement, it
prayed that the case be decided solely on the issue of DST.
On September 28, 2005, the Court granted petitioners partial withdrawal of
the petition.8 Hence, the lone question to be resolved in the present petition
is whether petitioners pawnshop transactions are subject to DST.
The Court rules in the affirmative.
Sections 173 and 195 of the NIRC, state:
SEC. 173. Stamp Taxes Upon Documents, Loan Agreements, Instruments,

and Papers. Upon documents, instruments, loan agreements and
papers, and upon acceptances, assignments, sales and transfers of the
obligation, right or property incident thereto, there shall be levied,
collected and paid for, and in respect of the transaction so had or
accomplished, the corresponding documentary stamp taxes x x x.
(Emphasis supplied)
SEC. 195. Stamp Tax on Mortgages, Pledges, and Deeds of Trust. On
every mortgage or pledge of lands, estate, or property, real or personal,
heritable or movable, whatsoever, where the same shall be made as security
for the payment of any definite and certain sum of money lent at the time or
previously due and owing or forborne to be paid, being payable and on any
conveyance of land, estate, or property whatsoever, in trust or to be sold, or
otherwise converted into money which shall be and intended only as
security, either by express stipulation or otherwise, there shall be collected
a documentary stamp tax at the following rates:
"(a) When the amount secured does not exceed Five thousand pesos
(P5,000), Twenty pesos (P20).1avvphil.net
(b) On each Five thousand pesos (P5,000), or fractional part thereof in
excess of Five thousand pesos (P5,000), an additional tax of Ten pesos
(10.00).
x x x x. (Emphasis supplied)
It is clear from the foregoing provisions that the subject of a DST is not
limited to the document embodying the enumerated transactions. A DST is
an excise tax on the exercise of a right or privilege to transfer obligations,
rights or properties incident thereto. In Philippine Home Assurance
Corporation v. Court of Appeals,9 it was held that:
In general, documentary stamp taxes are levied on the exercise by persons
of certain privileges conferred by law for the creation, revision, or termination
of specific legal relationships through the execution of specific instruments.
Examples of such privileges, the exercise of which, as effected through the
issuance of particular documents, are subject to the payment of
documentary stamp taxes are leases of lands, mortgages, pledges and

trusts, and conveyances of real property. (Emphasis added)
is therefore no basis in petitioners assertion that a DST is literally a tax on a

document and that no tax may be imposed on a pawn ticket.
Pledge is among the privileges, the exercise of which is subject to DST. A

pledge may be defined as an accessory, real and unilateral contract by virtue
of which the debtor or a third person delivers to the creditor or to a third
person movable property as security for the performance of the principal
obligation, upon the fulfillment of which the thing pledged, with all its
accessions and accessories, shall be returned to the debtor or to the third
person.10 This is essentially the business of pawnshops which are defined
under Section 3 of Presidential Decree No. 114, or the Pawnshop Regulation
Act, as persons or entities engaged in lending money on personal property
delivered as security for loans.
The settled rule is that tax laws must be construed in favor of the taxpayer
and strictly against the government; and that a tax cannot be imposed
without clear and express words for that purpose.14 Taking our bearing from
the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is
no way that said provision may be interpreted in favor of petitioner. Section
195 unqualifiedly subjects all pledges to DST. It states that "[o]n every x x
x pledge x x x there shall be collected a documentary stamp tax x x x." It is
clear, categorical, and needs no further interpretation or construction. The
explicit tenor thereof requires hardly anything than a simple application.15
Section 12 of the Pawnshop Regulation Act and Section 21 of the Rules and
Regulations For Pawnshops11issued by the Central Bank12 to implement the
Act, require every pawnshop or pawnbroker to issue, at the time of every
such loan or pledge, a memorandum or ticket signed by the pawnbroker and
containing the following details: (1) name and residence of the pawner; (2)
date the loan is granted; (3) amount of principal loan; (4) interest rate in
percent; (5) period of maturity; (6) description of pawn; (7) signature of
pawnbroker or his authorized agent; (8) signature or thumb mark of pawner
or his authorized agent; and (9) such other terms and conditions as may be
agreed upon between the pawnbroker and the pawner. In addition, Central
Bank Circular No. 445,13 prescribed a standard form of pawn tickets with
entries for the required details on its face and the mandated terms and
conditions of the pledge at the dorsal portion thereof.
Section 3 of the Pawnshop Regulation Act defines a pawn ticket as follows:
"Pawn ticket" is the pawnbrokers receipt for a pawn. It is neither a security
nor a printed evidence of indebtedness."
True, the law does not consider said ticket as an evidence of security or
indebtedness. However, for purposes of taxation, the same pawn ticket is
proof of an exercise of a taxable privilege of concluding a contract of pledge.
At any rate, it is not said ticket that creates the pawnshops obligation to pay
DST but the exercise of the privilege to enter into a contract of pledge. There
The onus of proving that pawnshops are not subject to DST is thus shifted to
petitioner. In establishing tax exemptions, it should be borne in mind that
taxation is the rule, exemption is the exception. Accordingly, statutes
granting tax exemptions must be construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority. One who claims an
exemption from tax payments rests the burden of justifying the exemption by
words too plain to be mistaken and too categorical to be misinterpreted.16
In the instant case, there is no law specifically and expressly exempting
pledges entered into by pawnshops from the payment of DST. Section
19917 of the NIRC enumerated certain documents which are not subject to
stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners
nebulous claim that it is not subject to DST is without merit. It cannot be
over-emphasized that tax exemption represents a loss of revenue to the
government and must, therefore, not rest on vague inference.18 Exemption
from taxation is never presumed. For tax exemption to be recognized, the
grant must be clear and express; it cannot be made to rest on doubtful
implications.19
The Court notes that BIR Ruling No. 305-87,20 and BIR Ruling No. 01888,21 which held that a pawn ticket is subject to DST because it is an
evidence of a pledge transaction, had been revoked by BIR Ruling No. 32588.22In the latter ruling, the BIR held that DST is a tax on the document; and
since a pawn ticket is not an evidence of indebtedness, it cannot be subject
to DST. Nevertheless, this interpretation is not consistent with the provisions
of Section 195 of the NIRC which categorically taxes the privilege to enter
into a contract of pledge. Indeed, administrative issuances must not
override, supplant or modify the law but must be consistent with the law they
intend to carry out.23
Finally, petitioner invokes the declaration of nullity of Revenue Memorandum
Circular (RMC) No. 43-91 inCommissioner of Internal Revenue v. Michel J.
Lhuillier Pawnshop, Inc.24 Said case, however, is not applicable to the
present controversy. RMC No. 43-91 is actually a clarification of Revenue
Memorandum Order No. 15-91 which classified pawnshops as "lending
investors" and imposed upon them a 5% lending investors tax. While RMC
No. 43-91 declared in addition that pawnshops are subject to DST, such was
never an issue inCommissioner of Internal Revenue v. Michel J. Lhuillier
Pawnshop, Inc., because nowhere was it mentioned therein that the
pawnshop involved was directed to pay DST. Otherwise stated, the
declaration of nullity of RMC No. 43-91 was the Courts finding, among
others, that pawnshops cannot be classified as lending investors; and
certainly not because pawnshops are not subject to DST. The invocation of
said ruling is therefore misplaced.
WHEREFORE, the petition is DENIED and the June 29, 2004 Decision of
the Court of Appeals, as modified on December 29, 2004, in CA-G.R. SP
No. 67667, is AFFIRMED.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice
BANK OF THE PHILIPPINE ISLANDS, Petitioner,

vs.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review on Certiorari, under Rule 45 of the 1997 Rules of
Civil Procedure, assails the Decision of the Court of Appeals in CA-G.R. SP
No. 51271, dated 11 August 1999,1 which reversed and set aside the
Decision of the Court of Tax Appeals (CTA), dated 02 February 1999,2 and
which reinstated Assessment No. FAS-5-85-89-002054 requiring petitioner
Bank of the Philippine Islands (BPI) to pay the amount of P28,020.00 as
deficiency documentary stamp tax (DST) for the taxable year 1985, inclusive
of the compromise penalty.
There is hardly any controversy as to the factual antecedents of this Petition.
Petitioner BPI is a commercial banking corporation organized and existing
under the laws of the Philippines. On two separate occasions, particularly on
06 June 1985 and 14 June 1985, it sold United States (US) $500,000.00 to
the Central Bank of the Philippines (Central Bank), for the total sales amount
of US$1,000,000.00.
On 10 October 1989, the Bureau of Internal Revenue (BIR) issued
Assessment No. FAS-5-85-89-002054,3finding petitioner BPI liable for
deficiency DST on its afore-mentioned sales of foreign bills of exchange to
the Central Bank, computed as follows
1985 Deficiency Documentary Stamp Tax

SUPREME COURT
SECOND DIVISION
Foreign Bills of Exchange..
G.R. No. 139736 October 17, 2005

Tax Due Thereon:
P 18,480,000.00
1. Under established market practice, the documentary stamp tax on

telegraphic transfers or sales of foreign exchange is paid by the buyer. Thus,
when BPI sells to any party, the cost of documentary stamp tax is added to
the total price or charge to the buyer and the seller affixes the corresponding
documentary stamp on the document. Similarly, when the Central Bank sells
foreign exchange to BPI, it charges BPI for the cost of the documentary
stamp on the transaction.
P18,480,000.00 x P0.30 (Sec. 182 NIRC).

P200.00
Add: Suggested compromise penalty.
TOTAL AMOUNT DUE AND COLLECTIBLE.
Petitioner BPI received the Assessment, together with the attached

Assessment Notice,4 on 20 October 1989.
2. In the two transactions subject of your assessment, no documentary

stamps were affixed because the buyer,
Central Bank of the Philippines, was exempt from such tax. And while it is
P 28,020.00 true that under P.D. 1994, a proviso was added to sec. 222 (now sec. 186) of
the Tax Code "that whenever one party to a taxable document enjoys
exemption from the tax herein imposed, the other party thereto who is not
exempt shall be the one directly liable for the tax," this proviso (and the other
amendments of P.D. 1994) took effect only on January 1, 1986, according to
sec. 49 of P.D. 1994. Hence, the liability for the documentary stamp tax
could not be shifted to the seller.
Petitioner BPI, through its counsel, protested the Assessment in a letter

dated 16 November 1989, and filed with the BIR on 17 November 1989. The
said protest letter is reproduced in full below
In view of the foregoing, we request that the assessment be revoked and

cancelled.
November 16, 1989
Very truly yours,
The Commissioner of Internal Revenue
PADILLA LAW OFFICE
Quezon City
By:
Attention of: Mr. Pedro C. Aguillon
(signed)
Asst. Commissioner for Collection
SABINO PADILLA, JR.5
Sir:
Petitioner BPI did not receive any immediate reply to its protest letter.
However, on 15 October 1992, the BIR issued a Warrant of Distraint and/or
Levy6 against petitioner BPI for the assessed deficiency DST for taxable year
1985, in the amount of P27,720.00 (excluding the compromise penalty
of P300.00). It served the Warrant on petitioner BPI only on 23 October
1992.7
On behalf of our client, Bank of the Philippine Islands (BPI), we have the
honor to protest your assessment against it for deficiency documentary
stamp tax for the year 1985 in the amount of P28,020.00, arising from its
sale to the Central Bank of U.S. $500,000.00 on June 6, 1985 and another
U.S. $500,000.00 on June 14, 1985.
Then again, petitioner BPI did not hear from the BIR until 11 September
1997, when its counsel received a letter, dated 13 August 1997, signed by
then BIR Commissioner Liwayway Vinzons-Chato, denying its "request for
reconsideration," and addressing the points raised by petitioner BPI in its

protest letter, dated 16 November 1989, thus
respondent BIR Commissioner, represented by the Office of the Solicitor

General, filed an Answer on 08 December 1997.10
In reply, please be informed that after a thorough and careful study of the
facts of the case as well as the law and jurisprudence pertinent thereto, this
Office finds the above argument to be legally untenable. It is admitted that
while industry practice or market convention has the force of law between
the members of a particular industry, it is not binding with the BIR since it is
not a party thereto. The same should, therefore, not be allowed to prejudice
the Bureau of its lawful task of collecting revenues necessary to defray the
expenses of the government. (Art. 11 in relation to Art. 1306 of the New Civil
Code.)
Petitioner BPI raised in its Petition for Review before the CTA, in addition to
the arguments presented in its protest letter, dated 16 November 1989, the
defense of prescription of the right of respondent BIR Commissioner to
enforce collection of the assessed amount. It alleged that respondent BIR
Commissioner only had three years to collect on Assessment No. FAS-5-8589-002054, but she waited for seven years and nine months to deny the
protest. In her Answer and subsequent Memorandum, respondent BIR
Commissioner merely reiterated her position, as stated in her letter to
petitioner BPI, dated 13 August 1997, which denied the latters protest; and
remained silent as to the expiration of the prescriptive period for collection of
the assessed deficiency DST.
Moreover, let it be stated that even before the amendment of Sec. 222 (now
Sec. 173) of the Tax Code, as amended, the same was already interpreted
to hold that the other party who is not exempt from the payment of
documentary stamp tax liable from the tax. This interpretation was further
strengthened by the following BIR Rulings which in substance state:
1. BIR Unnumbered Ruling dated May 30, 1977
"x x x Documentary stamp taxes are payable by either person, signing,
issuing, accepting, or transferring the instrument, document or paper. It is
now settled that where one party to the instrument is exempt from said
taxes, the other party who is not exempt should be liable."
2. BIR Ruling No. 144-84 dated September 3, 1984
"x x x Thus, where one party to the contract is exempt from said tax, the
other party, who is not exempt, shall be liable therefore. Accordingly, since
A.J.L. Construction Corporation, the other party to the contract and the one
assuming the payment of the expenses incidental to the registration in the
vendees name of the property sold, is not exempt from said tax, then it is
the one liable therefore, pursuant to Sec. 245 (now Sec. 196), in relation to
Sec. 222 (now Sec. 173), both of the Tax Code of 1977, as amended."
Premised on all the foregoing considerations, your request for
reconsideration is hereby DENIED.8
Upon receipt of the above-cited letter from the BIR, petitioner BPI proceeded
to file a Petition for Review with the CTA on 10 October 1997;9 to which
After due trial, the CTA rendered a Decision on 02 February 1999, in which it
identified two primary issues in the controversy between petitioner BPI and
respondent BIR Commissioner: (1) whether or not the right of respondent
BIR Commissioner to collect from petitioner BPI the alleged deficiency DST
for taxable year 1985 had prescribed; and (2) whether or not the sales of
US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to
the Central Bank were subject to DST.
The CTA answered the first issue in the negative and held that the statute of
limitations for respondent BIR Commissioner to collect on the Assessment
had not yet prescribed. In resolving the issue of prescription, the CTA
reasoned that
In the case of Commissioner of Internal Revenue vs. Wyeth Suaco
Laboratories, Inc., G.R. No. 76281, September 30, 1991, 202 SCRA
125, the Supreme Court laid to rest the first issue. It categorically ruled that a
"protest" is to be treated as request for reinvestigation or reconsideration
and a mere request for reexamination or reinvestigation tolls the prescriptive
period of the Commissioner to collect on an assessment. . .
...
In the case at bar, there being no dispute that petitioner filed its protest on
the subject assessment on November 17, 1989, there can be no conclusion
other than that said protest stopped the running of the prescriptive period of
the Commissioner to collect.
Section 320 (now 223) of the Tax Code, clearly states that a request for
reinvestigation which is granted by the Commissioner, shall suspend the
prescriptive period to collect. The underscored portion above does not mean
that the Commissioner will cancel the subject assessment but should be
construed as when the same was entertained by the Commissioner by not
issuing any warrant of distraint or levy on the properties of the taxpayer or
any action prejudicial to the latter unless and until the request for
reinvestigation is finally given due course. Taking into consideration this
provision of law and the aforementioned ruling of the Supreme Court
in Wyeth Suaco which specifically and categorically states that a protest
could be considered as a request for reinvestigation, We rule that
prescription has not set in against the government.11
The CTA had likewise resolved the second issue in the negative. Referring
to its own decision in an earlier case,Consolidated Bank & Trust Co. v. The
Commissioner of Internal Revenue,12 the CTA reached the conclusion that
the sales of foreign currency by petitioner BPI to the Central Bank in taxable
year 1985 were not subject to DST
From the abovementioned decision of this Court, it can be gleaned that the
Central Bank, during the period June 11, 1984 to March 9, 1987 enjoyed tax
exemption privilege, including the payment of documentary stamp tax (DST)
pursuant to Resolution No. 35-85 dated May 3, 1985 of the Fiscal Incentive
Review Board. As such, the Central Bank, as buyer of the foreign currency,
is exempt from paying the documentary stamp tax for the period abovementioned. This Court further expounded that said tax exemption of the
Central Bank was modified beginning January 1, 1986 when Presidential
Decree (P.D.) 1994 took effect. Under this decree, the liability for DST on
sales of foreign currency to the Central Bank is shifted to the seller.
In sum, the CTA decided that the statute of limitations for respondent BIR
Commissioner to collect on Assessment No. FAS-5-85-89-002054 had not
yet prescribed; nonetheless, it still ordered the cancellation of the said
Assessment because the sales of foreign currency by petitioner BPI to the
Central Bank in taxable year 1985 were tax-exempt.
Herein respondent BIR Commissioner appealed the Decision of the CTA to
the Court of Appeals. In its Decision dated 11 August 1999,14 the Court of
Appeals sustained the finding of the CTA on the first issue, that the running
of the prescriptive period for collection on Assessment No. FAS-5-85-89002054 was suspended when herein petitioner BPI filed a protest on 17
November 1989 and, therefore, the prescriptive period for collection on the
Assessment had not yet lapsed. In the same Decision, however, the Court of
Appeals reversed the CTA on the second issue and basically adopted the
position of the respondent BIR Commissioner that the sales of foreign
currency by petitioner BPI to the Central Bank in taxable year 1985 were
subject to DST. The Court of Appeals, thus, ordered the reinstatement of
Assessment No. FAS-5-85-89-002054 which required petitioner BPI to pay
the amount of P28,020.00 as deficiency DST for taxable year 1985, inclusive
of the compromise penalty.
Comes now petitioner BPI before this Court in this Petition for Review
on Certiorari, seeking resolution of the same two legal issues raised and
discussed in the courts below, to reiterate: (1) whether or not the right of
respondent BIR Commissioner to collect from petitioner BPI the alleged
deficiency DST for taxable year 1985 had prescribed; and (2) whether or not
the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by
petitioner BPI to the Central Bank were subject to DST.
I
Applying the above decision to the case at bar, petitioner cannot be held
liable for DST on its 1985 sales of foreign currencies to the Central Bank, as
the latter who is the purchaser of the subject currencies is the one liable
thereof. However, since the Central Bank is exempt from all taxes during
1985 by virtue of Resolution No. 35-85 of the Fiscal Incentive Review Board
dated March 3, 1985, neither the petitioner nor the Central Bank is liable for
the payment of the documentary stamp tax for the formers 1985 sales of
foreign currencies to the latter. This aforecited case of Consolidated Bank
vs. Commissioner of Internal Revenue was affirmed by the Court of Appeals
in its decision dated March 31, 1995, CA-GR Sp. No. 35930. Said decision
was in turn affirmed by the Supreme Court in its resolution denying the
petition filed by Consolidated Bank dated November 20, 1995 with the
Supreme Court under Entry of Judgment dated March 1, 1996.13
The efforts of respondent Commissioner to collect on Assessment No. FAS5-85-89-002054 were already barred by prescription.
Anent the question of prescription, this Court disagrees in the Decisions of
the CTA and the Court of Appeals, and herein determines the statute of
limitations on collection of the deficiency DST in Assessment No. FAS-5-8589-002054 had already prescribed.
The period for the BIR to assess and collect an internal revenue tax is
limited to three years by Section 203 of the Tax Code of 1977, as
amended,15 which provides that
SEC. 203. Period of limitation upon assessment and collection. Except as

provided in the succeeding section, internal revenue taxes shall be assessed
within three years after the last day prescribed by law for the filing of the
return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That
in a case where a return is filed beyond the period prescribed by law, the
three-year period shall be counted from the day the return was filed. For the
purposes of this section, a return filed before the last day prescribed by law
for the filing thereof shall be considered as filed on such last day.16
The three-year period of limitations on the assessment and collection of
national internal revenue taxes set by Section 203 of the Tax Code of 1977,
as amended, can be affected, adjusted, or suspended, in accordance with
the following provisions of the same Code
collection of taxes. (a) In the case of a false or fraudulent return with intent
to evade tax or of failure to file a return, the tax may be assessed, or a
proceeding in court for the collection of such tax may be begun without
assessment, at any time within ten years after the discovery of the falsity,
fraud, or omission: Provided, That in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in
the civil or criminal action for the collection thereof.
(b) If before the expiration of the time prescribed in the preceding section for
the assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time the tax may be assessed
within the period agreed upon. The period so agreed upon may be extended
by subsequent written agreement made before the expiration of the period
previously agreed upon.
(c) Any internal revenue tax which has been assessed within the period of
limitation above-prescribed may be collected by distraint or levy or by a
proceeding in court within three years following the assessment of the tax.
(d) Any internal revenue tax which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove may be collected by
distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the three-year period. The period so agreed
upon may be extended by subsequent written agreements made before the
expiration of the period previously agreed upon.
(e) Provided, however, That nothing in the immediately preceding section

and paragraph (a) hereof shall be construed to authorize the examination
and investigation or inquiry into any tax returns filed in accordance with the
provisions of any tax amnesty law or decree.17
SEC. 224. Suspension of running of statute. The running of the statute of
limitation provided in Section[s] 203 and 223 on the making of assessment
and the beginning of distraint or levy or a proceeding in court for collection,
in respect of any deficiency, shall be suspended for the period during which
the Commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty days thereafter; when
the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by
him in the return filed upon which a tax is being assessed or
collected: Provided,That, if the taxpayer informs the Commissioner of any
change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.18
As enunciated in these statutory provisions, the BIR has three years,
counted from the date of actual filing of the return or from the last date
prescribed by law for the filing of such return, whichever comes later, to
assess a national internal revenue tax or to begin a court proceeding for the
collection thereof without an assessment. In case of a false or fraudulent
return with intent to evade tax or the failure to file any return at all, the
prescriptive period for assessment of the tax due shall be 10 years from
discovery by the BIR of the falsity, fraud, or omission. When the BIR validly
issues an assessment, within either the three-year or ten-year period,
whichever is appropriate, then the BIR has another three years19 after the
assessment within which to collect the national internal revenue tax due
thereon by distraint, levy, and/or court proceeding. The assessment of the
tax is deemed made and the three-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released,
mailed or sent by the BIR to the taxpayer.20
In the present Petition, there is no controversy on the timeliness of the
issuance of the Assessment, only on the prescription of the period to collect
the deficiency DST following its Assessment. While Assessment No. FAS-585-89-002054 and its corresponding Assessment Notice were both dated 10
October 1989 and were received by petitioner BPI on 20 October 1989,
there was no showing as to when the said Assessment and Assessment
Notice were released, mailed or sent by the BIR. Still, it can be granted that
the latest date the BIR could have released, mailed or sent the Assessment
and Assessment Notice to petitioner BPI was on the same date they were
received by the latter, on 20 October 1989. Counting the three-year
prescriptive period, for a total of 1,095 days,21 from 20 October 1989, then
the BIR only had until 19 October 1992 within which to collect the assessed
deficiency DST.
The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89002054 was its issuance and service of a Warrant of Distraint and/or Levy on
petitioner BPI. Although the Warrant was issued on 15 October 1992,
previous to the expiration of the period for collection on 19 October 1992, the
same was served on petitioner BPI only on 23 October 1992.
Under Section 223(c) of the Tax Code of 1977, as amended, it is not
essential that the Warrant of Distraint and/or Levy be fully executed so that it
can suspend the running of the statute of limitations on the collection of the
tax. It is enough that the proceedings have validly began or commenced and
that their execution has not been suspended by reason of the voluntary
desistance of the respondent BIR Commissioner. Existing jurisprudence
establishes that distraint and levy proceedings are validly begun or
commenced by the issuance of the Warrantand service thereof on the
taxpayer.22 It is only logical to require that the Warrant of Distraint and/or
Levy be, at the very least, served upon the taxpayer in order to suspend the
running of the prescriptive period for collection of an assessed tax, because
it may only be upon the service of the Warrant that the taxpayer is informed
of the denial by the BIR of any pending protest of the said taxpayer, and the
resolute intention of the BIR to collect the tax assessed.
If the service of the Warrant of Distraint and/or Levy on petitioner BPI on 23
October 1992 was already beyond the prescriptive period for collection of
the deficiency DST, which had expired on 19 October 1992, then what more
the letter of respondent BIR Commissioner, dated 13 August 1997 and
received by the counsel of the petitioner BPI only on 11 September 1997,
denying the protest of petitioner BPI and requesting payment of the
deficiency DST? Even later and more unequivocally barred by prescription
on collection was the demand made by respondent BIR Commissioner for
payment of the deficiency DST in her Answer to the Petition for Review of
petitioner BPI before the CTA, filed on 08 December 1997.23
II
There is no valid ground for the suspension of the running of the prescriptive
period for collection of the assessed DST under the Tax Code of 1977, as
amended.
In their Decisions, both the CTA and the Court of Appeals found that the
filing by petitioner BPI of a protest letter suspended the running of the
prescriptive period for collecting the assessed DST. This Court, however,
takes the opposing view, and, based on the succeeding discussion,
concludes that there is no valid ground for suspending the running of the
prescriptive period for collection of the deficiency DST assessed against
petitioner BPI.
A. The statute of limitations on assessment and collection of taxes is for the
protection of the taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that he
will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time.24 As aptly explained in Republic of
the Philippines v. Ablaza25
The law prescribing a limitation of actions for the collection of the income tax
is beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous
tax agents who will always find an excuse to inspect the books of taxpayers,
not to determine the latters real liability, but to take advantage of every
opportunity to molest peaceful, law-abiding citizens. Without such a legal
defense taxpayers would furthermore be under obligation to always keep
their books and keep them open for inspection subject to harassment by
unscrupulous tax agents. The law on prescription being a remedial measure
should be interpreted in a way conducive to bringing about the beneficent
purpose of affording protection to the taxpayer within the contemplation of
the Commission which recommend the approval of the law.
In order to provide even better protection to the taxpayer against
unreasonable investigation, the Tax Code of 1977, as amended, identifies
specifically in Sections 223 and 22426 thereof the circumstances when the
prescriptive periods for assessing and collecting taxes could be suspended

or interrupted.
To give effect to the legislative intent, these provisions on the statute of
limitations on assessment and collection of taxes shall be construed and
applied liberally in favor of the taxpayer and strictly against the Government.
B. The statute of limitations on assessment and collection of national
internal revenue taxes may be waived, subject to certain conditions, under
paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as
amended, respectively. Petitioner BPI, however, did not execute any such
waiver in the case at bar.
According to paragraphs (b) and (d) of Section 223 of the Tax Code of 1977,
as amended, the prescriptive periods for assessment and collection of
national internal revenue taxes, respectively, could be waived by agreement,
to wit
collection of taxes.
...
(b) If before the expiration of the time prescribed in the preceding section for
the assessment of the tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time the tax may be assessed
within the period agreed upon. The period so agreed upon may be extended
by subsequent written agreement made before the expiration of the period
previously agreed upon.
...
(d) Any internal revenue tax which has been assessed within the period
agreed upon as provided in paragraph (b) hereinabove may be collected by
distraint or levy or by a proceeding in court within the period agreed upon in
writing before the expiration of the three-year period. The period so agreed
upon may be extended by subsequent written agreements made before the
expiration of the period previously agreed upon.27
The agreements so described in the afore-quoted provisions are often
referred to as waivers of the statute of limitations. The waiver of the statute
of limitations, whether on assessment or collection, should not be construed
as a waiver of the right to invoke the defense of prescription but, rather, an

agreement between the taxpayer and the BIR to extend the period to a date
certain, within which the latter could still assess or collect taxes due. The
waiver does not mean that the taxpayer relinquishes the right to invoke
prescription unequivocally.28
A valid waiver of the statute of limitations under paragraphs (b) and (d) of
Section 223 of the Tax Code of 1977, as amended, must be: (1) in writing;
(2) agreed to by both the Commissioner and the taxpayer; (3) before the
expiration of the ordinary prescriptive periods for assessment and collection;
and (4) for a definite period beyond the ordinary prescriptive periods for
assessment and collection. The period agreed upon can still be extended by
subsequent written agreement, provided that it is executed prior to the
expiration of the first period agreed upon. The BIR had issued Revenue
Memorandum Order (RMO) No. 20-90 on 04 April 1990 to lay down an even
more detailed procedure for the proper execution of such a waiver. RMO No.
20-90 mandates that the procedure for execution of the waiver shall be
strictly followed, and any revenue official who fails to comply therewith
resulting in the prescription of the right to assess and collect shall be
administratively dealt with.
This Court had consistently ruled in a number of cases that a request for
reconsideration or reinvestigation by the taxpayer, without a valid waiver of
the prescriptive periods for the assessment and collection of tax, as required
by the Tax Code and implementing rules, will not suspend the running
thereof.29
In the Petition at bar, petitioner BPI executed no such waiver of the statute of
limitations on the collection of the deficiency DST per Assessment No. FAS5-85-89-002054. In fact, an internal memorandum of the Chief of the
Legislative, Ruling & Research Division of the BIR to her counterpart in the
Collection Enforcement Division, dated 15 October 1992, expressly noted
that, "The taxpayer fails to execute a Waiver of the Statute of Limitations
extending the period of collection of the said tax up to December 31, 1993
pending reconsideration of its protest. . ."30 Without a valid waiver, the statute
of limitations on collection by the BIR of the deficiency DST could not have
been suspended under paragraph (d) of Section 223 of the Tax Code of
1977, as amended.
C. The protest filed by petitioner BPI did not constitute a request for
reinvestigation, granted by the respondent BIR Commissioner, which could
have suspended the running of the statute of limitations on collection of the
assessed deficiency DST under Section 224 of the Tax Code of 1977, as
amended.
...
For the purpose of the protest herein
The Tax Code of 1977, as amended, also recognizes instances when the
running of the statute of limitations on the assessment and collection of
national internal revenue taxes could be suspended, even in the absence of
a waiver, under Section 224 thereof, which reads
SEC. 224. Suspension of running of statute. The running of the statute of
limitation provided in Section[s] 203 and 223 on the making of assessment
and the beginning of distraint or levy or a proceeding in court for collection,
in respect of any deficiency, shall be suspended for the period during which
the Commissioner is prohibited from making the assessment or beginning
distraint or levy or a proceeding in court and for sixty days thereafter; when
the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by
him in the return filed upon which a tax is being assessed or
collected: Provided,That, if the taxpayer informs the Commissioner of any
change in address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly served upon the
taxpayer, his authorized representative, or a member of his household with
sufficient discretion, and no property could be located; and when the
taxpayer is out of the Philippines.31
Of particular importance to the present case is one of the circumstances
enumerated in Section 224 of the Tax Code of 1977, as amended, wherein
the running of the statute of limitations on assessment and collection of
taxes is considered suspended "when the taxpayer requests for a
reinvestigation which is granted by the Commissioner."
This Court gives credence to the argument of petitioner BPI that there is a
distinction between a request for reconsideration and a request for
reinvestigation. Revenue Regulations (RR) No. 12-85, issued on 27
November 1985 by the Secretary of Finance, upon the recommendation of
the BIR Commissioner, governs the procedure for protesting an assessment
and distinguishes between the two types of protest, as follows
PROTEST TO ASSESSMENT
SEC. 6. Protest. The taxpayer may protest administratively an assessment
by filing a written request for reconsideration or reinvestigation. . .
(a) Request for reconsideration. refers to a plea for a re-evaluation of an

assessment on the basis of existing records without need of additional
evidence. It may involve both a question of fact or of law or both.
(b) Request for reinvestigation. refers to a plea for re-evaluation of an
assessment on the basis of newly-discovered or additional
evidence that a taxpayer intends to present in the reinvestigation. It may
also involve a question of fact or law or both.
With the issuance of RR No. 12-85 on 27 November 1985 providing the
above-quoted distinctions between a request for reconsideration and a
request for reinvestigation, the two types of protest can no longer be used
interchangeably and their differences so lightly brushed aside. It bears to
emphasize that under Section 224 of the Tax Code of 1977, as amended,
the running of the prescriptive period for collection of taxes can only be
suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend the running of the
statute of limitations on collection of the assessed tax, while the latter can
not.
The protest letter of petitioner BPI, dated 16 November 1989 and filed with
the BIR the next day, on 17 November 1989, did not specifically request for
either a reconsideration or reinvestigation. A close review of the contents
thereof would reveal, however, that it protested Assessment No. FAS-5-8589-002054 based on a question of law, in particular, whether or not petitioner
BPI was liable for DST on its sales of foreign currency to the Central Bank in
taxable year 1985. The same protest letter did not raise any question of fact;
neither did it offer to present any new evidence. In its own letter to petitioner
BPI, dated 10 September 1992, the BIR itself referred to the protest of
petitioner BPI as a request for reconsideration.32 These considerations would
lead this Court to deduce that the protest letter of petitioner BPI was in the
nature of a request for reconsideration, rather than a request for
reinvestigation and, consequently, Section 224 of the Tax Code of 1977, as
amended, on the suspension of the running of the statute of limitations
should not apply.
Even if, for the sake of argument, this Court glosses over the distinction
between a request for reconsideration and a request for reinvestigation, and
considers the protest of petitioner BPI as a request for reinvestigation, the
filing thereof could not have suspended at once the running of the statute of
limitations. Article 224 of the Tax Code of 1977, as amended, very plainly
requires that the request for reinvestigation had been granted by the BIR
Commissioner to suspend the running of the prescriptive periods for
assessment and collection.
That the BIR Commissioner must first grant the request for reinvestigation as
a requirement for suspension of the statute of limitations is even supported
by existing jurisprudence.
In the case of Republic of the Philippines v. Gancayco,33 taxpayer Gancayco
requested for a thorough reinvestigation of the assessment against him and
placed at the disposal of the Collector of Internal Revenue all the evidences
he had for such purpose; yet, the Collector ignored the request, and the
records and documents were not at all examined. Considering the given
facts, this Court pronounced that
. . .The act of requesting a reinvestigation alone does not suspend the
period. The request should first be granted, in order to effect
suspension. (Collector vs. Suyoc Consolidated, supra; also Republic vs.
Ablaza, supra). Moreover, the Collector gave appellee until April 1, 1949,
within which to submit his evidence, which the latter did one day before.
There were no impediments on the part of the Collector to file the collection
case from April 1, 1949. . . .34
In Republic of the Philippines v. Acebedo,35 this Court similarly found that
. . . [T]he defendant, after receiving the assessment notice of September 24,
1949, asked for a reinvestigation thereof on October 11, 1949 (Exh.
A). There is no evidence that this request was considered or acted
upon.In fact, on October 23, 1950 the then Collector of Internal Revenue
issued a warrant of distraint and levy for the full amount of the assessment
(Exh. D), but there was no follow-up of this warrant. Consequently, the
request for reinvestigation did not suspend the running of the period
for filing an action for collection.
The burden of proof that the taxpayers request for reinvestigation had been
actually granted shall be on respondent BIR Commissioner. The grant may
be expressed in communications with the taxpayer or implied from the
actions of the respondent BIR Commissioner or his authorized BIR

representatives in response to the request for reinvestigation.
In Querol v. Collector of Internal Revenue,36 the BIR, after receiving the
protest letters of taxpayer Querol, sent a tax examiner to San Fernando,
Pampanga, to conduct the reinvestigation; as a result of which, the original
assessment against taxpayer Querol was revised by permitting him to
deduct reasonable depreciation. In another case, Republic of the Philippines
v. Lopez,37 taxpayer Lopez filed a total of four petitions for reconsideration
and reinvestigation. The first petition was denied by the BIR. The second
and third petitions were granted by the BIR and after each reinvestigation,
the assessed amount was reduced. The fourth petition was again denied
and, thereafter, the BIR filed a collection suit against taxpayer Lopez. When
the taxpayers spouses Sison, inCommissioner of Internal Revenue v.
Sison,38 contested the assessment against them and asked for a
reinvestigation, the BIR ordered the reinvestigation resulting in the issuance
of an amended assessment. Lastly, in Republic of the Philippines v.
Oquias,39 the BIR granted taxpayer Oquiass request for reinvestigation and
duly notified him of the date when such reinvestigation would be held; only,
neither taxpayer Oquias nor his counsel appeared on the given date.
In all these cases, the request for reinvestigation of the assessment filed by
the taxpayer was evidently granted and actual reinvestigation was
conducted by the BIR, which eventually resulted in the issuance of an
amended assessment. On the basis of these facts, this Court ruled in the
same cases that the period between the request for reinvestigation and the
revised assessment should be subtracted from the total prescriptive period
for the assessment of the tax; and, once the assessment had been
reconsidered at the taxpayers instance, the period for collection should
begin to run from the date of the reconsidered or modified assessment.40
The rulings of the foregoing cases do not apply to the present Petition
because: (1) the protest filed by petitioner BPI was a request for
reconsideration, not a reinvestigation, of the assessment against it; and (2)
even granting that the protest of petitioner BPI was a request for
reinvestigation, there was no showing that it was granted by respondent BIR
Commissioner and that actual reinvestigation had been conducted.
Going back to the administrative records of the present case, it would seem
that the BIR, after receiving a copy of the protest letter of petitioner BPI on
17 November 1989, did not attempt to communicate at all with the latter until
10 September 1992, less than a month before the prescriptive period for
collection on Assessment No. FAS-5-85-89-002054 was due to expire. There
were internal communications, mostly indorsements of the docket of the

case from one BIR division to another; but these hardly fall within the same
sort of acts in the previously discussed cases that satisfactorily
demonstrated the grant of the taxpayers request for reinvestigation.
Petitioner BPI, in the meantime, was left in the dark as to the status of its
protest in the absence of any word from the BIR. Besides, in its letter to
petitioner BPI, dated 10 September 1992, the BIR unwittingly admitted that it
had not yet acted on the protest of the former
Petitioner BPI, on the other hand, is requesting this Court to revisit

the Wyeth Suaco case contending that it had unjustifiably expanded the
grounds for suspending the prescriptive period for collection of national
internal revenue taxes.
This refers to your protest against and/or request for reconsideration of the
assessment/s of this Office against you involving the amount of P28,020.00
under FAS-5-85-89-002054 dated October 23, 1989 as deficiency
documentary stamp tax inclusive of compromise penalty for the year 1985.
A. The only exception to the statute of limitations on collection of taxes,

other than those already provided in the Tax Code, was recognized in the
Suyoc case.
In this connection, it is requested that the enclosed waiver of the statute of

limitations extending the period of collection of the said tax/es to December
31, 1993 be executed by you as a condition precedent of our giving due
course to your protest41
When the BIR stated in its letter, dated 10 September 1992, that the waiver
of the statute of limitations on collection was a condition precedent to its
giving due course to the request for reconsideration of petitioner BPI, then it
was understood that the grant of such request for reconsideration was being
held off until compliance with the given condition. When petitioner BPI failed
to comply with the condition precedent, which was the execution of the
waiver, the logical inference would be that the request was not granted and
was not given due course at all.
III
The suspension of the statute of limitations on collection of the assessed
deficiency DST from petitioner BPI does not find support in jurisprudence.
It is the position of respondent BIR Commissioner, affirmed by the CTA and
the Court of Appeals, that the three-year prescriptive period for collecting on
Assessment No. FAS-5-85-89-002054 had not yet prescribed, because the
said prescriptive period was suspended, invoking the case of Commissioner
of Internal Revenue v. Wyeth Suaco Laboratories, Inc.42 It was in this case in
which this Court ruled that the prescriptive period provided by law to make a
collection is interrupted once a taxpayer requests for reinvestigation or
reconsideration of the assessment.
This Court finds that although there is no compelling reason to abandon its
decision in the Wyeth Suaco case, the said case cannot be applied to the
particular facts of the Petition at bar.
As had been previously discussed herein, the statute of limitations on

assessment and collection of national internal revenue taxes may be
suspended if the taxpayer executes a valid waiver thereof, as provided in
paragraphs (b) and (d) of Section 223 of the Tax Code of 1977, as amended;
and in specific instances enumerated in Section 224 of the same Code,
which include a request for reinvestigation granted by the BIR
Commissioner. Outside of these statutory provisions, however, this Court
also recognized one other exception to the statute of limitations on collection
of taxes in the case of Collector of Internal Revenue v. Suyoc Consolidated
Mining Co.43
In the said case, the Collector of Internal Revenue issued an assessment
against taxpayer Suyoc Consolidated Mining Co. on 11 February 1947 for
deficiency income tax for the taxable year 1941. Taxpayer Suyoc requested
for at least a year within which to pay the amount assessed, but at the same
time, reserving its right to question the correctness of the assessment before
actual payment. The Collector granted taxpayer Suyoc an extension of only
three months to pay the assessed tax. When taxpayer Suyoc failed to pay
the assessed tax within the extended period, the Collector sent it a demand
letter, dated 28 November 1950. Upon receipt of the demand letter, taxpayer
Suyoc asked for a reinvestigation and reconsideration of the assessment,
but the Collector denied the request. Taxpayer Suyoc reiterated its request
for reconsideration on 25 April 1952, which was denied again by the
Collector on 06 May 1953. Taxpayer Suyoc then appealed the denial to the
Conference Staff. The Conference Staff heard the appeal from 02
September 1952 to 16 July 1955, and the negotiations resulted in the
reduction of the assessment on 26 July 1955. It was the collection of the
reduced assessment that was questioned before this Court for being
enforced beyond the prescriptive period.44
In resolving the issue on prescription, this Court ratiocinated thus

It is obvious from the foregoing that petitioner refrained from collecting the
tax by distraint or levy or by proceeding in court within the 5-year period from
the filing of the second amended final return due to the several requests of
respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment.
Because of such requests, several reinvestigations were made and a
hearing was even held by the Conference Staff organized in the collection
office to consider claims of such nature which, as the record shows, lasted
for several months. After inducing petitioner to delay collection as he in fact
did, it is most unfair for respondent to now take advantage of such
desistance to elude his deficiency income tax liability to the prejudice of the
Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer,
there are cases however where a taxpayer may be prevented from setting
up the defense of prescription even if he has not previously waived it in
writing as when by his repeated requests or positive acts the
Government has been, for good reasons, persuaded to postpone
collection to make him feel that the demand was not unreasonable or
that no harassment or injustice is meant by the Government. And when
such situation comes to pass there are authorities that hold, based on
weighty reasons, that such an attitude or behavior should not be
countenanced if only to protect the interest of the Government.45
By the principle of estoppel, taxpayer Suyoc was not allowed to raise the
defense of prescription against the efforts of the Government to collect the
tax assessed against it. This Court adopted the following principle from
American jurisprudence: "He who prevents a thing from being done may not
avail himself of the nonperformance which he has himself occasioned, for
the law says to him in effect this is your own act, and therefore you are not
damnified."46
In the Suyoc case, this Court expressly conceded that a mere request for
reconsideration or reinvestigation of an assessment may not suspend the
running of the statute of limitations. It affirmed the need for a waiver of the
prescriptive period in order to effect suspension thereof. However, even
without such waiver, the taxpayer may be estopped from raising the defense
of prescription because by his repeated requests or positive acts, he had

induced Government authorities to delay collection of the assessed tax.
Based on the foregoing, petitioner BPI contends that the declaration made in
the later case of Wyeth Suaco, that the statute of limitations on collection is
suspended once the taxpayer files a request for reconsideration or
reinvestigation, runs counter to the ruling made by this Court in
the Suyoc case.
B. Although this Court is not compelled to abandon its decision in the Wyeth
Suaco case, it finds that Wyeth Suaco is not applicable to the Petition at bar
because of the distinct facts involved herein.
In the case of Wyeth Suaco, taxpayer Wyeth Suaco was assessed for failing
to remit withholding taxes on royalties and dividend declarations, as well as,
for deficiency sales tax. The BIR issued two assessments, dated 16
December 1974 and 17 December 1974, both received by taxpayer Wyeth
Suaco on 19 December 1974. Taxpayer Wyeth Suaco, through its tax
consultant, SGV & Co., sent to the BIR two letters, dated 17 January 1975
and 08 February 1975, protesting the assessments and requesting their
cancellation or withdrawal on the ground that said assessments lacked
factual or legal basis. On 12 September 1975, the BIR Commissioner
advised taxpayer Wyeth Suaco to avail itself of the compromise settlement
being offered under Letter of Instruction No. 308. Taxpayer Wyeth Suaco
manifested its conformity to paying a compromise amount, but subject to
certain conditions; though, apparently, the said compromise amount was
never paid. On 10 December 1979, the BIR Commissioner rendered a
decision reducing the assessment for deficiency withholding tax against
taxpayer Wyeth Suaco, but maintaining the assessment for deficiency sales
tax. It was at this point when taxpayer Wyeth Suaco brought its case before
the CTA to enjoin the BIR from enforcing the assessments by reason of
prescription. Although the CTA decided in favor of taxpayer Wyeth Suaco, it
was reversed by this Court when the case was brought before it on appeal.
According to the decision of this Court
Settled is the rule that the prescriptive period provided by law to make a
collection by distraint or levy or by a proceeding in court is interrupted once a
taxpayer requests for reinvestigation or reconsideration of the
assessment. . .
...
Although the protest letters prepared by SGV & Co. in behalf of private
respondent did not categorically state or use the words "reinvestigation" and
"reconsideration," the same are to be treated as letters of reinvestigation and
reconsideration
These letters of Wyeth Suaco interrupted the running of the five-year
prescriptive period to collect the deficiency taxes. The Bureau of Internal
Revenue, after having reviewed the records of Wyeth Suaco, in
accordance with its request for reinvestigation, rendered a final
assessment It was only upon receipt by Wyeth Suaco of this final
assessment that the five-year prescriptive period started to run again.47
The foremost criticism of petitioner BPI of the Wyeth Suaco decision is
directed at the statement made therein that, "settled is the rule that the
prescriptive period provided by law to make a collection by distraint or levy
or by a proceeding in court is interrupted once a taxpayer requests for
reinvestigation or reconsideration of the assessment."48 It would seem that
both petitioner BPI and respondent BIR Commissioner, as well as, the CTA
and Court of Appeals, take the statement to mean that the filing alone of the
request for reconsideration or reinvestigation can already interrupt or
suspend the running of the prescriptive period on collection. This Court
therefore takes this opportunity to clarify and qualify this statement made in
the Wyeth Suaco case. While it is true that, by itself, such statement would
appear to be a generalization of the exceptions to the statute of limitations
on collection, it is best interpreted in consideration of the particular facts of
the Wyeth Suaco case and previous jurisprudence.
The Wyeth Suaco case cannot be in conflict with the Suyoc case because
there are substantial differences in the factual backgrounds of the two cases.
The Suyoc case refers to a situation where there were repeated requests or
positive acts performed by the taxpayer that convinced the BIR to delay
collection of the assessed tax. This Court pronounced therein that the
repeated requests or positive acts of the taxpayer prevented or estopped it
from setting up the defense of prescription against the Government when the
latter attempted to collect the assessed tax. In the Wyeth Suaco case,
taxpayer Wyeth Suaco filed a request for reinvestigation, which was
apparently granted by the BIR and, consequently, the prescriptive period
was indeed suspended as provided under Section 224 of the Tax Code of
1977, as amended.49
To reiterate, Section 224 of the Tax Code of 1977, as amended, identifies
specific circumstances when the statute of limitations on assessment and
collection may be interrupted or suspended, among which is a request for
reinvestigation that is granted by the BIR Commissioner. The act of filing a

request for reinvestigation alone does not suspend the period; such request
must be granted.50 The grant need not be express, but may be implied from
the acts of the BIR Commissioner or authorized BIR officials in response to
the request for reinvestigation.51
This Court found in the Wyeth Suaco case that the BIR actually conducted a
reinvestigation, in accordance with the request of the taxpayer Wyeth Suaco,
which resulted in the reduction of the assessment originally issued against it.
Taxpayer Wyeth Suaco was also aware that its request for reinvestigation
was granted, as written by its Finance Manager in a letter dated 01 July
1975, addressed to the Chief of the Tax Accounts Division, wherein he
admitted that, "[a]s we understand, the matter is now undergoing review and
consideration by your Manufacturing Audit Division" The statute of
limitations on collection, then, started to run only upon the issuance and
release of the reduced assessment.
The Wyeth Suaco case, therefore, is correct in declaring that the prescriptive
period for collection is interrupted or suspended when the taxpayer files a
request for reinvestigation, provided that, as clarified and qualified herein,
such request is granted by the BIR Commissioner.
Thus, this Court finds no compelling reason to abandon its decision in
the Wyeth Suaco case. It also now rules that the said case is not applicable
to the Petition at bar because of the distinct facts involved herein. As already
heretofore determined by this Court, the protest filed by petitioner BPI was a
request for reconsideration, which merely required a review of existing
evidence and the legal basis for the assessment. Respondent BIR
Commissioner did not require, neither did petitioner BPI offer, additional
evidence on the matter. After petitioner BPI filed its request for
reconsideration, there was no other communication between it and
respondent BIR Commissioner or any of the authorized representatives of
the latter. There was no showing that petitioner BPI was informed or aware
that its request for reconsideration was granted or acted upon by the BIR.
IV
Conclusion
To summarize all the foregoing discussion, this Court lays down the following
rules on the exceptions to the statute of limitations on collection.
The statute of limitations on collection may only be interrupted or suspended

by a valid waiver executed in accordance with paragraph (d) of Section 223
of the Tax Code of 1977, as amended, and the existence of the
circumstances enumerated in Section 224 of the same Code, which include
a request for reinvestigation granted by the BIR Commissioner.
Even when the request for reconsideration or reinvestigation is not
accompanied by a valid waiver or there is no request for reinvestigation that
had been granted by the BIR Commissioner, the taxpayer may still be held in
estoppel and be prevented from setting up the defense of prescription of the
statute of limitations on collection when, by his own repeated requests or
positive acts, the Government had been, for good reasons, persuaded to
postpone collection to make the taxpayer feel that the demand is not
unreasonable or that no harassment or injustice is meant by the
Government, as laid down by this Court in the Suyoc case.
taxpayer from such prolonged and unreasonable assessment and

investigation by the BIR.
Considering that the right of the respondent BIR Commissioner to collect
from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89002054 had already prescribed, then, there is no more need for this Court to
make a determination on the validity and correctness of the said Assessment
for the latter would only be unenforceable.
Wherefore, based on the foregoing, the instant Petition is GRANTED. The
Decision of the Court of Appeals in CA-G.R. SP No. 51271, dated 11 August
1999, which reinstated Assessment No. FAS-5-85-89-002054 requiring
petitioner BPI to pay the amount of P28,020.00 as deficiency documentary
stamp tax for the taxable year 1985, inclusive of the compromise penalty, is
REVERSED and SET ASIDE. Assessment No. FAS-5-85-89-002054 is
hereby ordered CANCELED.
Applying the given rules to the present Petition, this Court finds that
SO ORDERED.
(a) The statute of limitations for collection of the deficiency DST in
Assessment No. FAS-5-85-89-002054, issued against petitioner BPI, had
already expired; and
(b) None of the conditions and requirements for exception from the statute of
limitations on collection exists herein: Petitioner BPI did not execute any
waiver of the prescriptive period on collection as mandated by paragraph (d)
of Section 223 of the Tax Code of 1977, as amended; the protest filed by
petitioner BPI was a request for reconsideration, not a request for
reinvestigation that was granted by respondent BIR Commissioner which
could have suspended the prescriptive period for collection under Section
224 of the Tax Code of 1977, as amended; and, petitioner BPI, other than
filing a request for reconsideration of Assessment No. FAS-5-85-89-002054,
did not make repeated requests or performed positive acts that could have
persuaded the respondent BIR Commissioner to delay collection, and that
would have prevented or estopped petitioner BPI from setting up the
defense of prescription against collection of the tax assessed, as required in
the Suyoc case.
This is a simple case wherein respondent BIR Commissioner and other BIR
officials failed to act promptly in resolving and denying the request for
reconsideration filed by petitioner BPI and in enforcing collection on the
assessment. They presented no reason or explanation as to why it took
them almost eight years to address the protest of petitioner BPI. The statute
on limitations imposed by the Tax Code precisely intends to protect the
MINITA V. CHICO-NAZARIO
Associate Justice

SUPREME COURT
Manila
EN BANC
G.R. No. 109976
April 26, 2005
PHILIPPINE NATIONAL OIL COMPANY, Petitioner,

vs.
THE HON. COURT OF APPEALS, THE COMMISSIONER OF INTERNAL
REVENUE and TIRSO SAVELLANO,Respondents.
x--------------------x
G.R. No. 112800
April 26, 2005
PHILIPPINE NATIONAL BANK, Petitioner,

vs.
THE HON. COURT OF APPEALS, COURT OF TAX APPEALS, TIRSO B.
SAVELLANO and COMMISSIONER OF INTERNAL
REVENUE, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a consolidation of two Petitions for Review on Certiorari filed by the
Philippine National Oil Company (PNOC)1 and the Philippine National Bank
(PNB),<2 assailing the decisions of the Court of Appeals in CA-G.R. SP No.
295833 and CA-G.R. SP No. 29526,4 respectively, which both affirmed the
decision of the Court of Tax Appeals (CTA) in CTA Case No. 4249.5
The Petitions before this Court originated from a sworn statement submitted
by private respondent Tirso B. Savellano (Savellano) to the Bureau of
Internal Revenue (BIR) on 24 June 1986. Through his sworn statement,
private respondent Savellano informed the BIR that PNB had failed to
withhold the 15% final tax on interest earnings and/or yields from the money
placements of PNOC with the said bank, in violation of Presidential Decree
(P.D.) No. 1931. P.D. No. 1931, which took effect on 11 June 1984, withdrew
all tax exemptions of government-owned and controlled corporations.
In a letter, dated 08 August 1986, the BIR requested PNOC to settle its
liability for taxes on the interests earned by its money placements with PNB
and which PNB did not withhold.6 PNOC wrote the BIR on 25 September
1986, and made an offer to compromise its tax liability, which it estimated to
be in the sum of P304,419,396.83, excluding interest and surcharges, as of
31 July 1986. PNOC proposed to set-off its tax liability against a claim for
tax refund/credit of the National Power Corporation (NAPOCOR), then
pending with the BIR, in the amount ofP335,259,450.21. The amount of the
claim for tax refund/credit was supposedly a receivable account of PNOC
from NAPOCOR.7
On 08 October 1986, the BIR sent a demand letter to PNB, as withholding
agent, for the payment of the final tax on the interest earnings and/or yields
from PNOC's money placements with the bank, from 15 October 1984 to 15
October 1986, in the total amount of P376,301,133.33.8 On the same date,
the BIR also mailed a letter to PNOC informing it of the demand letter sent to
PNB.9
PNOC, in another letter, dated 14 October 1986, reiterated its proposal to
settle its tax liability through the set-off of the said tax liability against
NAPOCOR'S pending claim for tax refund/credit.10 The BIR replied on 11
November 1986 that the proposal for set-off was premature since
NAPOCOR's claim was still under process. Once more, BIR requested
PNOC to settle its tax liability in the total amount of P385,961,580.82,
consisting ofP303,343,765.32 final tax, plus P82,617,815.50 interest
computed until 15 November 1986.11
On 09 June 1987, PNOC made another offer to the BIR to settle its tax
liability. This time, however, PNOC proposed a compromise by
paying P91,003,129.89, representing 30% of the P303,343,766.29 basic tax,
in accordance with the provisions of Executive Order (E.O.) No. 44.12
Then BIR Commissioner Bienvenido A. Tan, in a letter, dated 22 June 1987,
accepted the compromise. The BIR received a total tax payment on the
interest earnings and/or yields from PNOC's money placements with PNB in
the amount of P93,955,479.12, broken down as follows:
Previous payment made by PNB
2,952
Add: Payment made by PNOC pursuant to the

compromise agreement of June 22, 1987
91,003
Total tax payment
Private respondent Savellano, through four installments, was paid the

informer's reward in the total amount ofP14,093,321.89, representing 15% of
the P93,955,479.12 tax collected by the BIR from PNOC and PNB. He
received the last installment on 01 December 1987.14
93,955,4
On 07 January 1988, private respondent Savellano, through his legal

counsel, wrote the BIR to demand payment of the balance of his informer's
reward, computed as follows:
BIR tax assessment
Final tax rate
Informer's reward due (BIR deficiency tax assessment x

Final tax rate)
Less: Payment received by private respondent Savellano
Outstanding balance
BIR Commissioner Tan replied through a letter, dated 08 March 1988, that
private respondent Savellano was already fully paid the informer's reward
equivalent to 15% of the amount of tax actually collected by the BIR
pursuant to its compromise agreement with PNOC. BIR Commissioner Tan
further explained that the compromise was in accordance with the provisions
of E.O. No. 44, Revenue Memorandum Order (RMO) No. 39-86, and RMO
No. 4-87.16
Private respondent Savellano submitted another letter, dated 24 March
1988, to BIR Commissioner Tan, seeking reconsideration of his decision to
compromise the tax liability of PNOC. In the same letter, private respondent
Savellano questioned the legality of the compromise agreement entered into
by the BIR and PNOC and claimed that the tax liability should have been
collected in full.17
On 08 April 1988, while the aforesaid Motion for Reconsideration was still
pending with the BIR, private respondent Savellano filed a Petition for
Review ad cautelam with the CTA, docketed as CTA Case No. 4249. He
claimed therein that BIR Commissioner Tan acted "with grave abuse of
discretion and/or whimsical exercise of jurisdiction" in entering into a
compromise agreement that resulted in "a gross and unconscionable
diminution" of his reward. Private respondent Savellano prayed for the
enforcement and collection of the total tax assessment against taxpayer
PNOC and/or withholding agent PNB; and the payment to him by the BIR
Commissioner of the 15% informer's reward on the total tax collected.18 He
would later amend his Petition to implead PNOC and PNB as necessary and
indispensable parties since they were parties to the compromise
agreement.19
In his Answer filed with the CTA, BIR Commissioner Tan asserted that the
Petition stated no cause of action against him, and that private respondent
Savellano was already paid the informer's reward due him. Alleging that the
Petition was baseless and malicious, BIR Commissioner Tan filed a
counterclaim for exemplary damages against private respondent
Savellano.20
PNOC and PNB filed separate Motions to Dismiss, both arguing that the
CTA lacked jurisdiction to decide the case.21 In its Resolution, dated 28
November 1988, the CTA denied the Motions to Dismiss since the question
of lack of jurisdiction and/or cause of action do not appear to be
indubitable.22
After their Motions to Dismiss were denied by the CTA, PNOC and PNB filed
their respective Answers to the amended Petition. PNOC averred, among
other things, that (1) it had no privity with private respondent Savellano; (2)
the BIR Commissioner's discretionary act in entering into the compromise
agreement had legal basis under E.O. No. 44 and RMO No. 39-86 and RMO
No. 4-87; and (3) the CTA had no jurisdiction to resolve the case against
it.23 On the other hand, PNB asserted that (1) the CTA lacked jurisdiction
over the case; and (2) the BIR Commissioner's decision to accept the
compromise was discretionary on his part and, therefore, cannot be
reviewed or interfered with by the courts.24 PNOC and PNB later filed their
amended Answer invoking an opinion of the Commission on Audit (COA)
disallowing the payment by the BIR of informer's reward to private
respondent Savellano.25
The CTA, thereafter, ordered the parties to submit their evidence,26 to be
followed by their respective Memoranda.27
On 23 November 1990, private respondent Savellano, filed a Manifestation
with Motion for Suspension of Proceedings, claiming that his pending Motion
for Reconsideration with the BIR Commissioner may soon be

resolved.28 Both PNOC and PNB opposed the said Motion.29
Subsequently, the new BIR Commissioner, Jose U. Ong, in a letter to PNB,
dated 16 January 1991, demanded that PNB pay deficiency withholding tax
on the interest earnings and/or yields from PNOC's money placements, in
the amount of P294,958,450.73, computed as follows:
Withholding tax, plus interest under the letter of demand P

dated November 11, 1986
On 11 June 1991, PNB appealed to the Department of Justice (DOJ) the BIR
assessment, dated 16 January 1991, for deficiency withholding tax in the
sum of P294,958,450.73. PNB alleged that its appeal to the DOJ was
sanctioned under P.D. No. 242, which provided for the administrative
settlement of disputes between government offices, agencies, and
instrumentalities, including government-owned and controlled corporations.37
Three days later, on 14 June 1991, PNB filed a Motion to Suspend

Proceedings before the CTA since it had a pending appeal before the
DOJ.38 On 04 July 1991, PNB filed with the CTA a Motion for
385,961,580.82Reconsideration of its Order, dated 03 June 1991, submitting the case for
decision as of 04 June 1991, and prayed that the CTA hold its resolution of
the case in view of PNB's appeal pending before the DOJ.39
91,003,129.89On 17 July 1991, PNB filed a Motion to Suspend the Collection of Tax by the
BIR. It alleged that despite its request for reconsideration of the deficiency
withholding tax assessment, dated 16 January 1991, BIR Commissioner
Ong sent another letter, dated 23 April 1991, demanding payment of
Amount still due and collectible
P 294,958,450.73the P294,958,450.73 deficiency withholding tax on the interest earnings
and/or yields from PNOC's money placements. The same letter informed
PNB that this was the BIR Commissioner's final decision on the matter and
that the BIR Commissioner was set to issue a warrant of distraint and/or levy
This BIR letter was received by PNB on 06 February 1991,31 and was
against PNB's deposits with the Central Bank of the Philippines. PNB further
protested by it through a letter, dated 11 April 1991.32 The BIR denied PNB's
alleged that the levy and distraint of PNB's deposits, unless restrained by the
protest on the ground that it was filed out of time and, thus, the assessment
CTA, would cause great and irreparable prejudice not only to PNB, a
had already become final.33
government-owned and controlled corporation, but also to the Government
itself.40
Private respondent Savellano, on 22 February 1991, filed an Omnibus
Motion moving to withdraw his previous Motion for Suspension of
Pursuant to the Order of the CTA, during the hearing on 19 July 1991,41 the
Proceeding since BIR Commissioner Ong had finally resolved his Motion for
parties submitted their respective Memoranda on PNB's Motion to Suspend
Reconsideration, and submitting by way of supplemental offer of evidence
Proceedings.42
(1) the letter of BIR Commissioner Ong, dated 13 February 1991, informing
private respondent Savellano of the action on his Motion for
On 20 September 1991, private respondent Savellano filed another Omnibus
Reconsideration; and (2) the demand-letter of BIR Commissioner Ong to
Motion calling the attention of the CTA to the fact that the BIR already
34
PNB, dated 16 January 1991.
issued, on 12 August 1991, a warrant of garnishment addressed to the
Central Bank Governor and against PNB. In compliance with the said
Despite the oppositions of PNOC and PNB, the CTA, in a Resolution, dated
warrant, the Central Bank issued, on 23 August 1991, a debit advice against
02 May 1991, resolved to allow private respondent Savellano to withdraw his
the demand deposit account of PNB with the Central Bank for the amount
previous Motion for Suspension of Proceeding and to admit the
ofP294,958,450.73, with a corresponding transfer of the same amount to the
supplementary evidence being offered by the same party.35
demand deposit-in-trust of BIR with the Central Bank. Since the assessment
had already been enforced, PNB's Motion to Suspend Proceedings became
moot and academic. Private respondent Savellano, thus, moved for the
In its Order, dated 03 June 1991, the CTA considered the case submitted for
36
denial of PNB's Motion to Suspend Proceedings and for an order requiring
decision as of the following day, 04 June 1991.
Less: Amount paid under E.O. No. 44
BIR to deposit with the CTA the amount of P44,243,767.00 as his informer's
reward, representing 15% of the deficiency withholding tax collected.43
Both PNOC and PNB opposed private respondent Savellano's Omnibus
Motion, dated 20 September 1991, arguing that the DOJ already ordered the
suspension of the collection of the tax deficiency. There was therefore no
basis for private respondent Savellano's Motion as the same was premised
on the erroneous assumption that the tax deficiency had been collected.
When the DOJ denied the BIR Commissioner's Motion to Dismiss and
required him to file his answer, the DOJ assumed jurisdiction over PNB's
appeal, and the CTA should first suspend its proceedings to give the DOJ
the opportunity to decide the validity and propriety of the tax assessment
against PNB.44
The CTA, on 28 May 1992, rendered its decision, wherein it upheld its
jurisdiction and disposed of the case as follows:
WHEREFORE, judgment is rendered declaring the COMPROMISE
AGREEMENT between the Bureau of Internal Revenue, on the one
hand, and the Philippine National Oil Company and Philippine
National Bank, on the other, as WITHOUT FORCE AND EFFECT;
The Commissioner of Internal Revenue is hereby ordered to
ENFORCE the ASSESSMENT of January 16, 1991 against
Philippine National Bank which has become final and unappealable
by collecting from Philippine National Bank the deficiency
withholding tax, plus interest totalling (sic) P294,958,450.73;
PNOC's appeal was docketed as CA-G.R. SP No. 29583, while PNB's

appeal was CA-G.R. SP No. 29526. In both cases, the Court of Appeals
affirmed the decision of the CTA.
In the meantime, the Central Bank again issued on 02 September 1992 a
debit advice against the demand deposit account of PNB with the Central
Bank for the amount of P294,958,450.73,47 and on 15 September 1992,
credited the same amount to the demand deposit account of the Treasurer of
the Republic of the Philippines.48 On 04 November 1992, the Treasurer of
the Republic issued a journal voucher transferring P294,958,450.73 to the
account of the BIR.49 PNB, in turn, debited P294,958,450.73 from the
deposit account of PNOC with PNB.50
PNOC and PNB then filed separate Petitions for Review on Certiorari with
this Court, praying that the decisions of the Court of Appeals in CA-G.R. SP
No. 29583 and CA-G.R. SP No. 29526, respectively, both affirming the
decision of the CTA in CTA Case No. 4249, be reversed and set aside.
These two Petitions were consolidated since they involved identical parties
and factual background, and the resolution of related, if not exactly, the
same issues.
In its Petition for Review, PNOC alleged the following errors committed by
the Court of Appeals in CA-G.R. SP No. 29583:
1. The Court of Appeals erred in holding that the deficiency taxes
of PNOC could not be the subject of a compromise under Executive
Order No. 44; and
Petitioner may be paid, upon collection of the deficiency withholding

tax, the balance of his entitlement to informer's reward based on
fifteen percent (15%) of the deficiency withholding total tax
collected in this case or P44,243.767.00 subject to existing rules
and regulations governing payment of reward to informers.45
2. The Court of Appeals erred in holding that Savellano is entitled

to additional informer's reward.51
PNB, in its own Petition for Review, assailed the decision of the Court of
Appeals in CA-G.R. SP No. 29526, assigning the following errors:
In a Resolution, dated 16 November 1992, the CTA denied the Motions for
Reconsideration filed by PNOC and PNB since they substantially raised the
same issues in their previous pleadings and which had already been passed
upon and resolved adversely against them.46
1. Respondent Court erred in not finding that the Court of Tax

Appeals lacks jurisdiction on the controversy involving BIR and
PNB (both government instrumentalities) regarding the new
assessment of BIR against PNB;
PNOC and PNB filed separate appeals with the Court of Appeals seeking
the reversal of the CTA decision in CTA Case No. 4249, dated 28 May 1992,
and the CTA Resolution in the same case, dated 16 November 1992.
2. The respondent Court erred in not finding that the Court of Tax
Appeals has no jurisdiction to question the compromise agreement
entered into by the Commissioner of Internal Revenue; and
3. The respondent Court erred in not ruling that the Commissioner

of Internal Revenue cannot unilaterally annul tax compromises
validly entered into by his predecessor.52
The decisions of the Court of Appeals in CA-GR SP No. 29583 and CA-G.R.
SP No. 29526, affirmed the decision of the CTA in CTA Case No. 4249. The
resolution, therefore, of the assigned errors in the Court of Appeals'
decisions essentially requires a review of the CTA decision itself.
In consolidating the present Petitions, this Court finds that PNOC and PNB
are basically questioning the (1) Jurisdiction of the CTA in CTA Case No.
4249; (2) Declaration by the CTA that the compromise agreement was
without force and effect; (3) Finding of the CTA that the deficiency
withholding tax assessment against PNB had already become final and
unappealable and, thus, enforceable; and (4) Order of the CTA directing
payment of additional informer's reward to private respondent Savellano.
I
Jurisdiction of the CTA
A. The demand letter, dated 16 January 1991 did not constitute a
new assessment against PNB.
The main argument of PNB in assailing the jurisdiction of the CTA in CTA
Case No. 4249 is that the BIR demand letter, dated 16 January
1991,53 should be considered as a new assessment against PNB. As a new
assessment, it gave rise to a new dispute and controversy solely between
the BIR and PNB that should be administratively settled or adjudicated, as
provided in P.D. No. 242.
This argument is without merit. The issuance by the BIR of the demand
letter, dated 16 January 1991, was merely a development in the continuing
effort of the BIR to collect the tax assessed against PNOC and PNB way
back in 1986.
BIR's first letter, dated 08 August 1986, was addressed to PNOC, requesting
it to settle its tax liability. The BIR subsequently sent another letter, dated 08
October 1986, to PNB, as withholding agent, demanding payment of the tax
it had failed to withhold on the interest earnings and/or yields from PNOC's
money placements. PNOC wrote the BIR three succeeding letters offering
to compromise its tax liability; PNB, on the other hand, did not act on the
demand letter it received, dated 08 October 1986. The BIR and PNOC
eventually reached a compromise agreement on 22 June 1987. Private
respondent Savellano questioned the validity of the compromise agreement
because the reduced amount of tax collected from PNOC, by virtue of the
compromise agreement, also proportionately reduced his informer's reward.
Private respondent Savellano then requested the BIR Commissioner to
review and reconsider the compromise agreement. Acting on the request of
private respondent Savellano, the new BIR Commissioner declared the
compromise agreement to be without basis and issued the demand letter,
dated 16 January 1991, against PNB, as the withholding agent for PNOC.
It is clear from the foregoing that the BIR demand letter, dated 16 January
1991, could not stand alone as a new assessment. It should always be
considered in the factual context summarized above.
In fact, the demand letter, dated 16 January 1991, actually referred to the
withholding tax assessment first issued in 1986 and its eventual settlement
through a compromise agreement. In addition, the computation of the
deficiency withholding tax was based on the figures from the 1986
assessments against PNOC and PNB, and BIR no longer conducted a new
audit or investigation of either PNOC and PNB before it issued the demand
letter on 16 January 1991.
These constant references to past events and circumstances demonstrate
that the demand letter, dated 16 January 1991, was not a new assessment,
but rather, the latest action taken by the BIR to collect on the tax
assessments issued against PNOC and PNB in 1986.
PNB argues that the demand letter, dated 16 January 1991, introduced a
new controversy. We see it differently as the said demand letter presented
the resolution by BIR Commissioner Ong of the previous controversy
involving the compromise of the 1986 tax assessments. BIR Commissioner
Ong explicitly declared therein that the compromise agreement was without
legal basis, and requested PNB, as the withholding agent, to pay the amount
of withholding tax still due.
B. The CTA correctly retained jurisdiction over CTA Case No. 4249
by virtue of Republic Act No. 1125.
Having established that the BIR demand letter, dated 16 January 1991, did
not constitute a new assessment, then, there could be no basis for PNB's
claim that any dispute arising from the new assessment should only be
between BIR and PNB.
Still proceeding from the argument that there was a new dispute between
PNB and BIR, PNB sought the suspension of the proceedings in CTA Case
No. 4249, after it contested the deficiency withholding tax assessment
against it and the demand for payment thereof before the DOJ, pursuant to
P.D. No. 242. The CTA, however, correctly sustained its jurisdiction and
continued the proceedings in CTA Case No. 4249; and, in effect, rejected
DOJ's claim of jurisdiction to administratively settle or adjudicate BIR's
assessment against PNB.
The CTA assumed jurisdiction over the Petition for Review filed by private
respondent Savellano based on the following provision of Rep. Act No. 1125,
the Act creating the Court of Tax Appeals:
SECTION 7. Jurisdiction. The Court of Tax Appeals shall
exercise exclusive appellate jurisdiction to review by appeal, as
herein provided (1) Decisions of the Collector of Internal Revenue in
cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties imposed in
relation thereto, or other matters arising under the National
Internal Revenue Code or other law or part of law
administered by the Bureau of Internal
Revenue; . . . (Underscoring ours.)
In his Petition before the CTA, private respondent Savellano requested a
review of the decisions of then BIR Commissioner Tan to enter into a
compromise agreement with PNOC and to reject his claim for additional
informer's reward. He submitted before the CTA questions of law involving
the interpretation and application of (1) E.O. No. 44, and its implementing
rules and regulations, which authorized the BIR Commissioner to
compromise delinquent accounts and disputed assessments pending as of
31 December 1985; and (2) Section 316(1) of the National Internal Revenue
Code of 1977 (NIRC of 1977), as amended, which granted to the informer a
reward equivalent to 15% of the actual amount recovered or collected by the
BIR.54 These should undoubtedly be considered as matters arising from the
NIRC and other laws being administered by the BIR, thus, appealable to the
CTA under Section 7(1) of Rep. Act No. 1125.
PNB, however, insists on the jurisdiction of the DOJ over its appeal of the
deficiency withholding tax assessment by virtue of P.D. No. 242. Provisions
on jurisdiction of P.D. No. 242 read:
SECTION 1. Provisions of law to the contrary notwithstanding, all

disputes, claims and controversies solely between or among the
departments, bureaus, offices, agencies, and instrumentalities of
the National Government, including government-owned or
controlled corporations, but excluding constitutional offices or
agencies, arising from the interpretation and application of statutes,
contracts or agreements, shall henceforth be administratively
settled or adjudicated as provided hereinafter; Provided, That this
shall not apply to cases already pending in court at the time of the
effectivity of this decree.
SECTION 2. In all cases involving only questions of law, the same
shall be submitted to and settled or adjudicated by the Secretary of
Justice, as Attorney General and ex officio legal adviser of all
government-owned or controlled corporations and entities, in
consonance with Section 83 of the Revised Administrative Code.
His ruling or determination of the question in each case shall be
conclusive and binding upon all the parties concerned.
SECTION 3. Cases involving mixed questions of law and of fact or
only factual issues shall be submitted to and settled or adjudicated
by:
(a) The Solicitor General, with respect to disputes or
claims controversies between or among the departments,
bureaus, offices and other agencies of the National
Government;
(b) The Government Corporate Counsel, with respect to
disputes or claims or controversies between or among
government-owned or controlled corporations or entities
being served by the Office of the Government Corporate
Counsel; and
(c) The Secretary of Justice, with respect to all other
disputes or claims or controversies which do not fall under
the categories mentioned in paragraphs (a) and (b).
The PNB and DOJ are of the same position that P.D. No. 242, the more
recent law, repealed Section 7(1) of Rep. Act No. 1125,55 based on the
pronouncement of this Court in Development Bank of the Philippines v.
Court of Appeals, et al., 56] quoted below:
The Court expresses its entire agreement with the conclusion of

the Court of Appeals and the basic premises thereof that
there is an "irreconcilable repugnancybetween Section 7(2) of
R.A. No. 1125 and P.D. No. 242," and hence, that the later
enactment (P.D. No. 242), being the latest expression of the
legislative will, should prevail over the earlier.
In the said case, it was expressly declared that P.D. No. 242 repealed
Section 7(2) of Rep. Act No. 1125, which provides for the exclusive appellate
jurisdiction of the CTA over decisions of the Commissioner of Customs.
PNB contends that P.D. No. 242 should be deemed to have likewise
repealed Section 7(1) of Rep. Act No. 1125, which provide for the exclusive
appellate jurisdiction of the CTA over decisions of the BIR Commissioner.57
After re-examining the provisions on jurisdiction of Rep. Act No. 1125 and
P.D. No. 242, this Court finds itself in disagreement with the pronouncement
made in Development Bank of the Philippines v. Court of Appeals, et
al.,58and refers to the earlier case of Lichauco & Company, Inc. v. Apostol, et
al.,59 for the guidelines in determining the relation between the two statutes
in question, to wit:
The cases relating to the subject of repeal by implication all
proceed on the assumption that if the act of later date clearly
reveals an intention on the part of the law making power to
abrogate the prior law, this intention must be given effect; but there
must always be a sufficient revelation of this intention, and it has
become an unbending rule of statutory construction that the
intention to repeal a former law will not be imputed to the
Legislature when it appears that the two statutes, or provisions,
with reference to which the question arises bear to each other the
relation of general to special. (Underscoring ours.)
When there appears to be an inconsistency or conflict between two statutes
and one of the statutes is a general law, while the other is a special law, then
repeal by implication is not the primary rule applicable. The following rule
should principally govern instead:
Specific legislation upon a particular subject is not affected by a
general law upon the same subject unless it clearly appears that
the provisions of the two laws are so repugnant that the legislators
must have intended by the later to modify or repeal the earlier
legislation. The special act and the general law must stand
together, the one as the law of the particular subject and the other
as the general law of the land. (Ex Parte United States, 226 U. S.,
420; 57 L. ed., 281; Ex Parte Crow Dog, 109 U. S., 556; 27 L. ed.,
1030; Partee vs. St. Louis & S. F. R. Co., 204 Fed. Rep., 970.)
Where there are two acts or provisions, one of which is special and
particular, and certainly includes the matter in question, and the
other general, which, if standing alone, would include the same
matter and thus conflict with the special act or provision, the special
must be taken as intended to constitute an exception to the general
act or provision, especially when such general and special acts or
provisions are contemporaneous, as the Legislature is not to be
presumed to have intended a conflict. (Crane v. Reeder and
Reeder, 22 Mich., 322, 334; University of Utah vs. Richards, 77 Am.
St. Rep., 928.)60
It has, thus, become an established rule of statutory construction that
between a general law and a special law, the special law prevails
Generalia specialibus non derogant.61
Sustained herein is the contention of private respondent Savellano that P.D.
No. 242 is a general law that deals with administrative settlement or
adjudication of disputes, claims and controversies between or among
government offices, agencies and instrumentalities, including governmentowned or controlled corporations. Its coverage is broad and sweeping,
encompassing all disputes, claims and controversies. It has been
incorporated as Chapter 14, Book IV of E.O. No. 292, otherwise known as
the Revised Administrative Code of the Philippines.62 On the other hand,
Rep. Act No. 1125 is a special law63 dealing with a specific subject matter
the creation of the CTA, which shall exercise exclusive appellate jurisdiction
over the tax disputes and controversies enumerated therein.
Following the rule on statutory construction involving a general and a special
law previously discussed, then P.D. No. 242 should not affect Rep. Act No.
1125. Rep. Act No. 1125, specifically Section 7 thereof on the jurisdiction of
the CTA, constitutes an exception to P.D. No. 242. Disputes, claims and
controversies, falling under Section 7 of Rep. Act No. 1125, even though
solely among government offices, agencies, and instrumentalities, including
government-owned and controlled corporations, remain in the exclusive
appellate jurisdiction of the CTA. Such a construction resolves the alleged
inconsistency or conflict between the two statutes, and the fact that P.D. No.
242 is the more recent law is no longer significant.
Even if, for the sake of argument, that P.D. No. 242 should prevail over Rep.
Act No. 1125, the present dispute would still not be covered by P.D. No.
242. Section 1 of P.D. No. 242 explicitly provides that only disputes, claims
and controversies solely between or among departments, bureaus, offices,
agencies, and instrumentalities of the National Government, including
constitutional offices or agencies, as well as government-owned and
controlled corporations, shall be administratively settled or adjudicated.
While the BIR is obviously a government bureau, and both PNOC and PNB
are government-owned and controlled corporations, respondent Savellano is
a private citizen. His standing in the controversy could not be lightly brushed
aside. It was private respondent Savellano who gave the BIR the
information that resulted in the investigation of PNOC and PNB; who
requested the BIR Commissioner to reconsider the compromise agreement
in question; and who initiated CTA Case No. 4249 by filing a Petition for
Review.
In Bay View Hotel, Inc. v. Manila Hotel Workers' Union-PTGWO, et al.,64] this
Court upheld the jurisdiction of the Court of Industrial Relations over the
ordinary courts and justified its decision in the following manner:
We are unprepared to break away from the teaching in the cases
just adverted to. To draw a tenuous jurisdictional line is to
undermine stability in labor litigations. A piecemeal resort to one
court and another gives rise to multiplicity of suits. To force the
employees to shuttle from one court to another to secure full
redress is a situation gravely prejudicial. The time to be lost, effort
wasted, anxiety augmented, additional expense incurred these
are considerations which weigh heavily against split jurisdiction.
Indeed, it is more in keeping with orderly administration of justice
that all the causes of action here "be cognizable and heard by only
one court: the Court of Industrial Relations."
The same justification is used in the present case to reject DOJ's jurisdiction
over the BIR and PNB, to the exclusion of the other parties. The rights of all
four parties in CTA Case No. 4249, namely the BIR, as the tax collector;
PNOC, the taxpayer; PNB, the withholding agent; and private respondent
Savellano, the informer claiming his reward; arose from the same factual
background and were so closely interrelated, that a pronouncement as to
one would definitely have repercussions on the others. The ends of justice
were best served when the CTA continued to exercise its jurisdiction over
CTA Case No. 4249. The CTA, which had assumed jurisdiction over all the
parties to the controversy, could render a comprehensive resolution of the
issues raised and grant complete relief to the parties.
II
Validity of the Compromise Agreement
A. PNOC could not apply for a compromise under E.O. No. 44
because its tax liability was not a delinquent account or a disputed
assessment as of 31 December 1985.
PNOC and PNB, on different grounds, dispute the decision of the CTA in
CTA Case No. 4249 declaring the compromise agreement between BIR and
PNOC without force and effect.
PNOC asserts that the compromise agreement was in accordance with E.O.
No. 44, and its implementing rules and regulations, and should be binding
upon the parties thereto.
E.O. No. 44 granted the BIR Commissioner or his duly authorized
representatives the power to compromise any disputed assessment or
delinquent account pending as of 31 December 1985, upon the payment of
an amount equal to 30% of the basic tax assessed; in which case, the
corresponding interests and penalties shall be condoned. E.O. No. 44 took
effect on 04 September 1986 and remained effective until 31 March 1987.
The disputed assessments or delinquent accounts that the BIR
Commissioner could compromise under E.O. No. 44 are defined under
Revenue Regulation (RR) No. 17-86, as follows:
a) Delinquent account Refers to the amount of tax due on or
before December 31, 1985 from a taxpayer who failed to pay the
same within the time prescribed for its payment arising from (1) a
self assessed tax, whether or not a tax return was filed, or (2) a
deficiency assessment issued by the BIR which has become final
and executory.
Where no return was filed, the taxpayer shall be considered
delinquent as of the time the tax on such return was due, and in
availing of the compromise, a tax return shall be filed as a basis for
computing the amount of compromise to be paid.
b) Disputed assessment refers to a tax assessment disputed or
protested on or before December 31, 1985 under any of the
following categories:
1)
if the same is administratively protested within thirty (30)
days from the date the taxpayer received the assessment, or
2.)
if the decision of the BIR on the taxpayer's administrative
protest is appealed by the taxpayer before an appropriate court.
PNOC's tax liability could not be considered a delinquent account since (1) it
was not self-assessed, because the BIR conducted an investigation and
assessment of PNOC and PNB after obtaining information regarding the
non-withholding of tax from private respondent Savellano; and (2) the
demand letter, issued against it on 08 August 1986, could not have been a
deficiency assessment that became final and executory by 31 December
1985.
The dissenting opinion contends, however, that the tax liability of PNOC
constitutes a self-assessed tax, and is, therefore, a delinquent account as of
31 December 1985, qualifying for a compromise under E.O. No. 44. It
anchors its argument on the declaration made by this Court in Tupaz v.
Ulep,65 that internal revenue taxes are self-assessing.
It is not denied herein that the self-assessing system governs Philippine
internal revenue taxes. The dissenting opinion itself defines self-assessed
tax as, "a tax that the taxpayer himself assesses or computes and pays to
the taxing authority." Clearly, such a system imposes upon the taxpayer the
obligation to conduct an assessment of himself so he could determine and
declare the amount to be used as tax basis, any deductions therefrom, and
finally, the tax due.
E.O. No. 44 covers self-assessed tax, whether or not a tax return was filed.
The phrase "whether or not a tax return was filed" only refers to the
compliance by the taxpayer with the obligation to file a return on the dates
specified by law, but it does not do away with the requisite that the tax must
be self-assessed in order for the taxpayer to avail of the compromise. The
second paragraph of Section 2(a) of RR No. 17-86 expressly commands,
and still imposes upon the taxpayer, who is availing of the compromise
under E.O. No. 44, and who has not previously filed any return, the duty to
conduct self-assessment by filing a tax return that would be used as the
basis for computing the amount of compromise to be paid.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer,
after conducting a self-assessment, discovers or becomes aware that he
had failed to pay a tax due on or before 31 December 1985, regardless of
whether he had previously filed a return to reflect such tax; voluntarily comes
forward and admits to the BIR his tax liability; and applies for a compromise
thereof. In case the taxpayer has not previously filed any return, he must fill
out such a return reflecting therein his own declaration of the taxable amount
and computation of the tax due. The compromise payment shall be
computed based on the amount reflected in the tax return submitted by the
taxpayer himself.
Neither PNOC nor PNB, the taxpayer and the withholding agent,
respectively, conducted self-assessment in this case. There is no showing
that in the absence of the tax assessment issued by the BIR against them,
that PNOC and/or PNB would have voluntarily admitted their tax liabilities,
already amounting to P385,961,580.82, as of 15 November 1986, and would
have offered to compromise the same. In fact, both PNOC and PNB were
conspicuously silent about their tax liabilities until they were assessed
thereon.
Any attempt by PNOC and PNB to assess and declare by themselves their
tax liabilities had already been overtaken by the BIR's conduct of its audit
and investigation and subsequent issuance of the assessments, dated 08
August 1986 and 08 October 1986, against PNOC and PNB, respectively.
The said tax assessments, uncontested and undisputed, presented the
results of the BIR audit and investigation and the computation of the total
amount of tax liabilities of PNOC and PNB. They should be controlling in
this case, and should not be so easily and conveniently ignored and set
aside. It would be a contradiction to claim that the tax liabilities of PNOC
and PNB are self-assessed and, at the same time, BIR-assessed; when it is
clear and simple that it had been the BIR that conducted the assessment
and determined the tax liabilities of PNOC and PNB.
That the BIR-assessed tax liability should be differentiated from a selfassessed one, is supported by the provisions of RR No. 17-86 on the basis
for computing the amount of compromise payment. Note that where tax
liabilities are self-assessed, the compromise payment shall be computed
based on the tax return filed by the taxpayer.66 On the other hand, where the
BIR already issued an assessment, the compromise payment shall be
computed based on the tax due on the assessment notice.67
For instances where the BIR had already issued an assessment against the
taxpayer, the tax liability could still be compromised under E.O. No. 44 only
if: (1) the assessment had been final and executory on or before 31
December 1985 and, therefore, considered a delinquent account as of said
date;68 or (2) the assessment had been disputed or protested on or before
31 December 1985.69
RMO No. 39-86, which provides the guidelines for the implementation of
E.O. No. 44, does mention different types of assessments that may be
compromised under said statute (i.e., jeopardy assessments, arbitrary
assessments, and tax assessments of doubtful validity). RMO No. 39-86
may not have expressly stated any qualification for these particular types of
assessments; nonetheless, E.O. No. 44 specifically refers only to
assessments that were delinquent or disputed as of 31 December 1985.
E.O. No. 44 and all BIR issuances to implement said statute should be
interpreted so that they are harmonized and consistent with each other.
Accordingly, this Court finds that the different types of assessments
mentioned in RMO No. 39-86 would still have to qualify as delinquent
accounts or disputed assessments as of 31 Dcember 1985, so that they
could be compromised under E.O. No. 44.
The BIR had first written to PNOC on 08 August 1986, demanding payment
of the income tax on the interest earnings and/or yields from PNOC's money
placements with PNB from 15 October 1984 to 15 October 1986. This
demand letter could be regarded as the first assessment notice against
PNOC.
Such an assessment, issued only on 08 August 1986, could not have been
final and executory as of 31 December 1985 so as to constitute a delinquent
account. Neither was the assessment against PNOC an assessment that
could have been disputed or protested on or before 31 December 1985,
having been issued on a later date.
Given that PNOC's tax liability did not constitute a delinquent account or a
disputed assessment as of 31 December 1985, then it could not be
compromised under E.O. No. 44.
The assessment against PNOC, instead, was more appropriately covered by
Revenue Memorandum Circular (RMC) No. 31-86. RMC No. 31-86 clarifies
the scope of availment of the tax amnesty under E.O. No. 4170 and
compromise payments on delinquent accounts and disputed assessments
under E.O. No. 44. The third paragraph of RMC No. 31-86 reads:
[T]axpayers against whom assessments had been issued from
January 1 to August 21, 1986 may settle their tax liabilities by way
of compromise under Section 246 of the Tax Code as amended by
paying 30% of the basic assessment excluding surcharge, interest,
penalties and other increments thereto.
The above-quoted paragraph supports the position that only assessments

that were disputed or that were final and executory by 31 December 1985
could be the subject of a compromise under E.O. No. 44. Assessments
issued between 01 January to 21 August 1986 could still be compromised by
payment of 30% of the basic tax assessed, not anymore pursuant to E.O.
No. 44, but pursuant to Section 246 of the NIRC of 1977, as amended.
Section 246 of the NIRC of 1977, as amended, granted the BIR
Commissioner the authority to compromise the payment of any internal
revenue tax under the following circumstances: (1) there exists a reasonable
doubt as to the validity of the claim against the taxpayer; or (2) the financial
position of the taxpayer demonstrates a clear inability to pay the assessed
tax.71
There are substantial differences in circumstances under which
compromises may be granted under Section 246 of the NIRC of 1977, as
amended, and E.O. No. 44. Although PNOC and PNB have extensively
argued their entitlement to compromise under E.O. No. 44, neither of them
has alleged, much less, has presented any evidence to prove that it may
compromise its tax liability under Section 246 of the NIRC of 1977, as
amended.
B. The tax liability of PNB as withholding agent also did not qualify
for compromise under E.O. No. 44.
Before proceeding any further, this Court reconsiders the conclusion made
by BIR Commissioner Ong in his demand letter, dated 16 January 1991, that
the compromise settlement executed between the BIR and PNOC was
without legal basis because withholding taxes were not actually taxes that
could be compromised, but a penalty for PNB's failure to withhold and for
which it was made personally liable.
E.O. No. 44 covers disputed or delinquency cases where the person
assessed was himself the taxpayer rather than a mere agent.72 RMO No.
39-86 expressly allows a withholding agent, who failed to withhold the
required tax because of neglect, ignorance of the law, or his belief that he
was not required by law to withhold tax, to apply for a compromise
settlement of his withholding tax liability under E.O. No. 44. A withholding
agent, in such a situation, may compromise the withholding tax assessment
against him precisely because he is being held directly accountable for the
tax.73
RMO No. 39-86 distinguishes between the withholding agent in the

foregoing situation from the withholding agent who withheld the tax but failed
to remit the amount to the Government. A withholding agent in the latter
situation is the one disqualified from applying for a compromise settlement
because he is being made accountable as an agent, who held funds in trust
for the Government.74
Both situations, however, involve withholding agents. The right to
compromise under these provisions should have been claimed by PNB, the
withholding agent for PNOC. The BIR held PNB personally accountable for
its failure to withhold the tax on the interest earnings and/or yields from
PNOC's money placements with PNB. The BIR sent a demand letter, dated
08 October 1986, addressed directly to PNB, for payment of the withholding
tax assessed against it, but PNB failed to take any action on the said
demand letter. Yet, all the offers to compromise the withholding tax
assessment came from PNOC and PNOC did not claim that it made the
offers to compromise on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still applies to withholding
agents that the withholding tax liability must either be a delinquent account
or a disputed assessment as of 31 December 1985 to qualify for
compromise settlement. The demand letter against PNB, which also served
as its assessment notice, had been issued on 08 October 1986 or two
months later than PNOC's. PNB's withholding tax liability could not be
considered a delinquent account or a disputed assessment, as defined
under RR No. 17-86, for the same reasons that PNOC's tax liability did not
constitute as such. The tax liability of PNB, therefore, was also not eligible
for compromise settlement under E.O. No. 44.
C. Even assuming arguendo that PNOC and/or PNB qualified
under E.O. No. 44, their application for compromise was filed
beyond the deadline.
Despite already ruling that the tax liabilities of PNOC and PNB could not be
compromised under E.O. No. 44, this Court still deems it necessary to
discuss the finding of the CTA that the compromise agreement had been
filed beyond the effectivity of E.O. No. 44, since the CTA made a declaration
in relation thereto that paragraph 2 of RMO No. 39-86 was null and void for
unduly extending the effectivity of E.O. No. 44.
Paragraph 2 of RMO No. 39-86 provides that:
2. Period for availment. Filing of application for compromise

settlement under the said law shall be effective only until March 31,
1987. Applications filed on or before this date shall be valid even if
the payment or payments of the compromise amount shall be made
after the said date, subject, however, to the provisions of Executive
Order No. 44 and its implementing Revenue Regulations No. 1786.
It is well-settled in this jurisdiction that administrative authorities are vested
with the power to make rules and regulations because it is impracticable for
the lawmakers to provide general regulations for various and varying details
of management. The interpretation given to a rule or regulation by those
charged with its execution is entitled to the greatest weight by the court
construing such rule or regulation, and such interpretation will be followed
unless it appears to be clearly unreasonable or arbitrary.75
RMO No. 39-86, particularly paragraph 2 thereof, does not appear to be
unreasonable or arbitrary. It does not unduly expand the coverage of E.O.
No. 44 by merely providing that applications for compromise filed until 31
March 1987 are still valid, even if payment of the compromised amount is
made on a later date.
It cannot be expected that the compromise allowed under E.O. No. 44 can
be automatically granted upon mere filing of the application by the taxpayer.
Irrefutably, the applications would still have to be processed by the BIR to
determine compliance with the requirements of E.O. No. 44. As it is
uncontested that a taxpayer could still file an application for compromise on
31 March 1987, the very last day of effectivity of E.O. No. 44, it would be
unreasonable to expect the BIR to process and approve the taxpayer's
application within the same date considering the volume of applications filed
and pending approval, plus the other matters the BIR personnel would also
have to attend to. Thus, RMO No. 39-86 merely assures the taxpayers that
their applications would still be processed and could be approved on a later
date. Payment, of course, shall be made by the taxpayer only after his
application had been approved and the compromised amount had been
determined.
Given that paragraph 2 of RMO No. 39-86 is valid, the next question that
needs to be addressed is whether PNOC had been able to submit an
application for compromise on or before 31 March 1987 in compliance
thereof. Although the compromise agreement was executed only on 22
June 1987, PNOC is claiming that it had already written a letter to the BIR,
as early as 25 September 1986, offering to compromise its tax liability, and
that the said letter should be considered as PNOC's application for

compromise settlement.
of the Commissioner of Internal Revenue, his Deputy or Assistant

as delineated in their respective jurisdictions.
A perusal of PNOC's letter, dated 25 September 1986, would reveal,

however, that the terms of its proposed compromise did not conform to those
authorized by E.O. No. 44. PNOC did not offer to pay outright 30% of the
basic tax assessed against it as required by E.O. No. 44; and instead, made
the following offer:
If the Compromise amount is not paid as required herein, the

compromise agreement is automatically nullified and the delinquent
account reverted to the original amount plus the statutory
increments, which shall be collected thru the summary and/or
judicial processes provided by law.
(2) That PNOC be permitted to set-off its foregoing mentioned tax

liability of P304,419,396.83 against the tax refund/credit claims of
the National Power Corporation (NPC) for specific taxes on fuel oil
sold to NPC totaling P335,259,450.21, which tax refunds/credits
are actually receivable accounts of our Company from NPC.76
PNOC reiterated the offer in its letter to the BIR, dated 14 October
1986.77 The BIR, in its letters to PNOC, dated 8 October 198678 and 11
November 1986,79 consistently denied PNOC's offer because the claim for
tax refund/credit of NAPOCOR was still under process, so that the offer to
set-off such claim against PNOC's tax liability was premature.
Furthermore, E.O. No. 44 does not contemplate compromise payment by
set-off of a tax liability against a claim for tax refund/credit. Compromise
under E.O. No. 44 may be availed of only in the following circumstances:
SEC. 3. Who may avail. Any person, natural or juridical, may
settle thru a compromise any delinquent account or disputed
assessment which has been due as of December 31, 1985, by
paying an amount equal to thirty percent (30%) of the basic tax
assessed.
SEC. 6. Mode of Payment. Upon acceptance of the proposed

compromise, the amount offered as compromise in complete
settlement of the delinquent account shall be paid immediately in
cash or manager's certified check.
Deferred or staggered payments of compromise amounts
over P50,000 may be considered on a case to case basis in
accordance with the extant regulations of the Bureau upon approval
E.O. No. 44 is not for the benefit of the taxpayer alone, who can extinguish
his tax liability by paying the compromise amount equivalent to 30% of the
basic tax. It also benefits the Government by making collection of delinquent
accounts and disputed assessments simpler, easier, and faster. Payment of
the compromise amount must be made immediately, in cash or in manager's
check. Although deferred or staggered payments may be allowed on a
case-to-case basis, the mode of payment remains unchanged, and must still
be made either in cash or in manager's check.
PNOC's offer to set-off was obviously made to avoid actual cash-out by the
company. The offer defeated the purpose of E.O. No. 44 because it would
not only delay collection, but more importantly, it would not guarantee
collection. First of all, BIR's collection was contingent on whether the claim
for tax refund/credit of NAPOCOR would be subsequently granted. Second,
collection could not be made immediately and would have to wait until the
resolution of the claim for tax refund/credit of NAPOCOR. Third, there is no
proof, other than the bare allegation of PNOC, that NAPOCOR's claim for
tax refund/credit is an account receivable of PNOC. A possible dispute
between NAPOCOR and PNOC as to the proceeds of the tax refund/credit
would only delay collection by the BIR even further.
It was only in its letter, dated 09 June 1987, that PNOC actually offered to
compromise its tax liability in accordance with the terms and circumstances
prescribed by E.O. No. 44 and its implementing rules and regulations, by
stating that:
Consequently, we reiterate our previous request for compromise
under E.O. No. 44, and convey our preparedness to settle the
subject tax assessment liability by payment of the compromise
amount ofP91,003,129.89, representing thirty percent (30%) of the
basic tax assessment of P303,343,766.29, in accordance with E.O.
No. 44 and its implementing BIR Revenue Memorandum Order No.
39-86.80
PNOC claimed in the same letter that it had previously requested for a
compromise under the terms of E.O. No. 44, but this Court could not find
evidence of such previous request. There are stark and substantial
differences in the terms of PNOC's offer to compromise in its earlier letters,
dated 25 September 1986 and 14 October 1986 (set-off of the entire amount
of its tax liability against the claim for tax refund/credit of NAPOCOR), to
those in its letter, dated 09 June 1987 (payment of the compromise amount
representing 30% of the basic tax assessed against it), making it difficult for
this Court to accept that the letter of 09 June 1987 merely reiterated PNOC's
offer to compromise in its earlier letters.
This Court likewise cannot give credence to PNOC's allegation that
beginning 25 September 1986, the date of its first letter to the BIR, there
were continuing negotiations between PNOC and BIR that culminated in the
compromise agreement on 22 June 1987. Aside from the exchange of
letters recounted in the preceding paragraphs, both PNOC and PNB failed to
present any other proof of the supposed negotiations.
After the BIR denied the second offer of PNOC to set-off its tax liability
against the claim for tax refund/credit of NAPOCOR in a letter, dated 11
November 1986, there is no other evidence of subsequent communication
between PNOC and the BIR. It was only after almost seven months, or on
09 June 1987, that PNOC again wrote a letter to the BIR, this time offering to
pay the compromise amount of 30% of the basic tax assessed against. This
letter was already filed beyond 31 March 1987, after the lapse of the
effectivity of E.O. No. 44 and the deadline for filing applications for
compromise under the said statute.
Evidence of meetings between PNOC and the BIR, or any other form of
communication, wherein the parties presented their offer and counter-offer to
the other, would have been very valuable in explaining and supporting BIR
Commissioner Tan's decision to accept PNOC's third offer to compromise
after denying the previous two. The absence of such evidence herein
negates PNOC's claim of actual negotiations with the BIR.
Therefore, even assuming arguendo that the tax liabilities of PNOC and PNB
qualify as delinquent accounts or disputed assessments as of 31 December
1985, the application for compromise filed by PNOC on 09 June 1987, and
accepted by then BIR Commissioner Tan on 22 June 1987, was still filed
way beyond 31 March 1987, the expiration date of the effectivity of E.O. No.
44 and the deadline for filing of applications for compromise under RMO No.
39-86.
D. The BIR Commissioner's discretionary authority to enter into a

compromise agreement is not absolute and the CTA may inquire
into allegations of abuse thereof.
The foregoing discussion supports the CTA's conclusion that the
compromise agreement between PNOC and the BIR was indeed without
legal basis. Despite this lack of legal support for the execution of the said
compromise agreement, PNB argues that the CTA still had no jurisdiction to
review and set aside the compromise agreement. It contends that the
authority to compromise is purely discretionary on the BIR Commissioner
and the courts cannot interfere with his exercise thereof.
It is generally true that purely administrative and discretionary functions may
not be interfered with by the courts; but when the exercise of such functions
by the administrative officer is tainted by a failure to abide by the command
of the law, then it is incumbent on the courts to set matters right, with this
Court having the last say on the matter.81
The manner by which BIR Commissioner Tan exercised his discretionary
power to enter into a compromise was brought under the scrutiny of the CTA
amidst allegations of "grave abuse of discretion and/or whimsical exercise of
jurisdiction."82 The discretionary power of the BIR Commissioner to enter into
compromises cannot be superior over the power of judicial review by the
courts.
The discretionary authority to compromise granted to the BIR Commissioner
is never meant to be absolute, uncontrolled and unrestrained. No such
unlimited power may be validly granted to any officer of the government,
except perhaps in cases of national emergency.83 In this case, the BIR
Commissioner's authority to compromise, whether under E.O. No. 44 or
Section 246 of the NIRC of 1977, as amended, can only be exercised under
certain circumstances specifically identified in said statutes. The BIR
Commissioner would have to exercise his discretion within the parameters
set by the law, and in case he abuses his discretion, the CTA may correct
such abuse if the matter is appealed to them.84
Petitioners PNOC and PNB both contend that BIR Commissioner Tan merely
exercised his authority to enter into a compromise specially granted by E.O.
No. 44. Since this Court has already made a determination that the
compromise agreement did not qualify under E.O. No. 44, BIR
Commissioner Tan's decision to agree to the compromise should have been
reviewed in the light of the general authority granted to the BIR
Commissioner to compromise taxes under Section 246 of the NIRC of 1977,
as amended. Then again, petitioners PNOC and PNB failed to allege, much
less present evidence, that BIR Commissioner Tan acted in accordance with
Section 246 of the NIRC of 1977, as amended, when he entered into the
compromise agreement with PNOC.
E. The CTA may set aside a compromise agreement that is
contrary to law and public policy.
PNB also asserts that the CTA had no jurisdiction to set aside a compromise
agreement entered into in good faith. It relies on the decision of this Court in
Republic v. Sandiganbayan85 that a compromise agreement cannot be set
aside merely because it is too one-sided. A compromise agreement should
be respected by the courts as the res judicata between the parties thereto.
This Court, though, finds that there are substantial differences in the factual
background of Republic v. Sandiganbayan and the present case.
The compromise agreement executed between the Presidential Commission
on Good Government (PCGG) and Roberto S. Benedicto in Republic v.
Sandiganbayan was judicially approved by the Sandiganbayan. The
Sandiganbayan had ample opportunity to examine the validity of the
compromise agreement since two years elapsed from the time the
agreement was executed up to the time it was judicially approved. This
Court even stated in the said case that, "We are not dealing with the usual
compromise agreement perfunctorily submitted to a court and approved as a
matter of course. The PCGG-Benedicto agreement was thoroughly and, at
times, disputatiously discussed before the respondent court. There could be
no deception or misrepresentation foisted on either the PCGG or the
Sandiganbayan."86
In addition, the new PCGG Chairman originally prayed for the re-negotiation
of the compromise agreement so that it could be more just, fair, and
equitable, an action considered by this Court as an implied admission that
the agreement was not contrary to law, public policy or morals nor was there
any circumstance which had vitiated consent.87
The above-mentioned circumstances strongly supported the validity of the
compromise agreement in Republic v. Sandiganbayan, which was why this
Court refused to set it aside. Unfortunately for the petitioners in the present
case, the same cannot be said herein.
The Court of Appeals, in upholding the jurisdiction of the CTA to set aside
the compromise agreement, ruled that:
We are unable to accept petitioner's submissions. Its formulation of
the issues on CIR and CTA's lack of jurisdiction to disturb a
compromise agreement presupposes a compromise
agreement validly entered into by the CIR and not, when as in this
case, it was indubitably shown that the supposed compromise
agreement is without legal support. In case of arbitrary or
capricious exercise by the Commissioner or if the proceedings were
fatally defective, the compromise can be attacked and reversed
through the judicial process (Meralco Securities Corporation v.
Savellano, 117 SCRA 805, 812 [1982]; Sarah E. Ramsay, et. al. v.
U.S. 21 Ct. C1 443, aff'd 120 U.S. 214, 30 L. Ed. 582; Tyson v.
U.S., 39 F. Supp. 135 cited in page 18 of decision) .88
Although the general rule is that compromises are to be favored, and that
compromises entered into in good faith cannot be set aside,89 this rule is not
without qualification. A court may still reject a compromise or settlement
when it is repugnant to law, morals, good customs, public order, or public
policy.90
The compromise agreement between the BIR and PNOC was contrary to
law having been entered into by BIR Commissioner Tan in excess or in
abuse of the authority granted to him by legislation. E.O. No. 44 and the
NIRC of 1977, as amended, had identified the situations wherein the BIR
Commissioner may compromise tax liabilities, and none of these situations
existed in this case.
The compromise, moreover, was contrary to public policy. The primary duty
of the BIR is to collect taxes, since taxes are the lifeblood of the Government
and their prompt and certain availability are imperious needs.91 In the
present case, however, BIR Commissioner Tan, by entering into the
compromise agreement that was bereft of any legal basis, would have
caused the Government to lose almost P300 million in tax revenues and
would have deprived the Government of much needed monetary resources.
Allegations of good faith and previous execution of the terms of the
compromise agreement on the part of PNOC would not be enough for this
Court to disregard the demands of law and public policy. Compromise may
be the favored method to settle disputes, but when it involves taxes, it may
be subject to closer scrutiny by the courts. A compromise agreement
involving taxes would affect not just the taxpayer and the BIR, but also the
whole nation, the ultimate beneficiary of the tax revenues collected.
F. The Government cannot be estopped from collecting taxes by
the mistake, negligence, or omission of its agents.
The new BIR Commissioner, Commissioner Ong, had acted well within his
powers when he set aside the compromise agreement, dated 22 June 1987,
after finding that the said compromise agreement was without legal basis.
When he took over from his predecessor, there was still a pending motion for
reconsideration of the said compromise agreement, filed by private
respondent Savellano on 24 March 1988. To resolve the said motion, he
reviewed the compromise agreement and, thereafter, came upon the
conclusion that it did not comply with E.O. No. 44 and its implementing rules
and regulations.
It had been declared by this Court in Hilado v. Collector of Internal Revenue,
et al.,92 that an administrative officer, such as the BIR Commissioner, may
revoke, repeal or abrogate the acts or previous rulings of his predecessor in
office. The construction of a statute by those administering it is not binding
on their successors if, thereafter, the latter becomes satisfied that a different
construction should be given.
It is evident in this case that the new BIR Commissioner, Commissioner
Ong, construed E.O. No. 44 and its implementing rules and regulations
differently from that of his predecessor, former Commissioner Tan, which led
to Commissioner Ong's revocation of the BIR approval of the compromise
agreement, dated 22 June 1987. Such a revocation was only proper
considering that the former BIR Commissioner's decision to approve the said
compromise agreement was based on the erroneous construction of the law
(i.e., E.O. No. 44 and its implementing rules and regulations) and should not
give rise to any vested right on PNOC.93
Furthermore, approval of the compromise agreement and acceptance of the
compromise payment by his predecessor cannot estop BIR Commissioner
Ong from setting aside the compromise agreement, dated 22 June 1987, for
lack of legal basis; and from demanding payment of the deficiency
withholding tax from PNB. As a general rule, the Government cannot be
estopped from collecting taxes by the mistake, negligence, or omission of its
agents94 because:
. . . Upon taxation depends the Government ability to serve the
people for whose benefit taxes are collected. To safeguard such
interest, neglect or omission of government officials entrusted with

the collection of taxes should not be allowed to bring harm or
detriment to the people, in the same manner as private persons
may be made to suffer individually on account of his own
negligence, the presumption being that they take good care of their
personal affairs. This should not hold true to government officials
with respect to matters not of their own personal concern. This is
the philosophy behind the government's exception, as a general
rule, from the operation of the principle of estoppel. (Republic vs.
Caballero, L-27437, September 30, 1977, 79 SCRA 177; Manila
Lodge No. 761, Benevolent and Protective Order of the Elks, Inc.
vs. Court of Appeals, L-41001, September 30, 1976, 73 SCRA
162; Sy vs. Central Bank of the Philippines, L-41480, April 30,
1976, 70 SCRA 571; Balmaceda vs. Corominas & Co., Inc., 66
SCRA 553;Auyong Hian vs. Court of Tax Appeals, 59 SCRA
110; Republic vs. Philippine Rabbit Bus Lines, Inc., 66 SCRA
553; Republic vs. Philippine Long Distance Telephone Company, L18841, January 27, 1969, 26 SCRA 620; Zamora vs. Court of Tax
Appeals, L-23272, November 26, 1970, 36 SCRA 77; E. Rodriguez,
Inc. vs. Collector of Internal Revenue, L-23041, July 31, 1969, 28
SCRA 119).95
III
Finality of the Tax Assessment
A. The issue on whether the BIR complied with the notice
requirements under RR No. 12-85 is raised for the first time on
appeal and should not be given due course.
PNB, in another effort to block the collection of the deficiency withholding
tax, this time raises doubts as to the validity of the deficiency withholding tax
assessment issued against it on 16 January 1991. It submits that the BIR
failed to comply with the notice requirements set forth in RR No. 12-85.96
Whether or not the BIR complied with the notice requirements of RR No. 1285 is a new issue raised by PNB only before this Court. Such a question
has not been ventilated before the lower courts. For an appellate tribunal to
consider a legal question, it should have been raised in the court below.97 If
raised earlier, the matter would have been seriously delved into by the CTA
and the Court of Appeals.98
B. The assessment against PNB had become final and

unappealable, and therefore, enforceable.
The CTA and the Court of Appeals declared as final and unappealable, and
thus, enforceable, the assessment against PNB, dated 16 January 1991,
since PNB failed to protest said assessment within the 30-day prescribed
period. This Court, though, finds that the significant BIR assessment, as far
as this case is concerned, should be the one issued by the BIR against PNB
on 08 October 1986.
The BIR issued on 08 October 1986 an assessment against PNB for its
withholding tax liability on the interest earnings and/or yields from PNOC's
money placements with the bank. It had 30 days from receipt to protest the
BIR's assessment.99 PNB, however, did not take any action as to the said
assessment so that upon the lapse of the period to protest, the withholding
tax assessment against it, dated 8 October 1986, became final and
unappealable, and could no longer be disputed.100 The courts may therefore
order the enforcement of this assessment.
It is the enforcement of this BIR assessment against PNB, dated 08 October
1986, that is in issue in the instant case. If the compromise agreement is
valid, it would effectively bar the BIR from enforcing the assessment and
collecting the assessed tax; on the other hand, if the compromise agreement
is void, then the courts can order the BIR to enforce the assessment and
collect the assessed tax.
As has been previously discussed by this Court, the BIR demand letter,
dated 16 January 1991, is not a new assessment against PNB. It only
demanded from PNB the payment of the balance of the withholding tax
assessed against it on 08 October 1986. The same demand letter also has
no substantial effect or impact on the resolution of the present case. It is
already unnecessary and superfluous, having been issued by the BIR when
CTA Case No. 4249 was already pending before the CTA. At best, the
demand letter, dated 16 January 1991, constitute a useful reference for the
courts in computing the balance of PNB's tax liability, after applying as partial
payment thereon the amount previously received by the BIR from PNOC
pursuant to the compromise agreement.
IV
Prescription
A. The defense of prescription was never raised by petitioners

PNOC and PNB, and should be considered waived.
The dissenting opinion takes the position that the right of the BIR to assess
and collect income tax on the interest earnings and/or yields from PNOC's
money placements with PNB, particularly for taxable year 1985, had already
prescribed, based on Section 268 of the NIRC of 1977, as amended.
Section 268 of the NIRC of 1977, as amended, provides a three-year period
of limitation for the assessment and collection of internal revenue taxes,
which begins to run after the last day prescribed for filing of the return.101
The dissenting opinion points out that more than four years have elapsed
from 25 January 1986 (the last day prescribed by law for PNB to file its
withholding tax return for the fourth quarter of 1985) to 16 January 1991 (the
date when the alleged final assessment of PNB's tax liability was issued).
The issue of prescription, however, was brought up only in the dissenting
opinion and was never raised by PNOC and PNB in the proceedings before
the BIR nor in any of their pleadings submitted to the CTA and the Court of
Appeals.
Section 1, Rule 9 of the Rules of Civil Procedure lays down the rule on
defenses and objections not pleaded, and reads:
SECTION 1. Defenses and objections not pleaded. Defenses
and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action
pending between the parties for the same cause, or that the action
is barred by prior judgment or by the statute of limitations, the court
shall dismiss the claim.
The general rule enunciated in the above-quoted provision governs the
present case, that is, the defense of prescription, not pleaded in a motion to
dismiss or in the answer, is deemed waived. The exception in same
provision cannot be applied herein because the pleadings and the evidence
on record do not sufficiently show that the action is barred by prescription.
It has been consistently held in earlier tax cases that the defense of
prescription of the period for the assessment and collection of tax liabilities
shall be deemed waived when such defense was not properly pleaded and
the facts alleged and evidences submitted by the parties were not sufficient
to support a finding by this Court on the matter.102 In Querol v. Collector of
Internal Revenue,103 this Court pronounced that prescription, being a matter
of defense, imposes the burden on the taxpayer to prove that the full period
of the limitation has expired; and this requires him to positively establish the
date when the period started running and when the same was fully
accomplished.
In making its conclusion that the assessment and collection in this case had
prescribed, the dissenting opinion took liberties to assume the following facts
even in the absence of allegations and evidences to the effect that: (1) PNB
filed returns for its withholding tax obligations for taxable year 1985; (2) PNB
reported in the said returns the interest earnings of PNOC's money
placements with the bank; and (3) that the returns were filed on or before the
prescribed date, which was 25 January 1986.
It is not safe to adopt the first and second assumptions in this case
considering that Section 269 of the NIRC of 1977, as amended, provides for
a different period of limitation for assessment and collection of taxes in case
of false or fraudulent return or for failure to file a return. In such cases, the
BIR is given 10 years after discovery of the falsity, fraud, or omission within
which to make an assessment.104
It is also not safe to accept the third assumption since there can be a
possibility that PNB filed the withholding tax return later than the prescribed
date, in which case, following the dictates of Section 268 of the NIRC of
1977, as amended, the three-year prescriptive period shall be counted from
the date the return was actually filed.105
PNB's withholding tax returns for taxable year 1985, duly received by the
BIR, would have been the best evidence to prove actual filing, the date of
filing and the contents thereof. These facts are relevant in determining
which prescriptive period should apply, and when such prescriptive period
should begin to run and when it had lapsed. Yet, the pleadings did not refer
to any return, and no return was made part of the records of the present
case.
This Court could not make a proper ruling on the matter of prescription on
the mere basis of assumptions; such an issue should have been properly
raised, argued, and supported by evidences submitted by the parties
themselves before the BIR and the courts below.
B. Granting that this Court can take cognizance of the defense of

prescription, this Court finds that the assessment of the withholding
tax liability against PNOC and collection of the tax assessed were
done within the prescriptive period.
Assuming, for the sake of argument, that this Court can give due course to
the defense of prescription, it finds that the assessment against PNB for its
withholding tax liability for taxable year 1985 and the collection of the tax
assessed therein were accomplished within the prescribed periods for
assessment and collection under the NIRC of 1977, as amended.
If this Court adopts the assumption made by the dissenting opinion that PNB
filed its withholding tax return for the last quarter of 1985 on 25 January
1986, then the BIR had until 24 January 1989 to assess PNB. The original
assessment against PNB was issued as early as 08 October 1986, wellwithin the three-year prescriptive period for making the assessment as
prescribed by the following provisions of the NIRC of 1977, as amended:
SEC. 268. Period of limitation upon assessment and collection.
Except as provided in the succeeding section, internal revenue
taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return, and no proceeding in
court without assessment for the collection of such taxes shall be
begun after the expiration of such period
collection of taxes.
(c) Any internal revenue tax which has been assessed within the
period of limitation above-prescribed may be collected by distraint
or levy or by a proceeding in court within three years following the
assessment of the tax.
Sections 268 and 269(c) of the NIRC of 1977, as amended, should be read
in conjunction with one another. Section 268 requires that assessment be
made within three years from the last day prescribed by law for the filing of
the return. Section 269(c), on the other hand, provides that when an
assessment is issued within the prescribed period provided in Section 268,
the BIR has three years, counted from the date of the assessment, to collect
the tax assessed either by distraint, levy or court action. Therefore, when an
assessment is timely issued in accordance with Section 268, the BIR is

given another three-year period, under Section 269(c), within which to collect
the tax assessed, reckoned from the date of the assessment.
In the case of PNB, an assessment was issued against it by the BIR on 08
October 1986, so that the BIR had until 07 October 1989 to enforce it and to
collect the tax assessed. The filing, however, by private respondent
Savellano of his Amended Petition for Review before the CTA on 02 July
1988 already constituted a judicial action for collection of the tax assessed
which stops the running of the three-year prescriptive period for collection
thereof.
A judicial action for the collection of a tax may be initiated by the filing of a
complaint with the proper regular trial court; or where the assessment is
appealed to the CTA, by filing an answer to the taxpayer's petition for review
wherein payment of the tax is prayed for.106
The present case is unique, however, because the Petition for Review was
filed by private respondent Savellano, the informer, against the BIR, PNOC,
and PNB. The BIR, the collecting government agency; PNOC, the taxpayer;
and PNB, the withholding agent, initially found themselves on the same
side. The prayer in the Amended Petition for Review of private respondent
Savellano reads:
WHEREFORE, in view of the foregoing, petitioner respectfully
prays that the compromise agreement of June 22, 1987 be
reviewed and declared null and void, and that this Court directs:
a) respondent Commissioner to enforce and collect and
respondents PNB and/or PNOC to pay in a joint and
several capacity, the total tax liability of P387,987,785.73,
plus interests from 31 October 1986; and
b) respondent Commissioner to pay unto petitioner, as
informer's reward, 15% of the tax liability collected under
clause (a) hereof.
Other equitable reliefs under the premises are likewise prayed
for.107 (Underscoring ours.)
Private respondent Savellano, in his Amended Petition for Review in CTA
Case No. 4249, prayed for (1) the CTA to direct the BIR Commissioner to
enforce and collect the tax, and (2) PNB and/or PNOC to pay the tax
making CTA Case No. 4249 a collection case. That the Amended Petition
for Review was filed by the informer and not the taxpayer; and that the
prayer for the enforcement of the tax assessment and payment of the tax
was also made by the informer, not the BIR, should not affect the nature of
the case as a judicial action for collection. In case the CTA grants the
Petition and the prayer therein, as what has happened in the present case,
the ultimate result would be the collection of the tax assessed.
Consequently, upon the filing of the Amended Petition for Review by private
respondent Savellano, judicial action for collection of the tax had been
initiated and the running of the prescriptive period for collection of the said
tax was terminated.
Supposing that CTA Case No. 4249 is not a collection case which stops the
running of the prescriptive period for the collection of the tax, CTA Case No.
4249, at the very least, suspends the running of the said prescriptive period.
Under Section 271 of the NIRC of 1977, as amended, the running of the
prescriptive period to collect deficiency taxes shall be suspended for the
period during which the BIR Commissioner is prohibited from beginning a
distraint or levy or instituting a proceeding in court, and for 60 days
thereafter.108 Just as in the cases of Republic v. Ker & Co.,
Ltd.109 and Protector's Services, Inc. v. Court of Appeals,110 this Court
declares herein that the pendency of the present case before the CTA, the
Court of Appeals and this Court, legally prevents the BIR Commissioner from
instituting an action for collection of the same tax liabilities assessed against
PNOC and PNB in the CTA or the regular trial courts. To rule otherwise
would be to violate the judicial policy of avoiding multiplicity of suits and the
rule on lis pendens.
Once again, that CTA Case No. 4249 was initiated by private respondent
Savellano, the informer, instead of PNOC, the taxpayer, or PNB, the
withholding agent, would not prevent the suspension of the running of the
prescriptive period for collection of the tax. What is controlling herein is the
fact that the BIR Commissioner cannot file a judicial action in any other court
for the collection of the tax because such a case would necessarily involve
the same parties and involve the same issues already being litigated before
the CTA in CTA Case No. 4249. The three-year prescriptive period for
collection of the tax shall commence to run only after the promulgation of the
decision of this Court in which the issues of the present case are resolved
with finality.
Whether the filing of the Amended Petition for Review by private respondent
Savellano entirely stops or merely suspends the running of the prescriptive
period for collection of the tax, it had been premature for the BIR
Commissioner to issue a writ of garnishment against PNB on 12 August

1991 and for the Central Bank of the Philippines to debit the account of PNB
on 02 September 1992 pursuant to the said writ, because the case was by
then, pending review by the Court of Appeals. However, since this Court
already finds that the compromise agreement is without force and effect and
hereby orders the enforcement of the assessment against PNB, then, any
issue or controversy arising from the premature garnishment of PNB's
account and collection of the tax by the BIR has become moot and academic
at this point.
V
Additional Informer's Reward
Private respondent Savellano is entitled to additional informer's reward since
the BIR had already collected the full amount of the tax assessment against
PNB.
PNOC insists that private respondent Savellano is not entitled to additional
informer's reward because there was no voluntary payment of the
withholding tax liability. PNOC, however, fails to state any legal basis for its
argument.
Section 316(1) of the NIRC of 1977, as amended, granted a reward to an
informer equivalent to 15% of the revenues, surcharges, or fees recovered,
plus, any fine or penalty imposed and collected.111 The provision was clear
and uncomplicated an informer was entitled to a reward of 15% of the total
amount actually recovered or collected by the BIR based on his information.
The provision did not make any distinction as to the manner the tax liability
was collected whether it was through voluntary payment by the taxpayer or
through garnishment of the taxpayer's property. Applicable herein is another
well-known maxim in statutory construction Ubi lex non distinguit nec nos
distinguere debemos when the law does not distinguish, we should not
distinguish.112
Pursuant to the writ of garnishment issued by the BIR, the Central Bank
issued a debit advice against the demand deposit account of PNB with the
Central Bank for the amount of P294,958,450.73, and credited the same
amount to the demand deposit account of the Treasurer of the Republic of
the Philippines. The Treasurer of the Republic, in turn, already issued a
journal voucher transferring P294,958,450.73 to the account of the BIR.
Since the BIR had already collected P294,958,450.73 from PNB through the
execution of the writ of garnishment over PNB's deposit with the Central
Bank, then private respondent Savellano should be awarded 15% thereof as
reward since the said collection could still be traced to the information he
had given.
WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in
G.R. No. 109976 and G.R. No. 112800, respectively, are hereby DENIED.
This Court AFFIRMS the assailed Decisions of the Court of Appeals in CAG.R. SP No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision
of the CTA in CTA Case No. 4249, with modifications, to wit:
(1) The compromise agreement between PNOC and the BIR,
dated 22 June 1987, is declared void for being contrary to law and
public policy, and is without force and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the
regulation;
(3)The withholding tax assessment against PNB, dated 08 October
1986, had become final and unappealable. The BIR Commissioner
is ordered to enforce the said assessment and collect the amount
ofP294,958,450.73, the balance of tax assessed after crediting the
previous payment made by PNOC pursuant to the compromise
agreement, dated 22 June 1987; and
(4) Private respondent Savellano shall be paid the remainder of
his informer's reward, equivalent to 15% of the deficiency
withholding tax ordered collected herein, or P 44,243,767.61.
SO ORDERED.
THIRD DIVISION
[G.R. No. 104171. February 24, 1999]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. B.F.

GOODRICH PHILS., INC. (now SIME DARBY INTERNATIONAL
TIRE CO., INC.) and THE COURT OF APPEALS, respondents.
DECISION
PANGANIBAN, J.:
Notwithstanding the expiration of the five-year prescriptive period, may the
Bureau of Internal Revenue (BIR) still assess a taxpayer even after the latter has
already paid the tax due, on the ground that the previous assessment was insufficient
or based on a false return?
The Case
This is the main question raised before us in this Petition for Review
on Certiorari assailing the Decision[1] dated February 14, 1992, promulgated by the
Court of Appeals[2] in CA-GR SP No. 25100.The assailed Decision reversed the
Court of Tax Appeals (CTA)[3] which upheld the BIR commissioners assessments
made beyond the five-year statute of limitations.
private respondent sold to Siltown Realty Philippines, Inc. on January 21, 1974, its
Basilan landholding for P500,000 payable in installments. In accord with the terms
of the sale, Siltown Realty Philippines, Inc. leased the said parcels of land to private
respondent for a period of 25 years, with an extension of another 25 years at the
latters option.
Based on the BIRs Letter of Authority No. 10115 dated April 14, 1975, the
books and accounts of private respondent were examined for the purpose of
determining its tax liability for taxable year 1974.The examination resulted in the
April 23, 1975 assessment of private respondent for deficiency income tax in the
amount of P6,005.35, which it duly paid.
Subsequently the BIR also issued Letters of Authority Nos. 074420 RR and
074421 RR and Memorandum Authority Reference No. 749157 for the purpose of
examining Siltowns business, income and tax liabilities. On the basis of this
examination, the BIR commissioner issued against private respondent on October
10, 1980, an assessment for deficiency in donors tax in the amount of P1,020,850, in
relation to the previously mentioned sale of its Basilan landholdings to
Siltown. Apparently, the BIR deemed the consideration for the sale insufficient, and
the difference between the fair market value and the actual purchase price a taxable
donation.
The Facts
The facts are undisputed. [4] Private Respondent BF Goodrich Phils., Inc. (now
Sime Darby International Tire Co. Inc.), was an American-owned and controlled
corporation previous to July 3, 1974. As a condition for approving the manufacture
by private respondent of tires and other rubber products, the Central Bank of the
Philippines required that it should develop a rubber plantation. In compliance with
this requirement, private respondent purchased from the Philippine government in
1961, under the Public Land Act and the Parity Amendment to the 1935
Constitution, certain parcels of land located in Tumajubong, Basilan, and there
developed a rubber plantation.
More than a decade later, on August 2, 1973, the justice secretary rendered an
opinion stating that, upon the expiration of the Parity Amendment on July 3, 1974,
the ownership rights of Americans over public agricultural lands, including the right
to dispose or sell their real estate, would be lost. On the basis of this Opinion,
In a letter dated November 24, 1980, private respondent contested this

assessment. On April 9, 1981, it received another assessment dated March 16, 1981,
which increased to P1,092,949 the amount demanded for the alleged deficiency
donors tax, surcharge, interest and compromise penalty.
Private respondent appealed the correctness and the legality of these last two
assessments to the CTA. After trial in due course, the CTA rendered its Decision
dated March 29, 1991, the dispositive portion of which reads as follows:
WHEREFORE, the decision of the Commissioner of Internal Revenue assessing
petitioner deficiency gift tax is MODIFIED and petitioner is ordered to pay the
amount of P1,311,179.01 plus 10% surcharge and 20% annual interest from March
16, 1981 until fully paid provided that the maximum amount that may be collected
as interest on delinquency shall in no case exceed an amount corresponding to a
period of three years pursuant to Section 130(b) (1) and (c) of the 1977 Tax Code, as
amended by P.D. No. 1705, which took effect on August 1, 1980.
SO ORDERED.[5]
Main Issue: Prescription
Undaunted, private respondent elevated the matter to the Court of Appeals,

which reversed the CTA, as follows:
What is involved here is not a first assessment; nor is it one within the 5-year period
stated in Section 331 above. Since what is involved in this case is a multiple
assessment beyond the five-year period, the assessment must be based on the
grounds provided in Section 337, and not on Section 15 of the 1974 Tax
Code. Section 337 utilizes the very specific terms fraud,
irregularity, and mistake. Falsity does not appear to be included in this
enumeration. Falsity suffices for an assessment, which is a first assessment made
within the five-year period. When it is a subsequent assessment made beyond the
five-year period, then, it may be validly justified only by fraud, irregularity and
mistake on the part of the taxpayer.[6]
The petitioner contends that the Court of Appeals erred in reversing the CTA
on the issue of prescription, because its ruling was based on factual findings that
should have been left undisturbed on appeal, in the absence of any showing that it
had been tainted with gross error or grave abuse of discretion. [8] The Court is not
persuaded.
True, the factual findings of the CTA are generally not disturbed on appeal
when supported by substantial evidence and in the absence of gross error or grave
abuse of discretion. However, the CTAs application of the law to the facts of this
controversy is an altogether different matter, for it involves a legal question. There is
a question of law when the issue is the application of the law to a given set of
facts. On the other hand, a question of fact involves the truth or falsehood of alleged
facts.[9] In the present case, the Court of Appeals ruled not on the truth or falsity of
the facts found by the CTA, but on the latters application of the law on prescription.
Hence, this Petition for Review under Rule 45 of the Rules of Court. [7]
Section 331 of the National Internal Revenue Code provides:
The Issues
Before us, petitioner raises the following issues:

I
Whether or not petitioners right to assess herein deficiency donors tax has indeed
prescribed as ruled by public respondent Court of Appeals
II
Whether or not the herein deficiency donors tax assessment for 1974 is valid and in
accordance with law
SEC. 331. Period of limitation upon assessment and collection. Except as provided
in the succeeding section, internal-revenue taxes shall be assessed within five years
after the return was filed, and no proceeding in court without assessment for the
collection of such taxes shall be begun after expiration of such period. For the
purposes of this section, a return filed before the last day prescribed by law for the
filing thereof shall be considered as filed on such last day: Provided, That this
limitation shall not apply to cases already investigated prior to the approval of this
Code.
Applying this provision of law to the facts at hand, it is clear that the October
16, 1980 and the March 1981 assessments were issued by the BIR beyond the fiveyear statute of limitations. The Court has thoroughly studied the records of this case
and found no basis to disregard the five-year period of prescription. As succinctly
pronounced by the Court of Appeals:
Prescription is the crucial issue in the resolution of this case.

The Courts Ruling
The petition has no merit.
The subsequent assessment made by the respondent Commissioner on October 10,

1980, modified by that of March 16, 1981, violates the law. Involved in this petition
is the income of the petitioner for the year 1974, the returns for which were required
to be filed on or before April 15 of the succeeding year. The returns for the year
1974 were duly filed by the petitioner, and assessment of taxes due for such year -including that on the transfer of properties on June 21, 1974 -- was made on April
13, 1975 and acknowledged by Letter of Confirmation No. 101155 terminating the
examination on this subject. The subsequent assessment of October 10, 1980
modified, by that of March 16, 1981, was made beyond the period expressly set in
Section 331 of the National Intenal Revenue Code xxx. [10]
obtainable.Clearly, Section 15 does not provide an exception to the statute of

limitations on the issuance of an assessment, by allowing the initial assessment to be
made on the basis of the best evidence available.Having made its initial assessment
in the manner prescribed, the commissioner could not have been authorized to issue,
beyond the five-year prescriptive period, the second and the third assessments under
consideration before us.
Petitioner relies on the CTA ruling, the salient portion of which reads:
Nor is petitioners claim of falsity sufficient to take the questioned assessments

out of the ambit of the statute of limitations. The relevant part of then Section 332 of
the NIRC, which enumerates the exceptions to the period of prescription, provides:
Falsity is what we have here, and for that matter, we hasten to add that the second
assessment (March 16, 1981) of the Commissioner was well-advised having been
made in contemplation of his power under Section 15 of the 1974 Code (now
Section 16, of NIRC) to assess the proper tax on the best evidence obtainable when
there is reason to believe that a report of a taxpayer is false, incomplete or
erroneous.More, when there is falsity with intent to evade tax as in this case, the
ordinary period of limitation upon assessment and collection does not apply so that
contrary to the averment of petitioner, the right to assess respondent has not
prescribed.
What is the considered falsity? The transfer through sales of the parcels of land in
Tumajubong, Lamitan, Basilan in favor of Siltown Realty for the sum
of P500,000.00 only whereas said lands had been sworn to under Presidential
Decree No. 76 (Dec. 6, 1972) as having a value of P2,683,467 (P2,475, 467
+ P207,700) (see Declaration of Real Property form, p. 28, and p. 15, no. 5, BIR
Record).[11]
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a remedial
measure, should be liberally construed in order to afford such protection. [12] As a
corollary, the exceptions to the law on prescription should perforce be strictly
construed.
Section 15 of the NIRC, on the other hand, provides that [w]hen a report
required by law as a basis for the assessment of any national internal revenue tax
shall not be forthcoming within the time fixed by law or regulation, or when there is
reason to believe that any such report is false, incomplete, or erroneous, the
Commissioner of Internal Revenue shall assess the proper tax on the best evidence
SEC. 332. 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 a tax or of
a failure to file a return, the tax may be assessed, or a proceeding in court for the
collection of such tax may be begun without assessment, at any time within ten
years after the discovery of the falsity, fraud, or omission: xxx.
Petitioner insists that private respondent committed falsity when it sold the
property for a price lesser than its declared fair market value. This fact alone did not
constitute a false return which contains wrong information due to mistake,
carelessness or ignorance.[13] It is possible that real property may be sold for less
than adequate consideration for a bona fide business purpose; in such event, the sale
remains an arms length transaction. In the present case, the private respondent was
compelled to sell the property even at a price less than its market value, because it
would have lost all ownership rights over it upon the expiration of the parity
amendment. In other words, private respondent was attempting to minimize its
losses. At the same time, it was able to lease the property for 25 years, renewable for
another 25. This can be regarded as another consideration on the price.
Furthermore, the fact that private respondent sold its real property for a price
less than its declared fair market value did not by itself justify a finding of false
return. Indeed, private respondent declared the sale in its 1974 return submitted to
the BIR.[14] Within the five-year prescriptive period, the BIR could have issued the
questioned assessment, because the declared fair market value of said property was
of public record. This it did not do, however, during all those five years. Moreover,
the BIR failed to prove that respondent's 1974 return had been filed
fraudulently. Equally. significant was its failure to prove respondent's intent to evade
the payment of the correct amount of tax.
Ineludibly, the BIR failed to show that private respondent's 1974 return was
filed fraudulently with intent to evade the payment of the correct amount of tax.
[15]
Moreover, even though a donor's tax, which is defined as "a tax on the privilege
of transmitting one's property or property rights to another or others without
adequate and full valuable consideration,"[16] is different from capital gains tax, a tax
on the gain from the sale of the taxpayer's property forming part of capital assets,
[17]
the tax return filed by private respondent to report its income for the year 1974
was sufficient compliance with the legal requirement to file a return. In other words,
the fact that the sale transaction may have partly resulted in a donation does not
change the fact that private respondent already reported its income for 1974 by filing
an income tax return.
Since the BIR failed to demonstrate clearly that private respondent had filed a
fraudulent return with the intent to evade tax, or that it had failed to file a return at
all, the period for assessments has obviously prescribed. Such instances of
negligence or oversight on the part of the BIR cannot prejudice taxpayers,
considering that the prescriptive period was precisely intended to give them peace of
mind.
Based on the foregoing, a discussion of the validity and legality of the assailed
assessments has become moot and unnecessary.
Respondent was assessed by the Bureau of Internal Revenue (BIR) deficiency

income tax and advance sales tax based on an informants report and the sworn
statement of a former general manager of respondent that it sold all its dollar quotas
to local Chinese textile traders at an overprice and faked its invoices to reduce the
costs of importation. When a revised assessment was made by the BIR, respondent
protested the same but it was nevertheless denied by the BIR Commissioner.
Aggrieved, respondent elevated the issue to the Court of Tax Appeals by way of a
petition for review. The tax court rendered a decision absolving respondent from
liability. It held that the assessments must be based on actual facts and proved by
competent evidence, and not simply imposed on the mere basis of unverified
information supplied by an informant. Petitioner questioned the ruling of the Tax
Court to the Court of Appeals by way of a petition for review. The appellate court
affirmed the questioned ruling. His motion for reconsideration having been denied,
this present recourse was resorted to by petitioner raising only issues of facts.
Findings of fact of the Court of Appeals and even of the tax court are final,
binding and conclusive on the parties and upon this Court, which will not be
reviewed or disturbed on appeal unless these findings are not supported by evidence,
with certain well defined exceptions. This case does not come within any of the
exceptions.
SYLLABUS
WHEREFORE, the Petition for Review is DENIED and the assailed

Decision of the Court of Appeals is AFFIRMED. No costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. 96262. March 22, 1999]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. EMBROIDERY
AND GARMENTS INDUSTRIES (PHIL.), INC., respondent.
DECISION
SYNOPSIS
1.
REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; APPEAL

BY CERTIORARI FROM DECISIONS OF COURT OF APPEALS TO
SUPREME COURT; QUESTION OF LAW, ONLY ISSUE
INVOLVED. -- It is a fundamental rule that an appeal via certiorari from a
decision of the Court of Appeals to the Supreme Court may raise only
questions of law, which must be distinctly set forth.
2. ID.; EVIDENCE; CREDIBILITY; FINDINGS OF FACT OF COURT OF

APPEALS AND COURT OF TAX APPEALS, GENERALLY BINDING
AND CONCLUSIVE; CASE AT BAR, NOT AN EXCEPTION. -- Findings
of fact of the Court of Appeals and even of the tax court are final, binding or
conclusive on the parties and upon this Court, which will not be reviewed or
disturbed on appeal unless these findings are not supported by evidence, with
certain well recognized exceptions, such as (1) when the conclusion is
grounded entirely on speculations, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) where there

is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of the Court of Appeals are contrary to those
of the trial courts; (8) when the findings of fact are conclusions without
citation of specific evidence on which they are based; (9) when the Court of
Appeals overlooked certain relevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion; and (10) when the
findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record. This case does not
come within any of the exceptions.
PARDO, J.:
The case is an appeal via certiorari from a decision of the Court of
Appeals[1] affirming that of the Court of Tax Appeals [2] absolving respondent from
liability for deficiency income tax and advance sales tax in the amounts
of P2,756,241.68, and P3,500,798.47, respectively, for the years 1959 to 1961.
The facts may be related as follows:
On September 22, 1964, on the basis of a sworn report of an informer, the
Courts of First Instance of Manila and Bulacan issued search warrants for the
seizure of certain documents from the offices of respondent Embroidery and
Garments Industries (Phil.), Inc. in Manila and Valenzuela, Bulacan. Armed with the
warrants, agents of the Anti-Technical Smuggling Unit, Bureau of Internal Revenue,
seized various business records and documents from respondents offices.
On January 4, 1966, petitioner assessed respondent the sum of P436,846.44,
inclusive of 75% surcharge and penalty as advance sales tax for the years 1959 to
1961 and, on March 23, 1966, assessed deficiency income tax in the sum
of P4,799.641.95, inclusive of 50% surcharge and % monthly interest for the years
1960 and 1961.
Respondent protested the assessments, and on December 9, 1970, petitioner
issued to respondent a revised assessment requiring the latter to pay the amount
of P2,756,241.68, inclusive of 50% surcharge and % monthly interest as deficiency

income tax for the years 1959 to 1961. On December 22, 1970, petitioner required
respondent to pay P3,500,798.47, as advance sales tax and 75% surcharge
corresponding to the same years.
On January 7, 1971, respondent filed with the Bureau of Internal Revenue a
protest disputing the revised assessments and requesting further investigation. On
the same date, petitioner denied the protest.
On January 20, 1971, respondent requested petitioner to reconsider the denial
of its protest. On January 29, 1971, petitioner granted the request upon respondents
execution of a waiver of the statute of limitations.
On September 14, 1971, petitioner denied respondents protest on the disputed
assessments.
On October 14, 1971, respondent filed with the Court of Tax Appeals a
petition for review of the disputed tax assessments.
On March 29, 1972, respondent filed its answer to the petition praying for its
dismissal.
On January 15, 1990, the Court of Tax Appeals rendered decision finding
respondent not liable for deficiency income tax and advance sales tax assessed
against it, accordingly, reversed the BIR decision.In its decision, the Court of Tax
Appeals held that the assessments were of doubtful validity as they were based on
incompetent evidence consisting of an informants report and the sworn statement of
a disgruntled former general manager of respondent that in the years in question
respondent sold all its dollar quotas to local Chinese textile traders at an overprice or
premium on the dollar value of textile importation of 80% for suiting materials and
70% for womens clothing materials and faked its invoices to reduce its costs of
importation. On the other hand, respondent adduced evidence consisting of official
records of the Bureau of Customs that its tax-free importations had been re-exported
to their suppliers in accordance with the Embroidery Law and cleared by the Bureau
of Customs. The tax court ruled that the assessments must be based on actual facts
and proved by competent evidence, not imposed based on unverified information
supplied by an informant, or disputed presumptions.
On June 13, 1990, petitioner filed with the Court of Appeals a petition for
review of the decision of the Court of Tax Appeals.[3]
On November 9, 1990, the Court of Appeals promulgated its decision
affirming the appealed decision of the tax court. [4]
On December 4, 1990, petitioner filed a motion for reconsideration of the
Court of Appeals decision.
On February 7, 1991, the Court of Appeals denied the motion. [5]
On March 18, 1991, within the extended time granted, petitioner filed with the
Supreme Court a petition for review on certiorari of the decision of the Court of
Appeals.[6]
In the petition, the Commissioner of Internal Revenue submits that the Court
of Appeals erred:
(1) in not holding that respondent is liable for deficiency income tax and
advance sales tax in view of its failure to declare its income realized for the years
1959 to 1961 from the sales of its dollar quota to local Chinese textile dealers at a
premium of 70% to 80% of the dollar value, which dollar quota rights were
allocated by the Central Bank of the Philippines to enable respondent to import taxfree textile raw materials to be manufactured into finished products for re-export
pursuant to the provisions of the Embroidery Law (R.A. No. 3137), and
(2) in not holding that the imposition of 50% surcharge for fraud was legal and
justified.[7]
The issues raised are clearly factual and must be resolved on the basis of the
evidence adduced before the tax court. The case tarried too long in the tax court. In
the meantime, the star witness had died, and the needed originals of documentary
evidence could no longer be located.
What is more, it is a fundamental rule that an appeal via certiorari from a
decision of the Court of Appeals to the Supreme Court may raise only questions of
law, which must be distinctly set forth. [8]Findings of fact of the Court of Appeals and
even of the tax court are final, binding or conclusive on the parties [9] and upon this
Court,[10] which will not be reviewed[11] or disturbed on appeal unless these findings
are not supported by evidence, [12] with certain well recognized exceptions, such as
(1) when the conclusion is grounded entirely on speculations [13], surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or
impossible; (3) where there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to those of the trial courts;
[14]
(8) when the findings of fact are conclusions without citation of specific evidence
on which they are based; (9) when the Court of Appeals overlooked certain relevant
facts not disputed by the parties, which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the evidence on record.
[15]
This case does not come within any of the exceptions.
WHEREFORE, the Court hereby AFFIRMS the appealed decision of the
Court of Appeals in CA-G.R. SP No. 20813.
No costs.
SO ORDERED.
Davide, Jr., CJ., (Chairman), Melo, and Kapunan, JJ., concur.

Supreme Court
Manila
THIRD DIVISION
BANCO FILIPINO
SAVINGS and
MORTGAGE BANK,
G.R. No. 155682

Present:
Petitioner,
YNARES-SANTIAGO, J.,
- versus -
Chairperson,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
COURT OF APPEALS,
CHICO-NAZARIO,
COURT OF TAX APPEALS
NACHURA, JJ.
and COMMISSIONER OF
INTERNAL REVENUE,
Promulgated:
Respondents.
March 27, 2007
x------------------------------------------------x
On February 4, 1998, petitioner filed with the Commissioner of Internal

Revenue (CIR) an administrative claim [8] for refund of creditable taxes withheld for
the year 1995 in the amount of P1,622,576.00.
As the CIR failed to act on its claim, petitioner filed a Petition for
[9]
DECISION
Review with the CTA on April 13, 1998. It attached to its Petition several
documents, including: 1) Certificate of Income Tax Withheld on Compensation (BIR
AUSTRIA-MARTINEZ, J.:
Form No. W-2) for the Year 1995 executed by Oscar Lozano covering P720.00 as
tax withheld on rental income paid to petitioner (Exhibit II); [10] and 2) Monthly
Herein Petition for Review on Certiorari under Rule 45 of the Rules of
Remittance Return of Income Taxes Withheld under BIR Form No. 1743W issued
Court assails the May 28, 2002 Decision [1] and October 16, 2002 Resolution[2] of the
by petitioner, indicating various amounts it withheld and remitted to the BIR
Court of Appeals (CA) in CA-G.R. SP No. 55470 [3] which affirmed the October 5,
(Exhibits C through Z).[11]
1999 Decision[4] of the Court of Tax Appeals (CTA) in CTA Case No. 5611.
In his Answer,[12] respondent CIR interposed special and afirmative
The facts are as stated by the CTA.[5]
defenses, specifically that petitioners claim is not properly documented.
In its Bureau of Internal Revenue (BIR) Form No. 1702 or
The CTA issued the October 5, 1999 Decision granting only a portion of petitioners
Corporation/Partnership Annual Income Tax Return[6] for fiscal year 1995, Banco
Filipino Savings and Mortgage Bank (petitioner) declared a net operating loss
of P211,476,241.00 and total tax credit of P13,103,918.00, representing the prior
years excess tax credit ofP11,481,342.00 and creditable withholding taxes
of P1,622,576.00.[7]
claim for refund, thus:

WHEREFORE, in view of all the foregoing, Respondent is
hereby ORDERED to REFUND or in the alternative to ISSUE a
Tax Credit Certificate in the amount of EIGHTEEN
THOUSAND EIGHT HUNDRED EIGHTY FOUR PESOS
AND FORTY CENTAVOS (P18,884.40) in favor of the
Petitioner, representing overpaid income tax for the year 1995.
SO ORDERED.[13]
The CTA allowed the P18,884.40-portion of petitioners claim for refund as

these are covered by Exhibits AA through HH,
[14]
which are all in BIR Form No.
therefrom. The third condition is specifically imposed under Section 10 of Revenue

Regulation No. 6-85 (as amended), thus:
1743-750 (Certificate of Creditable Tax Withheld at Source) issued by various
Sec. 10. Claim for tax credit or refund. (a) Claims for
Tax Credit or Refund of income tax deducted and withheld on
income payments shall be given due course only when it is
shown on the return that the income payment received has been
declared as part of the gross income and the fact of withholding
is established by a copy of the Withholding Tax Statement duly
issued by the payor to the payee showing the amount paid and
the amount of tax withheld therefrom xxx. (Emphasis supplied)
payors and reflecting taxes deducted and withheld on petitioner-payees income from
the rental of its real properties. On the other hand, the CTA disallowed
the P1,603,691.60-portion of petitioners claim for tax refund on the ground that its
Exhibit II and Exhibits C through Z lack probative value as these are not in BIR
Form No. 1743.1,[15] the form required under Revenue Regulations No. 6-85 (as
amended by Revenue Regulation No. 12-94), to support a claim for refund. [16]
There is no doubt that petitioner complied with the first two requirements in that the
claim it filed on January 30, 1998 was well within the two-year prescriptive period
Petitioner filed a Petition for Review[17] with the CA but the CA dismissed
counted from the date of filing of its annual income tax return (Exhibit A) on April
the same in the May 28, 2002 Decision assailed herein. Its Motion for
12, 1996; and that said return reflects the amount of P1,622,576.00 subject of the
Reconsideration was also denied.[18]
claim.[21]
The question is whether it complied with the third condition by presenting
Hence, herein Petition where the issues may be condensed into one:
merely a Certificate of Income Tax Withheld on Compensation or BIR Form No. W-
whether the CA erred in affirming the disallowance by the CTA of P1,603,691.60 of
2 (Exhibit II) and Monthly Remittance Return of Income Taxes Withheld under BIR
petitioners claim for tax refund on the ground that the latters Exhibit II and Exhibits
Form No. 1743W (Exhibits C through Z).
C through Z lack probative value.

The CA committed no error.
Petititioner argues that its Exhibit II and Exhibits C through Z should be

accorded the same probative value as a BIR Form No. 1743.1, for said documents
are also official BIR forms and they reflect the fact that taxes were actually withheld
There are three conditions for the grant of a claim for refund of creditable
and remitted. It appeals for liberality considering that its annual return clearly shows
withholding tax: 1) the claim is filed with the CIR within the two-year period from
that it is entitled to creditable withholding tax. [22]
the date of payment of the tax; [19] 2) it is shown on the return of the recipient that the
income payment received was declared as part of the gross income; [20] and, 3) the
The Court rejected a similar plea for liberality just recently in Far East
fact of withholding is established by a copy of a statement duly issued by the payor
Bank and Trust Company v. Court of Appeals.[23] In that case, Far East Bank and
to the payee showing the amount paid and the amount of the tax withheld
Trust Company (FEBTC), acting as the surviving entity from a merger with Cavite
Development Bank (CDB), filed a claim for refund of creditable taxes withheld by
CDB from the sale of its acquired assets. FEBTC attached to its claim: a)
confirmation receipts, payment orders and official receipts issued by the Central
Bank and the BIR; b) Income Tax Returns supported by financial statements filed by
FEBTC with the BIR; and c) a schedule prepared by FEBTC Accounting
proferred documents, We cannot begrudge

the Respondent Court from nurturing
veritable doubts on the nature and identity of
the taxes withheld, when it declared, in part,
in its Decision (Annex A of the Petition) that,
It can not well be said that the amounts paid
and remitted to the BIR were for CDBs
account and not for the other possible
payees of withholding taxes which CDB
may also be liable to remit as a withholding
agent x x x.[24] (Emphasis ours)
Department of the creditable withholding taxes of CDB.FEBTC did not, however,

attach any BIR Form No. 1743.1. The CTA and CA disallowed FEBTCs claim for
refund. The Court affirmed the CTA and CA, thus:
As mentioned, petitioner relies heavily on the confirmation
receipts with the corresponding official receipts and payment
orders to support its case. Standing alone, however, these
documents only establish that CDB withheld certain amounts
in 1990 and 1991. It does not follow that the payments
reflected in the confirmation receipts relate to the creditable
withholding taxes arising from the sale of the acquired
properties. The claim that CDB had excess creditable
withholding taxes can only be upheld if it were clearly and
positively shown that the amounts on the various confirmation
receipts were the amounts withheld by virtue of the sale of the
acquired assets. On this point, the CA correctly pronounced:
The confirmation receipts alone, by
themselves, will not suffice to prove that the
taxes reflected in the income tax returns are
the same taxes withheld from CDBs income
payments from the sale of its acquired
assets. This is because a cursory
examination of the said Confirmation
Receipts, Payment Orders and Official
Receipts will show that what are reflected
therein are merely the names of the payors
and the amount of tax. The nature of the
tax paid, or at the very least, the income
payments from which the taxes paid were
withheld are not reflected therein. If these
are the only entries that are found on these
As to what evidence would establish the nature of the tax withheld and the income
payment from which it was deducted, the Court held:
Petitioner also asserts that the confusion or difficulty
in the implementation of Revenue Memorandum Circular 7-90
was the reason why CDB took upon itself the task of
withholding the taxes arising from the sale, to ensure
accuracy. Assuming this were true, CDB should have,
nevertheless, accomplished the necessary returns to clearly
identify the nature of the payments made and file the same
with the BIR. Section 2 of the circular clearly provides that the
amount of withholding tax paid by a corporation to the BIR
during the quarter on sales or exchanges of property and
which are creditable against the corporations tax liability are
evidenced by Confirmation/Official Receipts and covered by
BIR Form Nos. 1743W and 1743-B.On the other hand,
Revenue Regulation 6-85 states that BIR Form No. 1743.1
establishes the fact of withholding. Since no competent
evidence was adduced by petitioner, the failure to offer these
returns as evidence of the amount of petitioners entitlement
during the trial phase of this case is fatal to its cause. x x x.
[25]
(Emphasis supplied)
In fine, the document which may be accepted as evidence of the third condition, that
is, the fact of withholding, must emanate from the payor itself, and not merely from
the payee, and must indicate the name of the payor, the income payment basis of the
tax withheld, the amount of the tax withheld and the nature of the tax paid.
As to petitioners Exhibit II, while it was issued by a payor, the document

At the time material to this case, the requisite information regarding withholding
does not state the amount and nature of the income payment. Hence, it cannot be
taxes from the sale of acquired assets can be found in BIR Form No. 1743.1. As
verified from the document if the tax withheld is correct.
described inSection 6
[26]
of Revenue Regulations No. 6-85,
[27]
BIR Form No. 1743.1
is a written statement issued by the payor as withholding agent showing the income
Perhaps aware of the deficiencies in its evidence, petitioner also presented
or other payments made by the said withholding agent during a quarter or year and
Exhibit B[28] which is a list of Miscellaneous Assets it sold to various
the amount of the tax deducted and withheld therefrom. It readily identifies the
persons. However, Exhibit B was prepared by petitioners own real estate
payor, the income payment and the tax withheld. It is complete in the relevant
department, and is therefore of doubtful credence. [29] Furthermore, there is nothing in
details which would aid the courts in the evaluation of any claim for refund of
Exhibit B which would link the the transactions described therein to the taxes
creditable withholding taxes.
reflected in Exhibit II and Exhibits C through Z.
In relation to withholding taxes from rental income, the requisite information can be
For all its deficiencies, therefore, petitioners Exhibits C through Z cannot
found in BIR Form No. 1743-750. Petitioner is well aware of this for its own
take the place of BIR Form No. 1743.1 and its Exhibit II, of BIR Form No. 1743-
Exhibits AA through HH are all in BIR Form No. 1743-750. As earlier stated, the
750. Petitioner cannot fault the CA and CTA for finding said evidence insufficient to
CTA approved petitioners claim for refund to the extent of P18,884.40, which is the
support its claim for tax refund. Such finding of both courts, obviously grounded on
portion of its claim supported by its Exhibits AA through HH.
evidence, will not be so lightly discarded by this Court,[30] not even on a plea for
In the present case, the disputed portions of petitioners claim for refund is supported
liberality of which petitioner, by its own negligence, is undeserving. [31]
merely by Exhibits C through Z and Exhibit II. Exhibits C through Z were issued by
petitioner as payee purportedly acting as withholding agent, and not by the alleged
WHEREFORE, the petition is DENIED for lack of merit.
payors in the transactions covered by the documents. Moreover, the documents do

not identify the payors involved or the nature of their transaction. They do not
No costs.
indicate the amount and nature of the income payments upon which the tax was
computed or the nature of the transactions from which the income payments were
SO ORDERED.
derived, specifically whether it resulted from the sale of petitioners acquired assets.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
decision denying the claim for lack of evidence. [5]

SECOND DIVISION
[ G.R. NO. 149589, September 15, 2006 ]
FAR EAST BANK & TRUST COMPANY, PETITIONER, VS.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
RESOLUTION
It appears that petitioner failed to file its formal offer of evidence in the CTA,
constraining the tax court to rule in favor of the CIR. As explained by the
CTA:
...Its repeated non-appearance and failure to comply with court procedures
such as the filing of a formal offer of evidence and memorandum only serve
CORONA, J.:
to weaken, if not put a death knell, to its claim for refund.
Before this Court is a petition for review on certiorari of the decision[1] of the
The Rules of Court is strict in considering no evidence which has not been
Court of Appeals (CA) in CA-G.R. SP No. 49597 dated January 31, 2001
formally offered (Section 24, Rule 132). Without any formal offer of evidence,
and the resolution dated August 23, 2001 denying the motion for
thus, we could only blame the petitioner for its lost cause. Simply put, it has
reconsideration.
[2]
Petitioner Far East Bank & Trust Company (FEBTC)[3] filed with the Bureau of
Internal Revenue an application for a tax credit/tax refund of alleged excess
payments of its gross receipts tax (GRT). FEBTC claimed it
had overpaid its GRT for the 3rd and 4th quarters of 1994 and the entire
1995 amounting to P14,816,373.
Since no action was taken by the Commissioner of Internal Revenue (CIR)

on its claim, petitioner filed a case in the Court of Tax Appeals (CTA) on
October 18, 1996 to comply with the two-year reglementary period and avoid
the prescription of its action.[4] On July 30, 1998, the CTA rendered a
not proven anything.[6]

On August 26, 1998, 22 days after its receipt of the decision, petitioner filed
a motion for reconsideration. The CTA denied the motion for being filed out
of time and for lack of merit.
Aggrieved, petitioner elevated the case to the CA.[7] The appellate court
found the petition devoid of merit. Eventually, it dismissed the petition and
affirmed the CTA decision in toto. Petitioner's motion for reconsideration was
also denied. Thus, this petition.
Petitioner urges this Court to reverse and set aside the ruling of the appellate
court. It contends that it appended its formal offer of evidence to its motion
for reconsideration in the CTA. It now asks us to relax procedural rules in the
CA correctly denied its claim.
interest of justice.
Second, if no appeal or motion for reconsideration is filed on time, the
We deny the petition and rule against petitioner FEBTC on two points.
judgment or final order of the court becomes final and executory.[14] Here, the
records of the case confirm that petitioner's motion for reconsideration in the
First, it is well-settled that the courts cannot consider evidence which has not
[8]
CTA was filed out of time. Petitioner received its notice and a copy of the
been formally offered. Parties are required to inform the courts of the
CTA decision on August 4, 1998.[15] Under the rules, it had fifteen days (or
purpose of introducing their respective exhibits to assist the latter in ruling on
until August 19, 1998) to move for reconsideration. By the time it filed its
[9]
their admissibility in case an objection thereto is made. Without a formal
motion for reconsideration on August 26, 1998,[16] the decision of the CTA
offer of evidence, courts are constrained to take no notice of the evidence
had already attained finality. As a final judgment, it had by then already laid
[10]
even if it has been marked and identified.
Needless to say, the failure of
the issues to rest and the appellate courts could no longer review it.
petitioner to make a formal offer of evidence was detrimental to its cause.

Courts are charged with putting an end to controversies. In keeping with this
This case does not fall within the exception in Oate v. Court of
function, judgments must become final at some definite time fixed by law. [17]
Appeals[11] where the Court relaxed the foregoing rule and allowed evidence,
not formally offered, to be considered on condition that: (1) evidence must
WHEREFORE, the petition is hereby DENIED. The January 31, 2001
have been identified by testimony duly recorded and (2) it must have been
decision and August 23, 2001 resolution of the Court of Appeals
incorporated in the records of the case. In this case, "...[petitioner's] duly
are AFFIRMED.
marked and identified exhibits [were] not incorporated in the records... They
are nowhere to be found."[12]
Costs against petitioner.
A tax refund is in the nature of a tax exemption which must be
SO ORDERED.
[13]
construed strictissimi juris against the taxpayer. To stress, the taxpayer

must present convincing evidence to substantiate a claim for refund. Without
any documentary evidence on record, petitioner failed to discharge the
burden of proving its right to a tax credit/tax refund. Therefore, the CTA and
Puno, (Chairperson), Sandoval-Gutierrez, Azcuna, and Garcia, JJ., concur.
THIRD DIVISION
[ G.R. NO. 151857, April 28, 2005 ]
CALAMBA STEEL CENTER, INC. (FORMERLY JS STEEL
CORPORATION), PETITIONER, VS. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT.
DECISION
IN VIEW OF ALL THE FOREGOING, the instant petition

is DISMISSED and the assailed Decision and Resolution
are AFFIRMED. Costs against Petitioner.[3]
The Facts
Quoting the Court of Tax Appeals (CTA), the CA narrated the antecedents as
follows:
PANGANIBAN, J.:
Petitioner is a domestic corporation engaged in the manufacture of steel
A tax refund may be claimed even beyond the taxable year following that in
which the tax credit arises. Hence, excess income taxes paid in 1995 that
have not been applied to or used in 1996 may still be the subject of a tax
refund in 1997, provided that the claim for such refund is filed with the
internal revenue commissioner within two years after payment of said
taxes. As a caveat, the Court stresses that the recognition of the entitlement
to a tax refund does not necessarily mean the automatic payment of the sum
claimed in the final adjustment return of the taxpayer. The amount of the
claim must still be proven in the normal course.
blanks for use by manufacturers of automotive, electrical, electronics in

industrial and household appliances.
Petitioner filed an Amended Corporate Annual Income Tax Return on June

4, 1996 declaring a net taxable income of P9,461,597.00, tax credits of
P6,471,246.00 and tax due in the amount of P3,311,559.00.
Petitioner also reported quarterly payments for the second and third
quarters of 1995 in the amounts of P2,328,747.26 and P1,082,108.00,
respectively.
The Case
It is the proposition of the [p]etitioner that for the year 1995, several of its
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
clients withheld taxes from their income payments to [p]etitioner and remitted
assailing the January 10, 2002 Decision[2] of the Court of Appeals (CA) in
the same to the Bureau of Internal Revenue (BIR) in the sum of
CA-GR SP No. 58838. The assailed Decision disposed as follows:
P3,159,687.00. Petitioner further alleged that due to its income/loss

positions for the three quarters of 1996, it was unable to use the excess tax
paid for and in its behalf by the withholding agents.
Thus, an administrative claim was filed by the [p]etitioner on April 10, 1997
The sole issue submitted for [o]ur determination is whether or not [p]etitioner
for the refund of P3,159,687.00 representing excess or unused creditable
is entitled to the refund of P3,159,687.00 representing excess or overpaid
withholding taxes for the year 1995. The instant petition was subsequently
income tax for the taxable year 1995.[4]
filed on April 18, 1997.
Ruling of the Court of Appeals
Respondent, in his Answer, averred, among others, that:

1)
In denying petitioners refund, the CA reasoned out that no evidence other
Petitioner has no cause of action;
than that presented before the CTA was adduced to prove that excess tax
2) Petitioner failed to comply with the procedural requirements set out in

Section 5 of Revenue Regulations No. [(RR)] 12-94;
3)
payments had been made in 1995. From the inception of the case to the
formal offer of its evidence, petitioner did not present its 1996 income tax
return to disclose its total income tax liability, thus making it difficult to
It is incumbent upon [p]etitioner to prove by competent and sufficient
evidence that the tax refund or tax credit being sought is allowed under the
National Internal Revenue Code and its implementing rules and regulations;
determine whether such excess tax payments were utilized in 1996.
Hence, this Petition.[5]
and
4)
The Issue
Claims for tax refund or tax credit are construed strictly against the
Petitioner raises this sole issue for our consideration:
taxpayer as they partake the nature of tax exemption.

Whether the Court of Appeals gravely erred when, while purportedly
To buttress its claim, [p]etitioner presented documentary and testimonial
requiring petitioner to submit its 1996 annual income tax return to support
evidence. Respondent, on the other hand, presented the [r]evenue
its
[o]fficer
claim for refund, nonetheless ignored the existence of the tax return
who conducted the examination of [p]etitioners claim and found petitioner
extant on the record the authenticity of which has not been denied or its
liable for deficiency value added tax. Petitioner also presented rebuttal
admissibility opposed by the Commissioner of Internal Revenue.[6]
evidence.
The Courts Ruling
taxable year exceeds its total income tax due also for that year.
The Petition is partly meritorious.
Sole Issue:
Entitlement to Tax Refund
Section 69 of the National Internal Revenue Code (NIRC)[7] provides:

Sec. 69.
Final adjustment return. -- Every corporation liable to tax under
Consequently, the refundable amount that is shown on its final adjustment

return may be credited, at its option, against its quarterlyincome tax
liabilities for the next taxable year.
Petitioner is a corporation liable to pay income taxes under Section 24 of the

NIRC. Hence, it is a taxable corporation. In 1995, it reported that it had
excess income taxes that had been paid for and on its behalf by
Section 24 shall file a final adjustment return covering the total taxable
itswithholding agents; and that, applying the above-quoted Section 69, this
income for the preceding calendar or fiscal year. If the sum of the quarterly
excess should be credited against itsincome tax liabilities for 1996. However,
tax payments made during the said taxable year is not equal to the total tax
it claimed in 1997 that it should get a refund, because it was still unable to
due on the entire taxable net income of that year the corporation shall either:
use the excess income taxes paid in 1995 against its tax liabilities in 1996.
Is this possible? Stating the argument otherwise, may excess income
(a)
Pay the excess tax still due; or
taxes paid in 1995 that could not be applied to taxes due in 1996 be
refunded in 1997?
(b)
Be refunded the excess amount paid, as the case may be.
In case the corporation is entitled to a refund of the excess estimated

quarterly income taxes paid, the refundable amount shown on its final
adjustment return may be credited against the estimated quarterly income
tax liabilities for the taxable quarters of the succeeding taxable year.
The answer is in the affirmative. Here are the reasons:
Claim of Tax Refund Beyond the

Succeeding Taxable Year
Tax Refund
First, a tax refund may be claimed even beyond the taxable year following
Allowed by NIRC
that in which the tax credit arises.
A perusal of this provision shows that a taxable corporation is entitled to
No provision in our tax law limits the entitlement to such a refund, other than
a tax refund when the sum of the quarterlyincome taxes it paid during a
the requirement that the filing of the administrative claim
for it be made by
the taxpayer within a two-year prescriptive period. Section 204(3) of the
xxx
xxx
xxx
NIRC states that no refund of taxes shall be allowed unless the taxpayer
files in writing with the Commissioner [the] claim for x x x refund within two
years after the payment of the tax.
a given taxable year have not been entirely used by a taxable

corporation against its quarterly income tax liabilities for the next taxable
year, the unused amount of the excess may still be refunded, provided that
the
tax. Petitioner filed its claim in 1997 -- well within the two-year prescriptive
period. Thus, its unused tax credits in 1995 may still be refunded.
Even the phrase succeeding taxable year in the second paragraph of the
said Section 69 is a limitation that applies only to a tax credit, not a tax
refund. Petitioner herein does not claim a tax credit, but a tax refund.
Therefore, the statutory limitation does not apply.
Income Payments Merely

Declared Part of Gross Income
Second, to be able to claim a tax refund, a taxpayer only needs

to declare the income payments it received as part of its gross income and
to establish the fact of withholding.
Section 5 of RR 12-94[8] states:
Claims for Tax Credit or Refund of income tax deducted and withheld
on income payments shall be given due course only when it is shown on the
Applying the aforequoted legal provisions, if the excess income taxes paid in
the claim for such a refund is made within two years after payment of
(a)
return that the income payment received has been declared as part of the
gross income and the fact of withholding is established by a copy of the
Withholding Tax Statement duly issued by the payor to the payee showing
the amount paid and the amount of tax withheld therefrom.
(b)
Excess Credits. -- A taxpayer's excess expanded withholding tax
credits for the taxable quarter/taxable year shall automatically be allowed as

a credit for purposes of filing his income tax return for the taxable
quarter/taxable year immediately succeeding the taxable quarter/taxable
year in which the aforesaid excess credit arose, provided, however, he
submits with his income tax return a copy of his income tax return for the
aforesaid previous taxable period showing the amount of his aforementioned
excess withholding tax credits.
If the taxpayer, in lieu of the aforesaid automatic application of his excess

credit, wants a cash refund or a tax credit certificate for use in payment of his
other national internal tax liabilities, he shall make a written request therefor.
Upon filing of his request, the taxpayer's income tax return showing the
excess expanded withholding tax credits shall be examined. The excess
expanded withholding tax, if any, shall be determined and refunded/credited
to the taxpayer-applicant. The refund/credit shall be made within a period of
sixty (60) days from date of the taxpayer's request provided, however, that
petitioner clearly deserves a refund. It cannot by any sweeping denial be
the taxpayer-applicant submitted for audit all his pertinent accounting records
deprived of what rightfully belongs to it.
and that the aforesaid records established the veracity of his claim for a
refund/credit of his excess expanded withholding tax credits.
The truth or falsity of the contents of or entries in the 1996 final adjustment
That petitioner filed its amended 1995 income tax return in 1996 is
uncontested. In addition, the resulting investigation by the BIR on August 15,
1997, reveals that the income accounts were correctly declared based on
the existing supporting documents.[9] Therefore, there is no need for
petitioner to show again the income payments it received in 1995 as part of
its gross income in 1996.
That petitioner filed its 1996 final adjustment return in 1997 is the crux of the
controversy. However, as will be demonstrated shortly, the lack of such a
return will not defeat its entitlement to a refund.
return, which has not been formally offered in evidence and examined by
respondent, involves, however, a question of fact. This Court is not a trier of
facts. Neither is it a collection agency for the government. Although we rule
that petitioner is entitled to a tax refund, the amount of that refund is a matter
for the CTA to determine judiciously based on the records that include its
own copy of petitioners 1996 final adjustment return.
Liberal Constructionof Rules
Fourth, ordinary rules of procedure frown upon the submission of final

adjustment returns after trial has been conducted. However, both the CTA
law and jurisprudence mandate that the proceedings before the tax court
Tax Refund Provisions:
shall not be governed strictly by technical rules of evidence.[13] As a rule, its
Question of Law
findings of fact[14] (as well as that of the CA) are final, binding and
[10]
Third, it is a cardinal rule that only legal issues may be raised
in petitions
[11]
for review under Rule 45.
The proper interpretation of the provisions on tax refund is a question of

law that does not call for an examination of the probative value of the
evidence presented by the parties-litigants.[12] Having been unable to use
the excess income taxes paid in 1995 against its other tax liabilities in 1996,
conclusive[15] on the parties and upon this Court; however, as an exception,

such findings may be reviewed or disturbed on appeal[16] when they are not
supported by evidence.[17]
Our Rules of Court apply by analogy or in a suppletory[18] character and

whenever practicable and convenient[19] and shall be liberally construed in
order to promote their objective of securing a just, speedy and inexpensive
disposition of every action and proceeding.[20] After all, [t]he paramount
consideration remains the ascertainment of truth.[21]
sufficiently designated; or when the original record of the former case or any
part of it, is actually withdrawn from the archives by the court's direction, at
In the present case, the 1996 final adjustment return was attached as Annex
the request or with the consent of the parties, and admitted as a part of the
A to the Reply to Comment filed by petitioner with the CA.[22] The return
record of the case then pending.[24]
shows a negative amount for its taxable income that year. Therefore, it could
not have applied or used the excess tax credits of 1995 against its tax
liabilities in 1996.
Judicial Notice
of Attached Return
Fifth, the CA and CTA could have taken judicial notice of the 1996 final
adjustment return which had been attached in CTA Case No. 5799. Judicial
notice takes the place of proof and is of equal force.[23]
As a general rule, courts are not authorized to take judicial notice of the
contents of records in other cases tried or pending in the same court, even
when those cases were heard or are actually pending before the same
judge. However, this rule admits of exceptions, as when reference to such
records is sufficiently made without objection from the opposing parties:
Prior to rendering its Decision on January 12, 2000, the CTA was already
well-aware of the existence of another case pending before it, involving the
same subject matter, parties and causes of action.[25] Because of the close
connection of that case with the matter in controversy, the CTA could have
easily taken judicial notice[26] of the contested document attached in that
other case.
Furthermore, there was no objection raised to the inclusion of the said

1996 final adjustment return in petitioners Reply to Comment before the CA.
Despite clear reference to that return, a reference made with the knowledge
of respondent, the latter still failed to controvert petitioners claim. The
appellate court should have cast aside strict technicalities[27] and decided the
case on the basis of such uncontested return. Verily, it had the authority to
take judicial notice of its records and of the facts [that] the record
establishes.[28]
. . . [I]n the absence of objection, and as a matter of convenience to all
Section 2 of Rule 129 provides that courts may take judicial notice of
parties, a court may properly treat all or any part of the original record of a
matters x x x ought to be known to judges because of their judicial
case filed in its archives as read into the record of a case pending before it,
functions.[29] If the lower courts really believed that petitioner was not entitled
when, with the knowledge of the opposing party, reference is made to it for
to a tax refund, they could have easily required respondent to ascertain its
that purpose, by name and number or in some other manner by which it is
veracity and accuracy[30] and to prove that petitioner did not suffer any net
loss in 1996.
veracity of the return or file an opposition to the Motion and the return.
Despite the fact that the return was ignored by both the CA and the CTA, the
[31]
Contrary to the contention of petitioner, BPI-Family Savings Bank v. CA
(on
latter even declared in another case (CTA Case No. 4897) that petitioner had
which it rests its entire arguments) is not on all fours with the facts of this
suffered a net loss for taxable year 1990. When attached to the Petition for
case.
Review filed before this Court, that Decision was not at all claimed by the
BIR to be fraudulent or nonexistent. The Bureau merely contended that this
While the petitioner in that case also filed a written claim for a tax refund, and
Court should not take judicial notice of the said Decision.
likewise failed to present its 1990 corporate annual income tax return, it
nonetheless offered in evidence its top-ranking officials testimony and
In this case, however, the BIR has not been given the chance to challenge
certification pertaining to only two taxable years (1989 and 1990). The said
the veracity of petitioners final adjustment return. Neither has the CTA
return was attached only to its Motion for Reconsideration before the CTA.
decided any other case categorically declaring a net loss for petitioner
intaxable year 1996. After this return was attached to petitioners Reply to
Petitioner in this case offered documentary and testimonial evidence that
Comment before the CA, the appellate court should have required the filing
extended beyond two taxable years, because the excess credits in the first
of other responsive pleadings from respondent, as was necessary and
(1995) taxable year had not been used up during the second (1996) taxable
proper for it to rule upon the return.
year, and because the claim for the refund of those credits had been filed
during the third (1997) taxable year. Its final adjustment return was instead
Admissibility Versus Weight
attached to its Reply to Comment filed before the CA.

Indeed, [a]dmissibility x x x is one thing, weight is another.[33] To admit
Moreover, in BPI-Family Savings Bank, petitioner was able to show the
undisputed fact: that petitioner had suffered a net loss in 1990 x x x.
[32]
In the
evidence and not to believe it are not incompatible with each other x x
x.[34] Mere allegations by petitioner of the figures in its 1996 final adjustment
instant case, there is no such undisputed fact as yet. The mere admission
return are not a sufficient proof of the amount of its refund entitlement. They
into the records of petitioners 1996 final adjustment return is not a sufficient
do not even constitute evidence[35]adverse to respondent, against whom they
proof of the truth of the contents of or entries in that return.
are being presented.[36]
In addition, the BIR in BPI-Family Savings Bank did not controvert the
While it seems that the [non-production] of a document which courts almost
invariably expect will be produced unavoidably throws a suspicion over the
or other data that may be relevant or material to such inquiry.[42] Failure to
cause,[37] this is not really the conclusion to be arrived at here. When
make an assessment of petitioners proper tax liability or to contest the return
petitioner purportedly filed its administrative claim for a tax refund on April
could be errors or omissions of administrative officers that should never be
10, 1997, the deadline for filing the 1996final adjustment return was not yet
allowed to jeopardize the governments financial position.
over. Hence, it could not have attached this return to its claim.
Verily, the officers of the Bureau of Internal Revenue should receive the
For reasons unknown even to this Court, petitioner failed to offer such return
support of the courts when these officers attempt to perform in a
as evidence during the trial phase of this case. For its negligence, petitioner
conscientious and lawful manner the duties imposed upon them by
[38]
cannot be allowed to seek refuge in a liberal application of the [r]ules by
law.[43] Only after it is shown that if something is received when there is no
giving it a blanket approval of the total refund it claims. While in certain
right to demand it, and it was duly delivered through mistake, the obligation
instances, we allow a relaxation in the application of the rules, we never
to return it arises.[44]
intend to forge a weapon for erring litigants to violate the rules with impunity.
The liberal interpretation and application of rules apply only in proper cases
In brief, we hold that petitioner is entitled to a refund; however, the amount
of demonstrable merit and under justifiable causes and circumstances.[39]
must still be proved in proper proceedings before the CTA.
It would not be proper to allow petitioner to simply prevail and compel a
WHEREFORE, the Petition is hereby PARTLY GRANTED, and the assailed
refund in the amount it claims, without affording the government a
Decision SET ASIDE. The case is REMANDED to the Court of Tax Appeals
reasonable opportunity to contest the formers allegations.[40] Negligence
for the proper and immediate determination of the amount to be refunded to
consisting of the unexplained failure to offer the exhibit should not be
petitioner on the basis of the latters 1996 final adjustment return. No
rewarded with undeserved leniency. Petitioner still bears the burden of
pronouncement as to costs.
proving the amount of its claim for tax refund. After all, [t]ax refunds are in
the nature of tax exemptions[41] and are to be construed strictissimi
SO ORDERED.
juris against the taxpayer.

Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.
Finally, even in the absence of a final adjustment return or any claim for a tax
refund, respondent is authorized by law to examine any book, paper, record
SECOND DIVISION
[G.R. No. 141973. June 28, 2005]
PHILIPPINE PHOSPHATE FERTILIZER CORPORATION, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Once more, we stand by our ruling that:
If the State expects its taxpayers to observe fairness and honesty in paying their
taxes, so must it apply the same standard against itself in refunding excess
payments. When it is undisputed that a taxpayer is entitled to a refund, the State
should not invoke technicalities to keep money not belonging to it. No one, not even
the State, should enrich oneself at the expense of another.[1]
The antecedents of this case are as follows:
Philippine Phosphate Fertilizer Corporation (Philphos) is a domestic
corporation registered with the Export Processing Zone Authority (EPZA). It
manufactures fertilizers for domestic and international distribution and as
such, utilizes fuel, oil and other petroleum products which it procures locally
from Petron Philippines Corporation (Petron). Petron initially pays the
Bureau of Internal Revenue (BIR) and the Bureau of Customs the taxes and
duties imposed upon the petroleum products. Petron is then reimbursed by
petitioner when Petron sells such petroleum products to the petitioner. In a
letter dated August 28, 1995, petitioner sought a refund of specific taxes paid
on the purchases of petroleum products from Petron for the period of
September 1993 to December 1994 in the total amount of P602,349.00
which claim is pursuant to the incentives it enjoyed by virtue of its EPZA
registration. Since the two-year period within which petitioner could file a
case for tax refund before the Court of Tax Appeals (CTA) was about to
expire and no action had been taken by the BIR, petitioner instituted a
petition for review before the CTA against the Commissioner of Internal
Revenue (CIR).[2] During the trial, to prove that the duties imposed upon the
petroleum products delivered to petitioner by Petron had been duly paid for
by petitioner, petitioner presented a Certification from Petron dated August
17, 1995; a schedule of petroleum products sold and delivered to petitioner
detailing the volume of sales and the excise taxes paid thereon; photocopies
of Authority to Accept Payment for Excise Taxes issued by the CIR
pertaining to petroleum products purchased; as well as the testimony of
Sylvia Osorio, officer of Petron, to attest to the summary and certification
presented.[3] The CIR did not present any evidence to controvert the ones
presented by petitioner nor did it file an opposition to petitioners formal offer
of evidence.[4]
On August 11, 1998, the CTA promulgated its Decision finding that
while petitioner is exempt from the payment of excise taxes, it failed to
sufficiently prove that it is entitled to refund in this particular case since it did
not submit invoices to support the summary of petroleum products sold and
delivered to it by Petron.[5] The CTA rationalized thus:
[P]etitioner, as an EPZA registered enterprise is exempted from the payment of
excise taxes, and if said taxes were passed on by the supplier to
EPZA registered enterprise like the petitioner, tax credit shall be granted to the
latter. The fact that it was not the petitioner who had paid the taxes directly to
the Bureau of Internal Revenue does not have an adverse effect on petitioners
action for refund. The law granting the exemption makes no distinction as to the
circumstances when the law shall apply. Since the law makes no distinction, neither
should we. The exemption is so broad as to cover the present situation. Since an
export processing zone is not considered to be covered by Philippine customs
and internal revenue laws, the taxes paid by the petitioner on the petroleum
products should be refunded or credited in its favor. Thus, the only thing left
for us to do is to determine whether or not petitioner is entitled to the amount
claimed for refund. After a careful scrutiny of the evidence presented, however,
there appears to be a dispute with respect to the amount claimed. Petitioner
submitted in evidence a certification issued by Petron to prove that the duties
imposed upon the petroleum products delivered to petitioner by Petron had been
duly paid for by petitioner (Exhibit A, p. 71, CTA records). Petitioner likewise
presented a schedule of petroleum products sold and delivered to petitioner detailing
the volume of sales and the excise taxes paid thereon (Exhibits A-1 to A-1a, pp. 7273, CTA records). However, to show that Petron had previously paid the excise taxes
on these petroleum products, petitioner presented photocopies of Authority to
Accept Payment for Excise Taxes issued by respondent pertaining to petroleum

products purchased (Exhibits A-2 to A-80), pp. 74-152, CTA records).
Although these Authority to Accept Payment for Excise Taxes reflect therein the
amount of excise taxes paid by Petron to respondent, this Court cannot verify the
exact amount of excise taxes which correspond to the petroleum products
delivered to petitioner. This Authority to Accept Payment for Excise Taxes only
proves the payment of millions of pesos in excise taxes made by Petron during the
period covered by the claim but they fail to show to this Court which part of this
huge amount actually represents the excise taxes paid on the petroleum products
actually delivered to herein petitioner.Petitioner merely presented a summary of
petroleum products sold and delivered by Petron during the period covered by
the claim. We cannot, by the summary alone, ascertain the veracity of the
amount being claimed neither can it prove the existence of the invoices being
referred to therein. Petitioner should have submitted the invoices supporting
the schedules of petroleum products sold and delivered to it by Petron. These
invoices would reveal whether or not the amount claimed for refund by
petitioner is correct.
In an action for refund/credits the taxpayer has the burden of showing that the taxes
paid are erroneously collected and that failure to meet such a burden is fatal to his
cause. Tax refunds partake of the nature of the tax exemptions and therefore cannot
be allowed unless granted in the most explicit and categorical language. The grant of
refund privileges must be strictly construed against the taxpayer and liberally in
favor of the government. (citations omitted)
Petitioner has the burden to prove the material allegations in its petition as well as
the truth of its claim.[6] (Emphasis supplied)
disposing of the case as follows:
WHEREFORE, in view of the foregoing, the claim of refund of petitioner in the
amount of P602,349.00 is hereby DENIED for lack of merit.[7]
On August 31, 1998, petitioner filed a motion for reconsideration
alleging that it failed to submit invoices because it thought that the
presentation of said invoices was not necessary to prove the claim for
refund, since petitioners previous claims, in CTA Case Nos. 4654, 4993 and
4994,[8] involving similar facts, were granted by the CTA even without the
presentation of invoices. It then prayed that the CTA decision be
reconsidered and its claim for refund be allowed, or in the alternative, allow
petitioner to present and offer the invoices in evidence to present its claim.[9]
The CTA denied the motion for reconsideration on January 6, 1999,
explaining as follows:
It is important to note at the outset that Petitioners reliance on CTA Case Nos. 4994,
4654 and 4993 is misplaced because during the hearings of these cases up to the
time of formal offer of evidence, CTA Circular No. 1-95 was not yet in effect. The
nature and presentation of evidence involving voluminous documents prior to the
effectivity of CTA Circular No. 1-95 differ from that which is required by this Court
from the effectivity of said Circular beginning January 25, 1995. In the instant case,
the Petition for Review was filed on September 1, 1995. It is obviously clear that the
provisions of CTA Circular 1-95 already applied to Petitioners presentation of
evidence. Quoted hereunder are portions of CTA Circular 1-95:
1. The party who desires to introduce as evidence such voluminous documents must
present: (a) Summary containing the total amount/s of the tax account or tax paid for
the period involved and a chronological or numerical list of the numbers, dates and
amounts covered by the invoices or receipts; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents
of the summary after making an examination and evaluation of the voluminous
receipts and invoices. Such summary and certification must properly be identified by
a competent witness from the accounting firm.
2. The method of individual presentation of each and every receipt or invoice or
other documents for marking, identification and comparison with the originals
thereof need not be done before the Court or the Commissioner anymore after the
introduction of the summary and CPA certification. It is enough that the receipts,
invoices and other documents covering the said accounts or payments must be premarked by the party concerned and submitted to the Court in order to be made
accessible to the adverse party whenever she/he desires to check and verify the
correctness of the summary and CPA certification. However, the originals of the said
receipts, invoices or documents should be ready for verification and comparison in
case doubts on the authenticity of the particular documents presented is raised
during the hearing of the case.
It can be revealed from the evidence presented by the Petitioner that it failed to
present a certification of an independent Certified Public Accountant, as well as
the invoices supporting the schedules of petroleum products sold and delivered
to it by Petron. From this perspective alone, the claim for refund was correctly
denied. Now that an unfavorable decision has been rendered by this Court,
Petitioner belatedly seeks to present the invoices as additional evidence.
an additional witness and to have invoices and receipts pre-marked in

accordance with CTA Circular No. 1-95.[13] The CTA denied the same for the
reason that it found no convincing reason to reverse its earlier decision and
the motion for new trial was filed beyond the period prescribed by Sec. 1,
Rule 37 of the Rules of Court as well as for appeals as provided under Sec.
4, Rule 43.[14]
The prayer to present additional evidence partakes of the nature of a motion for new
trial under Section 1 Rule 37 of the 1997 Rules of Civil Procedure. It has already
been emphasized in several cases that failure to present evidence already existing at
the time of trial does not warrant the grant of a new trial because said evidence can
no longer be considered newly discovered but is more in the nature of forgotten
evidence. Neither can such inadvertence on the part of the counsel to present said
evidence qualify as excusable negligence. [10] (Emphasis supplied)
Petitioner then went to the Court of Appeals (CA) which issued the
herein assailed Resolution dismissing the petition for review, to wit:
CTA Presiding Judge Ernesto D. Acosta dissented with the view that in
the interest of justice, petitioner should be given a chance to prove its case
by allowing it to present the invoices of its purchases.[11] He reasoned that:
Considering that the AFFIDAVIT OF NON-FORUM SHOPPING was executed by

petitioners counsel, when under Adm. Circular No. 04-94, the petitioner should be
the one to certify as to the facts and undertakings as required; and since any
violation of the circular shall be a cause for the dismissal of the petition, the petition
for review is hereby DENIED DUE COURSE OUTRIGHT, and is DISMISSED.
SO ORDERED.[15]
The motion for reconsideration was likewise denied.[16]
A review of the schedule of invoices, Exhibits A-1 A-1-a, reveals that there are only
about ninety four (94) invoices which does not need the assistance of an independent
CPA. It can easily be presented before this Court or before a Clerk of Court for
markings and comparison.
The reason advanced by the Petitioner was that they thought the presentation by the
Manager of Petron Corporation of a duly notarized certification (supporting the
schedules of invoices), coupled with testimonies of witness, Mrs. Sylvia Osorio of
Petron Corporation, are enough to prove their case. Respondent did not even
controvert said exhibits and testimonies. It is this Court that raised doubts on the
veracity of the claim in view of the absence of the invoices. This ground could easily
fall under the phrase mistake or excusable negligence as a ground for new trial under
Sec. 1(a) of Rule 37 and not under the phrase newly discovered evidence as stated in
our said resolution. The denial of this motion is too harsh considering that this case
is only civil in nature, govern (sic) merely by the rule on preponderance of evidence.
[12]
On January 25, 1999, petitioner filed another motion for

reconsideration with motion for new trial praying that it be allowed to present
Hence the present petition raising the following issues:

1. Whether or not the Court of Tax Appeals should have granted
petitioners claim for refund.
2. Whether or not the Court of Appeals should have given due
course to the Petition for Review.[17]
Anent the first issue, petitioner argues that: the CTA erred in denying its
claim for refund for its failure to present invoices and receipts; the evidence it
adduced, which the CIR did not controvert nor contest, is sufficient to
support petitioners claim for refund or tax credit; as opined by the Presiding
Judge of the CTA in his dissenting opinion, the failure of petitioner to present
invoices and receipts is a minor infraction of CTA Circular No. 1-95 which
should not defeat petitioners right to refund; there is nothing in said circular
which will support the contention of the CTA that the petitioner is mandated
to present the invoices in the present case; the CTA, in its previous
decisions involving the petitioner, one of which was even affirmed by the CA,
held that a refund may be granted solely on the basis of certifications issued
by Petron;[18] if it is the avowed purpose of CTA Circular No. 1-95 to ensure
the speedy administration of justice, it should not compel petitioner to
present additional voluminous evidence which will require the presentation of
a Certified Public Accountant (CPA) for court examination aside from
entailing additional costs to petitioner; petitioners counsel was of the honest
belief that he was not required to adhere to what is provided in CTA Circular
No. 1-95; petitioner should not be burdened by the infraction of its counsel
and should be given the fullest opportunity to establish the merits of its
action rather than for it to lose property on mere technicalities; it has also
been held that evidence not offered and formally presented in evidence
during the trial may still be considered by a court in the exercise of its
discretion so as not to allow a mere technicality to overcome justice and
fairness; petitioner should be granted its claim for refund, or, in the
alternative, be given an opportunity to present the pre-marked invoices in
accordance with CTA Circular No. 1-95.[19]
As to the second issue, petitioner explains that: its counsel was of the
belief that he was authorized to execute the affidavit of non-forum shopping;
in any event, its counsel immediately attached to the motion a copy of the
affidavit of non-forum shopping executed by petitioners President, Ramon C.
Avecilla as soon as he learned of his error; and Supreme Court
Administrative Circular No. 04-94 should be liberally construed
following Maricalum Mining Corp. vs. NLRC,[20] Loyola vs. Court of Appeals,
[21]
and Philippine Fishing Boat Officers and Engineers Union vs. Court of
Industrial Relations.[22]
It then prayed that: the resolutions of the CA and the Decision of the
CTA be reversed; and an order be issued to award petitioner tax credit
certificate/refund in the amount ofP602,349.00 representing excise taxes
paid for the period of September 1993 to December 1994 or in the
alternative to allow petitioner to adduce evidence before the CTA to support
its case.[23]
The CIR, in his Comment, contends that: the burden of proving
entitlement to the refund/credit rests upon petitioner; the CTA was correct in
requiring the submission of the invoices to support the schedules presented
especially in this case where the CTA cannot determine which part of the
huge amount paid by Petron actually represents the excise taxes paid on the
petroleum products actually delivered to petitioner; the schedules are selfserving and if not corroborated by evidence have no evidentiary weight; the
CTA is not precluded from requiring other evidence which will once and for
all erase doubts to the claim for refund; claims for refund, partaking of the
nature of tax exemptions, are construed in strictissimi juris against the
taxpayer and liberally in favor of the taxing authority; even setting aside the
requirements in CTA Circular No. 1-95, petitioner is still obliged to present
the invoices in order to corroborate the entries in the summary and to reveal
whether or not the amount claimed for refund by petitioner is correct;
petitioners Motion for Reconsideration and Motion for New Trial filed on
January 25, 1999 were properly denied by the CTA for having been filed out
of time; and the CTAs decision must be respected on appeal since it has
developed an expertise on the subject.[24]
Anent the second issue, respondent avers that the CA did not err in
dismissing the petition for review on the ground that the affidavit of nonforum shopping was executed by petitioners counsel contrary to the
requirements in Sec. 5, Rule 7 of the Rules of Court; and that the denial of
the motion for reconsideration was also proper since the failure to comply
with the requirements of non-forum shopping shall not be curable by mere
amendment to the complaint.[25]
For clarity, we shall first discuss the issue of whether or not the CA
should have given due course to the petition for review.
The primary question that has to be resolved is whether an Affidavit of
Non-Forum Shopping, erroneously signed by counsel, may be cured by
subsequent compliance.
Generally, subsequent compliance with the requirement of affidavit of
non-forum shopping does not excuse a party from failure to comply in the
first instance.[26]
Supreme Court Administrative Circular No. 04-94 of Section 5, Rule 7
of the 1997 Rules of Civil Procedure which requires the pleader to submit a
certificate of non-forum shopping to be executed by the plaintiff or principal
party is mandatory.[27] A certification of the plaintiffs counsel will not suffice for
the reason that it is petitioner, and not the counsel, who is in the best
position to know whether he actually filed or caused the filing of a petition.
[28]
A certification against forum shopping signed by counsel is a defective
certification that is equivalent to non-compliance with the requirement and
constitutes a valid cause for the dismissal of the petition.[29] Hence, strictly
speaking, the CA was correct in dismissing the petition.
shopping, petitioner submitted, together with its motion for reconsideration,

an affidavit signed by petitioners president in compliance with the said rule.
[41]
We deem this to be sufficient especially in view of the merits of the case,
which may be considered as a special circumstance or a compelling reason
that would justify tempering the hard consequence of the procedural
requirement on non-forum shopping.[42]
There are instances, however, when we treated compliance with the

rule with relative liberality, especially when there are circumstances or
compelling reasons making the strict application of the rule clearly
unjustified.[30]
Which brings us to the other issue of whether or not the CTA should
have granted petitioners claim for refund.
In the case of Far Eastern Shipping Co. vs. Court of Appeals,[31] while
we said that, strictly, a certification against forum shopping by counsel is a
defective certification, the verification, signed by petitioners counsel in said
case, is substantial compliance inasmuch as it served the purpose of the
Rules of informing the Court of the pendency of another action or proceeding
involving the same issues.[32] We then explained that procedural rules are
instruments in the speedy and efficient administration of justice which should
be used to achieve such end and not to derail it.[33]
In Damasco vs. NLRC,[34] the certifications against forum shopping
were erroneously signed by petitioners lawyers, which, generally, would
warrant the outright dismissal of their actions. [35] We resolved however that
as a matter of social justice, technicality should not be allowed to stand in
the way of equitably and completely resolving the rights and obligations of
the parties.[36] In Cavile vs. Heirs of Clarita Cavile,[37] we likewise held that the
merits of the substantive aspects of the case may be deemed as special
circumstance for the Court to take cognizance of a petition although the
certification against forum shopping was executed and signed by only one of
the petitioners.[38] Finally, in Sy Chin vs. Court of Appeals,[39] we categorically
stated that while a petition may be flawed as the certificate of non-forum
shopping was signed only by counsel and not by the party, such procedural
lapse may be overlooked in the interest of substantial justice.[40]
Here, the affidavit of non-forum shopping was signed by petitioners
counsel. Upon receipt of the resolution of the CA, however, which dismissed
its petition for non-compliance with the rules on affidavit of non-forum
The general rule is that claimants of tax refunds bear the burden of
proving the factual basis of their claims.[43] This is because tax refunds are in
the nature of tax exemptions, the statutes of which are construed strictissimi
juris against the taxpayer and liberally in favor of the taxing authority.
[44]
Taxes are the lifeblood of the nation, therefore statutes that allow
exemptions are construed strictly against the grantee and liberally in favor of
the government.[45]
In this case, there is no dispute that petitioner is entitled to exemption
from the payment of excise taxes by virtue of its being an EPZA registered
enterprise.[46] As stated by the CTA, the only thing left to be determined is
whether or not petitioner is entitled to the amount claimed for refund.[47]
Petitioners entire claim for refund, however, was denied for petitioners
failure to present invoices allegedly in violation of CTA Circular No. 1-95. But
nowhere in said Circular is it stated that invoices are required to be
presented in claiming refunds. What the Circular states is that:
1. The party who desires to introduce as evidence such voluminous documents must
present: (a) Summary containing the total amount/s of the tax account or tax paid for
the period involved and a chronological or numerical list of the numbers, dates and
amounts covered by the invoices or receipts; and (b) a Certification of an
independent Certified Public Accountant attesting to the correctness of the contents
of the summary after making an examination and evaluation of the voluminous
receipts and invoices. Such summary and certification must properly be identified by
a competent witness from the accounting firm. (Emphasis supplied)
The CTA in denying petitioners motion for reconsideration, also

mentioned for the first time that petitioners failure to present a certification of
an independent CPA is another ground that justified the denial of its claim for
refund.
Again, we find such reasoning to be erroneous. The certification of an
independent CPA is not another mandatory requirement under the Circular
which petitioner failed to comply with. It is rather a requirement that must
accompany the invoices should one decide to present invoices under the
Circular. Since petitioner did not present invoices, on the assumption that
such were not necessary in this case, it logically did not present a
certification because there was nothing to certify.
The CTA also could not deny that in its previous decisions involving
petitioners claims for refund, invoices were not deemed necessary to grant
such claims. It merely said that in said decisions, CTA Circular No. 1-95 was
not yet in effect.[48] Since CTA Circular No. 1-95 did not make it mandatory to
present invoices, coupled with the previous cases of petitioner where the
certifications issued by Petron sufficed, it is understandable that petitioner
did not think it necessary to present invoices and the accompanying
certifications when it filed the present case for refund before the CTA.
Even then, petitioner, in its motion for reconsideration, asked the CTA
for an opportunity to present invoices to substantiate its claims. But this was
denied by the CTA explaining that its prayer to present additional evidence
partakes of the nature of a motion for new trial under Section 1, Rule 37 of
the Rules of Court. The CTA held that under such rule, failure to present
evidence already existing at the time of trial does not warrant the grant of a
new trial because such evidence is not newly discovered but is more in the
nature of forgotten evidence which is not excusable.[49]
On this point, we agree with the dissenting opinion of CTA Presiding
Judge Ernesto D. Acosta who stated that:
The reason advanced by the Petitionerthat they thought the presentation by the
Manager of Petron Corporation of a duly notarized certification (supporting the
schedules of invoices), coupled with testimonies of witness, Mrs. Sylvia Osorio of
Petron Corporation, are enough to prove their case could easily fall under the phrase
mistake or excusable negligence as a ground for new trial under Sec. 1(a) of Rule 37
andnot under the phrase newly discovered evidence as stated in our said resolution.
The denial of this motion is too harsh considering that this case is only civil in
nature, govern (sic) merely by the rule on preponderance of evidence. [50]
Sec. 1, Rule 37 of the Rules of Court provides as follows:
SECTION 1. Grounds of and period for filing motion for new trial or
reconsideration.--- Within the period for taking an appeal, the aggrieved party may
move the trial court to set aside the judgment or final order and grant a new trial for
one or more of the following causes materially affecting the substantial rights of said
party:
(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could
not have guarded against and by reason of which such aggrieved party has probably
been impaired in his rights; or
(b) Newly discovered evidence, which could not, with reasonable diligence, have
discovered and produced at the trial, and which if presented would probably alter the
result.
It is true that petitioner could not move for new trial on the basis of
newly discovered evidence because in order to have a new trial on the basis
of newly discovered evidence, it must be proved that: (a) the evidence was
discovered after the trial; (b) such evidence could not have been discovered
and produced at the trial with reasonable diligence; (c) it is material, not
merely cumulative, corroborative or impeaching; and (d) it is of such weight
that, if admitted, will probably change the judgment.[51] This does not mean
however, that petitioner is altogether barred from having a new trial. As
pointed out by Judge Acosta, the reasons put forth by petitioner could fall
under mistake or excusable negligence.
The mistake that is allowable in Rule 37 is one which ordinary
prudence could not have guarded against.[52] Negligence to be excusable
must also be one which ordinary diligence and prudence could not have
guarded against and by reason of which the rights of an aggrieved party
have probably been impaired.[53] The test of excusable negligence is whether
a party has acted with ordinary prudence while transacting important

business.[54]
In this case, it cannot be said that petitioner did not act with ordinary
prudence in claiming its refund with the CTA, in light of its previous cases
with the CTA which did not require invoices and the non-mandatory nature of
CTA Circular No. 1-95.
Respondent also argues that petitioners motion for new trial was filed
out of time and should therefore be dismissed in view of Sec. 1, Rule 37 and
Sec. 4, Rule 43 of the Rules of Court.
Sec. 1, Rule 37 provides that:
Section 1. Grounds of and period for filing motion for new trial or
reconsideration.--- Within the period for taking an appeal, the aggrieved party may
move the trial court to set aside the judgment or final order and grant a new trial
and Sec. 4, Rule 43 holds that:
Section 4. Period of appeal. --- The appeal shall be taken within fifteen (15) days
from notice of the award, judgment, final order or resolution, or from the date of its
last publication, if publication is required by law for its effectivity, or of the denial of
petitioners motion for new trial or reconsideration duly filed in accordance with the
governing law of the court or agency a quo. Only one (1) motion for reconsideration
shall be allowed. Upon proper motion and the payment of the full amount of the
docket fee before the expiration of the reglementary period, the Court of Appeals
may grant an additional period of fifteen (15) days only within which to file the
petition for review. No further extension shall be granted except for the most
compelling reason and in no case to exceed fifteen (15) days.
It is borne by the records however that in its first motion for
reconsideration duly filed on time, petitioner had already prayed that it be
allowed to present and offer the pieces of evidence deemed lacking by the
CTA in its Decision dated August 11, 1998. [55] Thus, while it named its
pleading as a Motion for New Trial only in its motion dated January 25, 1999,
petitioner should not be deemed to have moved for new trial only at such
time.
We reiterate the fundamental principle that technical rules of procedure

are not ends in themselves but are primarily designed to aid in the
administration of justice.[56] And in cases before tax courts, Rules of Court
applies only by analogy or in a suppletory character and whenever
practicable and convenient shall be liberally construed in order to promote its
objective of securing a just, speedy and inexpensive disposition of every
action and proceeding.[57] The quest for orderly presentation of issues is not
an absolute.[58] It should not bar the courts from considering undisputed facts
to arrive at a just determination of a controversy.[59] This is because, after all,
the paramount consideration remains the ascertainment of truth.[60]Section 8
of R.A. No. 1125 creating the CTA also expressly provides that it shall not be
governed strictly by technical rules of evidence.[61]
Since it is not disputed that petitioner is entitled to tax exemption, it
should not be precluded from presenting evidence to substantiate the
amount of refund it is claiming on mere technicality especially in this case,
where the failure to present invoices at the first instance was adequately
explained by petitioner.
As we pronounced in BPI-Family Savings Bank, Inc. vs. Court of
Appeals:[62]
Technicalities and legalisms, however exalted, should not be misused by the
government to keep money not belonging to it and thereby enrich itself at the
expense of its law-abiding citizens. If the State expects its taxpayers to observe
fairness and honesty in paying their taxes, so must it apply the same standard against
itself in refunding excess payments of such taxes. Indeed, the State must lead by its
own example of honor, dignity and uprightness.[63]
WHEREFORE, the petition is GRANTED. The assailed resolution is
SET ASIDE and the case REMANDED to the Court of Tax Appeals for the
reception of evidence, particularly invoices supporting the schedules of
petroleum products sold and delivered to petitioner by Petron and the
corresponding certification of an independent Certified Public Accountant, for
the proper and immediate determination of the amount to be refunded to
petitioner.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.
EN BANC
[G.R. No. L-9408. October 31, 1956.]
EMILIO Y. HILADO, Petitioner, vs. THE COLLECTOR OF
INTERNAL REVENUE and THE COURT OF TAX
APPEALS, Respondents.
DECISION
BAUTISTA ANGELO, J.:
On March 31, 1952, Petitioner filed his income tax return for 1951
with the treasurer of Bacolod City wherein he claimed, among
other things, the amount of P12,837.65 as a deductible item from
his gross income pursuant to General Circular No. V-123 issued by
the Collector of Internal Revenue. This circular was issued pursuant
to certain rules laid down by the Secretary of Finance On the basis
of said return, an assessment notice demanding the payment of
P9,419 was sent toPetitioner, who paid the tax in monthly
installments, the last payment having been made on January 2,
1953.
Meanwhile, on August 30, 1952, the Secretary of Finance, through
the Collector of Internal Revenue, issued General Circular No. V-139
which not only revoked and declared void his general Circular No.
V- 123 but laid down the rule that losses of property which
occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible in the year of actual loss or
destruction of said property. As a consequence, the amount of
P12,837.65 was disallowed as a deduction from the gross income
ofPetitioner for 1951 and the Collector of Internal Revenue
demanded from him the payment of the sum of P3,546 as
deficiency income tax for said year. When the petition for
reconsideration filed by Petitioner was denied, he filed a petition
for review with the Court of Tax Appeals. In due time, this court
rendered
decision
affirming
the
assessment
made
by Respondent Collector of Internal Revenue. This is an appeal
from said decision.
It appears that Petitioner claimed in his 1951 income tax return the
deduction of the sum of P12,837.65 as a loss consisting in a
portion of his war damage claim which had been duly approved by
the Philippine War Damage Commission under the Philippine
Rehabilitation Act of 1946 but which was not paid and never has
been paid pursuant to a notice served upon him by said
Commission that said part of his claim will not be paid until the
United States Congress should make further appropriation. He
claims that said amount of P12,837.65 represents a business
asset within the meaning of said Act which he is entitled to deduct
as a loss in his return for 1951. This claim is untenable.
To begin with, assuming that said a mount represents a portion of
the 75% of his war damage claim which was not paid, the same
would not be deductible as a loss in 1951 because, according
to Petitioner, the last installment he received from the War
Damage Commission, together with the notice that no further
payment would be made on his claim, was in 1950. In the
circumstance, said amount would at most be a proper deduction
from his 1950 gross income. In the second place, said amount
cannot be considered as a business asset which can be deducted
as a loss in contemplation of law because its collection is not
enforceable as a matter of right, but is dependent merely upon the
generosity and magnanimity of the U. S. government. Note that, as
of the end of 1945, there was absolutely no law under
which Petitioner could claim compensation for the destruction of
his properties during the battle for the liberation of the Philippines.
And under the Philippine Rehabilitation Act of 1946, the payments
of claims by the War Damage Commission merely depended upon
its discretion to be exercised in the manner it may see fit, but the
non-payment of which cannot give rise to any enforceable right,
for, under said Act, All findings of the Commission concerning the
amount of loss or damage sustained, the cause of such loss or
damage, the persons to whom compensation pursuant to this title
is payable, and the value of the property lost or damaged, shall be
conclusive and shall not be reviewable by any court. (section
113).
It is true that under the authority of section 338 of the National
Internal Revenue Code the Secretary of Finance, in the exercise of
his administrative powers, caused the issuance of General Circular
No. V-123 as an implementation or interpretative regulation of
section 30 of the same Code, under which the amount of
P12,837.65 was allowed to be deducted in the year the last
installment was received with notice that no further payment
would be made until the United States Congress makes further

appropriation therefor, but such circular was found later to be
wrong and was revoked. Thus, when doubts arose as to the
soundness or validity of such circular, the Secretary of Finance
sought the advice of the Secretary of Justice who, accordingly,
gave his opinion the pertinent portion of which reads as
follows:chanroblesvirtuallawlibrary
Yet it might be argued that war losses were not included as
deductions for the year when they were sustained because the
taxpayers had prospects that losses would be compensated for by
the United States Government; chan roblesvirtualawlibrarythat
since only uncompensated losses are deductible, they had to wait
until after the determination by the Philippine War Damage
Commission as to the compensability in part or in whole of their
war losses so that they could exclude from the deductions those
compensated
for
by
the
said
Commission; chan
roblesvirtualawlibraryand that, of necessity, such determination
could be complete only much later than in the year when the loss
was sustained. This contention falls to the ground when it is
considered that the Philippine Rehabilitation Act which authorized
the payment by the United States Government of war losses
suffered by property owners in the Philippines was passed only on
August 30, 1946, long after the losses were sustained. It cannot be
said therefore, that the property owners had any conclusive
assurance during the years said losses were sustained, that the
compensation was to be paid therefor. Whatever assurance they
could have had, could have been based only on some information
less reliable and less conclusive than the passage of the Act itself.
Hence, as diligent property owners, they should adopt the safest
alternative by considering such losses deductible during the year
when they were sustained.
In line with this opinion, the Secretary of Finance, through the
Collector of Internal Revenue, issued General Circular No. V-139
which not only revoked and declared void his previous Circular No.
V 123 but laid down the rule that losses of property which
occurred during the period of World War II from fires, storms,
shipwreck or other casualty, or from robbery, theft, or
embezzlement are deductible for income tax purposes in the year
of actual destruction of said property. We can hardly argue against
this opinion. Since we have already stated that the amount claimed
does not represent a business asset that may be deducted as a
loss in 1951, it is clear that the loss of the corresponding asset or
property could only be deducted in the year it was actually
sustained. This is in line with section 30 (d) of the National Internal

Revenue Code which prescribes that losses sustained are allowable
as deduction only within the corresponding taxable year.
Petitioners contention that during the last war and as a
consequence of enemy occupation in the Philippines there was no
taxable year within the meaning of our internal revenue laws
because during that period they were unenforceable, is without
merit. It is well known that our internal revenue laws are not
political in nature and as such were continued in force during the
period of enemy occupation and in effect were actually enforced by
the occupation government. As a matter of fact, income tax returns
were filed during that period and income tax payment were
effected and considered valid and legal. Such tax laws are deemed
to be the laws of the occupied territory and not of the occupying
enemy.
Furthermore, it is a legal maxim, that excepting that of a political
nature, Law once established continues until changed by some
competent legislative power. It is not changed merely by change of
sovereignty. (Joseph H. Beale, Cases on Conflict of Laws, III,
Summary section 9, citing Commonwealth vs. Chapman, 13 Met.,
68.) As the same author says, in his Treatise on the Conflict of Laws
(Cambridge, 1916, section 131):chanroblesvirtuallawlibrary There
can be no break or interregnun in law. From the time the law comes
into existence with the first-felt corporateness of a primitive people
it must last until the final disappearance of human society. Once
created, it persists until a change takes place, and when changed it
continues in such changed condition until the next change and so
forever. Conquest or colonization is impotent to bring law to an
end; chan roblesvirtualawlibraryinspite of change of constitution,
the law continues unchanged until the new sovereign by legislative
act creates a change. (Co Kim Chan vs. Valdes Tan Keh and Dizon,
75 Phil., 113, 142-143.)
It is likewise contended that the power to pass upon the validity of
General Circular No. V-123 is vested exclusively in our courts in
view of the principle of separation of powers and, therefore, the
Secretary of Finance acted without valid authority in revoking it
and approving in lieu thereof General Circular No. V-139. It cannot
be denied, however, that the Secretary of Finance is vested with
authority to revoke, repeal or abrogate the acts or previous rulings
of his predecessor in office because the construction of a statute
by those administering it is not binding on their successors if
thereafter the latter become satisfied that a different construction
should be given. [Association of Clerical Employees vs.

Brotherhood of Railways & Steamship Clerks, 85 F. (2d) 152, 109
A.L.R., 345.]
When
the
Commissioner
determined
in
1937
that
the Petitioner was not exempt and never had been, it was his duty
to determine, assess and collect the tax due for all years not
barred by the statutes of limitation. The conclusion reached and
announced by his predecessor in 1924 was not binding upon him.
It did not exempt the Petitioner from tax, This same point was
decided in this way in Stanford University Bookstore, 29 B. T. A.,
1280; chan roblesvirtualawlibraryaffd., 83 Fed. (2d) 710.
(Southern Maryland Agricultural Fair Association vs. Commissioner
of Internal Revenue, 40 B. T. A., 549, 554).
With regard to the contention that General Circular No. V-139
cannot be given retroactive effect because that would affect and
obliterate the vested right acquired by Petitioner under the
previous circular, suffice it to say that General Circular No. V-123,
having been issued on a wrong construction of the law, cannot give
rise to a vested right that can be invoked by a taxpayer. The
reason is obvious:chanroblesvirtuallawlibrary a vested right cannot
spring from a wrong interpretation. This is too clear to require
elaboration.
It seems too clear for serious argument that an administrative
officer cannot change a law enacted by Congress. A regulation that
is merely an interpretation of the statute when once determined to
have been erroneous becomes nullity. An erroneous construction of
the law by the Treasury Department or the collector of internal
revenue does not preclude or estop the government from
collecting a tax which is legally due. (Ben Stocker, et al., 12 B. T.
A., 1351.)
Art. 2254. No vested or acquired right can arise from acts or
omissions which are against the law or which infringe upon the
rights of others. (Article 2254, New Civil Code.)
Wherefore, the decision appealed from is affirmed Without
pronouncement as to costs.
Paras, C.J., Padilla, Montemayor, Labrador, Concepcion,
Reyes, J. B. L., Endencia and Felix, JJ., concur.

SUPREME COURT
Manila
EN BANC
G.R. No. L-11527
November 25, 1958
THE COLLECTOR OF INTERNAL REVENUE, petitioner,

vs.
SUYOC CONSOLIDATED MINING COMPANY, ET AL., respondents.
Office of the Solicitor General Ambrosio Padilla and Solicitor Sumilang V.
Bernardo for petitioner.
Ohnick, Velilla and Balongkita for respondents.
BAUTISTA ANGELO, J.:
Suyoc Consolidated Mining Company, a mining corporation operating before
the war, was unable to file in 1942 its income tax return for the year 1941
due to the last war. After liberation, Congress enacted Commonwealth Act
No. 722 which extended the filing of tax returns for 1941 up to December 31,
1945. Its records having been lost or destroyed, the company requested the
Collector of Internal Revenue to grant it an extension of time to file its return,
which was granted until February 15, 1946, and the company was
authorized to file its return for 1941 on the basis of the best evidence
obtainable.
The company filed three income tax returns for the calendar year ending
December 31, 1941. On February 12, 1946, it filed a tentative return as it
had not yet completely reconstructed its records. On November 28, 1946, it
filed a second final return on the basis of the records it has been able to
reconstruct at that time. On February 6, 1947, it filed its third amended final
return on the basis of the available records which to that date it had been
able to reconstruct.
On the basis of the second final return filed by the company on November
28, 1946, the Collector assessed against it the sum of P28,289.96 as
income tax for 1941, plus P1,414.50 as 5 per cent surcharge and P3,894.80
as 1 per cent monthly interest from March 1, 1946 to February 28, 1947, or a
total of P33,099.26. The assessment was made on February 11, 1947. On
February 21, 1947, the company asked for an extension of at least one year
from February 28, 1947 within which to pay the amount assessed, reserving
its right to question the correctness of the assessment. The Collector
granted an extension of only three months from March 20, 1947.
The company failed to pay the tax within the period granted to it and so the
Collector sent to it a letter on November 28, 1950 demanding payment of the
tax due as assessed, plus surcharge and interest up to December 31, 1950.
On April 6, 1951, the company asked for a reconsideration and
reinvestigation of the assessment, which was granted, the case being
assigned to another examiner, but the Collector made another assessment
against the company in the sum of P33,829.66. This new assessment was
made on March 7, 1952. On April 18, 1952, the Collector revised this last
assessment and required the company to pay the sum of P28,289.96 as
income tax, P1,414.50 as surcharge, P20,934.57 as interest up to April 30,
1952 and P40 as compromise.
After several other negotiations conducted at the request of respondent,
including an appeal to the Conference Staff created to act on such matters in
the Bureau of Internal Revenue, the assessment was finally reduced by the
Collector to P24,438.96, without surcharge and interest, and of this new
assessment the company was notified on July 28, 1955. Within the
reglementary period, the company filed with the Court of Tax Appeals a
petition for review of this assessment made on July 26, 1955 on the main
ground that the right of the Government to collect the tax has already
prescribed. After the case was heard, the court rendered its decision
upholding this defense and, accordingly, it set aside the ruling of the
Collector of Internal Revenue. The Collector interposed the present petition
for review.
Under the law, an internal revenue tax shall be assessed within five years
after the return is filed by the taxpayer and no proceeding in court for its
collection shall be begun after the expiration of such period (Section 331,
National Internal Revenue Code). The law also provides that where an
assessment of internal revenue tax is made within the above period, such
tax may be collected by distraint or levy or by a proceeding in court but only

if the same is begun (1) within five years after assessment or (2) within the
period that may be agreed upon in writing between the Collector and the
taxpayer before the expiration of the 5-year period [Section 332 (c), Idem.].
It appears that the first assessment made against respondent based on
its second final return filed on November 28, 1946 was made on February
11, 1947. Upon receipt of this assessment respondent requested for at least
one year within which to pay the amount assessed although it reserved its
right to question the correctness of the assessment before actual payment.
Petitioner granted an extension of only three months. When it failed to pay
the tax within the period extended, petitioner sent respondent a letter on
November 28, 1950 demanding payment of the tax as assessed, and upon
receipt of the letter respondent asked for a reinvestigation and
reconsideration of the assessment. When this request was denied,
respondent again requested for a reconsideration on April 25, 1952, which
was denied on May 6, 1953, which denial was appealed to the Conference
Staff. The appeal was heard by the Conference Staff from September 2,
1953 to July 16, 1955, and as a result of these various negotiations, the
assessment was finally reduced on July 26, 1955. This is the ruling which is
now being questioned after a protracted negotiation on the ground that the
collection of the tax has already prescribed.
It is obvious from the foregoing that petitioner refrained from collecting the
tax by distraint or levy or by proceeding in court within the 5-year period from
the filing of the second amended final return due to the several requests of
respondent for extension to which petitioner yielded to give it every
opportunity to prove its claim regarding the correctness of the assessment.
Because of such requests, several reinvestigations were made and a
hearing was even held by the Conference Staff organized in the collection
office to consider claims of such nature which, as the record shows, lasted
for several months. After inducing petitioner to delay collection as he in fact
did, it is most unfair for respondent to now take advantage of such
desistance to elude his deficiency income, tax liability to the prejudice of the
Government invoking the technical ground of prescription.
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer,
there are cases however where a taxpayer may be prevented from setting
up the defense of prescription even if he has not previously waived it in
writing as when by his repeated requests or positive acts the Government
has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government. And when such situation comes to
pass there are authorities that hold, based on weighty reasons, that such an
attitude or behavior should not be countenanced if only to protect the interest
of the Government.
This case has no precedent in this jurisdiction for it is the first time that such
has risen, but there are several precedents that may be invoked in American
jurisprudence. As Mr. Justice Cardozo has said: "The applicable principle is
fundamental and unquestioned. 'He who prevents a thing from being done
may not avail himself of the nonperformance which he has himself
occasioned, for the law says to him in effect "this is your own act, and
therefore you are not damnified." ' "(R. H. Stearns Co. vs. U.S., 78 L. ed.,
647). Or, as was aptly said, "The tax could have been collected, but the
government withheld action at the specific request of the plaintiff. The
plaintiff is now estopped and should not be permitted to raise the defense of
the Statute of Limitations." [Newport Co. vs. U.S., (DC-WIS), 34 F. Supp.
588].
The following authorities cited in the brief of the Solicitor General are in
point:
The petitioner makes the point that by the Revenue Act of May 29,
1928 (chap. 852, 45 Stat. at L. 791, 875, sec. 609, U.S.C. title 26,
sec. 2609), a credit against a liability in respect of any taxable year
shall be "void" if it has been made against a liability barred by
limitation. The aim of that provision, as we view it, was to invalidate
such a credit if made by the Commissioner of his own motion
without the taxpayer's approval or with approval failing short of
inducement or request. Cf. Stange vs. United States, 282 U. S.
270, 75 L. ed. 335, 51 S. Ct. 145, supra; Revenue Act of 1928, sec.
506 (b) (c), chap. 852, 45 Stat. at L. 791, 870, 871, U.S.C. title 26,
see. 1062a. If nothing more than this appeared, there was to be no

exercise in invitum of governmental power. But the aim of the
statute suggests a restraint upon its meaning. To know whether
liability has been barred by limitation it will not do to refer to the
flight of time alone. The limitation may have been postponed by
force of a simple waiver, which must then be made in adherence to
the statutory forms, or so we now assume. It may have been
postponed by deliberate persuasion to withhold official action. We
think it an unreasonable construction that would view the
prohibition of the statute as over-riding the doctrine of
estoppel (Randon vs. Tobey, 11 How. 493, 519, 13 L. ed. 784, 795)
and invalidating a credit made at the taxpayer's request. Here at the
time of the request, the liability was still alive, unaffected as yet by
any statutory bar. The request in its fair meaning reached forward
into the future and prayed for the postponement of collection till the
audits for later years had been completed in the usual course. This
having been done, the suspended collection might be effected by
credit or by distraint or by other methods prescribed by law.
Congress surely did not mean that a credit was to be void if made
by the Government in response to such prayer.
The applicable principle is fundamental and unquestioned. "He who
prevents a thing from being done may not avail himself of the
nonperformance which he has himself occasioned, for the law says
to him in effect "this is your own act, and therefore you are not
damnified," ' " Dolan vs. Rogers, 149 N. Y. 489, 491, 44 N.E. 167,
and Imperator Realty Co. vs. Tull, 228 N. Y. 447, 457, 127 N.E. 263,
quoting West vs. Blakeway, 2 Mann. & G. 729, 751, 133 Eng.
Reprint, 940, 949. Sometimes the resulting disability has been
characterized as an estoppel, sometimes as a waiver. The label
counts for little. Enough for present purposes that the disability has
its roots in a principle more nearly ultimate than either waiver or
estoppel, the principle that no one shall be permitted to found any
claim upon his own inequity or take advantage of his own wrong.
Imperator Realty Co. vs. Tull, 228 N.Y. 447, 127 N.E. 263, supra. A
suit may not be built on an omission induced by him who sues.
Swain vs. Seamens, 9 Wall. 254, 274, 19 L. ed. 554, 560; United
States vs. Peck, 102 U.S. 64, 26 L. ed. 46; Thomson vs. Poor, 147
N.Y. 402, 42 N.E. 13; New Zealand Shipping Co. vs. Societe des
Ateliers (1919) A. C. 1, 6-H. L.; 2 Williston, Contr. sec. 689. (R. H.

Stearns Co. vs. U.S., supra; Emphasis supplied.)
. . . It is admitted that these assessments were timely made in
August 1923. Upon the making of the assessment the
Commissioner sought to make collection, which likewise was at a
time when the statute had not ran on collection, but the authorized
representative of the Lattimores strenuously objected to the
collection and urged the Commissioner to withhold collection,
pending adjustment of the controversy between them and the
Commissioner. The Commissioner yielded to their request and
postponed collection until August 19, 1926, which was after the
statute had run on collection. In the meantime, further claims for
refund and protests were filed, conferences were held and
consideration was given to the settlement of the controversy, and
the matter was not finally disposed of until 1926, when the statute
had run on collection. The procedure carried out was that
requested by plaintiffs, and they cannot now be heard to say that
the collection was not timely. R. H. Stearns Company vs. United
States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647. (Lattimore vs.
U.S., 12 F. Supp. 895, 91.)
Wherefore, the decision appealed from is reversed.
The decision of the Collector of Internal Revenue rendered on July 26, 1955
is hereby affirmed. No costs.
Paras, C. J., Bengzon, Labrador, Concepcion, Reyes, J. B. L. and Endencia,
JJ., concur.

SUPREME COURT
Manila
THIRD DIVISION
G.R. Nos. 141104 & 148763
June 8, 2007
ATLAS CONSOLIDATED MINING AND DEVELOPMENT

CORPORATION, petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court are the consolidated cases involving the unsuccessful
claims of herein petitioner Atlas Consolidated Mining and Development
Corporation (petitioner corporation) for the refund/credit of the input Value
Added Tax (VAT) on its purchases of capital goods and on its zero-rated
sales in the taxable quarters of the years 1990 and 1992, the denial of which
by the Court of Tax Appeals (CTA), was affirmed by the Court of Appeals.
Petitioner corporation is engaged in the business of mining, production, and
sale of various mineral products, such as gold, pyrite, and copper
concentrates. It is a VAT-registered taxpayer. It was initially issued VAT
Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register
anew with the appropriate revenue district office (RDO) of the Bureau of
Internal Revenue (BIR) when it moved its principal place of business, and it
was re-issued VAT Registration No. 32-0-004622, dated 15 August 1990.1
G.R. No. 141104
Petitioner corporation filed with the BIR its VAT Return for the first quarter of
1992.2 It alleged that it likewise filed with the BIR the corresponding
application for the refund/credit of its input VAT on its purchases of capital
goods and on its zero-rated sales in the amount of P26,030,460.00.3 When
its application for refund/credit remained unresolved by the BIR, petitioner
corporation filed on 20 April 1994 its Petition for Review with the CTA,
docketed as CTA Case No. 5102. Asserting that it was a "zero-rated VAT
person," it prayed that the CTA order herein respondent Commissioner of
Internal Revenue (respondent Commissioner) to refund/credit petitioner
corporation with the amount of P26,030,460.00, representing the input VAT it
had paid for the first quarter of 1992. The respondent Commissioner
opposed and sought the dismissal of the petition for review of petitioner
corporation for failure to state a cause of action. After due trial, the CTA
promulgated its Decision4 on 24 November 1997 with the following

disposition
WHEREFORE, in view of the foregoing, the instant claim for refund
is hereby DENIED on the ground of prescription, insufficiency of
evidence and failure to comply with Section 230 of the Tax Code,
as amended. Accordingly, the petition at bar is
hereby DISMISSED for lack of merit.
The CTA denied the motion for reconsideration of petitioner corporation in a
Resolution5 dated 15 April 1998.
THE COURT OF APPEALS ERRED IN RULING THAT THE

JUDICIAL CLAIM WAS FILED BEYOND THE PRESCRIPTIVE
PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO
(2) YEARS FROM THE FILING OF THE VAT RETURN.
IV
THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO
ALLOW THE RE-OPENING OF THE CASE FOR PETITIONER TO
PRESENT ADDITIONAL EVIDENCE.8
G.R. No. 148763
When the case was elevated to the Court of Appeals as CA-G.R. SP No.
47607, the appellate court, in its Decision,6 dated 6 July 1999, dismissed the
appeal of petitioner corporation, finding no reversible error in the CTA
Decision, dated 24 November 1997. The subsequent motion for
reconsideration of petitioner corporation was also denied by the Court of
Appeals in its Resolution,7 dated 14 December 1999.
G.R. No. 148763 involves almost the same set of facts as in G.R. No.
141104 presented above, except that it relates to the claims of petitioner
corporation for refund/credit of input VAT on its purchases of capital goods
and on its zero-rated sales made in the last three taxable quarters of 1990.
Thus, petitioner corporation comes before this Court, via a Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, assigning
the following errors committed by the Court of Appeals
Petitioner corporation filed with the BIR its VAT Returns for the second, third,
and fourth quarters of 1990, on 20 July 1990, 18 October 1990, and 20
January 1991, respectively. It submitted separate applications to the BIR for
the refund/credit of the input VAT paid on its purchases of capital goods and
on its zero-rated sales, the details of which are presented as follows
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE
REQUIREMENT OF REVENUE REGULATIONS NO. 2-88 THAT
AT LEAST 70% OF THE SALES OF THE [BOARD OF
INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF
EXPORTS FOR ZERO-RATING TO APPLY.
II
THE COURT OF APPEALS ERRED IN AFFIRMING THAT
PETITIONER FAILED TO SUBMIT SUFFICIENT EVIDENCE
SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES
AND RECEIPTS IS NOT A FATAL DEFECT.
III
Date of Application
Period Covered
Amount Applied For
21 August 1990
2nd Quarter, 1990
P 54,014,722.04
21 November 1990
3rd Quarter, 1990
75,304,774.77
19 February 1991
4th Quarter, 1990
43,829,766.10
When the BIR failed to act on its applications for refund/credit, petitioner
corporation filed with the CTA the following petitions for review
Date Filed
Period Covered
20 July 1992
2nd Quarter, 1990
9 October 1992
3rd Quarter, 1990
14 January 1993
Aggrieved, petitioner corporation filed with this Court another Petition for
Review on Certiorari under Rule 45 of the Revised Rules of Court, docketed
as G.R. No. 148763, raising the following issues
A.
CTA Case No.
4th Quarter, 1990
which were eventually consolidated. The respondent Commissioner

contested the foregoing Petitions and prayed for the dismissal thereof. The
CTA ruled in favor of respondent Commissioner and in its Decision,9 dated
30 October 1997, dismissed the Petitions mainly on the ground that the
prescriptive periods for filing the same had expired. In a Resolution,10 dated
15 January 1998, the CTA denied the motion for reconsideration of petitioner
corporation since the latter presented no new matter not already discussed
in the court's prior Decision. In the same Resolution, the CTA also denied the
alternative prayer of petitioner corporation for a new trial since it did not fall
under any of the grounds cited under Section 1, Rule 37 of the Revised
Rules of Court, and it was not supported by affidavits of merits required by
Section 2 of the same Rule.
Petitioner corporation appealed its case to the Court of Appeals, where it
was docketed as CA-G.R. SP No. 46718. On 15 September 2000, the Court
of Appeals rendered its Decision,11 finding that although petitioner
corporation timely filed its Petitions for Review with the CTA, it still failed to
substantiate its claims for the refund/credit of its input VAT for the last three
quarters of 1990. In its Resolution,12 dated 27 June 2001, the appellate court
denied the motion for reconsideration of petitioner corporation, finding no
cogent reason to reverse its previous Decision.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN

HOLDING THAT PETITIONER'S CLAIM IS BARRED UNDER
REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR
FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERORATING TO APPLY AND FOR FAILURE TO ESTABLISH THE
FACTUAL BASIS FOR THE INSTANT CLAIM.
B.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
FINDING THAT THERE IS NO BASIS TO GRANT PETITIONER'S
MOTION FOR NEW TRIAL.
There being similarity of parties, subject matter, and issues, G.R. Nos.
141104 and 148763 were consolidated pursuant to a Resolution, dated 4
September 2006, issued by this Court. The ruling of this Court in these
cases hinges on how it will resolve the following key issues: (1) prescription
of the claims of petitioner corporation for input VAT refund/credit; (2) validity
and applicability of Revenue Regulations No. 2-88 imposing upon petitioner
corporation, as a requirement for the VAT zero-rating of its sales, the burden
of proving that the buyer companies were not just BOI-registered but also
exporting 70% of their total annual production; (3) sufficiency of evidence
presented by petitioner corporation to establish that it is indeed entitled to
input VAT refund/credit; and (4) legal ground for granting the motion of
petitioner corporation for re-opening of its cases or holding of new trial
before the CTA so it could be given the opportunity to present the required
evidence.
Prescription
The prescriptive period for filing an application for tax refund/credit of input
VAT on zero-rated sales made in 1990 and 1992 was governed by Section
106(b) and (c) of the Tax Code of 1977, as amended, which provided that
SEC. 106. Refunds or tax credits of input tax. x x x.
(b) Zero-rated or effectively zero-rated sales. Any person, except

those covered by paragraph (a) above, whose sales are zero-rated
may, within two years after the close of the quarter when such sales
were made, apply for the issuance of a tax credit certificate or
refund of the input taxes attributable to such sales to the extent that
such input tax has not been applied against output tax.
xxxx
(e) Period within which refund of input taxes may be made by the
Commissioner. The Commissioner shall refund input taxes within
60 days from the date the application for refund was filed with him
or his duly authorized representative. No refund of input taxes shall
be allowed unless the VAT-registered person files an application for
refund within the period prescribed in paragraphs (a), (b) and (c) as
the case may be.
By a plain reading of the foregoing provision, the two-year prescriptive
period for filing the application for refund/credit of input VAT on zero-rated
sales shall be determined from the close of the quarter when such sales
were made.
Petitioner contends, however, that the said two-year prescriptive period
should be counted, not from the close of the quarter when the zero-rated
sales were made, but from the date of filing of the quarterly VAT return and
payment of the tax due 20 days thereafter, in accordance with Section
110(b) of the Tax Code of 1977, as amended, quoted as follows
SEC. 110. Return and payment of value-added tax. x x x.
(b) Time for filing of return and payment of tax. The return shall
be filed and the tax paid within 20 days following the end of each
quarter specifically prescribed for a VAT-registered person under
regulations to be promulgated by the Secretary of
Finance: Provided, however, That any person whose registration is
cancelled in accordance with paragraph (e) of Section 107 shall file
a return within 20 days from the cancellation of such registration.
It is already well-settled that the two-year prescriptive period for instituting a

suit or proceeding for recovery of corporate income tax erroneously or
illegally paid under Section 23013 of the Tax Code of 1977, as amended, was
to be counted from the filing of the final adjustment return. This Court
already set out in ACCRA Investments Corporation v. Court of Appeals,14 the
rationale for such a rule, thus
Clearly, there is the need to file a return first before a claim for
refund can prosper inasmuch as the respondent Commissioner by
his own rules and regulations mandates that the corporate taxpayer
opting to ask for a refund must show in its final adjustment return
the income it received from all sources and the amount of
withholding taxes remitted by its withholding agents to the Bureau
of Internal Revenue. The petitioner corporation filed its final
adjustment return for its 1981 taxable year on April 15, 1982. In our
Resolution dated April 10, 1989 in the case of Commissioner of
Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956),
we ruled that the two-year prescriptive period within which to claim
a refund commences to run, at the earliest, on the date of the filing
of the adjusted final tax return. Hence, the petitioner corporation
had until April 15, 1984 within which to file its claim for refund.
Considering that ACCRAIN filed its claim for refund as early as
December 29, 1983 with the respondent Commissioner who failed
to take any action thereon and considering further that the nonresolution of its claim for refund with the said Commissioner
prompted ACCRAIN to reiterate its claim before the Court of Tax
Appeals through a petition for review on April 13, 1984, the
respondent appellate court manifestly committed a reversible error
in affirming the holding of the tax court that ACCRAIN's claim for
refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the
two-year prescriptive period with respect to the petitioner
corporation's claim for refund from the time it filed its final
adjustment return is the fact that it was only then that ACCRAIN
could ascertain whether it made profits or incurred losses in its
business operations. The "date of payment", therefore, in
ACCRAIN's case was when its tax liability, if any, fell due upon its
filing of its final adjustment return on April 15, 1982.
In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this
Court further expounded on the same matter
A re-examination of the aforesaid minute resolution of the Court in

the Pacific Procon case is warranted under the circumstances to
lay down a categorical pronouncement on the question as to when
the two-year prescriptive period in cases of quarterly corporate
income tax commences to run. A full-blown decision in this regard is
rendered more imperative in the light of the reversal by the Court of
Tax Appeals in the instant case of its previous ruling in the Pacific
Procon case.
Section 292 (now Section 230) of the National Internal Revenue
Code should be interpreted in relation to the other provisions of the
Tax Code in order to give effect the legislative intent and to avoid
an application of the law which may lead to inconvenience and
absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]),
this Court stated that statutes should receive a sensible
construction, such as will give effect to the legislative intention and
so as to avoid an unjust or an absurd conclusion. INTERPRETATIO
TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR
INCONVENIENS ET ABSURDUM. Where there is ambiguity, such
interpretation as will avoid inconvenience and absurdity is to be
adopted. Furthermore, courts must give effect to the general
legislative intent that can be discovered from or is unraveled by the
four corners of the statute, and in order to discover said intent, the
whole statute, and not only a particular provision thereof, should be
considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et
al. 73 SCRA 162 [1976) Every section, provision or clause of the
statute must be expounded by reference to each other in order to
arrive at the effect contemplated by the legislature. The intention of
the legislator must be ascertained from the whole text of the law
and every part of the act is to be taken into view. (Chartered Bank
vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47
Phil. 249, cited in Aboitiz Shipping Corporation vs. City of Cebu, 13
SCRA 449 [1965]).
Thus, in resolving the instant case, it is necessary that we consider
not only Section 292 (now Section 230) of the National Internal
Revenue Code but also the other provisions of the Tax Code,
particularly Sections 84, 85 (now both incorporated as Section 68),
Section 86 (now Section 70) and Section 87 (now Section 69) on
Quarterly Corporate Income Tax Payment and Section 321 (now
Section 232) on keeping of books of accounts. All these provisions
of the Tax Code should be harmonized with each other.
xxxx
Therefore, the filing of a quarterly income tax returns required in

Section 85 (now Section 68) and implemented per BIR Form 1702Q and payment of quarterly income tax should only be considered
mere installments of the annual tax due. These quarterly tax
payments which are computed based on the cumulative figures of
gross receipts and deductions in order to arrive at a net taxable
income, should be treated as advances or portions of the annual
income tax due, to be adjusted at the end of the calendar or fiscal
year. This is reinforced by Section 87 (now Section 69) which
provides for the filing of adjustment returns and final payment of
income tax. Consequently, the two-year prescriptive period
provided in Section 292 (now Section 230) of the Tax Code should
be computed from the time of filing the Adjustment Return or
Annual Income Tax Return and final payment of income tax.
In the case of Collector of Internal Revenue vs. Antonio Prieto (2
SCRA 1007 [1961]), this Court held that when a tax is paid in
installments, the prescriptive period of two years provided in
Section 306 (Section 292) of the National Internal Revenue Code
should be counted from the date of the final payment. This ruling is
reiterated in Commissioner of Internal Revenue vs. Carlos
Palanca (18 SCRA 496 [1966]), wherein this Court stated that
where the tax account was paid on installment, the computation of
the two-year prescriptive period under Section 306 (Section 292) of
the Tax Code, should be from the date of the last installment.
In the instant case, TMX Sales, Inc. filed a suit for a refund on
March 14, 1984. Since the two-year prescriptive period should be
counted from the filing of the Adjustment Return on April 15,1982,
TMX Sales, Inc. is not yet barred by prescription.
The very same reasons set forth in the afore-cited cases concerning the twoyear prescriptive period for claims for refund of illegally or erroneously
collected income tax may also apply to the Petitions at bar involving the
same prescriptive period for claims for refund/credit of input VAT on zerorated sales.
It is true that unlike corporate income tax, which is reported and paid on
installment every quarter, but is eventually subjected to a final adjustment at
the end of the taxable year, VAT is computed and paid on a purely quarterly
basis without need for a final adjustment at the end of the taxable year.
However, it is also equally true that until and unless the VAT-registered
taxpayer prepares and submits to the BIR its quarterly VAT return, there is
no way of knowing with certainty just how much input VAT16 the taxpayer
may apply against its output VAT;17how much output VAT it is due to pay for
the quarter or how much excess input VAT it may carry-over to the following
quarter; or how much of its input VAT it may claim as refund/credit. It should
be recalled that not only may a VAT-registered taxpayer directly apply
against his output VAT due the input VAT it had paid on its importation or
local purchases of goods and services during the quarter; the taxpayer is
also given the option to either (1) carry over any excess input VAT to the
succeeding quarters for application against its future output VAT liabilities, or
(2) file an application for refund or issuance of a tax credit certificate
covering the amount of such input VAT.18 Hence, even in the absence of a
final adjustment return, the determination of any output VAT payable
necessarily requires that the VAT-registered taxpayer make adjustments in
its VAT return every quarter, taking into consideration the input VAT which
are creditable for the present quarter or had been carried over from the
previous quarters.
Moreover, when claiming refund/credit, the VAT-registered taxpayer must be
able to establish that it does have refundable or creditable input VAT, and the
same has not been applied against its output VAT liabilities information
which are supposed to be reflected in the taxpayer's VAT returns. Thus, an
application for refund/credit must be accompanied by copies of the
taxpayer's VAT return/s for the taxable quarter/s concerned.
Lastly, although the taxpayer's refundable or creditable input VAT may not be
considered as illegally or erroneously collected, its refund/credit is a privilege
extended to qualified and registered taxpayers by the very VAT system
adopted by the Legislature. Such input VAT, the same as any illegally or
erroneously collected national internal revenue tax, consists of monetary
amounts which are currently in the hands of the government but must
rightfully be returned to the taxpayer. Therefore, whether claiming
refund/credit of illegally or erroneously collected national internal revenue
tax, or input VAT, the taxpayer must be given equal opportunity for filing and
pursuing its claim.
For the foregoing reasons, it is more practical and reasonable to count the
two-year prescriptive period for filing a claim for refund/credit of input VAT on
zero-rated sales from the date of filing of the return and payment of the tax
due which, according to the law then existing, should be made within 20
days from the end of each quarter. Having established thus, the relevant
dates in the instant cases are summarized and reproduced below
Period Covered
Date of Filing(Return
w/ BIR)
Date of Filing(Application
w/ BIR)
2nd Quarter, 1990
20 July 1990
21 August 1990
3rd Quarter, 1990
18 October 1990
21 November 1990
4th Quarter, 1990
20 January 1991
19 February 1991
1st Quarter, 1992
20 April 1992
--
The above table readily shows that the administrative and judicial claims of
petitioner corporation for refund of its input VAT on its zero-rated sales for
the last three quarters of 1990 were all filed within the prescriptive period.
However, the same cannot be said for the claim of petitioner corporation for
refund of its input VAT on its zero-rated sales for the first quarter of 1992.
Even though it may seem that petitioner corporation filed in time its judicial
claim with the CTA, there is no showing that it had previously filed an
administrative claim with the BIR. Section 106(e) of the Tax Code of 1977,
as amended, explicitly provided that no refund of input VAT shall be allowed
unless the VAT-registered taxpayer filed an application for refund with
respondent Commissioner within the two-year prescriptive period. The
application of petitioner corporation for refund/credit of its input VAT for the
first quarter of 1992 was not only unsigned by its supposed authorized
representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it
was not dated, stamped, and initialed by the BIR official who purportedly
received the same. The CTA, in its Decision,19 dated 24 November 1997, in
CTA Case No. 5102, made the following observations
Date of
This Court, likewise, rejects any probative value of the Application

for Tax Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit "B']
formally offered in evidence by the petitioner on account of the fact
that it does not bear the BIR stamp showing the date when such
application was filed together with the signature or initial of the
receiving officer of respondent's Bureau. Worse still, it does not
show the date of application and the signature of a certain Ma. Paz
R. Semilla indicated in the form who appears to be petitioner's
authorized filer.
A review of the records reveal that the original of the aforecited
application was lost during the time petitioner transferred its office
(TSN, p. 6, Hearing of December 9, 1994). Attempt was made to
prove that petitioner exerted efforts to recover the original copy, but
to no avail. Despite this, however, We observe that petitioner
completely failed to establish the missing dates and signatures
abovementioned. On this score, said application has no probative
value in demonstrating the fact of its filing within two years after the
[filing of the VAT return for the quarter] when petitioner's sales of
goods were made as prescribed under Section 106(b) of the Tax
Code. We believe thus that petitioner failed to file an application for
refund in due form and within the legal period set by law at the
administrative level. Hence, the case at bar has failed to satisfy the
requirement on the prior filing of an application for refund with the
respondent before the commencement of a judicial claim for refund,
as prescribed under Section 230 of the Tax Code. This fact
constitutes another one of the many reasons for not granting
petitioner's judicial claim.
As pointed out by the CTA, in serious doubt is not only the fact of whether
petitioner corporation timely filed its administrative claim for refund of its
input VAT for the first quarter of 1992, but also whether petitioner corporation
actually filed such administrative claim in the first place. For failing to prove
that it had earlier filed with the BIR an application for refund/credit of its input
VAT for the first quarter of 1992, within the period prescribed by law, then the
case instituted by petitioner corporation with the CTA for the refund/credit of
the very same tax cannot prosper.
Revenue Regulations No. 2-88 and the 70% export requirement
Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was
imposed on the gross selling price or gross value in money of goods sold,
bartered or exchanged. Yet, the same provision subjected the following sales
made by VAT-registered persons to 0% VAT
(1) Export sales; and
(2) Sales to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a
signatory effectively subjects such sales to zero-rate.
"Export Sales" means the sale and shipment or exportation of
goods from the Philippines to a foreign country, irrespective of any
shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so
exported, or foreign currency denominated sales. "Foreign currency
denominated sales", means sales to nonresidents of goods
assembled or manufactured in the Philippines, for delivery to
residents in the Philippines and paid for in convertible foreign
currency remitted through the banking system in the Philippines.
These are termed zero-rated sales. A zero-rated sale is still considered a
taxable transaction for VAT purposes, although the VAT rate applied is 0%. A
sale by a VAT-registered taxpayer of goods and/or services taxed at 0% shall
not result in any output VAT, while the input VAT on its purchases of goods or
services related to such zero-rated sale shall be available as tax credit or
refund.20
Petitioner corporation questions the validity of Revenue Regulations No. 288 averring that the said regulations imposed additional requirements, not
found in the law itself, for the zero-rating of its sales to Philippine Smelting
and Refining Corporation (PASAR) and Philippine Phosphate, Inc.
(PHILPHOS), both of which are registered not only with the BOI, but also
with the then Export Processing Zone Authority (EPZA).21
The contentious provisions of Revenue Regulations No. 2-88 read
SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered
exporters. Sales of raw materials to export-oriented BOIregistered enterprises whose export sales, under rules and
regulations of the Board of Investments, exceed seventy percent
(70%) of total annual production, shall be subject to zero-rate under

the following conditions:
"(1) The seller shall file an application with the BIR, ATTN.:
Division, applying for zero-rating for each and every
separate buyer, in accordance with Section 8(d) of
Revenue Regulations No. 5-87. The application should be
accompanied with a favorable recommendation from the
Board of Investments."
"(2) The raw materials sold are to be used exclusively by
the buyer in the manufacture, processing or repacking of
his own registered export product;
"(3) The words "Zero-Rated Sales" shall be prominently
indicated in the sales invoice. The exporter (buyer) can no
longer claim from the Bureau of Internal Revenue or any
other government office tax credits on their zero-rated
purchases;
(b) Sales of raw materials to foreign buyer. Sales of raw materials
to a nonresident foreign buyer for delivery to a resident local exportoriented BOI-registered enterprise to be used in manufacturing,
processing or repacking of the said buyer's goods and paid for in
foreign currency, inwardly remitted in accordance with Central Bank
rules and regulations shall be subject to zero-rate.
It is the position of the respondent Commissioner, affirmed by the CTA and
the Court of Appeals, that Section 2 of Revenue Regulations No. 2-88
should be applied in the cases at bar; and to be entitled to the zero-rating of
its sales to PASAR and PHILPHOS, petitioner corporation, as a VATregistered seller, must be able to prove not only that PASAR and PHILPHOS
are BOI-registered corporations, but also that more than 70% of the total
annual production of these corporations are actually exported. Revenue
Regulations No. 2-88 merely echoed the requirement imposed by the BOI on
export-oriented corporations registered with it.
While this Court is not prepared to strike down the validity of Revenue
Regulations No. 2-88, it finds that its application must be limited and placed
in the proper context. Note that Section 2 of Revenue Regulations No. 2-88
referred only to the zero-rated sales of raw materials to export-oriented BOIregistered enterprises whose export sales, under BOI rules and regulations,
should exceed seventy percent (70%) of their total annual production.
Section 2 of Revenue Regulations No. 2-88, should not have been applied to
the zero-rating of the sales made by petitioner corporation to PASAR and
PHILPHOS. At the onset, it must be emphasized that PASAR and
PHILPHOS, in addition to being registered with the BOI, were also
registered with the EPZA and located within an export-processing zone.
Petitioner corporation does not claim that its sales to PASAR and
PHILPHOS are zero-rated on the basis that said sales were made to exportoriented BOI-registered corporations, but rather, on the basis that the sales
were made to EPZA-registered enterprises operating within export
processing zones. Although sales to export-oriented BOI-registered
enterprises and sales to EPZA-registered enterprises located within export
processing zones were both deemed export sales, which, under Section
100(a) of the Tax Code of 1977, as amended, shall be subject to 0% VAT
distinction must be made between these two types of sales because each
may have different substantiation requirements.
The Tax Code of 1977, as amended, gave a limited definition of export sales,
to wit: "The sale and shipment or exportation of goods from the Philippines
to a foreign country, irrespective of any shipping arrangement that may be
agreed upon which may influence or determine the transfer of ownership of
the goods so exported, or foreign currency denominated sales." Executive
Order No. 226, otherwise known as the Omnibus Investments Code of 1987
- which, in the years concerned (i.e., 1990 and 1992), governed enterprises
registered with both the BOI and EPZA, provided a more comprehensive
definition of export sales, as quoted below:
"ART. 23. "Export sales" shall mean the Philippine port F.O.B.
value, determined from invoices, bills of lading, inward letters of
credit, landing certificates, and other commercial documents, of
export products exported directly by a registered export producer or
the net selling price of export product sold by a registered export
producer or to an export trader that subsequently exports the same:
Provided, That sales of export products to another producer or to
an export trader shall only be deemed export sales whenactually
exported by the latter, as evidenced by landing certificates of similar
commercial documents: Provided, further, That without actual
exportation the following shall be considered constructively
exportedfor purposes of this provision: (1) sales to bonded
manufacturing warehouses of export-oriented manufacturers;
(2) sales to export processing zones; (3) sales to registered export
traders operating bonded trading warehouses supplying raw
materials used in the manufacture of export products under
guidelines to be set by the Board in consultation with the Bureau of
Internal Revenue and the Bureau of Customs; (4) sales to foreign
military bases, diplomatic missions and other agencies and/or

instrumentalities granted tax immunities, of locally manufactured,
assembled or repacked products whether paid for in foreign
currency or not: Provided, further, That export sales of registered
export trader may include commission income; and Provided,
finally, That exportation of goods on consignment shall not be
deemed export sales until the export products consigned are in fact
sold by the consignee.
taxing authority. Hence, actual export of goods and services from the
Philippines to a foreign country must be free of VAT, while those destined for
use or consumption within the Philippines shall be imposed with 10%
VAT.24 Export processing zones25 are to be managed as a separate customs
territory from the rest of the Philippines and, thus, for tax purposes, are
effectively considered as foreign territory. For this reason, sales by persons
from the Philippine customs territory to those inside the export processing
zones are already taxed as exports.
Sales of locally manufactured or assembled goods for household

and personal use to Filipinos abroad and other non-residents of the
Philippines as well as returning Overseas Filipinos under the
Internal Export Program of the government and paid for in
convertible foreign currency inwardly remitted through the
Philippine banking systems shall also be considered export sales.
(Underscoring ours.)
Plainly, sales to enterprises operating within the export processing zones are
export sales, which, under the Tax Code of 1977, as amended, were subject
to 0% VAT. It is on this ground that petitioner corporation is claiming
refund/credit of the input VAT on its zero-rated sales to PASAR and
PHILPHOS.
The afore-cited provision of the Omnibus Investments Code of 1987

recognizes as export sales the sales of export products to another producer
or to an export trader, provided that the export products are actually
exported. For purposes of VAT zero-rating, such producer or export trader
must be registered with the BOI and is required to actually export more than
70% of its annual production.
Without actual exportation, Article 23 of the Omnibus Investments Code of
1987 also considers constructive exportation as export sales. Among other
types of constructive exportation specifically identified by the said provision
are sales to export processing zones. Sales to export processing zones are
subjected to special tax treatment. Article 77 of the same Code establishes
the tax treatment of goods or merchandise brought into the export
processing zones. Of particular relevance herein is paragraph 2, which
provides that "Merchandise purchased by a registered zone enterprise from
the customs territory and subsequently brought into the zone, shall be
considered as export sales and the exporter thereof shall be entitled to the
benefits allowed by law for such transaction."
Such tax treatment of goods brought into the export processing zones are
only consistent with the Destination Principle and Cross Border Doctrine to
which the Philippine VAT system adheres. According to the Destination
Principle,22 goods and services are taxed only in the country where these are
consumed. In connection with the said principle, the Cross Border
Doctrine23 mandates that no VAT shall be imposed to form part of the cost of
the goods destined for consumption outside the territorial border of the
The distinction made by this Court in the preceding paragraphs between the
zero-rated sales to export-oriented BOI-registered enterprises and zerorated sales to EPZA-registered enterprises operating within export
processing zones is actually supported by subsequent development in tax
laws and regulations. In Revenue Regulations No. 7-95, the Consolidated
VAT Regulations, as amended,26 the BIR defined with more precision what
are zero-rated export sales
(1) The sale and actual shipment of goods from the Philippines to a
foreign country, irrespective of any shipping arrangement that may
be agreed upon which may influence or determine the transfer of
ownership of the goods so exported paid for in acceptable foreign
currency or its equivalent in goods or services, and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng
Pilipinas(BSP);
(2) The sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented
enterprise to be used in manufacturing, processing, packing or
repacking in the Philippines of the said buyer's goods and paid for
in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng
Pilipinas (BSP);
(3) The sale of raw materials or packaging materials to an exportoriented enterprise whose export sales exceed seventy percent
(70%) of total annual production;
Any enterprise whose export sales exceed 70% of the total annual
production of the preceding taxable year shall be considered an
export-oriented enterprise upon accreditation as such under the
provisions of the Export Development Act (R.A. 7844) and its
implementing rules and regulations;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and
(5) Those considered export sales under Articles 23 and 77 of
Executive Order No. 226, otherwise known as the Omnibus
Investments Code of 1987, and other special laws, e.g. Republic
Act No. 7227, otherwise known as the Bases Conversion and
Development Act of 1992.
The Tax Code of 1997, as amended,27 later adopted the foregoing definition
of export sales, which are subject to 0% VAT.
This Court then reiterates its conclusion that Section 2 of Revenue
Regulations No. 2-88, which applied to zero-rated export sales to exportoriented BOI-registered enterprises, should not be applied to the
applications for refund/credit of input VAT filed by petitioner corporation since
it based its applications on the zero-rating of export sales to enterprises
registered with the EPZA and located within export processing zones.
Sufficiency of evidence
There can be no dispute that the taxpayer-claimant has the burden of
proving the legal and factual bases of its claim for tax credit or refund, but
once it has submitted all the required documents, it is the function of the BIR
to assess these documents with purposeful dispatch.28 It therefore falls upon
herein petitioner corporation to first establish that its sales qualify for VAT
zero-rating under the existing laws (legal basis), and then to present
sufficient evidence that said sales were actually made and resulted in
refundable or creditable input VAT in the amount being claimed (factual
basis).
It would initially appear that the applications for refund/credit filed by
petitioner corporation cover only input VAT on its purportedly zero-rated
sales to PASAR and PHILPHOS; however, a more thorough perusal of its
applications, VAT returns, pleadings, and other records of these cases would
reveal that it is also claiming refund/credit of its input VAT on purchases of
capital goods and sales of gold to the Central Bank of the Philippines (CBP).
This Court finds that the claims for refund/credit of input VAT of petitioner
corporation have sufficient legal bases.
As has been extensively discussed herein, Section 106(b)(2), in relation to
Section 100(a)(2) of the Tax Code of 1977, as amended, allowed the
refund/credit of input VAT on export sales to enterprises operating within
export processing zones and registered with the EPZA, since such export
sales were deemed to be effectively zero-rated sales.29 The fact that PASAR
and PHILPHOS, to whom petitioner corporation sold its products, were
operating inside an export processing zone and duly registered with EPZA,
was never raised as an issue herein. Moreover, the same fact was already
judicially recognized in the case Atlas Consolidated Mining & Development
Corporation v. Commissioner of Internal Revenue.30 Section 106(c) of the
same Code likewise permitted a VAT-registered taxpayer to apply for
refund/credit of the input VAT paid on capital goods imported or locally
purchased to the extent that such input VAT has not been applied against its
output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP
from 1989 to 199131 was already affirmed by this Court in Commissioner of
Internal Revenue v. Benguet Corporation,32 wherein it ruled that
At the time when the subject transactions were consummated, the
prevailing BIR regulations relied upon by respondent ordained that
gold sales to the Central Bank were zero-rated. The BIR interpreted
Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980
which prescribed that gold sold to the Central Bank shall be
considered export and therefore shall be subject to the export and
premium duties. In coming out with this interpretation, the BIR also
considered Sec. 169 of Central Bank Circular No. 960 which states
that all sales of gold to the Central Bank are considered
constructive exports. x x x.
This Court now comes to the question of whether petitioner corporation has
sufficiently established the factual bases for its applications for refund/credit
of input VAT. It is in this regard that petitioner corporation has failed, both in
the administrative and judicial level.
Applications for refund/credit of input VAT with the BIR must comply with the
appropriate revenue regulations. As this Court has already ruled, Revenue
Regulations No. 2-88 is not relevant to the applications for refund/credit of
input VAT filed by petitioner corporation; nonetheless, the said applications
must have been in accordance with Revenue Regulations No. 3-88,
amending Section 16 of Revenue Regulations No. 5-87, which provided as
follows
SECTION 16. Refunds or tax credits of input tax.

xxxx
(c) Claims for tax credits/refunds. Application for Tax
Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall
be filed with the Revenue District Office of the city or municipality
where the principal place of business of the applicant is located or
directly with the Commissioner, Attention: VAT Division.
A photocopy of the purchase invoice or receipt evidencing the value
added tax paid shall be submitted together with the application. The
original copy of the said invoice/receipt, however, shall be
presented for cancellation prior to the issuance of the Tax Credit
Certificate or refund. In addition, the following documents shall be
attached whenever applicable:
xxxx
"3. Effectively zero-rated sale of goods and services.
"i) photo copy of approved application for zerorate if filing for the first time.
"ii) sales invoice or receipt showing name of the
person or entity to whom the sale of goods or
services were delivered, date of delivery, amount
of consideration, and description of goods or
services delivered.
"iii) evidence of actual receipt of goods or
services.
"ii) with respect to capital equipment imported,

the photo copy of import entry document for
internal revenue tax purposes and the
confirmation receipt issued by the Bureau of
Customs for the payment of the value-added tax.
"5. In applicable cases,
where the applicant's zero-rated transactions are regulated by
certain government agencies, a statement therefrom showing the
amount and description of sale of goods and services, name of
persons or entities (except in case of exports) to whom the goods
or services were sold, and date of transaction shall also be
submitted.
In all cases, the amount of refund or tax credit that may be granted
shall be limited to the amount of the value-added tax (VAT) paid
directly and entirely attributable to the zero-rated transaction during
the period covered by the application for credit or refund.
Where the applicant is engaged in zero-rated and other taxable and
exempt sales of goods and services, and the VAT paid (inputs) on
purchases of goods and services cannot be directly attributed to
any of the aforementioned transactions, the following formula shall
be used to determine the creditable or refundable input tax for zerorated sale:
Amount of Zero-rated Sale
Total Sales
X
Total Amount of Input Taxes
=
Amount Creditable/Refundable
"4. Purchase of capital goods.

"i) original copy of invoice or receipt showing the
date of purchase, purchase price, amount of
value-added tax paid and description of the
capital equipment locally purchased.
In case the application for refund/credit of input VAT was denied or remained
unacted upon by the BIR, and before the lapse of the two-year prescriptive
period, the taxpayer-applicant may already file a Petition for Review before
the CTA. If the taxpayer's claim is supported by voluminous documents,
such as receipts, invoices, vouchers or long accounts, their presentation
before the CTA shall be governed by CTA Circular No. 1-95, as amended,
reproduced in full below
In the interest of speedy administration of justice, the Court hereby

promulgates the following rules governing the presentation of
voluminous documents and/or long accounts, such as receipts,
invoices and vouchers, as evidence to establish certain facts
pursuant to Section 3(c), Rule 130 of the Rules of Court and the
doctrine enunciated in Compania Maritima vs. Allied Free Workers
Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:
In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this

Court denied the claim of therein respondent, Manila Mining Corporation, for
refund of the input VAT on its supposed zero-rated sales of gold to the CBP
because it was unable to substantiate its claim. In the same case, this Court
emphasized the importance of complying with the substantiation
requirements for claiming refund/credit of input VAT on zero-rated sales, to
wit
1. The party who desires to introduce as evidence such voluminous

documents must, after motion and approval by the Court, present:
For a judicial claim for refund to prosper, however, respondent must

not only prove that it is a VAT registered entity and that it filed its
claims within the prescriptive period. It must substantiate the input
VAT paid by purchase invoices or official receipts.
(a) a Summary containing, among others, a chronological

listing of the numbers, dates and amounts covered by the
invoices or receipts and the amount/s of tax paid; and (b)
a Certification of an independent Certified Public
Accountant attesting to the correctness of the contents of
the summary after making an examination, evaluation and
audit of the voluminous receipts and invoices. The name
of the accountant or partner of the firm in charge must be
stated in the motion so that he/she can be commissioned
by the Court to conduct the audit and, thereafter, testify in
Court relative to such summary and certification pursuant
to Rule 32 of the Rules of Court.
2. The method of individual presentation of each and every receipt,
invoice or account for marking, identification and comparison with
the originals thereof need not be done before the Court or Clerk of
Court anymore after the introduction of the summary and CPA
certification. It is enough that the receipts, invoices, vouchers or
other documents covering the said accounts or payments to be
introduced in evidence must be pre-marked by the party concerned
and submitted to the Court in order to be made accessible to the
adverse party who desires to check and verify the correctness of
the summary and CPA certification. Likewise, the originals of the
voluminous receipts, invoices or accounts must be ready for
verification and comparison in case doubt on the authenticity
thereof is raised during the hearing or resolution of the formal offer
of evidence.
Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending
before the CTA when the said Circular was issued, then petitioner
corporation must have complied therewith during the course of the trial of the
said cases.
This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations
No. 5-87 provides the requirements in claiming tax credits/refunds.
xxxx
Under Section 8 of RA1125, the CTA is described as a court of
record. As cases filed before it are litigatedde novo, party litigants
should prove every minute aspect of their cases. No evidentiary
value can be given the purchase invoices or receipts submitted to
the BIR as the rules on documentary evidence require that these
documents must be formally offered before the CTA.
This Court thus notes with approval the following findings of the
CTA:
x x x [S]ale of gold to the Central Bank should not be
subject to the 10% VAT-output tax but this does not ipso
fact mean that [the seller] is entitled to the amount of
refund sought as it is required by law to present evidence
showing the input taxes it paid during the year in
question. What is being claimed in the instant petition is
the refund of the input taxes paid by the herein petitioner
on its purchase of goods and services. Hence, it is
necessary for the Petitioner to show proof that it had
indeed paid the input taxes during the year 1991. In the
case at bar, Petitioner failed to discharge this duty. It did
not adduce in evidence the sales invoice, receipts or other
documents showing the input value added tax on the

purchase of goods and services.
xxx
Section 8 of Republic Act 1125 (An Act Creating the Court of Tax
Appeals) provides categorically that the Court of Tax Appeals
shall be a court of record and as such it is required to conduct
a formal trial (trial de novo) where the parties must present
their evidence accordingly if they desire the Court to take such
evidence into consideration. (Emphasis and italics supplied)
A "sales or commercial invoice" is a written account of goods sold
or services rendered indicating the prices charged therefor or a list
by whatever name it is known which is used in the ordinary course
of business evidencing sale and transfer or agreement to sell or
transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the
fact of payment in money or other settlement between seller and
buyer of goods, debtor or creditor, or person rendering services and
client or customer.
These sales invoices or receipts issued by the supplier are
necessary to substantiate the actual amount or quantity of goods
sold and their selling price, and taken collectively are the best
means to prove the input VAT payments.36
Although the foregoing decision focused only on the proof required for the
applicant for refund/credit to establish the input VAT payments it had made
on its purchases from suppliers, Revenue Regulations No. 3-88 also
required it to present evidence proving actual zero-rated VAT sales to
qualified buyers, such as (1) photocopy of the approved application for zerorate if filing for the first time; (2) sales invoice or receipt showing the name of
the person or entity to whom the goods or services were delivered, date of
delivery, amount of consideration, and description of goods or services
delivered; and (3) the evidence of actual receipt of goods or services.
Also worth noting in the same decision is the weight given by this Court to
the certification by the independent certified public accountant (CPA), thus
Respondent contends, however, that the certification of the

independent CPA attesting to the correctness of the contents of the
summary of suppliers' invoices or receipts which were examined,
evaluated and audited by said CPA in accordance with CTA Circular
No. 1-95 as amended by CTA Circular No. 10-97 should
substantiate its claims.
There is nothing, however, in CTA Circular No. 1-95, as amended
by CTA Circular No. 10-97, which either expressly or impliedly
suggests that summaries and schedules of input VAT payments,
even if certified by an independent CPA, suffice as evidence of
input VAT payments.
xxxx
The circular, in the interest of speedy administration of justice, was
promulgated to avoid the time-consuming procedure of presenting,
identifying and marking of documents before the Court. It does not
relieve respondent of its imperative task of premarking photocopies of sales receipts and invoices andsubmitting
the same to the court after the independent CPA shall have
examined and compared them with the originals. Without
presenting these pre-marked documents as evidence from which
the summary and schedules were based, the court cannot verify
the authenticity and veracity of the independent auditor's
conclusions.
There is, moreover, a need to subject these invoices or receipts to
examination by the CTA in order to confirm whether they are VAT
invoices. Under Section 21 of Revenue Regulation, No. 5-87, all
purchases covered by invoices other than a VAT invoice shall not
be entitled to a refund of input VAT.
xxxx
While the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves but are
primarily intended as tools in the administration of justice, the
presentation of the purchase receipts and/or invoices is not mere
procedural technicality which may be disregarded considering that
it is the only means by which the CTA may ascertain and verify the
truth of the respondent's claims.
The records further show that respondent miserably failed to

substantiate its claims for input VAT refund for the first semester of
1991. Except for the summary and schedules of input VAT
payments prepared by respondent itself, no other evidence was
adduced in support of its claim.
As for respondent's claim for input VAT refund for the second
semester of 1991, it employed the services of Joaquin Cunanan &
Co. on account of which it (Joaquin Cunanan & Co.) executed a
certification that:
We have examined the information shown below
concerning the input tax payments made by the Makati
Office of Manila Mining Corporation for the period from
July 1 to December 31, 1991. Our examination included
inspection of the pertinent suppliers' invoices and official
receipts and such other auditing procedures as we
considered necessary in the circumstances. x x x
As the certification merely stated that it used "auditing procedures
considered necessary" and not auditing procedures which are in
accordance with generally accepted auditing principles and
standards, and that the examination was made on "input tax
payments by the Manila Mining Corporation," without specifying
that the said input tax payments are attributable to the sales of gold
to the Central Bank, this Court cannot rely thereon and regard it as
sufficient proof of the respondent's input VAT payments for the
second semester.37
As for the Petition in G.R. No. 141104, involving the input VAT of petitioner
corporation on its zero-rated sales in the first quarter of 1992, this Court
already found that the petitioner corporation failed to comply with Section
106(b) of the Tax Code of 1977, as amended, imposing the two-year
prescriptive period for the filing of the application for refund/credit thereof.
This bars the grant of the application for refund/credit, whether
administratively or judicially, by express mandate of Section 106(e) of the
same Code.
Granting arguendo that the application of petitioner corporation for the
refund/credit of the input VAT on its zero-rated sales in the first quarter of
1992 was actually and timely filed, petitioner corporation still failed to present
together with its application the required supporting documents, whether
before the BIR or the CTA. As the Court of Appeals ruled
In actions involving claims for refund of taxes assessed and

collected, the burden of proof rests on the taxpayer. As clearly
discussed in the CTA's decision, petitioner failed to substantiate its
claim for tax refunds. Thus:
"We note, however, that in the cases at bar, petitioner has
relied totally on Revenue Regulations No. 2-88 in
determining compliance with the documentary
requirements for a successful refund or issuance of tax
credit. Unmentioned is the applicable and specific
amendment later introduced by Revenue Regulations No.
3-88 dated April 7, 1988 (issued barely after two months
from the promulgation of Revenue Regulations No. 2-88
on February 15, 1988), which amended Section 16 of
Revenue Regulations No. 5-87 on refunds or tax credits of
input tax. x x x.
xxxx
"A thorough examination of the evidence submitted by the
petitioner before this court reveals outright the failure to
satisfy documentary requirements laid down under the
above-cited regulations. Specifically, petitioner was not
able to present the following documents, to wit:
"a) sales invoices or receipts;
"b) purchase invoices or receipts;
"c) evidence of actual receipt of goods;
"d) BOI statement showing the amount and
description of sale of goods, etc.
"e) original or attested copies of invoice or receipt
on capital equipment locally purchased; and
"f) photocopy of import entry document and
confirmation receipt on imported capital
equipment.
"There is the need to examine the sales invoices or

receipts in order to ascertain the actual amount or quantity
of goods sold and their selling price. Without them, this
Court cannot verify the correctness of petitioner's claim
inasmuch as the regulations require that the input taxes
being sought for refund should be limited to the portion
that is directly and entirely attributable to the particular
zero-rated transaction. In this instance, the best evidence
of such transaction are the said sales invoices or receipts.
"Also, even if sales invoices are produced, there is the
further need to submit evidence that such goods were
actually received by the buyer, in this case, by CBP,
Philp[h]os and PASAR.
xxxx
"Lastly, this Court cannot determine whether there were
actual local and imported purchase of capital goods as
well as domestic purchase of non-capital goods without
the required purchase invoice or receipt, as the case may
be, and confirmation receipts.
"There is, thus, the imperative need to submit before this
Court the original or attested photocopies of petitioner's
invoices or receipts, confirmation receipts and import entry
documents in order that a full ascertainment of the claimed
amount may be achieved.
"Petitioner should have taken the foresight to introduce in
evidence all of the missing documentsabovementioned.
Cases filed before this Court are litigated de novo. This
means that party litigants should endeavor to prove at the
first instance every minute aspect of their cases strictly in
accordance with the Rules of Court, most especially on
documentary evidence." (pp. 37-42, Rollo)
Tax refunds are in the nature of tax exemptions. It is regarded as in
derogation of the sovereign authority, and should be construed
in strictissimi juris against the person or entity claiming the
exemption. The taxpayer who claims for exemption must justify his
claim by the clearest grant of organic or statute law and should not
be permitted to stand on vague implications (Asiatic Petroleum Co.
v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of

Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA
968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29
SCRA 617; Davao Light and Power Co., Inc. v. Commissioner of
Customs, 44 SCRA 122).
There is no cogent reason to fault the CTA's conclusion that the
SGV's certificate is "self-destructive", as it finds comfort in the very
SGV's stand, as follows:
"It is our understanding that the above procedure are
sufficient for the purpose of the Company. We make no
presentation regarding the sufficiency of these procedures
for such purpose. We did not compare the total of the
input tax claimed each quarter against the pertinent VAT
returns and books of accounts. The above procedures do
not constitute an audit made in accordance with generally
accepted auditing standards. Accordingly, we do not
express an opinion on the company's claim for input VAT
refund or credit. Had we performed additional procedures,
or had we made an audit in accordance with generally
accepted auditing standards, other matters might have
come to our attention that we would have accordingly
reported on."
The SGV's "disclaimer of opinion" carries much weight as it is
petitioner's independent auditor. Indeed, SGV expressed that it "did
not compare the total of the input tax claimed each quarter against
the VAT returns and books of accounts."38
Moving on to the Petition in G.R. No. 148763, concerning the input VAT of
petitioner corporation on its zero-rated sales in the second, third, and fourth
quarters of 1990, the appellate court likewise found that petitioner
corporation failed to sufficiently establish its claims. Already disregarding the
declarations made by the Court of Appeals on its erroneous application of
Revenue Regulations No. 2-88, quoted hereunder is the rest of the findings
of the appellate court after evaluating the evidence submitted in accordance
with the requirements under Revenue Regulations No. 3-88
The Secretary of Finance validly adopted Revenue Regulations
[No.] x x x 3-98 pursuant to Sec. 245 of the National Internal
Revenue Code, which recognized his power to "promulgate all
needful rules and regulations for the effective enforcement of the
provisions of this Code." Thus, it is incumbent upon a taxpayer

intending to file a claim for refund of input VATs or the issuance of a
tax credit certificate with the BIR x x x to prove sales to such buyers
as required by Revenue Regulations No. 3-98. Logically, the same
evidence should be presented in support of an action to recover
taxes which have been paid.
x x x Neither has [herein petitioner corporation] presented sales
invoices or receipts showing sales of gold, copper concentrates,
and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and
the dates and amounts of the same, nor any evidence of actual
receipt by the said buyers of the mineral products. It merely
presented receipts of purchases from suppliers on which input VATs
were allegedly paid. Thus, the Court of Tax Appeals correctly
denied the claims for refund of input VATs or the issuance of tax
credit certificates of petitioner [corporation]. Significantly, in the
resolution, dated 7 June 2000, this Court directed the parties to file
memoranda discussing, among others, the submission of proof for
"its [petitioner's] sales of gold, copper concentrates, and pyrite to
buyers." Nevertheless, the parties, including the petitioner, failed to
address this issue, thereby necessitating the affirmance of the
ruling of the Court of Tax Appeals on this point.39
This Court is, therefore, bound by the foregoing facts, as found by the
appellate court, for well-settled is the general rule that the jurisdiction of this
Court in cases brought before it from the Court of Appeals, by way of a
Petition for Review on Certiorari under Rule 45 of the Revised Rules of
Court, is limited to reviewing or revising errors of law; findings of fact of the
latter are conclusive.40 This Court is not a trier of facts. It is not its function to
review, examine and evaluate or weigh the probative value of the evidence
presented.41
The distinction between a question of law and a question of fact is clear-cut.
It has been held that "[t]here is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts;
there is a question of fact when the doubt or difference arises as to the truth
or falsehood of alleged facts."42
Whether petitioner corporation actually made zero-rated sales; whether it
paid input VAT on these sales in the amount it had declared in its returns;
whether all the input VAT subject of its applications for refund/credit can be
attributed to its zero-rated sales; and whether it had not previously applied
the input VAT against its output VAT liabilities, are all questions of fact which
could only be answered after reviewing, examining, evaluating, or weighing

the probative value of the evidence it presented, and which this Court does
not have the jurisdiction to do in the present Petitions for Review
on Certiorari under Rule 45 of the revised Rules of Court.
Granting that there are exceptions to the general rule, when this Court
looked into questions of fact under particular circumstances,43 none of these
exist in the instant cases. The Court of Appeals, in both cases, found a
dearth of evidence to support the claims for refund/credit of the input VAT of
petitioner corporation, and the records bear out this finding. Petitioner
corporation itself cannot dispute its non-compliance with the requirements
set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as
amended. It concentrated its arguments on its assertion that the
substantiation requirements under Revenue Regulations No. 2-88 should not
have applied to it, while being conspicuously silent on the evidentiary
requirements mandated by other relevant regulations.
Re-opening of cases/holding of new trial before the CTA
This Court now faces the final issue of whether the prayer of petitioner
corporation for the re-opening of its cases or holding of new trial before the
CTA for the reception of additional evidence, may be granted. Petitioner
corporation prays that the Court exercise its discretion on the matter in its
favor, consistent with the policy that rules of procedure be liberally construed
in pursuance of substantive justice.
This Court, however, cannot grant the prayer of petitioner corporation.
An aggrieved party may file a motion for new trial or reconsideration of a
judgment already rendered in accordance with Section 1, Rule 37 of the
revised Rules of Court, which provides
SECTION 1. Grounds of and period for filing motion for new trial or
reconsideration. Within the period for taking an appeal, the
aggrieved party may move the trial court to set aside the judgment
or final order and grant a new trial for one or more of the following
causes materially affecting the substantial rights of said party:
(a) Fraud, accident, mistake or excusable negligence which
ordinary prudence could not have guarded against and by reason
of which such aggrieved party has probably been impaired in his
rights; or
(b) Newly discovered evidence, which he could not, with

reasonable diligence, have discovered and produced at the trial,
and which if presented would probably alter the result.
Within the same period, the aggrieved party may also move fore
reconsideration upon the grounds that the damages awarded are
excessive, that the evidence is insufficient to justify the decision or
final order, or that the decision or final order is contrary to law.
In G.R. No. 148763, petitioner corporation attempts to justify its motion for
the re-opening of its cases and/or holding of new trial before the CTA by
contending that the "[f]ailure of its counsel to adduce the necessary evidence
should be construed as excusable negligence or mistake which should
constitute basis for such re-opening of trial as for a new trial, as counsel was
of the belief that such evidence was rendered unnecessary by the
presentation of unrebutted evidence indicating that respondent
[Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS]
to be zero-rated." 44 The CTA denied such motion on the ground that it was
not accompanied by an affidavit of merit as required by Section 2, Rule 37 of
the revised Rules of Court. The Court of Appeals affirmed the denial of the
motion, but apart from this technical defect, it also found that there was no
justification to grant the same.
On the matter of the denial of the motion of the petitioner corporation for the
re-opening of its cases and/or holding of new trial based on the technicality
that said motion was unaccompanied by an affidavit of merit, this Court rules
in favor of the petitioner corporation. The facts which should otherwise be
set forth in a separate affidavit of merit may, with equal effect, be alleged and
incorporated in the motion itself; and this will be deemed a substantial
compliance with the formal requirements of the law, provided, of course, that
the movant, or other individual with personal knowledge of the facts, take
oath as to the truth thereof, in effect converting the entire motion for new trial
into an affidavit.45 The motion of petitioner corporation was prepared and
verified by its counsel, and since the ground for the motion was premised on
said counsel's excusable negligence or mistake, then the obvious conclusion
is that he had personal knowledge of the facts relating to such negligence or
mistake. Hence, it can be said that the motion of petitioner corporation for
the re-opening of its cases and/or holding of new trial was in substantial
compliance with the formal requirements of the revised Rules of Court.
Even so, this Court finds no sufficient ground for granting the motion of
petitioner corporation for the re-opening of its cases and/or holding of new
trial.
In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20

July 1998, by the CTA in another case, CTA Case No. 5296, involving the
claim of petitioner corporation for refund/credit of input VAT for the third
quarter of 1993. The said Resolution allowed the re-opening of CTA Case
No. 5296, earlier dismissed by the CTA, to give the petitioner corporation the
opportunity to present the missing export documents.
The rule that the grant or denial of motions for new trial rests on the
discretion of the trial court,47 may likewise be extended to the CTA. When the
denial of the motion rests upon the discretion of a lower court, this Court will
not interfere with its exercise, unless there is proof of grave abuse thereof.48
That the CTA granted the motion for re-opening of one case for the
presentation of additional evidence and, yet, deny a similar motion in
another case filed by the same party, does not necessarily demonstrate
grave abuse of discretion or arbitrariness on the part of the CTA. Although
the cases involve identical parties, the causes of action and the evidence to
support the same can very well be different. As can be gleaned from the
Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner
corporation was claiming refund/credit of the input VAT on its zero-rated
sales, consisting of actual export sales, to Mitsubishi Metal Corporation in
Tokyo, Japan. The CTA took into account the presentation by petitioner
corporation of inward remittances of its export sales for the quarter involved,
its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual
Report showing its sales to the said foreign corporation, and its application
for refund. In contrast, the present Petitions involve the claims of petitioner
corporation for refund/credit of the input VAT on its purchases of capital
goods and on its effectively zero-rated sales to CBP and EPZA-registered
enterprises PASAR and PHILPHOS for the second, third, and fourth quarters
of 1990 and first quarter of 1992. There being a difference as to the bases of
the claims of petitioner corporation for refund/credit of input VAT in CTA
Case No. 5926 and in the Petitions at bar, then, there are resulting variances
as to the evidence required to support them.
Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No.
5296, invoked by petitioner corporation, emphasizes that the decision of the
CTA to allow petitioner corporation to present evidence "is applicable pro
hac vice or in this occasion only as it is the finding of [the CTA] that petitioner
[corporation] has established a few of the aforementioned material
points regarding the possible existence of the export documents together
with the prior and succeeding returns for the quarters involved, x x x"
[Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be
bound by its ruling in CTA Case No. 5296, when these cases do not involve
the exact same circumstances that compelled it to grant the motion of

petitioner corporation for re-opening of CTA Case No. 5296.
as to which evidence to present in support of his client's cause, later proved

to be unwise, but not necessarily negligent.
Finally, assuming for the sake of argument that the non-presentation of the
required documents was due to the fault of the counsel of petitioner
corporation, this Court finds that it does not constitute excusable negligence
or mistake which would warrant the re-opening of the cases and/or holding
of new trial.
Neither is there any merit in the contention of petitioner corporation that the
non-presentation of the required documentary evidence was due to the
excusable mistake of its counsel, a ground under Section 1, Rule 37 of the
revised Rules of Court for the grant of a new trial. "Mistake," as it is referred
to in the said rule, must be a mistake of fact, not of law, which relates to the
case.52 In the present case, the supposed mistake made by the counsel of
petitioner corporation is one of law, for it was grounded on his interpretation
and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 195, as amended, did not apply to his client's cases and that there was no
need to comply with the documentary requirements set forth therein. And
although the counsel of petitioner corporation advocated an erroneous legal
position, the effects thereof, which did not amount to a deprivation of his
client's right to be heard, must bind petitioner corporation. The question is
not whether petitioner corporation succeeded in establishing its interests, but
whether it had the opportunity to present its side.53
Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence"

must be excusable and generally imputable to the party because if it is
imputable to the counsel, it is binding on the client. To follow a contrary rule
and allow a party to disown his counsel's conduct would render proceedings
indefinite, tentative, and subject to re-opening by the mere subterfuge of
replacing the counsel. What the aggrieved litigant should do is seek
administrative sanctions against the erring counsel and not ask for the
reversal of the court's ruling.49
As elucidated by this Court in another case,50 the general rule is that the
client is bound by the action of his counsel in the conduct of his case and he
cannot therefore complain that the result of the litigation might have been
otherwise had his counsel proceeded differently. It has been held time and
again that blunders and mistakes made in the conduct of the proceedings in
the trial court as a result of the ignorance, inexperience or incompetence of
counsel do not qualify as a ground for new trial. If such were to be admitted
as valid reasons for re-opening cases, there would never be an end to
litigation so long as a new counsel could be employed to allege and show
that the prior counsel had not been sufficiently diligent, experienced or
learned.
Moreover, negligence, to be "excusable," must be one which ordinary
diligence and prudence could not have guarded against.51 Revenue
Regulations No. 3-88, which was issued on 15 February 1988, had been in
effect more than two years prior to the filing by petitioner corporation of its
earliest application for refund/credit of input VAT involved herein on 21
August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995,
after petitioner corporation had filed its Petitions before the CTA, but still
during the pendency of the cases of petitioner corporation before the tax
court. The counsel of petitioner corporation does not allege ignorance of the
foregoing administrative regulation and tax court circular, only that he no
longer deemed it necessary to present the documents required therein
because of the presentation of alleged unrebutted evidence of the zero-rated
sales of petitioner corporation. It was a judgment call made by the counsel
Besides, litigation is a not a "trial and error" proceeding. A party who moves
for a new trial on the ground of mistake must show that ordinary prudence
could not have guarded against it. A new trial is not a refuge for the
obstinate.54 Ordinary prudence in these cases would have dictated the
presentation of all available evidence that would have supported the claims
for refund/credit of input VAT of petitioner corporation. Without sound legal
basis, counsel for petitioner corporation concluded that Revenue
Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did
not apply to its client's claims. The obstinacy of petitioner corporation and its
counsel is demonstrated in their failure, nay, refusal, to comply with the
appropriate administrative regulations and tax court circular in pursuing the
claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even
though these were separately instituted in a span of more than two years. It
is also evident in the failure of petitioner corporation to address the issue
and to present additional evidence despite being given the opportunity to do
so by the Court of Appeals. As pointed out by the appellate court, in its
Decision, dated 15 September 2000, in CA-G.R. SP No. 46718
x x x Significantly, in the resolution, dated 7 June 2000, this Court
directed the parties to file memoranda discussing, among others,
the submission of proof for "its [petitioner's] sales of gold, copper
concentrates, and pyrite to buyers." Nevertheless, the parties,
including the petitioner, failed to address this issue, thereby
necessitating the affirmance of the ruling of the Court of Tax
Appeals on this point.55
Summary
Hence, although this Court agreed with the petitioner corporation that the
two-year prescriptive period for the filing of claims for refund/credit of input
VAT must be counted from the date of filing of the quarterly VAT return, and
that sales to EPZA-registered enterprises operating within economic
processing zones were effectively zero-rated and were not covered by
Revenue Regulations No. 2-88, it still denies the claims of petitioner
corporation for refund of its input VAT on its purchases of capital goods and
effectively zero-rated sales during the second, third, and fourth quarters of
1990 and the first quarter of 1992, for not being established and
substantiated by appropriate and sufficient evidence. Petitioner corporation
is also not entitled to the re-opening of its cases and/or holding of new trial
since the non-presentation of the required documentary evidence before the
BIR and the CTA by its counsel does not constitute excusable negligence or
mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.
WHEREFORE, premises considered, the instant Petitions for Review are
hereby DENIED, and the Decisions, dated 6 July 1999 and 15 September
2000, of the Court of Appeals in CA-G.R. SP Nos. 47607 and 46718,
respectively, are hereby AFFIRMED. Costs against petitioner.
Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184823
October 6, 2010

vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.
DECISION
DEL CASTILLO, J.:
A taxpayer is entitled to a refund either by authority of a statute expressly

granting such right, privilege, or incentive in his favor, or under the principle
of solutio indebiti requiring the return of taxes erroneously or illegally
collected. In both cases, a taxpayer must prove not only his entitlement to a
refund but also his compliance with the procedural due process as nonobservance of the prescriptive periods within which to file the administrative
and the judicial claims would result in the denial of his claim.
This Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeks to set aside the July 30, 2008 Decision1 and the October 6, 2008
Resolution2 of the Court of Tax Appeals (CTA) En Banc.
Factual Antecedents
Respondent Aichi Forging Company of Asia, Inc., a corporation duly
organized and existing under the laws of the Republic of the Philippines, is
engaged in the manufacturing, producing, and processing of steel and its byproducts.3 It is registered with the Bureau of Internal Revenue (BIR) as a
Value-Added Tax (VAT) entity4 and its products, "close impression die steel
forgings" and "tool and dies," are registered with the Board of Investments
(BOI) as a pioneer status.5
On September 30, 2004, respondent filed a claim for refund/credit of input
VAT for the period July 1, 2002 to September 30, 2002 in the total amount
of P3,891,123.82 with the petitioner Commissioner of Internal Revenue
(CIR), through the Department of Finance (DOF) One-Stop Shop InterAgency Tax Credit and Duty Drawback Center.6
Proceedings before the Second Division of the CTA
On even date, respondent filed a Petition for Review7 with the CTA for the
refund/credit of the same input VAT. The case was docketed as CTA Case
No. 7065 and was raffled to the Second Division of the CTA.
In the Petition for Review, respondent alleged that for the period July 1, 2002
to September 30, 2002, it generated and recorded zero-rated sales in the
amount of P131,791,399.00,8 which was paid pursuant to Section 106(A) (2)
(a) (1), (2) and (3) of the National Internal Revenue Code of 1997
(NIRC);9 that for the said period, it incurred and paid input VAT amounting
to P3,912,088.14 from purchases and importation attributable to its zerorated sales;10and that in its application for refund/credit filed with the DOF
One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center, it only
claimed the amount of P3,891,123.82.11
In response, petitioner filed his Answer12 raising the following special and
affirmative defenses, to wit:
4. Petitioners alleged claim for refund is subject to administrative
investigation by the Bureau;
5. Petitioner must prove that it paid VAT input taxes for the period in
question;
6. Petitioner must prove that its sales are export sales
contemplated under Sections 106(A) (2) (a), and 108(B) (1) of the
Tax Code of 1997;
7. Petitioner must prove that the claim was filed within the two (2)
year period prescribed in Section 229 of the Tax Code;
8. In an action for refund, the burden of proof is on the taxpayer to
establish its right to refund, and failure to sustain the burden is fatal
to the claim for refund; and
9. Claims for refund are construed strictly against the claimant for
the same partake of the nature of exemption from taxation.13
Trial ensued, after which, on January 4, 2008, the Second Division of the
CTA rendered a Decision partially granting respondents claim for
refund/credit. Pertinent portions of the Decision read:
For a VAT registered entity whose sales are zero-rated, to validly claim a
refund, Section 112 (A) of the NIRC of 1997, as amended, provides:
SEC. 112. Refunds or Tax Credits of Input Tax.
(A) Zero-rated or Effectively Zero-rated Sales. Any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were made, apply
for the issuance of a tax credit certificate or refund of creditable input tax due
or paid attributable to such sales, except transitional input tax, to the extent
that such input tax has not been applied against output tax: x x x
Pursuant to the above provision, petitioner must comply with the following
requisites: (1) the taxpayer is engaged in sales which are zero-rated or
effectively zero-rated; (2) the taxpayer is VAT-registered; (3) the claim must
be filed within two years after the close of the taxable quarter when such
sales were made; and (4) the creditable input tax due or paid must be
attributable to such sales, except the transitional input tax, to the extent that
such input tax has not been applied against the output tax.
The Court finds that the first three requirements have been complied [with]
by petitioner.
With regard to the first requisite, the evidence presented by petitioner, such
as the Sales Invoices (Exhibits "II" to "II-262," "JJ" to "JJ-431," "KK" to "KK394" and "LL") shows that it is engaged in sales which are zero-rated.
The second requisite has likewise been complied with. The Certificate of
Registration with OCN 1RC0000148499 (Exhibit "C") with the BIR proves
that petitioner is a registered VAT taxpayer.
In compliance with the third requisite, petitioner filed its administrative claim
for refund on September 30, 2004 (Exhibit "N") and the present Petition for
Review on September 30, 2004, both within the two (2) year prescriptive
period from the close of the taxable quarter when the sales were made,
which is from September 30, 2002.
As regards, the fourth requirement, the Court finds that there are some
documents and claims of petitioner that are baseless and have not been
satisfactorily substantiated.
xxxx
In sum, petitioner has sufficiently proved that it is entitled to a refund or
issuance of a tax credit certificate representing unutilized excess input VAT
payments for the period July 1, 2002 to September 30, 2002, which are
attributable to its zero-rated sales for the same period, but in the reduced
amount of P3,239,119.25, computed as follows:
Amount of Claimed Input VAT
Less:
Exceptions as found by the ICPA
P 3,891,123.82
41,020.37
Net Creditable Input VAT

Less:
Output VAT Due
Excess Creditable Input VAT
P 3,850,103.45 Petitioner argues that the administrative and judicial claims were filed
beyond the period allowed by law and hence, the honorable Court has no
610,984.20 jurisdiction over the same. In addition, petitioner further contends that
respondent's filing of the administrative and judicial [claims] effectively
P 3,239,119.25
eliminates the authority of the honorable Court to exercise jurisdiction over
the judicial claim.
WHEREFORE, premises considered, the present Petition for Review is

PARTIALLY GRANTED. Accordingly, respondent is hereby ORDERED TO
REFUND OR ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner [in]
the reduced amount of THREE MILLION TWO HUNDRED THIRTY NINE
THOUSAND ONE HUNDRED NINETEEN AND 25/100 PESOS
(P3,239,119.25), representing the unutilized input VAT incurred for the
months of July to September 2002.
SO ORDERED.14
Dissatisfied with the above-quoted Decision, petitioner filed a Motion for
Partial Reconsideration,15 insisting that the administrative and the judicial
claims were filed beyond the two-year period to claim a tax refund/credit
provided for under Sections 112(A) and 229 of the NIRC. He reasoned that
since the year 2004 was a leap year, the filing of the claim for tax
refund/credit on September 30, 2004 was beyond the two-year period, which
expired on September 29, 2004.16 He cited as basis Article 13 of the Civil
Code,17 which provides that when the law speaks of a year, it is equivalent to
365 days. In addition, petitioner argued that the simultaneous filing of the
administrative and the judicial claims contravenes Sections 112 and 229 of
the NIRC.18 According to the petitioner, a prior filing of an administrative
claim is a "condition precedent"19 before a judicial claim can be filed. He
explained that the rationale of such requirement rests not only on the
doctrine of exhaustion of administrative remedies but also on the fact that
the CTA is an appellate body which exercises the power of judicial review
over administrative actions of the BIR. 20
The Second Division of the CTA, however, denied petitioners Motion for
Partial Reconsideration for lack of merit. Petitioner thus elevated the matter
to the CTA En Banc via a Petition for Review.21
We are not persuaded.

Section 114 of the 1997 NIRC, and We quote, to wit:
SEC. 114. Return and Payment of Value-added Tax.
(A) In General. Every person liable to pay the value-added tax imposed
under this Title shall file a quarterly return of the amount of his gross sales or
receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VATregistered persons shall pay the value-added tax on a monthly basis.
[x x x x ]
Based on the above-stated provision, a taxpayer has twenty five (25) days
from the close of each taxable quarter within which to file a quarterly return
of the amount of his gross sales or receipts. In the case at bar, the taxable
quarter involved was for the period of July 1, 2002 to September 30, 2002.
Applying Section 114 of the 1997 NIRC, respondent has until October 25,
2002 within which to file its quarterly return for its gross sales or receipts
[with] which it complied when it filed its VAT Quarterly Return on October 20,
2002.
In relation to this, the reckoning of the two-year period provided under
Section 229 of the 1997 NIRC should start from the payment of tax subject
claim for refund. As stated above, respondent filed its VAT Return for the
taxable third quarter of 2002 on October 20, 2002. Thus, respondent's
administrative and judicial claims for refund filed on September 30, 2004
were filed on time because AICHI has until October 20, 2004 within which to
file its claim for refund.
Ruling of the CTA En Banc

On July 30, 2008, the CTA En Banc affirmed the Second Divisions Decision
allowing the partial tax refund/credit in favor of respondent. However, as to
the reckoning point for counting the two-year period, the CTA En Banc ruled:
In addition, We do not agree with the petitioner's contention that the 1997
NIRC requires the previous filing of an administrative claim for refund prior to
the judicial claim. This should not be the case as the law does not prohibit
the simultaneous filing of the administrative and judicial claims for refund.
What is controlling is that both claims for refund must be filed within the twoyear prescriptive period.
In sum, the Court En Banc finds no cogent justification to disturb the findings
and conclusion spelled out in the assailed January 4, 2008 Decision and
March 13, 2008 Resolution of the CTA Second Division. What the instant
petition seeks is for the Court En Banc to view and appreciate the evidence
in their own perspective of things, which unfortunately had already been
considered and passed upon.
WHEREFORE, the instant Petition for Review is hereby DENIED DUE
COURSE and DISMISSED for lack of merit. Accordingly, the January 4,
2008 Decision and March 13, 2008 Resolution of the CTA Second Division in
CTA Case No. 7065 entitled, "AICHI Forging Company of Asia, Inc. petitioner
vs. Commissioner of Internal Revenue, respondent" are hereby AFFIRMED
in toto.
Petitioner further argues that the CTA En Banc erred in applying Section
114(A) of the NIRC in determining the start of the two-year period as the said
provision pertains to the compliance requirements in the payment of
VAT.28 He asserts that it is Section 112, paragraph (A), of the same Code
that should apply because it specifically provides for the period within which
a claim for tax refund/ credit should be made.29
Petitioner likewise puts in issue the fact that the administrative claim with the
BIR and the judicial claim with the CTA were filed on the same day.30 He
opines that the simultaneous filing of the administrative and the judicial
claims contravenes Section 229 of the NIRC, which requires the prior filing
of an administrative claim.31 He insists that such procedural requirement is
based on the doctrine of exhaustion of administrative remedies and the fact
that the CTA is an appellate body exercising judicial review over
administrative actions of the CIR.32
Respondents Arguments
SO ORDERED.22
Petitioner sought reconsideration but the CTA En Banc denied23 his Motion
for Reconsideration.
Issue
Hence, the present recourse where petitioner interposes the issue of
whether respondents judicial and administrative claims for tax refund/credit
were filed within the two-year prescriptive period provided in Sections 112(A)
and 229 of
the NIRC.24
Petitioners Arguments
Petitioner maintains that respondents administrative and judicial claims for
tax refund/credit were filed in violation of Sections 112(A) and 229 of the
NIRC.25 He posits that pursuant to Article 13 of the Civil Code,26 since the
year 2004 was a leap year, the filing of the claim for tax refund/credit on
September 30, 2004 was beyond the two-year period, which expired on
September 29, 2004.27
For its part, respondent claims that it is entitled to a refund/credit of its

unutilized input VAT for the period July 1, 2002 to September 30, 2002 as a
matter of right because it has substantially complied with all the
requirements provided by law.33 Respondent likewise defends the CTA En
Banc in applying Section 114(A) of the NIRC in computing the prescriptive
period for the claim for tax refund/credit. Respondent believes that Section
112(A) of the NIRC must be read together with Section 114(A) of the same
Code.34
As to the alleged simultaneous filing of its administrative and judicial claims,
respondent contends that it first filed an administrative claim with the OneStop Shop Inter-Agency Tax Credit and Duty Drawback Center of the DOF
before it filed a judicial claim with the CTA.35 To prove this, respondent points
out that its Claimant Information Sheet No. 4970236 and BIR Form No. 1914
for the third quarter of 2002,37 which were filed with the DOF, were attached
as Annexes "M" and "N," respectively, to the Petition for Review filed with the
CTA.38 Respondent further contends that the non-observance of the 120-day
period given to the CIR to act on the claim for tax refund/credit in Section
112(D) is not fatal because what is important is that both claims are filed
within the two-year prescriptive period.39 In support thereof, respondent cites
Commissioner of Internal Revenue v. Victorias Milling Co., Inc.40 where it
was ruled that "[i]f, however, the [CIR] takes time in deciding the claim, and
the period of two years is about to end, the suit or proceeding must be
started in the [CTA] before the end of the two-year period without awaiting
the decision of the [CIR]."41 Lastly, respondent argues that even if the period
had already lapsed, it may be suspended for reasons of equity considering

that it is not a jurisdictional requirement.42
Our Ruling
The petition has merit.
(A) In General. Every person liable to pay the value-added tax imposed
under this Title shall file a quarterly return of the amount of his gross sales or
receipts within twenty-five (25) days following the close of each taxable
quarter prescribed for each taxpayer: Provided, however, That VATregistered persons shall pay the value-added tax on a monthly basis.
Unutilized input VAT must be claimed within two years after the close of the
taxable quarter when the sales were made
Any person, whose registration has been cancelled in accordance with

Section 236, shall file a return and pay the tax due thereon within twenty-five
(25) days from the date of cancellation of registration: Provided, That only
one consolidated return shall be filed by the taxpayer for his principal place
of business or head office and all branches.
In computing the two-year prescriptive period for claiming a refund/credit of

unutilized input VAT, the Second Division of the CTA applied Section 112(A)
of the NIRC, which states:
xxxx

(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person,
that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),
(2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zerorated sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales. (Emphasis
supplied.)
The CTA En Banc, on the other hand, took into consideration Sections 114
and 229 of the NIRC, which read:
SEC. 114. Return and Payment of Value-Added Tax.
SEC. 229. Recovery of tax erroneously or illegally collected.

No suit or proceeding shall be maintained in any court for the recovery of
any national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessively
or in any manner wrongfully collected, until a claim for refund or credit has
been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of
any supervening cause that may arise after payment: Provided, however,
That the Commissioner may, even without written claim therefor, refund or
credit any tax, where on the face of the return upon which payment was
made, such payment appears clearly to have been erroneously paid.
(Emphasis supplied.)
Hence, the CTA En Banc ruled that the reckoning of the two-year period for
filing a claim for refund/credit of unutilized input VAT should start from the
date of payment of tax and not from the close of the taxable quarter when
the sales were made.43
The pivotal question of when to reckon the running of the two-year
prescriptive period, however, has already been resolved in Commissioner of
Internal Revenue v. Mirant Pagbilao Corporation,44 where we ruled that
Section 112(A) of the NIRC is the applicable provision in determining the
start of the two-year period for claiming a refund/credit of unutilized input

VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as "both
provisions apply only to instances of erroneous payment or illegal collection
of internal revenue taxes."45 We explained that:
The above proviso [Section 112 (A) of the NIRC] clearly provides in no
uncertain terms that unutilized input VAT payments not otherwise used
for any internal revenue tax due the taxpayer must be claimed within
two years reckoned from the close of the taxable quarter when the
relevant sales were made pertaining to the input VAT regardless of
whether said tax was paid or not. As the CA aptly puts it, albeit it
erroneously applied the aforequoted Sec. 112 (A), "[P]rescriptive period
commences from the close of the taxable quarter when the sales were made
and not from the time the input VAT was paid nor from the time the official
receipt was issued." Thus, when a zero-rated VAT taxpayer pays its input
VAT a year after the pertinent transaction, said taxpayer only has a year to
file a claim for refund or tax credit of the unutilized creditable input VAT. The
reckoning frame would always be the end of the quarter when the pertinent
sales or transaction was made, regardless when the input VAT was paid. Be
that as it may, and given that the last creditable input VAT due for the period
covering the progress billing of September 6, 1996 is the third quarter of
1996 ending on September 30, 1996, any claim for unutilized creditable
input VAT refund or tax credit for said quarter prescribed two years after
September 30, 1996 or, to be precise, on September 30, 1998.
Consequently, MPCs claim for refund or tax credit filed on December 10,
1999 had already prescribed.
Reckoning for prescriptive period under
Secs. 204(C) and 229 of the NIRC inapplicable
To be sure, MPC cannot avail itself of the provisions of either Sec. 204(C) or
229 of the NIRC which, for the purpose of refund, prescribes a different
starting point for the two-year prescriptive limit for the filing of a claim
therefor. Secs. 204(C) and 229 respectively provide:
Sec. 204. Authority of the Commissioner to Compromise, Abate and Refund
or Credit Taxes. The Commissioner may
xxxx
(c) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a written claim for credit or
refund.
xxxx
Sec. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, of any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of any sum alleged to have
been excessively or in any manner wrongfully collected, until a claim for
refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty, or sum has
been paid under protest or duress.
That the Commissioner may, even without a written claim therefor, refund or
Notably, the above provisions also set a two-year prescriptive period,
reckoned from date of payment of the tax or penalty, for the filing of a claim
of refund or tax credit. Notably too, both provisions apply only to
instances of erroneous payment or illegal collection of internal revenue
taxes.
MPCs creditable input VAT not erroneously paid
For perspective, under Sec. 105 of the NIRC, creditable input VAT is an
indirect tax which can be shifted or passed on to the buyer, transferee, or
lessee of the goods, properties, or services of the taxpayer. The fact that the
subsequent sale or transaction involves a wholly-tax exempt client, resulting
in a zero-rated or effectively zero-rated transaction, does not, standing
alone, deprive the taxpayer of its right to a refund for any unutilized
creditable input VAT, albeit the erroneous, illegal, or wrongful payment angle
does not enter the equation.
Administrative Code of 1987, however, a year is composed of 12 calendar

months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant.
xxxx
There obviously exists a manifest incompatibility in the manner of
Considering the foregoing discussion, it is clear that Sec. 112 (A) of the
NIRC, providing a two-year prescriptive period reckoned from the close
of the taxable quarter when the relevant sales or transactions were
made pertaining to the creditable input VAT, applies to the instant case,
and not to the other actions which refer to erroneous payment of
taxes.46 (Emphasis supplied.)
In view of the foregoing, we find that the CTA En Banc erroneously applied
Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive
period for claiming refund/credit of unutilized input VAT. To be clear, Section
112 of the NIRC is the pertinent provision for the refund/credit of input VAT.
Thus, the two-year period should be reckoned from the close of the taxable
quarter when the sales were made.
The administrative claim was timely filed
Bearing this in mind, we shall now proceed to determine whether the
administrative claim was timely filed.
47
Relying on Article 13 of the Civil Code, which provides that a year is

equivalent to 365 days, and taking into account the fact that the year 2004
was a leap year, petitioner submits that the two-year period to file a claim for
tax refund/ credit for the period July 1, 2002 to September 30, 2002 expired
on September 29, 2004.48
We do not agree.
In Commissioner of Internal Revenue v. Primetown Property Group,
Inc.,49 we said that as between the Civil Code, which provides that a year is
equivalent to 365 days, and the Administrative Code of 1987, which states
that a year is composed of 12 calendar months, it is the latter that must
prevail following the legal maxim, Lex posteriori derogat priori.50 Thus:
computing legal periods under the Civil Code and the Administrative Code of
1987. For this reason, we hold that Section 31, Chapter VIII, Book I of the
Administrative Code of 1987, being the more recent law, governs the
computation of legal periods. Lex posteriori derogat priori.
Applying Section 31, Chapter VIII, Book I of the Administrative Code of 1987
to this case, the two-year prescriptive period (reckoned from the time
respondent filed its final adjusted return on April 14, 1998) consisted of 24
calendar months, computed as follows:
Year 1 1st calendar month April 15, 1998 to May 14, 1998
2nd calendar month May 15, 1998 to June 14, 1998
3rd calendar month June 15, 1998 to July 14, 1998
4th calendar month July 15, 1998 to August 14, 1998
5th calendar month August 15, 1998 to September 14, 1998
6th calendar month September 15, 1998 to October 14, 1998
7th calendar month October 15, 1998 to November 14, 1998
8th calendar month November 15, 1998 to December 14, 1998
9th calendar month December 15, 1998 to January 14, 1999
10th calendar month January 15, 1999 to February 14, 1999
11th calendar month February 15, 1999 to March 14, 1999
12th calendar month March 15, 1999 to April 14, 1999
Year 2 13th calendar month April 15, 1999 to May 14, 1999
14th calendar month May 15, 1999 to June 14, 1999
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to
365 days whether it be a regular year or a leap year. Under the
15th calendar month June 15, 1999 to July 14, 1999
days from the date of submission of complete documents in support of the

application filed in accordance with Subsections (A) and (B) hereof.
August 15, 1999 to September 14, 1999
In case of full or partial denial of the claim for tax refund or tax credit, or the
September 15, 1999 to October 14, 1999
failure on the part of the Commissioner to act on the application within the
period prescribed above, the taxpayer affected may, within thirty (30) days
October 15, 1999 to November 14, 1999
from the receipt of the decision denying the claim or after the expiration of
November 15, 1999 to December 14, 1999
the one hundred twenty day-period, appeal the decision or the unacted claim
with the Court of Tax Appeals. (Emphasis supplied.)
December 15, 1999 to January 14, 2000
16th calendar month July 15, 1999 to August 14, 1999

17th calendar month
18th calendar month
19th calendar month
20th calendar month
21st calendar month
22nd calendar month January 15, 2000 to February 14, 2000 Section 112(D) of the NIRC clearly provides that the CIR has "120 days,
from the date of the submission of the complete documents in support of the
23rd calendar month February 15, 2000 to March 14, 2000 application [for tax refund/credit]," within which to grant or deny the claim. In
case of full or partial denial by the CIR, the taxpayers recourse is to file an
24th calendar month March 15, 2000 to April 14, 2000
appeal before the CTA within 30 days from receipt of the decision of the CIR.
However, if after the 120-day period the CIR fails to act on the application for
tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the
We therefore hold that respondent's petition (filed on April 14, 2000) was
CIR to CTA within 30 days.
filed on the last day of the 24th calendar month from the day respondent
filed its final adjusted return. Hence, it was filed within the reglementary
period.51
In this case, the administrative and the judicial claims were simultaneously
filed on September 30, 2004. Obviously, respondent did not wait for the
decision of the CIR or the lapse of the 120-day period. For this reason, we
Applying this to the present case, the two-year period to file a claim for tax
find the filing of the judicial claim with the CTA premature.
refund/credit for the period July 1, 2002 to September 30, 2002 expired on
September 30, 2004. Hence, respondents administrative claim was timely
filed.
Respondents assertion that the non-observance of the 120-day period is not
fatal to the filing of a judicial claim as long as both the administrative and the
judicial claims are filed within the two-year prescriptive period52 has no legal
The filing of the judicial claim was premature
basis.
However, notwithstanding the timely filing of the administrative claim, we
are constrained to deny respondents claim for tax refund/credit for having
been filed in violation of Section 112(D) of the NIRC, which provides that:
xxxx
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.
In proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120)
There is nothing in Section 112 of the NIRC to support respondents view.

Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years
after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales." The phrase "within two (2) years x x x apply
for the issuance of a tax credit certificate or refund" refers to applications for
refund/credit filed with the CIR and not to appeals made to the CTA. This is
apparent in the first paragraph of subsection (D) of the same provision,
which states that the CIR has "120 days from the submission of complete
documents in support of the application filed in accordance with Subsections
(A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory
Section 112(D) of the NIRC, which already provides for a specific period
within which a taxpayer should appeal the decision or inaction of the CIR.
The second paragraph of Section 112(D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the
120-day period; and (2) when no decision is made after the 120-day period.
In both instances, the taxpayer has 30 days within which to file an appeal
with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA.
With regard to Commissioner of Internal Revenue v. Victorias Milling, Co.,
Inc.53 relied upon by respondent, we find the same inapplicable as the tax
provision involved in that case is Section 306, now Section 229 of the NIRC.
And as already discussed, Section 229 does not apply to refunds/credits of
input VAT, such as the instant case.
In fine, the premature filing of respondents claim for refund/credit of input
VAT before the CTA warrants a dismissal inasmuch as no jurisdiction was
acquired by the CTA.
WHEREFORE, the Petition is hereby GRANTED. The assailed July 30,
2008 Decision and the October 6, 2008 Resolution of the Court of Tax
Appeals are hereby REVERSED and SET ASIDE. The Court of Tax Appeals
Second Division is DIRECTED to dismiss CTA Case No. 7065 for having
been prematurely filed.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice

vs.
MINDANAO II GEOTHERMAL PARTNERSHIP, Respondent.
DECISION
SERENO, CJ:
This Rule 45 Petition1 requires this Court to address the question of
timeliness with respect to petitioner's administrative and judicial claims for
refund and credit of accumulated unutilized input Value Added Tax (VAT)
under Section 112(A) and Section 112(D) of the 1997 Tax Code. Petitioner
Mindanao II Geothermal Partnership (Mindanao II) assails the Decision2 and
Resolution3 of the Court of Tax Appeals En Banc (CTA En Banc) in CTA En
Banc Case No. 448, affirming the Decision in CTA Case No. 7507 of the CTA
Second Division.4 The latter ordered the refund or issuance of a tax credit
certificate in the amount of P6,791,845.24 representing unutilized input VAT
incurred for the second, third, and fourth quarters of taxable year 2004 in
favor of herein respondent, Mindanao II.
FACTS
Mindanao II is a partnership registered with the Securities and Exchange
Commission.5 It is engaged in the business of power generation and sale of
electricity to the National Power Corporation (NAPOCOR)6 and is accredited
by the Department of Energy.7
Mindanao II filed its Quarterly VAT Returns for the second, third and fourth
quarters of taxable year 2004 on the following dates:8
Date filed

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 191498
January 15, 2014
Quarter
Taxable Year
12 July 2005
2nd
2004
22 October 2004
12 July 2005
3rd
2004
25 January 2005
12 July 2005
4th
2004
Original
Amended
26 July 2004
On 6 October 2005, Mindanao II filed with the Bureau of Internal Revenue

(BIR) an application for the refund or credit of accumulated unutilized
creditable input taxes.9 In support of the administrative claim for refund or
credit, Mindanao II alleged, among others, that it is registered with the BIR
as a value-added taxpayer10 and all its sales are zero-rated under the EPIRA
law.11 It further stated that for the second, third, and fourth quarters of
taxable year 2004, it paid input VAT in the aggregate amount
of P7,167,005.84, which were directly attributable to the zero-rated sales.
The input taxes had not been applied against output tax.
Pursuant to Section 112(D) of the 1997 Tax Code, the Commissioner of
Internal Revenue (CIR) had a period of 120 days, or until 3 February 2006,
to act on the claim. The administrative claim, however, remained unresolved
on 3 February 2006.
Under the same provision, Mindanao II could treat the inaction of the CIR as
a denial of its claim, in which case, the former would have 30 days to file an
appeal to the CTA, that is, on 5 March 2006. Mindanao II, however, did not
file an appeal within the 30-day period.
Apparently, Mindanao II believed that a judicial claim must be filed within the
two-year prescriptive period provided under Section 112(A) and that such
time frame was to be reckoned from the filing of its Quarterly VAT Returns
for the second, third, and fourth quarters of taxable year 2004, that is, from
26 July 2004, 22 October 2004, and 25 January 2005, respectively. Thus, on
21 July 2006, Mindanao II, claiming inaction on the part of the CIR and that
the two-year prescriptive period was about to expire, filed a Petition for
Review with the CTA docketed as CTA Case No. 6133.12
On 8 June 2007, while the application for refund or credit of unutilized input
VAT of Mindanao II was pending before the CTA Second Division, this Court
promulgated Atlas Consolidated Mining and Development Corporation v.
CIR13 (Atlas). Atlas held that the two-year prescriptive period for the filing of
a claim for an input VAT refund or credit is to be reckoned from the date of
filing of the corresponding quarterly VAT return and payment of the tax.
On 12 August 2008, the CTA Second Division rendered a Decision14 ordering
the CIR to grant a refund or a tax credit certificate, but only in the reduced
amount of P6,791,845.24, representing unutilized input VAT incurred for the
second, third and fourth quarters of taxable year 2004.15
In support of its ruling, the CTA Second Division held that Mindanao II
complied with the twin requisites for VAT zero-rating under the EPIRA law:
first, it is a generation company, and second, it derived sales from power

generation. It also ruled that Mindanao II satisfied the requirements for the
grant of a refund/credit under Section 112 of the Tax Code: (1) there must be
zero-rated or effectively zero-rated sales; (2) input taxes must have been
incurred or paid; (3) the creditable input tax due or paid must be attributable
to zero-rated sales or effectively zero-rated sales; (4) the input VAT
payments must not have been applied against any output liability; and (5)
the claim must be filed within the two-year prescriptive period.16
As to the second requisite, however, the input tax claim to the extent
of P375,160.60 corresponding to purchases of services from Mitsubishi
Corporation was disallowed, since it was not substantiated by official
receipts.17
As regards to the fifth requirement in section 112 of the Tax Code, the tax
court, citing Atlas, counted from 26 July 2004, 22 October 2004, and 25
January 2005 the dates when Mindanao II filed its Quarterly VAT Returns
for the second, third, and fourth quarters of taxable year 2004, respectively
and determined that both the administrative claim filed on 6 October 2005
and the judicial claim filed on 21 July 2006 fell within the two-year
prescriptive period.18
On 1 September 2008, the CIR filed a Motion for Partial
Reconsideration,19 pointing out that prescription had already set in, since the
appeal to the CTA was filed only on 21 July 2006, which was way beyond
the last day to appeal 5 March 2006.20 As legal basis for this argument, the
CIR relied on Section 112(D) of the 1997 Tax Code.21
Meanwhile, on 12 September 2008, this Court promulgated CIR v. Mirant
Pagbilao Corporation (Mirant).22 Mirant fixed the reckoning date of the twoyear prescriptive period for the application for refund or credit of unutilized
input VAT at the close of the taxable quarter when the relevant sales were
made , as stated in Section 112(A).23
On 3 December 2008, the CTA Second Division denied the CIRs Motion for
Partial Reconsideration.24 The tax court stood by its reliance on Atlas25 and
on its finding that both the administrative and judicial claims of Mindanao II
were timely filed.26
On 7 January 2009, the CIR elevated the matter to the CTA En Banc via a
Petition for Review.27 Apart from the contention that the judicial claim of
Mindanao II was filed beyond the 30-day period fixed by Section 112(D) of
the 1997 Tax Code,28 the CIR argued that Mindanao II erroneously fixed 26
July 2004, the date when the return for the second quarter was filed, as the
date from which to reckon the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT under Section 112(A).
As the two-year prescriptive period ended on 30 June 2006, the Petition for
Review of Mindanao II was filed out of time on 21 July 2006.29 The CIR
invoked the recently promulgated Mirant to support this theory.
The resolution of this case hinges on the question of compliance with the
following time requirements for the grant of a claim for refund or credit of
unutilized input VAT: (1) the two-year prescriptive period for filing an
application for refund or credit of unutilized input VAT; and (2) the 120+30
day period for filing an appeal with the CTA.
THE COURTS RULING
On 11 November 2009, the CTA En Banc rendered its Decision denying the
CIRs Petition for Review.30 On the question whether the application for
refund was timely filed, it held that the CTA Second Division correctly applied
the Atlas ruling.31 It reasoned that Atlas remained to be the controlling
doctrine. Mirant was a new doctrine and, as such, the latter should not apply
retroactively to Mindanao II who had relied on the old doctrine of Atlas and
had acted on the faith thereof.32
As to the issue of compliance with the 30-day period for appeal to the CTA,
the CTA En Banc held that this was a requirement only when the CIR
actually denies the taxpayers claim. But in cases of CIR inaction, the 30-day
period is not a mandatory requirement; the judicial claim is seasonably filed
as long as it is filed after the lapse of the 120-day waiting period but within
two years from the date of filing of the return.33
The CIR filed a Motion for Partial Reconsideration34 of the Decision, but it
was denied for lack of merit.35
Dissatisfied, the CIR filed this Rule 45 Petition, raising the following
arguments in support of its appeal:
I.
THE CTA 2ND DIVISION LACKED JURISDICTION TO TAKE
COGNIZANCE OF THE CASE.
II.
THE COURT A QUOS RELIANCE ON THE RULING IN ATLAS IS
MISPLACED.36
ISSUES
We deny Mindanao IIs claim for refund or credit of unutilized input VAT on
the ground that its judicial claims were filed out of time, even as we hold that
its application for refund was filed on time.
I.
MINDANAO IIS APPLICATION FOR
REFUND WAS FILED ON TIME
We find no error in the conclusion of the tax courts that the application for
refund or credit of unutilized input VAT was timely filed. The problem lies with
their bases for the conclusion as to: (1) what should be filed within the
prescriptive period; and (2) the date from which to reckon the prescriptive
period.
We thus take a different route to reach the same conclusion, initially focusing
our discussion on what should be filed within the two-year prescriptive
period.
A. The Judicial Claim Need Not Be Filed Within the Two-Year Prescriptive
Period
Section 112(A) provides:
(A) Zero-rated or Effectively Zero-rated Sales Any VAT-registered person,
that such input tax has not been applied against output tax: Provided,
however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1),
(2) and (B) and Section 108(B)(1) and (2), the acceptable foreign currency
exchange proceeds thereof had been duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided,
further, That where the taxpayer is engaged in zero-rated or effectively zerorated sale and also in taxable or exempt sale of goods or properties or
services, and the amount of creditable input tax due or paid cannot be
directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales.
Both the CTA Second Division and CTA En Banc decisions held that the
phrase "apply for the issuance of a tax credit certificate or refund" in Section
112(A) is construed to refer to both the administrative claim filed with the CIR
and the judicial claim filed with the CTA. This view, however, has no legal
basis.
In Commissioner of Internal Revenue v. Aichi Forging Company of Asia, Inc.
(Aichi), we dispelled the misconception that both the administrative and
judicial claims must be filed within the two-year prescriptive period:37
There is nothing in Section 112 of the NIRC to support respondents view.
Subsection (A) of the said provision states that "any VAT-registered person,
whose sales are zero-rated or effectively zero-rated may, within two years
after the close of the taxable quarter when the sales were made, apply for
the issuance of a tax credit certificate or refund of creditable input tax due or
paid attributable to such sales." The phrase "within two (2) years x x x apply
for the issuance of a tax credit certificate or refund" refers to applications for
refund/credit filed with the CIR and not to appeals made to the CTA. This is
apparent in the first paragraph of subsection (D) of the same provision,
which states that the CIR has "120 days from the submission of complete
documents in support of the application filed in accordance with Subsections
(A) and (B)" within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory
Section 112 (D) of the NIRC, which already provides for a specific period
within which a taxpayer should appeal the decision or inaction of the CIR.
The second paragraph of Section 112 (D) of the NIRC envisions two
scenarios: (1) when a decision is issued by the CIR before the lapse of the
120-day period; and (2) when no decision is made after the 120-day period.
In both instances, the taxpayer has 30 days within which to file an appeal
with the CTA. As we see it then, the 120-day period is crucial in filing an
appeal with the CTA. (Emphasis supplied)
The message of Aichi is clear: it is only the administrative claim that must be
filed within the two-year prescriptive period; the judicial claim need not fall
within the two-year prescriptive period.
Having disposed of this question, we proceed to the date for reckoning the
prescriptive period under Section 112(A).
B. Reckoning Date is the Close of the Taxable Quarter When the Relevant
Sales Were Made.
The other flaw in the reasoning of the tax courts is their reliance on the Atlas
ruling, which fixed the reckoning point to the date of filing the return and
payment of the tax.
The CIRs Stand
The CIRs stand is that Atlas is not applicable to the case at hand as it
involves Section 230 of the 1977 Tax Code, which contemplates recovery of
tax payments erroneously or illegally collected. On the other hand, this case
deals with claims for tax refund or credit of unutilized input VAT for the
second, third, and fourth quarters of 2004, which are covered by Section 112
of the 1977 Tax Code.38
The CIR further contends that Mindanao II cannot claim good faith reliance
on the Atlas doctrine since the case was decided only on 8 June 2007, two
years after Mindanao II filed its claim for refund or credit with the CIR and
one year after it filed a Petition for Review with the CTA on 21 July 2006.39
In lieu of Atlas, the CIR proposes that it is the Court's ruling in Mirant that
should apply to this case despite the fact that the latter was promulgated on
12 September 2008, after Mindanao II had filed its administrative claim in
2005.40 It argues that Mirant can be applied retroactively to this case, since
the decision merely interprets Section 112, a provision that was already
effective when Mindanao II filed its claims for tax refund or credit.
The Taxpayers Defense
On the other hand, Mindanao II counters that Atlas, decided by the Third
Division of this Court, could not have been superseded by Mirant, a Second
Division Decision of this Court. A doctrine laid down by the Supreme Court in
a Division may be modified or reversed only through a decision of the Court
sitting en banc.41
Mindanao II further contends that when it filed its Petition for Review, the
prevailing rule in the CTA reckons the two-year prescriptive period from the
date of the filing of the VAT return.42 Finally, after building its case on Atlas,
Mindanao II assails the CIRs reliance on the Mirant doctrine stating that it
cannot be applied retroactively to this case, lest it violate the rock-solid rule
that a judicial ruling cannot be given retroactive effect if it will impair vested
rights.43
Section 112(A) is the Applicable Rule
The issue posed is not novel. In the recent case of Commissioner of Internal
Revenue v. San Roque Power Corporation44 (San Roque), this Court
resolved the threshold question of when to reckon the two-year prescriptive
period for filing an administrative claim for refund or credit of unutilized input
VAT under the 1997 Tax Code in view of our pronouncements in Atlas and
Mirant. In that case, we delineated the scope and effectivity of the Atlas and
Mirant doctrines as follows:
The Atlas doctrine, which held that claims for refund or credit of input VAT
must comply with the two-year prescriptive period under Section 229, should
be effective only from its promulgation on 8 June 2007 until its abandonment
on 12 September 2008 in Mirant. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the
output VAT. Prior to the Atlas doctrine, the two-year prescriptive period for
claiming refund or credit of input VAT should be governed by Section 112(A)
following the verba legis rule. The Mirant ruling, which abandoned the Atlas
doctrine, adopted the verba legis rule, thus applying Section 112(A) in
computing the two-year prescriptive period in claiming refund or credit of
input VAT. (Emphases supplied)
Furthermore, San Roque distinguished between Section 112 and Section
229 of the 1997 Tax Code:
The input VAT is not "excessively" collected as understood under Section
229 because at the time the input VAT is collected the amount paid is correct
and proper. The input VAT is a tax liability of, and legally paid by, a VATregistered seller of goods, properties or services used as input by another
VAT-registered person in the sale of his own goods, properties, or services.
This tax liability is true even if the seller passes on the input VAT to the buyer
as part of the purchase price. The second VAT-registered person, who is not
legally liable for the input VAT, is the one who applies the input VAT as credit
for his own output VAT. If the input VAT is in fact "excessively" collected as
understood under Section 229, then it is the first VAT-registered person
the taxpayer who is legally liable and who is deemed to have legally paid for
the input VAT who can ask for a tax refund or credit under Section 229 as
an ordinary refund or credit outside of the VAT System. In such event, the
second VAT-registered taxpayer will have no input VAT to offset against his
own output VAT.
In a claim for refund or credit of "excess" input VAT under Section 110(B)
and Section 112(A), the input VAT is not "excessively" collected as
understood under Section 229. At the time of payment of the input VAT the
amount paid is the correct and proper amount. Under the VAT System, there
is no claim or issue that the input VAT is "excessively" collected, that is, that
the input VAT paid is more than what is legally due. The person legally liable
for the input VAT cannot claim that he overpaid the input VAT by the mere
existence of an "excess" input VAT. The term "excess" input VAT simply
means that the input VAT available as credit exceeds the output VAT, not that
the input VAT is excessively collected because it is more than what is legally
due. Thus, the taxpayer who legally paid the input VAT cannot claim for
refund or credit of the input VAT as "excessively" collected under Section
229.
Under Section 229, the prescriptive period for filing a judicial claim for refund
is two years from the date of payment of the tax "erroneously, . . .
illegally, . . . excessively or in any manner wrongfully collected." The
prescriptive period is reckoned from the date the person liable for the tax
pays the tax. Thus, if the input VAT is in fact "excessively" collected, that is,
the person liable for the tax actually pays more than what is legally due, the
taxpayer must file a judicial claim for refund within two years from his date of
payment. Only the person legally liable to pay the tax can file the judicial
claim for refund. The person to whom the tax is passed on as part of the
purchase price has no personality to file the judicial claim under Section 229.
Under Section 110(B) and Section 112(A), the prescriptive period for filing a
judicial claim for "excess" input VAT is two years from the close of the
taxable quarter when the sale was made by the person legally liable to pay
the output VAT. This prescriptive period has no relation to the date of
payment of the "excess" input VAT. The "excess" input VAT may have been
paid for more than two years but this does not bar the filing of a judicial claim
for "excess" VAT under Section 112(A), which has a different reckoning
period from Section 229. Moreover, the person claiming the refund or credit
of the input VAT is not the person who legally paid the input VAT. Such
person seeking the VAT refund or credit does not claim that the input VAT
was "excessively" collected from him, or that he paid an input VAT that is
more than what is legally due. He is not the taxpayer who legally paid the
input VAT.
As its name implies, the Value-Added Tax system is a tax on the value
added by the taxpayer in the chain of transactions. For simplicity and
efficiency in tax collection, the VAT is imposed not just on the value added by
the taxpayer, but on the entire selling price of his goods, properties or
services. However, the taxpayer is allowed a refund or credit on the VAT
previously paid by those who sold him the inputs for his goods, properties, or
services. The net effect is that the taxpayer pays the VAT only on the value
that he adds to the goods, properties, or services that he actually sells.
Under Section 110(B), a taxpayer can apply his input VAT only against his
output VAT. The only exception is when the taxpayer is expressly "zero-rated
or effectively zero-rated" under the law, like companies generating power
through renewable sources of energy. Thus, a non zero-rated VAT-registered
taxpayer who has no output VAT because he has no sales cannot claim a
tax refund or credit of his unused input VAT under the VAT System. Even if
the taxpayer has sales but his input VAT exceeds his output VAT, he cannot
seek a tax refund or credit of his "excess" input VAT under the VAT System.
He can only carry-over and apply his "excess" input VAT against his future
output VAT. If such "excess" input VAT is an "excessively" collected tax, the
taxpayer should be able to seek a refund or credit for such "excess" input
VAT whether or not he has output VAT. The VAT System does not allow such
refund or credit. Such "excess" input VAT is not an "excessively" collected
tax under Section 229. The "excess" input VAT is a correctly and properly
collected tax. However, such "excess" input VAT can be applied against the
output VAT because the VAT is a tax imposed only on the value added by
the taxpayer. If the input VAT is in fact "excessively" collected under Section
229, then it is the person legally liable to pay the input VAT, not the person to
whom the tax was passed on as part of the purchase price and claiming
credit for the input VAT under the VAT System, who can file the judicial claim
under Section 229.
Any suggestion that the "excess" input VAT under the VAT System is an
"excessively" collected tax under Section 229 may lead taxpayers to file a
claim for refund or credit for such "excess" input VAT under Section 229 as
an ordinary tax refund or credit outside of the VAT System. Under Section
229, mere payment of a tax beyond what is legally due can be claimed as a
refund or credit. There is no requirement under Section 229 for an output
VAT or subsequent sale of goods, properties, or services using materials
subject to input VAT.
From the plain text of Section 229, it is clear that what can be refunded or
credited is a tax that is "erroneously . . . illegally, . . . excessively or in any
manner wrongfully collected." In short, there must be a wrongful payment
because what is paid, or part of it, is not legally due. As the Court held in
Mirant, Section 229 should "apply only to instances of erroneous payment or

illegal collection of internal revenue taxes." Erroneous or wrongful payment
includes excessive payment because they all refer to payment of taxes not
legally due. Under the VAT System, there is no claim or issue that the
"excess" input VAT is "excessively or in any manner wrongfully collected." In
fact, if the "excess" input VAT is an "excessively" collected tax under Section
229, then the taxpayer claiming to apply such "excessively" collected input
VAT to offset his output VAT may have no legal basis to make such
offsetting. The person legally liable to pay the input VAT can claim a refund
or credit for such "excessively" collected tax, and thus there will no longer be
any "excess" input VAT. This will upend the present VAT System as we know
it.45
Two things are clear from the above quoted San Roque disquisitions. First,
when it comes to recovery of unutilized input VAT, Section 112, and not
Section 229 of the 1997 Tax Code, is the governing law. Second, prior to 8
June 2007, the applicable rule is neither Atlas nor Mirant, but Section 112(A).
We present the rules laid down by San Roque in determining the proper
reckoning date of the two-year prescriptive period through the following
timeline:
Thus, the task at hand is to determine the applicable period for this case.
In this case, Mindanao II filed its administrative claims for refund or credit for
the second, third and fourth quarters of 2004 on 6 October 2005. The case
thus falls within the first period as indicated in the above timeline. In other
words, it is covered by the rule prior to the advent of either Atlas or Mirant.
Accordingly, the proper reckoning date in this case, as provided by Section
112(A) of the 1997 Tax Code, is the close of the taxable quarter when the
relevant sales were made.
C. The Administrative Claims Were Timely Filed
We sum up our conclusions so far: (1) it is only the administrative claim that
must be filed within the two-year prescriptive period; and (2) the two-year
prescriptive period begins to run from the close of the taxable quarter when
the relevant sales were made.
Bearing these in mind, we now proceed to determine whether Mindanao II's
administrative claims for the second, third, and fourth quarters of 2004 were
timely filed.
Second Quarter
Since the zero-rated sales were made in the second quarter of 2004, the
date of reckoning the two-year prescriptive period is the close of the second
quarter, which is on 30 June 2004. Applying Section 112(A), Mindanao II had
two years from 30 June 2004, or until 30 June 2006 to file an administrative
claim with the CIR. Mindanao II filed its administrative claim on 6 October
2005, which is within the two-year prescriptive period. The administrative
claim for the second quarter of 2004 was thus timely filed. For clarity, we
present the rules laid down by San Roque in determining the proper
reckoning date of the two-year prescriptive period through the following
timeline:
Fourth Quarter
Here, the two-year prescriptive period is counted starting from the close of
the fourth quarter which is on 31 December 2004. The last day of the
prescriptive period for filing an application for tax refund/credit with the CIR
was on 31 December 2006. Mindanao II filed its administrative claim with the
CIR on 6 October 2005. Hence, the claims were filed on time, pursuant to
Section 112(A) of the 1997 Tax Code. (See timeline below)
II.
Third Quarter
As regards the claim for the third quarter of 2004, the two-year prescriptive
period started to run on 30 September 2004, the close of the taxable quarter.
It ended on 30 September 2006, pursuant to Section 112(A) of the 1997 Tax
Code. Mindanao II filed its administrative claim on 6 October 2005. Thus,
since the administrative claim was filed well within the two-year prescriptive
period, the administrative claim for the third quarter of 2004 was timely filed.
(See timeline below)
MINDANAO IIS JUDICIAL CLAIMS WERE FILED OUT OF TIME

Notwithstanding the timely filing of the administrative claims, we find that the
CTA En Banc erred in holding that Mindanao IIs judicial claims were timely
filed.
A. 30-Day Period Also Applies to Appeals from Inaction
Section 112(D) of the 1997 Tax Code states the time requirements for filing a
judicial claim for refund or tax credit of input VAT:
(D) Period within which Refund or Tax Credit of Input Taxes shall be Made.
In proper cases, the Commissioner shall grant a refund or issue the tax
credit certificate for creditable input taxes within one hundred twenty (120)
days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) and (B) hereof. In case of
full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period
prescribed above, the taxpayer affected may, within thirty (30) days from the
receipt of the decision denying the claim or after the expiration of the one
hundred twenty day-period, appeal the decision or the unacted claim with
the Court of Tax Appeals. (Emphases supplied)
Section 112(D) speaks of two periods: the period of 120 days, which serves
as a waiting period to give time for the CIR to act on the administrative claim
for refund or credit, and the period of 30 days, which refers to the period for
interposing an appeal with the CTA. It is with the 30-day period that there is
an issue in this case.
The CTA En Bancs holding is that, since the word "or" a disjunctive term
that signifies dissociation and independence of one thing from another is
used in Section 112(D), the taxpayer is given two options: 1) file an appeal
within 30 days from the CIRs denial of the administrative claim; or 2) file an
appeal with the CTA after expiration of the 120-day period, in which case the
30-day appeal period does not apply. The judicial claim is seasonably filed
so long as it is filed after the lapse of the 120-day waiting period but before
the lapse of the two-year prescriptive period under Section 112(A).46
We do not agree.
This law is clear, plain, and unequivocal. Following the well-settled verba
legis doctrine, this law should be applied exactly as worded since it is clear,
plain, and unequivocal. As this law states, the taxpayer may, if he wishes,
appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or if the Commissioner does not act
on the taxpayer's claim within the 120-day period, the taxpayer may appeal
to the CTA within 30 days from the expiration of the 120-day period.
(Emphasis supplied)
The San Roque pronouncement is clear. The taxpayer can file the appeal in
one of two ways: (1) file the judicial claim within thirty days after the
Commissioner denies the claim within the 120-day period, or (2) file the
judicial claim within thirty days from the expiration of the 120-day period if
the Commissioner does not act within the 120-day period.
B. The Judicial Claim Was Belatedly Filed
In this case, the facts are not up for debate. Mindanao II filed its
administrative claim for refund or credit for the second, third, and fourth
quarters of 2004 on 6 October 2005. The CIR, therefore, had a period of 120
days, or until 3 February 2006, to act on the claim. The CIR, however, failed
to do so. Mindanao II then could treat the inaction as a denial and appeal it
to the CTA within 30 days from 3 February 2006, or until 5 March 2006.
Mindanao II, however, filed a Petition for Review only on 21 July 2006, 138
days after the lapse of the 30-day period on 5 March 2006. The judicial claim
was therefore filed late. (See timeline below.)
The 30-day period applies not only to instances of actual denial by the CIR
of the claim for refund or tax credit, but to cases of inaction by the CIR as
well. This is the correct interpretation of the law, as held in San Roque:47
Section 112(C)48 also expressly grants the taxpayer a 30-day period to
appeal to the CTA the decision or inaction of the Commissioner, thus:
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.
C. The 30-Day Period to Appeal is Mandatory and Jurisdictional

However, what is up for debate is the nature of the 30-day time requirement.
The CIR posits that it is mandatory. Mindanao II contends that the
requirement of judicial recourse within 30 days is only directory and

permissive, as indicated by the use of the word "may" in Section 112(D).49
decision of the Commissioner within 30 days from receipt of the decision, or

within 30 days from the expiration of the 120-day period. x x x.50
The answer is found in San Roque. There, we declared that the 30-day
period to appeal is both mandatory and jurisdictional:
D. Exception to the mandatory and jurisdictional nature of the 120+30 day

period not applicable
Section 112(C) also expressly grants the taxpayer a 30-day period to appeal
to the CTA the decision or inaction of the Commissioner, thus:
Nevertheless, San Roque provides an exception to the mandatory and

jurisdictional nature of the 120+30 day period BIR Ruling No. DA-489-03
dated 10 December 2003. The BIR ruling declares that the "taxpayerclaimant need not wait for the lapse of the 120-day period before it could
seek judicial relief with the CTA by way of Petition for Review."
x x x the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty
day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals. (Emphasis supplied)
This law is clear, plain, and unequivocal. Following the well-settled verba
legis doctrine, this law should be applied exactly as worded since it is clear,
plain, and unequivocal. As this law states, the taxpayer may, if he wishes,
appeal the decision of the Commissioner to the CTA within 30 days from
receipt of the Commissioner's decision, or if the Commissioner does not act
on the taxpayer's claim within the 120-day period, the taxpayer may appeal
to the CTA within 30 days from the expiration of the 120-day period.
xxxx
Although Mindanao II has not invoked the BIR ruling, we deem it prudent as
well as necessary to dwell on this issue to determine whether this case falls
under the exception.
For this question, we come back to San Roque, which provides that BIR
Ruling No. DA-489-03 is a general interpretative rule; thus, taxpayers can
rely on it from the time of its issuance on 10 December 2003 until its reversal
by this Court in Aichi on 6 October 2010, when the 120+30 day periods were
held to be mandatory and jurisdictional. The Court reasoned as follows:
Section 112(A) and (C) must be interpreted according to its clear, plain, and
unequivocal language. The taxpayer can file his administrative claim for
refund or credit at anytime within the two-year prescriptive period. If he files
his claim on the last day of the two-year prescriptive period, his claim is still
filed on time. The Commissioner will have 120 days from such filing to
decide the claim. If the Commissioner decides the claim on the 120th day, or
does not decide it on that day, the taxpayer still has 30 days to file his
judicial claim with the CTA. This is not only the plain meaning but also the
only logical interpretation of Section 112(A) and (C).
Taxpayers should not be prejudiced by an erroneous interpretation by the

Commissioner, particularly on a difficult question of law. The abandonment of
the Atlas doctrine by Mirant and Aichi is proof that the reckoning of the
prescriptive periods for input VAT tax refund or credit is a difficult question of
law. The abandonment of the Atlas doctrine did not result in Atlas, or other
taxpayers similarly situated, being made to return the tax refund or credit
they received or could have received under Atlas prior to its abandonment.
This Court is applying Mirant and Aichi prospectively. Absent fraud, bad faith
or misrepresentation, the reversal by this Court of a general interpretative
rule issued by the Commissioner, like the reversal of a specific BIR ruling
under Section 246, should also apply prospectively. x x x.
xxxx
xxxx
When Section 112(C) states that "the taxpayer affected may, within thirty
(30) days from receipt of the decision denying the claim or after the
expiration of the one hundred twenty-day period, appeal the decision or the
unacted claim with the Court of Tax Appeals," the law does not make the
120+30 day periods optional just because the law uses the word " may." The
word "may" simply means that the taxpayer may or may not appeal the
Thus, the only issue is whether BIR Ruling No. DA-489-03 is a general
interpretative rule applicable to all taxpayers or a specific ruling applicable
only to a particular taxpayer.
BIR Ruling No. DA-489-03 is a general interpretative rule because it was a
response to a query made, not by a particular taxpayer, but by a government
agency tasked with processing tax refunds and credits, that is, the One Stop
Shop Inter-Agency Tax Credit and Drawback Center of the Department of
Finance . This government agency is also the addressee, or the entity
responded to, in BIR Ruling No. DA-489-03. Thus, while this government
agency mentions in its query to the Commissioner the administrative claim of
Lazi Bay Resources Development, Inc., the agency was in fact asking the
Commissioner what to do in cases like the tax claim of Lazi Bay Resources
Development, Inc., where the taxpayer did not wait for the lapse of the 120day period.
Clearly, BIR Ruling No. DA-489-03 is a general interpretative rule. Thus, all
taxpayers can rely on BIR Ruling No. DA-489-03 from the time of its
issuance on 10 December 2003 up to its reversal by this Court in Aichi on 6
October 2010, where this Court held that the 120+30 day periods are
mandatory and jurisdictional.51
Thus, in San Roque, the Court applied this exception to Taganito Mining
Corporation (Taganito), one of the taxpayers in San Roque. Taganito filed its
judicial claim on 14 February 2007, after the BIR ruling took effect on 10
December 2003 and before the promulgation of Mirant. The Court stated:
Taganito, however, filed its judicial claim with the CTA on 14 February 2007,
after the issuance of BIR Ruling No. DA-489-03 on 10 December 2003.
Truly, Taganito can claim that in filing its judicial claim prematurely without
waiting for the 120-day period to expire, it was misled by BIR Ruling No. DA489-03. Thus, Taganito can claim the benefit of BIR Ruling No. DA-489-03,
which shields the filing of its judicial claim from the vice of prematurity.52
San Roque was also careful to point out that the BIR ruling does not
retroactively apply to premature judicial claims filed before the issuance of
the BIR ruling:
However, BIR Ruling No. DA-489-03 cannot be given retroactive effect for
four reasons: first, it is admittedly an erroneous interpretation of the law;
second, prior to its issuance, the BIR held that the 120-day period was
mandatory and jurisdictional, which is the correct interpretation of the law;
third, prior to its issuance, no taxpayer can claim that it was misled by the
BIR into filing a judicial claim prematurely; and fourth, a claim for tax refund
or credit, like a claim for tax exemption, is strictly construed against the
taxpayer.53
Thus, San Roque held that taxpayer San Roque Power Corporation, could
not seek refuge in the BIR ruling as it jumped the gun when it filed its judicial
claim on 10 April 2003, prior to the issuance of the BIR ruling on 10

December 2003.1wphi1 The Court stated:
San Roque, therefore, cannot benefit from BIR Ruling No. DA-489-03
because it filed its judicial claim prematurely on 10 April 2003, before the
issuance of BIR Ruling No. DA-489-03 on 10 December 2003. To repeat,
San Roque cannot claim that it was misled by the BIR into filing its judicial
claim prematurely because BIR Ruling No. DA-489-03 was issued only after
San Roque filed its judicial claim. At the time San Roque filed its judicial
claim, the law as applied and administered by the BIR was that the
Commissioner had 120 days to act on administrative claims. This was in fact
the position of the BIR prior to the issuance of BIR Ruling No. DA-489-03.
Indeed, San Roque never claimed the benefit of BIR Ruling No. DA-489-03
or RMC 49-03, whether in this Court, the CTA, or before the Commissioner.54
San Roque likewise ruled out the application of the BIR ruling to cases of
late filing. The Court held that the BIR ruling, as an exception to the
mandatory and jurisdictional nature of the 120+30 day periods, is limited to
premature filing and does not extend to late filing of a judicial claim. Thus,
the Court found that since Philex Mining Corporation, the other party in the
consolidated case San Roque, filed its claim 426 days after the lapse of the
30-day period, it could not avail itself of the benefit of the BIR ruling:
Philexs situation is not a case of premature filing of its judicial claim but of
late filing, indeed
Very late filing. BIR Ruling No. DA-489-03 allowed premature filing of a
judicial claim, which means non-exhaustion of the 120-day period for the
Commissioner to act on an administrative claim. Philex cannot claim the
benefit of BIR Ruling No. DA-489-03 because Philex did not file its judicial
claim prematurely but filed it long after the lapse of the 30-day period
following the expiration of the 120-day period. In fact, Philex filed its judicial
claim 426 days after the lapse of the 30-day period.55
We sum up the rules established by San Roque on the mandatory and
jurisdictional nature of the 30-day period to appeal through the following
timeline:
her view, is unfair to taxpayers. It has been the view of this ponente that the
mandatory nature of 120+30 day period must be completely applied
prospectively or, at the earliest, only upon the finality of Aichi in order to
create stability and consistency in our tax laws. Nevertheless, this ponente is
mindful of the fact that judicial precedents cannot be ignored. Hence, the
majority view expressed in San Roque must be applied.
Bearing in mind the foregoing rules for the timely filing of a judicial claim for
refund or credit of unutilized input VAT, we rule on the present case of
Mindanao II as follows:
We find that Mindanao IIs situation is similar to that of Philex in San Roque.
As mentioned above, Mindanao II filed its judicial claim with the CTA on 21
July 2006. This was after the issuance of BIR Ruling No. DA-489-03 on 10
December 2003, but before its reversal on 5 October 2010. However, while
the BIR ruling was in effect when Mindanao II filed its judicial claim, the rule
cannot be properly invoked. The BIR ruling, as discussed earlier,
contemplates premature filing. The situation of Mindanao II is one of late
filing. To repeat, its judicial claim was filed on 21 July 2006 long after 5
March 2006, the last day of the 30-day period for appeal. In fact, it filed its
judicial claim 138 days after the lapse of the 30-day period. (See timeline
below)
SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING

REFUND OR CREDIT OF INPUT VAT
The lessons of this case may be summed up as follows:
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the
two-year prescriptive period. (Aichi) 2. The proper reckoning date
for the two-year prescriptive period is the close of the taxable
quarter when the relevant sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8
June 2007 to 12 September 2008. Atlas states that the two-year
prescriptive period for filing a claim for tax refund or credit of
unutilized input VAT payments should be counted from the date of
filing of the VAT return and payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the
judicial claim within thirty days after the Commissioner denies the
claim within the 120-day period, or (2) file the judicial claim within
thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or
inaction on the part of the CIR.
E. Undersigned dissented in San Roque to the retroactive application of the

mandatory and jurisdictional nature of the 120+30 day period.
It is worthy to note that in San Roque, this ponente registered her dissent to
the retroactive application of the mandatory and jurisdictional nature of the
120+30 day period provided under Section 112(D) of the Tax Code which, in
3. As a general rule, the 3 0-day period to appeal is both mandatory

and jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed

only if filed between 10 December 2003 and 5 October 2010, when
BIR Ruling No. DA-489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when
BIR Ruling No. DA-489-03 was in force. (San Roque)
ACCRA INVESTMENTS CORPORATION, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, COMMISSIONER OF
INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Angara, Abello, Concepcion, Regala & Cruz for petitioner.
SUMMARY AND CONCLUSION

In sum, our finding is that the three administrative claims for the refund or
credit of unutilized input VAT were all timely filed, while the corresponding
judicial claims were belatedly filed.
The foregoing considered, the CT A lost jurisdiction over Mindanao Ils
claims for refund or credit.1wphi1 The CTA EB erred in granting these
claims.
WHEREFORE, we GRANT the Petition. The assailed Court of Tax Appeals
En Banc Decision dated 11 November 2009 and Resolution dated 3 March
2010 of the in CTA EB Case No. 448 (CTA Case No. 7507) are hereby
REVERSED and SET ASIDE. A new ruling is entered DENYING respondent
s claim for a tax refund or credit ofP6,791,845.24.
SO ORDERED.
MARIA LOURDES P. A. SERENO
Chief Justice, Chairperson
GUTIERREZ, JR., J.:p

This petition for review on certiorari presents the issue of whether or not the
petitioner corporation is barred from recovering the amount of P82,751.91
representing overpaid taxes for the taxable year 1981.
The petitioner corporation is a domestic corporation engaged in the business
of real estate investment and management consultancy.
On April 15, 1982, the petitioner corporation filed with the Bureau of Internal
Revenue its annual corporate income tax return for the calendar year ending
December 31, 1981 reporting a net loss of P2,957,142.00 (Exhibits "B", "B1" to "B-10"). In the said return, the petitioner corporation declared as
creditable all taxes withheld at source by various withholding agents, as
follows:
Withholding Agent Amount Withheld

SUPREME COURT
Manila
THIRD DIVISION
a) Malayan Insurance Co., Inc. P1,429.97

(Exh. "C")
b) Angara Concepcion Regala
& Cruz Law Offices P73,588.00
G.R. No. 96322 December 20, 1991
(Exh. "D")
c) MJ Development Corp. P 1,155.00 (Exh. "E")

d) Philippine Global Communications,
Inc. (Exh. "F") 6,578.94
TOTAL P82,751.91
(CTA Decision, p. 4; Records, p. 10)
The withholding agents aforestated paid and remitted the above amounts
representing taxes on rental, commission and consultancy income of the
petitioner corporation to the Bureau of Internal Revenue from February to
December 1981.
In a letter dated December 29, 1983 addressed to the respondent
Commissioner of Internal Revenue (Exh. "G"), the petitioner corporation filed
a claim for refund inasmuch as it had no tax liability against which to credit
the amounts withheld.
Pending action of the respondent Commissioner on its claim for refund, the
petitioner corporation, on April 13, 1984, filed a petition for review with the
respondent Court of Tax Appeals (CTA) asking for the refund of the amounts
withheld as overpaid income taxes.
On January 27, 1988, the respondent CTA dismissed the petition for review
after a finding that the two-year period within which the petitioner
corporation's claim for refund should have been filed had already prescribed
pursuant to Section 292 of the National Internal Revenue Code of 1977, as
amended.
Acting on the petitioner corporation's motion for reconsideration, the

respondent CTA in its resolution dated September 27, 1988 denied the same
for having been filed out of time. It ruled that the reckoning date for purposes
of counting the two-year prescriptive period within which the petitioner
corporation could file a claim for refund was December 31, 1981 when the
taxes withheld at source were paid and remitted to the Bureau of Internal
Revenue by its withholding agents, not April 15, 1982, the date when the
petitioner corporation filed its final adjustment return.
On January 14, 1989, the petitioner corporation filed with us its petition for
review which we referred to the respondent appellate court in our resolution
dated February 15, 1990 for proper determination and disposition.
On May 28, 1990, the respondent appellate court affirmed the decision of
the respondent CTA opining that the two-year prescriptive period in question
commences "from the date of payment of the tax" as provided under Section
292 of the Tax Code of 1977 (now Sec. 230 of the National Internal Revenue
Code of 1986), i.e., "from the end of the tax year when a taxpayer is deemed
to have paid all taxes withheld at source", and not "from the date of the filing
of the income tax return" as posited by the petitioner corporation (CA
Decision, pp. 3-5; Rollo, pp. 27-29).
Its motion for reconsideration with the respondent appellate court having
been denied in a resolution dated November 20, 1990, the petitioner
corporation (ACCRAIN) elevated this case to us presenting as main
arguments, to wit:
I
ACCRAIN'S JUDICIAL ACTION FOR RECOVERY OF
CREDITABLE TAXES ERRONEOUSLY WITHHELD AT
SOURCE WAS FILED ON TIME.
II
THE RECKONING DATE FOR THE COMMENCEMENT
OF THE TWO-YEAR PRESCRIPTIVE PERIOD IS 15
APRIL 1982. ACCORDINGLY, THE 13 APRIL 1984
ACTION OFACCRAIN FOR THE RECOVERY OF TAXES

ERRONEOUSLY WITHHELD AT SOURCE IN 1981 IS
NOT BARRED AND ACCRAIN IS ENTITLED TO THE
REFUND OF P82,751.91 OF SUCH TAXES. (Rollo, p.
116)
petitioner corporation was deemed to have paid its tax liabilities in question
under the withholding tax system. (CA Decision, pp. 4-5; Rollo, pp. 28-29)
The respondent appellate court in this case has misapplied jurisprudential
law. In the Gibbs case, supra, cited by the Court of Appeals, we have clearly
stated that:
We find merit in the petitioner corporation's postures.

Crucial in our resolution of the instant case is the interpretation of the
phraseology "from the date of payment of the tax" in the context of Section
230 (formerly sec. 292) of the National Internal Revenue Code of 1986, as
amended, which provides that:
Sec. 230. Recovery of tax erroneously or illegally
collected. No suit or proceeding shall be maintained in
any court for the recovery of any national internal revenue
tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to
have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty or
sum has been paid under protest or duress.
In any case, no such suit or proceeding shall begin after
the expiration of two years from the date of payment of the
tax or penalty regardless of any supervening cause that
may arise after payment: Provided, however, that the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return
upon which payment was made, such payment appears to
have been erroneously paid. (Emphasis supplied)
The respondent appellate court citing the case of Gibbs v. Commissioner of
Internal Revenue (155 SCRA 318 [1965]), construed the phrase "from the
date of payment" as to be reckoned from "the end of the tax year" when the
Payment is a mode of extinguishing obligations (Art. 1231,

Civil Code) and it means not only the delivery of money
but also the performance, in any other manner, of an
obligation (id., Art. 1231). A taxpayer, resident or nonresident, does so not really to deposit an amount to the
Commissioner of Internal Revenue, but, in truth, to
perform and extinguish his tax obligation for the year
concerned. In other words, he is paying his tax liabilities
for that year. Consequently, a taxpayer whose income is
withheld at source will be deemed to have paid his tax
liability end of the tax year. It is from twhen the same falls
due at the his latter date then, or when thtwo-year
prescriptive period under Section 306 (now pae tax liability
falls due, that the rt of Section 230) of the Revenue Code
starts to run with respect to payments effected through the
withholding tax system. ... (At p. 325; Emphasis supplied)
The aforequoted ruling presents two alternative reckoning dates, i.e., (1) the
end of the tax year; and (2) when the tax liability falls due. In the instant
case, it is undisputed that the petitioner corporation's withholding agents had
paid the corresponding taxes withheld at source to the Bureau of Internal
Revenue from February to December 1981. In having applied the first
alternative date - "the end of the tax year" in order to determine whether or
not the petitioner corporation's claim for refund had been seasonably filed,
the respondent appellate court failed to appreciate properly the attending
circumstances of this case.
The petitioner corporation is not claiming a refund of overpaid withholding
taxes, per se. It is asking for the recovery of the sum of P82,751.91.00, the
refundable or creditable amount determined upon the petitioner corporation's
filing of the its final adjustment tax return on or before 15 April 1982 when its
tax liability for the year 1981 fell due. The distinction is essential in the
resolution of this case for it spells the difference between being barred by
prescription and entitlement to a refund.
Under Section 49 of the National Internal Revenue Code of 1986, as
amended, it is explicitly provided that:
Sec. 49. Payment and assessment of income tax for
individuals and corporations.
(a) Payment of tax (1) In general. - The total amount
of tax imposed by this Title shall be paid by the person
subject thereto at the time the return is filed. ...
Section 70, subparagraph (b) of the same Code states when the income tax
return with respect to taxpayers like the petitioner corporation must be filed.
Thus:
Sec. 70 (b) Time of filing the income return - The corporate
quarterly declaration shall be filed within sixty (60) days
following the close of each of the first three quarters of the
taxable year. The final adjustment return shall be filed on
or before the 15th day of the 4th month following the close
of the fiscal year, as the case may be. The petitioner
corporation's taxable year is on a calendar year basis,
hence, with respect to the 1981 taxable year, ACCRAIN
had until 15 April 1982 within which to file its final
adjustment return. The petitioner corporation duly
complied with this requirement. On the basis of the
corporate income tax return which ACCRAIN filed on 15
April 1982, it reported a net loss of P2,957,142.00.
Consequently, as reflected thereon, the petitioner
corporation, after due computation, had no tax liability for
the year 1981. Had there been any, payment thereof
would have been due at the time the return was filed
pursuant to subparagraph (c) of the aforementioned codal
provision which reads:
Sec. 70 (c) - Time payment of the income tax - The

income tax due on the corporate quarterly returns and the
final income tax returns computed in accordance with
Sections 68 and 69 shall be paid at the time the
declaration or return is filed asprescribed by the
Commissioner of Internal Revenue. If we were to uphold
the respondent appellate court in making the "date of
payment" coincide with the "end of the taxable year," the
petitioner corporation at the end of the 1981 taxable year
was in no position then to determine whether it was liable
or not for the payment of its 1981 income tax.
Anent claims for refund, section 8 of Revenue Regulation No. 13-78 issued
by the Bureau of Internal Revenue requires that:
Section 8. Claims for tax credit or refund Claims for tax
credit or refund of income tax deducted and withheld on
income payments shall be given due course only when it
is shown on the return that the income payment received
was declared as part of the gross income and the fact of
withholding is established by a copy of the statement, duly
issued by the payor to the payee (BIR Form No. 1743-A)
showing the amount paid and the amount of tax withheld
therefrom.
The term "return" in the case of domestic corporations like ACCRAIN refers
to the final adjustment return as mentioned in Section 69 of the Tax Code of
1986, as amended, which partly reads:
Sec. 69. Final Adjustment Return - Every corporation liable
to tax under Section 24 shall file a final adjustment return
covering the total taxable income for the preceding
calendar or fiscal year. If the sum of the quarterly tax
payments made during the said taxable year is not equal
to the total tax due on the entire taxable income of that
year the corporation shall either:
(a) Pay the excess tax still due; or
(b) Be refunded the excess amount paid, as the case may

be.
SO ORDERED.
Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.
Clearly, there is the need to file a return first before a claim for refund can
prosper inasmuch as the respondent Commissioner by his own rules and
regulations mandates that the corporate taxpayer opting to ask for a refund
must show in its final adjustment return the income it received from all
sources and the amount of withholding taxes remitted by its withholding
agents to the Bureau of Internal Revenue. The petitioner corporation filed its
final adjustment return for its 1981 taxable year on April 15, 1982. In our
Resolution dated April 10, 1989 in the case ofCommissioner of Internal
Revenue v. Asia Australia Express, Ltd. (G. R. No. 85956), we ruled that the
two-year prescriptive period within which to claim a refund commences to
run, at the earliest, on the date of the filing of the adjusted final tax return.
Hence, the petitioner corporation had until April 15, 1984 within which to file
its claim for refund. Considering that ACCRAIN filed its claim for refund as
early as December 29, 1983 with the respondent Commissioner who failed
to take any action thereon and considering further that the non-resolution of
its claim for refund with the said Commissioner prompted ACCRAIN to
reiterate its claim before the Court of Tax Appeals through a petition for
review on April 13, 1984, the respondent appellate court manifestly
committed a reversible error in affirming the holding of the tax court that
ACCRAIN's claim for refund was barred by prescription.
It bears emphasis at this point that the rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for
refund from the time it filed its final adjustment return is the fact that it was
only then that ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations. The "date of payment", therefore, in
ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its
final adjustment return on April 15, 1982.

SUPREME COURT
Baguio City
SECOND DIVISION
G.R. No. 179260
April 2, 2014

vs.
TEAM [PHILIPPINES] OPERATIONS CORPORATION [formerly MIRANT
(PHILS) OPERATIONS CORPORATION], Respondent.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to reverse and
set aside the 19 June 2007 Decision1 and the 13 August 2007 Resolution2 of
the Court of Tax Appeals (CTA) En Banc in C.T.A. EB No. 224 which affirmed
in toto the Decision and Resolution dated 4 August 2006 and 8 November
2006, respectively, of the First Division of the CTA (CTA in Division)3 in
C.T.A. Case No. 6623, granting Team (Philippines) Operations Corporations
(respondent) claim for refund in the amount of P69,562,412.00 representing
unutilized tax credits for taxable period ending 31 December 2001.
The Facts
WHEREFORE, in view of the foregoing, the petition is GRANTED. The

decision of the Court of Appeals dated May 28, 1990 and its resolution of
November 20, 1990 are hereby REVERSED and SET ASIDE. The
respondent Commissioner of Internal Revenue is directed to refund to the
petitioner corporation the amount of P82,751.91.
The factual antecedents of the case are undisputed:

Petitioner is the duly appointed Commissioner of Internal Revenue, charged
with the duty of enforcing the provisions of the National Internal Revenue
Code (NIRC), including the power to decide and approve administrative
claims for refund.
Respondent, on the other hand, is a corporation duly organized and existing

under and virtue of the laws of the Republic of the Philippines, with its
principal office at Bo. Ibabang Pulo, Pagbilao Grande Island, Pagbilao,
Quezon Province. It is primarily engaged in the business of designing,
constructing, erecting, assembling, commissioning, operating, maintaining,
rehabilitating and managing gas turbine and other power generating plants
and related facilities for the conversion into electricity of coal, distillate and
other fuels provided by and under contract with the Government of the
Republic of the Philippines, or any subdivision, instrumentality or agency
thereof, or any government owned or controlled corporations or other entity
engaged in the development, supply or distribution of energy.
On 15 April 2002, respondent filed its 2001 income tax return with the BIR,
reporting an income tax overpayment in the amount of P69,562,412.00
arising from unutilized creditable taxes withheld during the year, detailed as
follows:4
Sales/Revenues
Less: Cost of Sales/Services
Gross Income from Operation
Add: Non-Operating & Other Income
On 30 April 2001, respondent secured from the Securities and Exchange

Commission (SEC) its Certificate of Filing of Amended Articles of
Incorporation, reflecting its change of name from Southern Energy AsiaPacific Operations (Phils.), Inc. to Mirant (Philippines) Operations
Corporation. Prior to its use of the name Southern Energy Asia-Pacific
Operations (Phils.), Inc., respondent operated under the corporate names
CEPA Operations (Philippines) Corporation, CEPA Tileman Project
Management Corporation and Hopewell Tileman Project Management
Corporation. The changes in respondents corporate name from CEPA
Operations (Philippines) Corp. to Southern Energy Asia-Pacific Operations
(Phils.) Inc., from CEPA Tileman Project Management Corporation to CEPA
Operations (Philippines) Corp. and from Hopewell Tileman Project
Management Corporation to CEPA Tileman Project Management Corp.,
were approved by the SEC on 24 November 2000, 21 November 1997 and
29 July 1994, respectively.
Total Gross Income
Under its original corporate name, Hopewell Tileman Project Management

Corp., respondent was registered with the Bureau of Internal Revenue (BIR)
with Tax Identification No. 003-057-796 as shown by its original BIR
Certificate of Registration issued on 29 March 1994.
Total Tax Credits/Payments
In line with its primary purpose, respondent entered into Operating and
Management Agreements with Mirant Pagbilao Corporation (MPC) [formerly
Southern Energy Quezon, Inc.] and Mirant Sual Corporation (MSC) [formerly
Southern Energy Pangasinan, Inc.] to provide MPC and MSC with operation
and maintenance services in connection with the operation, construction and
commissioning of the coal-fired thermal power stations situated in Pagbilao,
Quezon and Sual, Pangasinan, respectively. Payments received by
respondent from MPC and MSC relative to the said agreements were
allegedly subjected to creditable withholding taxes.
Less: Deductions
P922,569,303.00
938,543,252.00
(P15,973,949.00)
74,995,982.00
P 59,022,033.00
59,022,033.00
Taxable Income
Tax Rate
32%
Income Tax
NIL
Less: Tax Credits/Payments

Creditable Tax Withheld for the
First Three Quarters
Creditable Tax Withheld for the
Fourth Quarter
Tax Payable/(Overpayment)
P 27,784,217.00
41,778,195.00
P 69,652,412.00
(P69,562,412.00)
Respondent marked the appropriate box manifesting its intent to have the
above overpayment refunded.
On 19 March 2003, pursuant to Section 76 in relation to Section 204 of the
NIRC of 1997, as amended, respondent filed with the BIR, a letter
requesting for the refund or issuance of a tax credit certificate corresponding
to its reported unutilized creditable withholding taxes for taxable year 2001 in
the amount ofP69,562,412.00.
Thereafter, on 27 March 2003, respondent filed a Petition for Review before
the CTA, in order to toll the running of the two-year prescriptive period
provided under Section 229 of the NIRC of 1997, as amended, which was
docketed as C.T.A. Case No. 6623.
The Ruling of the CTA in Division
In a Decision dated 4 August 2006,5 the CTA in Division granted
respondents Petition and ordered petitioner to refund or issue a tax credit
certificate in favor of the former the entire amount of P69,562,412.00,
representing its unutilized tax credits for the taxable year ended 31
December 2001.
The CTA in Division based its ruling on the numerous documentary evidence
presented by respondent during the proceedings, such as its Income Tax
Returns (ITRs) for taxable years 2001 and 2002, various Certificates of
Creditable Tax Withheld at Source for taxable year 2001 duly issued to it by
its withholding agents, and Report of the Commissioned Independent
Certified Public Accountant dated 15 March 2004, among others. The court a
quo reasoned that respondent has indeed established its entitlement to a
refund/tax credit of its excess creditable withholding taxes in compliance with
the following basic requirements: (1) that the claim for refund (or issuance of
a tax credit certificate) was filed within the two-year prescriptive period
prescribed under Section 204(C), in relation to Section 229 of the NIRC of
1997, as amended; (2) that the fact of withholding is established by a copy of
a statement duly issued by the payor (withholding agent) to the payee,
showing the amount paid and the amount of tax withheld therefrom; and (3)
that the income upon which the taxes were withheld was included in the
return of the recipient.6
Subsequently, on 8 November 2006, the CTA in Division denied petitioners
Motion for Reconsideration for lack of merit.7
Aggrieved, petitioner appealed to the CTA En Banc by filing a Petition for
Review pursuant to Section 18 of Republic Act (RA) No. 1125, as amended
by RA No. 92828 on 6 December 2006, docketed as CTA EB No. 224.
The Ruling of the CTA En Banc
The CTA En Banc affirmed in toto both the aforesaid Decision and
Resolution rendered by the CTA in Division in CTA Case No. 6623,
pronouncing that there was no cogent reason to disturb the findings and
conclusion spelled out therein. It revealed that what the petition seeks to
accomplish was for the CTA En Banc to view and appreciate the evidence in
another perspective, which unfortunately had already been considered and
passed upon correctly by the CTA in Division.
Upon denial of petitioners Motion for Reconsideration of the 19 June 2007
Decision9 of the CTA En Banc, it filed this Petition for Review on Certiorari
before this Court seeking the reversal of the aforementioned Decision and
the 13 August 2007 Resolution10 rendered in CTA EB No. 224.
Petitioner11 relies on the sole ground that the CTA En Banc gravely erred on
a question of law in affirming the CTA in Divisions ruling which ordered a
refund or issuance of tax credit certificate in favor of respondent despite the
fact that it is not supported by the evidence on record.12
The Issue and Our Ruling
The core issue for the Courts resolution is whether or not respondent has
established its entitlement for the refund or issuance of a tax credit certificate
in its favor the entire amount of P69,562,412.00 representing its unutilized
tax credits for taxable year ended 31 December 2001, pursuant to the
applicable provisions of the NIRC of 1997, as amended.
This is not novel.
In order to be entitled to a refund claim or issuance of a tax credit certificate
representing any excess or unutilized creditable withholding tax, it must be
shown that the claimant has complied with the essential basic conditions set
forth under pertinent provisions of law and existing jurisprudential
declarations.
In Banco Filipino Savings and Mortgage Bank v. Court of Appeals,13 this
Court had previously articulated that there are three essential conditions for
the grant of a claim for refund of creditable withholding income tax, to wit: (1)
the claim is filed with the Commissioner of Internal Revenue within the twoyear period from the date of payment of the tax;14 (2) it is shown on the
return of the recipient that the income payment received was declared as
part of the gross income;15 and (3) the fact of withholding is established by a
copy of a statement duly issued by the payor to the payee showing the
amount paid and the amount of the tax withheld therefrom.
The first condition is pursuant to Sections 204(C) and 229 of the NIRC of
1997, as amended, viz:
Sec. 2.58.3.Claim for Tax Credit or Refund

xxxx
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund

or Credit Taxes. The Commissioner may
xxxx
(C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction.
No credit or refund of taxes or penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim for credit or refund within two
(2) years after the payment of the tax or penalty: Provided, however, That a
return filed showing an overpayment shall be considered as a written claim
for credit or refund. (Emphasis supplied)
xxxx
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected
without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly
filed with the Commissioner; but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid under protest or
duress.
(B) Claims for tax credit or refund of any creditable income tax which was
deducted and withheld on income payments shall be given due course only
when it is shown that the income payment has been declared as part of the
gross income and the fact of withholding is established by a copy of the
withholding tax statement duly issued by the payor to the payee showing the
amount paid and the amount of tax withheld therefrom. (Emphasis supplied)
In addition to the abovementioned requisites, the NIRC of 1997, as
amended, likewise provides for the strict observance of the concept of the
irrevocability rule,17 the focal provision of which is Section 76 thereof, quoted
hereunder for easy reference:
SEC. 76. Final Adjustment Return. Every corporation liable to tax under
Section 27 shall file a final adjustment return covering the total taxable
income for the preceding calendar or fiscal year. If the sum of the quarterly
tax payments made during the said taxable year is not equal to the total tax
due on the entire taxable income of that year, the corporation shall either:
(A) Pay the balance of tax still due; or
(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the
case may be.
That the Commissioner may, even without a written claim therefor, refund or
(Emphasis supplied)
In case the corporation is entitled to a tax credit or refund of the excess

estimated quarterly income taxes paid, the excess amount shown on its final
adjustment return may be carried over and credited against the estimated
quarterly income tax liabilities for the taxable quarters of the succeeding
taxable years. Once the option to carry-over and apply the excess quarterly
income tax against income tax due for the taxable quarters of the
succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor. (Emphasis
supplied)
The second and third conditions are anchored on Section 2.58.3(B) of

Revenue Regulations No. 2-98,16 which states:
Applying the foregoing discussion to the present case, we find that

respondent had indeed complied with the abovementioned requirements.
Here, it is undisputed that the claim for refund was filed within the two-year
prescriptive period prescribed under Section 22918 of the NIRC of 1997, as
amended. Respondent filed19 its income tax return for taxable year 2001 on
15 April 2002. Counting from said date, it indeed had until 14 April
200420 within which to file its claim for refund or issuance of tax credit
certificate in its favor both administratively and judicially. Thus, petitioners
administrative claim and petition for review filed on 19 March 2003 and 27
March 2003, respectively, fell within the abovementioned prescriptive period.
Likewise, respondent was able to present various certificates of creditable
tax withheld at source from its payors, MPC and MSC, for taxable year 2001,
showing creditable withholding taxes in the aggregate amount
ofP70,805,771.42 (although the refund claim was
only P69,562,412.00).21 Moreover, as determined by the CTA in Division,
respondent declared the income related to the claimed creditable
withholding taxes of P69,562,412.00 on its return.22
Lastly, in compliance with Section 76 of the NIRC of 1997, as amended,
respondent opted to be refunded of its unutilized tax credit (as evidenced by
the "x" mark in the appropriate box of its 2001 income tax return), and the
same was not carried over in its 2002 income tax return; therefore, the entire
amount of P69,562,412.00 may be a proper subject of a claim for refund/tax
credit certificate.23
It is apt to restate here the hornbook doctrine that the findings and
conclusions of the CTA are accorded the highest respect and will not be
lightly set aside. The CTA, by the very nature of its functions, is dedicated
exclusively to the resolution of tax problems and has accordingly developed
an expertise on the subject unless there has been an abusive or improvident
exercise of authority.24
Consequently, its conclusions will not be overturned unless there has been
an abuse or improvident exercise of authority. Its 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.25
The Court in this case agrees with the conclusion of the CTA in Division and
subsequent affirmation of the CTA En Banc that respondent complied with all
the requirements for the refund of its unutilized creditable withholding taxes
for taxable period ending 31 December 2001. We adopt the factual and legal
findings as follows:
On the first ground, [petitioner] argues that [respondent] failed to present the
various withholding agents/payors to testify on the validity of the contents of
the Certificates of Creditable Tax Withheld at Source ("certificates"). Thus,
the certificates presented by [respondent] are not valid. And even assuming
that the certificates are valid, this Court cannot entertain the claim for
refund/tax credit certificates because the certificates were not submitted to
[petitioner].
[Petitioners] arguments are untenable since the certificates presented
(Exhibits "R", "S", "T", "U", "V", "W", and "X") were duly signed and prepared
under penalties of perjury, the figures appearing therein are presumed to be
true and correct. Thus, the testimony of the various agents/payors need not
be presented to validate the authenticity of the certificates.
In addition, that [respondent] did not submit the certificates to the [petitioner]
is of no moment. The administrative and judicial claim for refund and/or tax
credit certificates must be filed within the two-year prescriptive period
starting from the date of payment of the tax (Section 229, NIRC). In the
instant case, [respondent] filed its judicial claim (after filing its administrative
claim) precisely to preserve its right to claim. Otherwise, [respondent's] right
to the claim would have been barred. Considering that this [c]ourt had
jurisdiction over the claim, frespondent] rightfully presented the certificates
before this [c]ourt. Besides, any records that [petitioner] may have on the
administrative claim would eventually be transmitted to this [c]ourt under
Section S(b), Rule 6 of the Revised Rules of the Court of (Tax) Appeals.
As for the second ground, this [ c ]ourt finds [petitioner's] contention
unmeritorious.1wphi1 The requirements for claiming a tax refund/tax credit
certificates had been laid down in Citibank N.A. vs. Court of Appeals, G.R.
No. 107434, October 10, 1997. Nowhere in the case cited is proof of actual
remittance of the withheld taxes to the [petitioner] required before the
taxpayer may claim for a tax refund/tax credit certificates.26 (Emphasis
supplied)
In the same vein, this Court finds no abusive or improvident exercise of
authority on the part of the CT A in Division. Since there is no showing of
gross error or abuse on the part of the CT A in Division, and its findings are
supported by substantial evidence which were thoroughly considered during
the trial, there is no cogent reason to disturb its findings and conclusions.
All told, respondent complied with all the legal requirements and it is entitled,
as it opted, to a refund of its excess creditable withholding tax for the taxable
year 2001 in the amount of P69,562,412.00.
WHEREFORE, the petition is hereby DENIED for lack of merit. Accordingly,

the Decision dated 19 June 2007 and Resolution dated 13 August 2007 of
the CTA En Banc are hereby AFFIRMED. No costs.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice

SUPREME COURT
Manila
EN BANC
G.R. No. L-13656
January 31, 1962
COLLECTOR OF INTERNAL REVENUE, (now Commissioner), petitioner,

vs.
ALBERTO D. BENIPAYO, respondent.
Office of the Solicitor General for petitioner.
Carlos J. Antiporda for respondent.
DIZON, J.:
This is an appeal taken by the Collector of Internal Revenue from the
decision of the Court of Tax Appeals dated January 23, 1948, reversing the
one rendered by the former, thereby relieving respondent Alberto D.
Benipayo from the payment of the deficiency amusement tax assessed
against him in the total amount of P12,093.45.
Respondent is the owner and operator of the Lucena Theater located in the
municipality of Lucena, Quezon. On October 3, 1953 Internal Revenue
Agent Romeo de Guia investigated respondent's amusement tax liability in
connection with the operation of said theater during the period from August,
1952 to September, 1953. On October 15, 1953 De Guia submitted his

report to the Provincial Revenue Agent to the effect that respondent had
disproportionately issued tax-free 20-centavo children's tickets. His finding
was that during the years 1949 to 1951 the average ratio of adults and
children patronizing the Lucena Theater was 3 to 1, i.e., for every three
adults entering the theater, one child was also admitted, while during the
period in question, the proportion is reversed - three children to one adult.
From this he concluded that respondent must have fraudulently sold two taxfree 20-centavo tickets, in order to avoid payment of the amusement tax
prescribed in Section 260 of the National Internal Revenue Code. Based on
the average ratio between adult and children attendance in the past years,
Examiner de Guia recommended a deficiency amusement tax assessment
against respondent in the sum of P11,193.45, inclusive of 25% surcharge,
plus a suggested compromise penalty of P900.00 for violation of section 260
of the National Internal Revenue Code, or a total sum of P12,093.45
covering the period from August, 1952 to September, 1953 inclusive. On July
14, 1954, petitioner issued a deficiency amusement tax assessment against
respondent, demanding from the latter the payment of the total sum of
P12,152.93 within thirty days from receipt thereof. On August 16, 1954,
respondent filed the corresponding protest with the Conference Staff of the
Bureau of Internal Revenue. After due hearing, the Conference Staff
submitted to petitioner Collector of Internal Revenue its finding to the effect
that the "meager reports of these fieldmen (Examiner de Guia and the
Provincial Revenue Agent of Quezon) are mere presumptions and
conclusions, devoid of findings of the fact of the alleged fraudulent practices
of the herein taxpayer". In view thereof, and as recommended by the
Conference Staff, petitioner referred the case back to the Provincial
Revenue Agent of Quezon for further investigation. The report submitted by
Provincial Revenue Officer H.I. Bernardo after this last investigation partly
reads as follows:.
The returns from July 1 to July 11, showed that 31.43% of the entire
audience of 12,754 consisted of adults, the remaining 68.57% of
children. During this said period due, perhaps, to the absence of
agents in the premises, subject taxpayer was able to manipulate
the issuance of tickets in the way and manner alleged in Asst. De
Guia's indorsement report mentioned above. But during the period
from July 14 to July 24, 1955, when agents of this Office supervised
in the sales of admission tickets the sales for adults soared
upwards to 76% while that for children dropped correspondingly to

24%.
It is opined without fear of contradiction that the ratio of three (3)
adults to every one (1) child in the audience or a proportion of
75:25 as reckoned in Asst. De Guia's indorsement report to this
Office's new findings of a proportion of 76:24, represents and
conveys the true picture of the situation under the law of averages,
provided that the film being shown is not a children's show. There is
no hard and fast rule in this regard, but this findings would seem to
admit no contradiction.
Please note that the new findings of this Office is not a direct proof
of what has transpired during the period investigated by Asst. De
Guia and now pending before the Conference Staff", . . (Exh. 3, BIR
Record, p. 137-138).
After considering said report, the Conference Staff of the Bureau of Internal
Revenue recommended to the Collector of Internal Revenue the issuance of
the deficiency amusement tax assessment in question.
The only issue in this appeal is whether or not there is sufficient evidence in
the record showing that respondent, during the period under review, sold
and issued to his adult customers two tax-free 20-centavo children's tickets,
instead of one 40-centavo ticket for each adult customer; to cheat or defraud
the Government. On this question the Court of Tax Appeals said the
following in the appealed decision:.
To our mind, the appealed decision has no factual basis and must
be reversed. An assessment fixes and determines the tax liability of
a taxpayer. As soon as it is served, an obligation arises on the part
of the taxpayer concerned to pay the amount assessed and
demanded. Hence, assessments should not be based on mere
presumptions no matter how reasonable or logical said
presumptions may be. Assumingarguendo that the average ratio of
adults and children patronizing the Lucena Theater from 1949 to
1951 was 3 to 1, the same does not give rise to the inference that
the same conditions existed during the years in question (1952 and
1953). The fact that almost the same ratio existed during the month
of July, 1955 does not provide a sufficient inference on the
conditions in 1952 and 1953. . .
In order to stand the test of judicial scrutiny, the assessment must
be based on actual facts. The presumption of correctness of
assessment being a mere presumption cannot be made to rest on
another presumption that the circumstances in 1952 and 1953 are
presumed to be the same as those existing in 1949 to 1951 and
July 1955. In the case under consideration there are no substantial
facts to support the assessment in question. ...
A review of the records has not disclosed anything sufficient to justify a
reversal of the above finding made by the Court of Tax Appeals. It should be
borne in mind that to sustain the deficiency tax assessed against respondent
would amount, in effect, to a finding that he had, for a considerable period of
time, cheated and defrauded the government by selling to each adult patron
two children's tax-free tickets instead of one ticket subject to the amusement
tax provided for in Section 260 of the National Internal Revenue Code. Fraud
is a serious charge and, to be sustained, it must be supported by clear and
convincing proof which, in the present case, is lacking.
The claim that respondent admitted having resorted to the anomalous
practice already mentioned is not entirely correct. What respondent appears
to have admitted was that during a certain limited period he had adopted a
sort of rebate system applicable to cases where adults and children came in
groups and were al anomalous practice already mentioned is not entirely
correct. What respondent appears to have admitted was that during a certain
limited period he had adopted a sort of rebate ystem applicable to cases
where adults and children came in group and were all charged 20 centavo
admission tickets. This practice was, however, discontinued when he was
informed by the Bureau of Internal Revenue that it was not in accordance
with law.
WHEREFORE, the appealed judgment is hereby affirmed with costs.
Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L., Barrera,

Paredes and De Leon, JJ., concur.
Bengzon, C.J., took no part.
FIRST DIVISION
OCEANIC WIRELESS NETWORK, G.R. No. 148380
INC., Petitioner, Present:
dismissing the Petition for Review in CTA Case No. 4668 for lack of
jurisdiction.
Petitioner Oceanic Wireless Network, Inc. challenges the authority

of the Chief of the Accounts Receivable and Billing Division of the
Bureau of Internal Revenue (BIR) National Office to decide and/or
act with finality on behalf of the Commissioner of Internal Revenue
(CIR) on protests against disputed tax deficiency assessments.
DAVIDE, JR., C.J. (Chairman),

QUISUMBING,
YNARES-SANTIAGO,
- versus - CARPIO, and
AZCUNA, JJ.
The facts of the case are as follows:
COMMISSIONER OF INTERNAL Promulgated:

REVENUE, THE COURT OF
TAX APPEALS, and THE COURT December 9, 2005
OF APPEALS,
Respondents.
x-----------------------------------------------------------------------------------------x
On March 17, 1988, petitioner received from the Bureau of Internal

Revenue (BIR) deficiency tax assessments for the taxable year
1984 in the total amount ofP8,644,998.71, broken down as follows:
Kind of Tax Assessment No. Amount
DECISION
AZCUNA, J.:
This is a Petition for Review on Certiorari seeking to reverse and set

aside the Decision of the Court of Appeals dated October 31, 2000,
and its Resolution dated May 3, 2001, in Oceanic Wireless Network,
Inc. v. Commissioner of Internal Revenue docketed as CA-G.R. SP
No. 35581, upholding the Decision of the Court of Tax Appeals
Deficiency Income Tax FAR-4-1984-88-001130 P8,381,354.00

Penalties for late payment FAR-4-1984-88-001131 3,000.00
of income and failure to
file quarterly returns
Deficiency Contractors FAR-4-1984-88-001132 29,849.06
Tax
Deficiency Fixed Tax FAR-4--88-001133 12,083.65
Deficiency Franchise Tax FAR-484-88-001134 ___227,712.00
T o t a l -------- P8,644,998.71
Petitioner filed its protest against the tax assessments and
These were served on petitioner on October 10, 1991 and October
requested a reconsideration or cancellation of the same in a letter
17, 1991, respectively.[2]
to the BIR Commissioner dated April 12, 1988.

On November 8, 1991, petitioner filed a Petition for Review with
Acting in behalf of the BIR Commissioner, then Chief of the BIR
Accounts Receivable and Billing Division, Mr. Severino B. Buot,
reiterated the tax assessments while denying petitioners request
for reinvestigation in a letter [1] dated January 24, 1991, thus:
the Court of Tax Appeals (CTA) to contest the issuance of the

warrants to enforce the collection of the tax assessments. This was
docketed as CTA Case No. 4668.
The CTA dismissed the petition for lack of jurisdiction in a decision
Note: Your request for re-investigation has been

denied for failure to submit the necessary
supporting papers as per endorsement letter from
the office of the Special Operation Service dated
12-12-90.
dated September 16, 1994, declaring that said petition was filed
beyond the thirty (30)-day period reckoned from the time when the
demand letter of January 24, 1991 by the Chief of the BIR Accounts
Receivable and Billing Division was presumably received by
Said letter likewise requested petitioner to pay the total amount

of P8,644,998.71 within ten (10) days from receipt thereof,
otherwise the case shall be referred to the Collection Enforcement
petitioner, i.e., within a reasonable time from said date in the

regular course of mail pursuant to Section 2(v) of Rule 131 of the
Rules of Court.[3]
Division of the BIR National Office for the issuance of a warrant of

distraint and levy without further notice.
The decision cited Surigao Electric Co., Inc. v. Court of Tax

Appeals[4] wherein this Court considered a mere demand letter sent
Upon petitioners failure to pay the subject tax assessments within
to the taxpayer after his protest of the assessment notice as the
the prescribed period, the Assistant Commissioner for Collection,
final decision of the Commissioner of Internal Revenue on the
acting for the Commissioner of Internal Revenue, issued the
protest. Hence, the filing of the petition on November 8, 1991 was
corresponding warrants of distraint and/or levy and garnishment.
held clearly beyond the reglementary period.[5]
and when the taxpayer is out

Philippines. [6] (Underscoring supplied.)
of
the
The court a quo likewise stated that the finality of the

denial of the protest by petitioner against the tax deficiency
assessments was bolstered by the subsequent issuance of the
Petitioner filed a Motion for Reconsideration arguing that the
warrants of distraint and/or levy and garnishment to enforce the
demand letter of January 24, 1991 cannot be considered as the
collection of the deficiency taxes. The issuance was not barred by
final decision of the Commissioner of Internal Revenue on its
prescription because the mere filing of the letter of protest by
protest because the same was signed by a mere subordinate and
petitioner which was given due course by the Bureau of Internal
not by the Commissioner himself.[7]
Revenue suspended the running of the prescription period as

expressly provided under the then Section 224 of the Tax Code:
With the denial of its motion for reconsideration, petitioner

consequently filed a Petition for Review with the Court of Appeals
SEC. 224. Suspension of Running of the

Statute of Limitations. The running of the
Statute of Limitations provided in Section 203 and
223 on the making of assessment and the
beginning of distraint or levy or a proceeding in
court for collection, in respect of any deficiency,
shall be suspended for the period during which the
Commissioner is prohibited from making the
assessment or beginning distraint or levy or a
proceeding in court and for sixty (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
files upon which a tax is being assessed or
collected: Provided, That if the taxpayer inform the
Commissioner of any change of address, the
running of the statute of limitations will not be
suspended; when the warrant of distraint and levy
is duly served upon the taxpayer, his authorized
representative, or a member of his household with
sufficient discretion, and no property could located;
contending that there was no final decision to speak of because

the Commissioner had yet to make a personal determination as
regards the merits of petitioners case.[8]
The Court of Appeals denied the petition in a decision

dated October 31, 2000, the dispositive portion of which reads:
WHEREFORE, the petition is DISMISSED for

lack of merit.
SO ORDERED.
is deemed final and executory and subject to an appeal to the

Petitioners Motion for Reconsideration was likewise denied in a
Court of Tax Appeals.
resolution dated May 3, 2001.

We rule in the affirmative.
Hence, this petition with the following assignment of errors: [9]
A demand letter for payment of delinquent taxes may be

considered a decision on a disputed or protested assessment. The
I
THE HONORABLE RESPONDENT CA ERRED
IN FINDING THAT THE DEMAND LETTER ISSUED BY
THE
(THEN)
ACCOUNTS
RECEIVABLE/BILLING
DIVISION OF THE BIR NATIONAL OFFICE WAS THE
FINAL DECISION OF THE RESPONDENT CIR ON THE
DISPUTED
ASSESSMENTS,
AND
HENCE
CONSTITUTED THE DECISION APPEALABLE TO THE
HONORABLE RESPONDENT CTA; AND,
determination on whether or not a demand letter is final is

conditioned upon the language used or the tenor of the letter
being sent to the taxpayer.
We laid down the rule that the Commissioner of Internal

II
THE HONORABLE RESPONDENT CA ERRED
IN DECLARING THAT THE DENIAL OF THE PROTEST
OF THE SUBJECT ALLEGED DEFICIENCY TAX
ASSESSMENTS HAD LONG BECOME FINAL AND
EXECUTORY FOR FAILURE OF THE PETITIONER TO
INSTITUTE THE APPEAL FROM THE DEMAND LETTER
OF
THE
CHIEF
OF
THE
ACCOUNTS
RECEIVABLE/BILLING DIVISION, BIR NATIONAL
OFFICE, TO THE HONORABLE RESPONDENT CTA,
WITHIN THIRTY (30) DAYS FROM RECEIPT THEREOF.
Thus, the main issue is whether or not a demand letter for tax
deficiency assessments issued and signed by a subordinate officer
who was acting in behalf of the Commissioner of Internal Revenue,
Revenue should always indicate to the taxpayer in clear and

unequivocal language what constitutes his final determination of
the disputed assessment, thus:
. . . we deem it appropriate to state that
the Commissioner of Internal Revenue should
always indicate to the taxpayer in clear and
unequivocal language whenever his action on an
assessment questioned by a taxpayer constitutes
his
final
determination
on
the
disputed
assessment, as contemplated by Sections 7 and 11
of Republic Act No. 1125, as amended. On the
basis of his statement indubitably showing that the
Commissioners communicated action is his final
decision on the contested assessment, the
aggrieved taxpayer would then be able to take
recourse to the tax court at the opportune time.
Without needless difficulty, the taxpayer would be
able to determine when his right to appeal to the

tax court accrues.
The rule of conduct would also obviate all desire
and opportunity on the part of the taxpayer to
continually delay the finality of the assessment
and, consequently, the collection of the amount
demanded as taxes by repeated requests for
recomputation and reconsideration. On the part of
the Commissioner, this would encourage his office
to conduct a careful and thorough study of every
questioned assessment and render a correct and
definite decision thereon in the first instance. This
would also deter the Commissioner from unfairly
making the taxpayer grope in the dark and
speculate as to which action constitutes the
decision appealable to the tax court. Of greater
import, this rule of conduct would meet a pressing
need for fair play, regularity, and orderliness in
administrative action.[10]
The above conclusion finds support in Commissioner of

Internal Revenue v. Ayala Securities Corporation,[12] where we held:
The letter of February 18, 1963 (Exh. G), in the
view of the Court, is tantamount to a denial of the
reconsideration or respondent corporationsprotest
of the assessment made by the petitioner,
considering that the said letter was in itself a
reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment
already made, and for the immediate payment of
the sum of P758,687.04 in spite of the vehement
protest of the respondent corporation on April 21,
1961. This certainly is a clear indication of the firm
stand of petitioner against the reconsideration of
the disputed assessmentThis being so, the said
letter amounted to a decision on a disputed or
protested assessment, and, there, the court a quo
did not err in taking cognizance of this case.
In this case, the letter of demand dated January 24, 1991,

unquestionably constitutes the final action taken by the Bureau of
Internal Revenue on petitioners request for reconsideration when it
reiterated the tax deficiency assessments due from petitioner, and
requested its payment. Failure to do so would result in the issuance
of a warrant of distraint and levy to enforce its collection without
further notice.[11] In addition, the letter contained a notation
indicating that petitioners request for reconsideration had been
denied for lack of supporting documents.
Similarly, in Surigao Electric Co., Inc v. Court of Tax Appeals, [13] and
in CIR v. Union Shipping Corporation,[14] we held:
. . . In this letter, the commissioner not only
in effect demanded that the petitioner pay the
amount of P11,533.53 but also gave warning that
in the event it failed to pay, the said commissioner
would be constrained to enforce the collection
thereof by means of the remedies provided by law.
The tenor of the letter, specifically the statement
regarding
the
resort
to
legal
remedies,
unmistakably indicated the final nature of the
determination made by the commissioner of the
petitioners deficiency franchise tax liability.
The demand letter received by petitioner verily signified a
subordinate official with the rank equivalent to a division chief or
character of finality. Therefore, it was tantamount to a rejection of
higher, except the following:
the request for reconsideration. As correctly held by the Court of
(a)
The
power
to
recommend
the
promulgation of rules and regulations by
the Secretary of Finance;
(b)
The power to issue rulings of first

impression or to reverse, revoke or modify
any existing ruling of the Bureau;
Tax Appeals, while the denial of the protest was in the form of a
demand letter, the notation in the said letter making reference to
the protest filed by petitioner clearly shows the intention of the
respondent to make it as [his] final decision.[15]
This now brings us to the crux of the matter as to whether said

demand letter indeed attained finality despite the fact that it was
issued and signed by the Chief of the Accounts Receivable and
Billing Division instead of the BIR Commissioner.
The general rule is that the Commissioner of Internal

Revenue may delegate any power vested upon him by law to
Division Chiefs or to officials of higher rank. He cannot, however,
delegate the four powers granted to him under the National
Internal Revenue Code (NIRC) enumerated in Section 7.
(c) The power to compromise or abate under

Section 204(A) and (B) of this Code, any
tax
deficiency: Provided,
however, that
assessments issued by the Regional Offices
involving basic deficiency taxes of five
hundred thousand pesos (P500,000) or
less, and minor criminal violations as may
be determined by rules and regulations to
be promulgated by the Secretary of
Finance, upon the recommendation of the
Commissioner, discovered by regional and
district officials, may be compromised by a
regional evaluation board which shall be
composed of the Regional Director as
Chairman, the Assistant Regional Director,
heads of the Legal, Assessment and
Collection Divisions and the Revenue
District Officer having jurisdiction over the
taxpayer, as members; and
(d)
The power to assign or reassign

internal revenue officers to establishments
where articles subject to excise tax are
produced or kept.
As amended by Republic Act No. 8424, Section 7 of the

Code authorizes the BIR Commissioner to delegate the powers
vested in him under the pertinent provisions of the Code to any
It is clear from the above provision that the act of issuance

of the demand letter by the Chief of the Accounts Receivable and
Billing Division does not fall under any of the exceptions that have
and therefore, demandable. A tax assessment that has become
been mentioned as non-delegable.
final, executory and enforceable for failure of the taxpayer to assail
Section 6 of the Code further provides:
the same as provided in Section 228 can no longer be contested,

thus:
SEC. 6. Power of the Commissioner to Make

Assessments
and
Prescribe
Additional
Requirements
for
Tax
Administration
and
Enforcement.
(A)
Examination of Returns
and Determination of Tax Due. - After a return has
been filed as required under the provisions of this
Code, the Commissioner or his duly authorized
representative may authorize the examination of
any taxpayer and the assessment of the correct
amount of tax; Provided, however, That failure to
file a return shall not prevent the Commissioner
from authorizing the examination of any taxpayer.
The tax or any deficiency tax so assessed
shall be paid upon notice and demand from
the Commissioner or from his duly authorized
representative. . . . (Emphasis supplied)
Thus, the authority to make tax assessments may be delegated to
subordinate officers. Said assessment has the same force and
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 findingsSuch assessment may be
protested administratively by filing a request for
reconsideration or reinvestigation within thirty (30)
days from receipt of the assessment in such form
and
manner
as
may
be
prescribed
by
implementing rules and regulations. Within sixty
(60) days from filing of the protest, all relevant
supporting documents shall have been submitted;
otherwise, the assessment shall become final.
If the protest is denied in whole or in part, or is not
acted upon within one hundred (180) days from
submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to
the Court of Tax Appeals within thirty (30) days
from receipt of the said decision, or from the lapse
of the one hundred eighty (180) - day period;
otherwise, the decision shall become final,
executory and demandable.
effect as that issued by the Commissioner himself, if not reviewed

or revised by the latter such as in this case. [16]
Here, petitioner failed to avail of its right to bring the

matter before the Court of Tax Appeals within the reglementary
A request for reconsideration must be made within thirty

(30) days from the taxpayers receipt of the tax deficiency
assessment, otherwise, the decision becomes final, unappealable
period upon the receipt of the demand letter reiterating the

assessed
delinquent
taxes
and
denying
its
request
for
reconsideration which constituted the final determination by the
period of thirty (30) days to appeal the adverse decision on the
Bureau of Internal Revenue on petitioners protest. Being a final
request for reconsideration had already lapsed when the petition
disposition by said agency, the same would have been a proper
was filed with the Court of Tax Appeals only on November 8, 1991.
subject for appeal to the Court of Tax Appeals.
Hence, the Court of Tax Appeals properly dismissed the petition as

the tax delinquency assessment had long become final and
The rule is that for the Court of Tax Appeals to acquire
executory.
jurisdiction, an assessment must first be disputed by the taxpayer

and ruled upon by the Commissioner of Internal Revenue to
WHEREFORE, premises considered, the Decision of the Court of
warrant a decision from which a petition for review may be taken
Appeals dated October 31, 2000 and its Resolution dated May 3,
to the Court of Tax Appeals. Where an adverse ruling has been
2001 in CA-G.R. SP No. 35581 are hereby AFFIRMED. The petition
rendered by the Commissioner of Internal Revenue with reference
is accordingly DENIED for lack of merit.
to a disputed assessment or a claim for refund or credit, the

taxpayer may appeal the same within thirty (30) days after receipt
SO ORDERED.
thereof.[17]
We agree with the factual findings of the Court of Tax
Appeals that the demand letter may be presumed to have been
duly directed, mailed and was received by petitioner in the regular

SUPREME COURT
Manila
THIRD DIVISION
course of the mail in the absence of evidence to the contrary. This

is in accordance with Section 2(v), Rule 131 of the Rules of Court,
G.R. No. 125704 August 28, 1998
and in this case, since the period to appeal has commenced to run
from the time the letter of demand was presumably received by
petitioner within a reasonable time after January 24, 1991, the
PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, COURT OF APPEALS, and

THE COURT OF TAX APPEALS,respondents.
47,312,353.94 11,828,088.48
8,988,362.97 68,128,805.39

ROMERO, J.:
Petitioner Philex Mining Corp. assails the decision of the Court of Appeals
promulgated on April 8, 1996 in CA-G.R. SP No. 36975 1 affirming the Court
of Tax Appeals decision in CTA Case No. 4872 dated March 16,
1995 2 ordering it to pay the amount of P110,677,668.52 as excise tax
liability for the period from the 2nd quarter of 1991 to the 2nd quarter of 1992
plus 20% annual interest from August 6, 1994 until fully paid pursuant to
Sections 248 and 249 of the Tax Code of 1977.
The facts show that on August 5, 1992, the BIR sent a letter to Philex asking
it to settle its tax liabilities for the 2nd, 3rd and 4th quarter of 1991 as well as
the 1st and 2nd quarter of 1992 in the total amount of P123,821.982.52
computed as follows:
PERIOD COVERED BASIC TAX 25% SURCHARGE INTEREST
TOTAL EXCISE
TAX DUE
2nd Qtr., 1991 12,911,124.60 3,227,781.15 3,378,116.16
19,517,021.91
3rd Qtr., 1991 14,994,749.21 3,748,687.30 2,978,409.09
21,721,845.60
4th Qtr., 1991 19,406,480.13 4,851,620.03 2,631,837.72
26,889,937.88

1st Qtr., 1992 23,341,849.94 5,835,462.49 1,710,669.82

30,887,982.25
2nd Qtr., 1992 19,671,691.76 4,917,922.94 215,580.18
24,805,194.88

43,013,541.70 10,753,385.43
1,926,250.00 55,693,177.13

90,325,895.64 22,581,473.91
10,914,612.97 123,821,982.52 3
========= ========= =========
=========
In a letter dated August 20, 1992, 4 Philex protested the demand for payment
of the tax liabilities stating that it has pending claims for VAT input
credit/refund for the taxes it paid for the years 1989 to 1991 in the amount of
P119,977,037.02 plus interest. Therefore these claims for tax credit/refund
should be applied against the tax liabilities, citing our ruling inCommissioner
of Internal Revenue v. Itogon-Suyoc Mines, Inc. 5
In reply, the BIR, in a letter dated September 7, 1992, 6 found no merit in
Philex's position. Since these pending claims have not yet been established
or determined with certainty, it follows that no legal compensation can take
place. Hence, the BIR reiterated its demand that Philex settle the amount
plus interest within 30 days from the receipt of the letter.
In view of the BIR's denial of the offsetting of Philex's claim for VAT input
credit/refund against its excise tax obligation, Philex raised the issue to the
Court of Tax Appeals on November 6, 1992. 7 In the course of the
proceedings, the BIR issued Tax Credit Certificate SN 001795 in the amount
of P13,144,313.88 which, applied to the total tax liabilities of Philex of
P123,821,982.52; effectively lowered the latter's tax obligation to
P110,677,688.52.
Despite the reduction of its tax liabilities, the CTA still ordered Philex to pay
the remaining balance of P110,677,688.52 plus interest, elucidating its
reason, to wit:
Thus, for legal compensation to take place, both
obligations must be liquidated and demandable.
"Liquidated" debts are those where the exact amount has
already been determined (PARAS, Civil Code of the
Philippines, Annotated, Vol. IV, Ninth Edition, p. 259). In
the instant case, the claims of the Petitioner for VAT refund
is still pending litigation, and still has to be determined by
this Court (C.T.A. Case No. 4707). A fortiori, the liquidated
debt of the Petitioner to the government cannot, therefore,
be set-off against the unliquidated claim which Petitioner
conceived to exist in its favor (see Compaia General de
Tabacos vs. French and Unson, No. 14027, November 8,
1918, 39 Phil. 34). 8
Aggrieved with the decision, Philex appealed the case before the Court of
Appeals docketed as CA-GR. CV No. 36975. 11 Nonetheless, on April 8,
1996, the Court of Appeals a Affirmed the Court of Tax Appeals observation.
The pertinent portion of which reads: 12
WHEREFORE, the appeal by way of petition for review is
hereby DISMISSED and the decision dated March 16,
1995 is AFFIRMED.
Philex filed a motion for reconsideration which was, nevertheless, denied in
a Resolution dated July 11, 1996. 13
However, a few days after the denial of its motion for reconsideration, Philex
was able to obtain its VAT input credit/refund not only for the taxable year
1989 to 1991 but also for 1992 and 1994, computed as follows: 14
Period Covered Tax Credit Date
By Claims For Certificate of
VAT refund/credit Number Issue Amount
1994 (2nd Quarter) 007730 11 July 1996 P25,317,534.01
1994 (4th Quarter) 007731 11 July 1996 P21,791,020.61
Moreover, the Court of Tax Appeals ruled that "taxes cannot be subject to
set-off on compensation since claim for taxes is not a debt or contract." 9 The
dispositive portion of the CTA decision 10 provides:
1989 007732 11 July 1996 P37,322,799.19

1990-1991 007751 16 July 1996 P84,662,787.46
In all the foregoing, this Petition for Review is hereby

DENIED for lack of merit and Petitioner is hereby
ORDERED to PAY the Respondent the amount of
P110,677,668.52 representing excise tax liability for the
period from the 2nd quarter of 1991 to the 2nd quarter of
1992 plus 20% annual interest from August 6, 1994 until
fully paid pursuant to Section 248 and 249 of the Tax
Code, as amended.
1992 (1st-3rd Quarter) 007755 23 July 1996

P36,501,147.95
In view of the grant of its VAT input credit/refund, Philex now contends that
the same should, ipso jure, off-set its excise tax liabilities 15 since both had
already become "due and demandable, as well as fully liquidated;" 16 hence,
legal compensation can properly take place.
We see no merit in this contention.

In several instances prior to the instant case, we have already made the
pronouncement that taxes cannot be subject to compensation for the simple
reason that the government and the taxpayer are not creditors and debtors
of each other. 17 There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity. 18 We find no cogent reason
to deviate from the aforementioned distinction.
Prescinding from this premise, in Francia v. Intermediate Appellate
Court, 19 we categorically held that taxes cannot be subject to set-off or
compensation, thus:
We have consistently ruled that there can be no off-setting
of taxes against the claims that the taxpayer may have
against the government. A person cannot refuse to pay a
tax on the ground that the government owes him an
amount equal to or greater than the tax being collected.
The collection of a tax cannot await the results of a lawsuit
against the government.
The ruling in Francia has been applied to the subsequent case of Caltex
Philippines, Inc. v. Commission on Audit,20 which reiterated that:
. . . a taxpayer may not offset taxes due from the claims
that he may have against the government. Taxes cannot
be the subject of compensation because the government
and taxpayer are not mutually creditors and debtors of
each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off.
Further, Philex's reliance on our holding in Commissioner of Internal
Revenue v. Itogon-Suyoc Mines Inc., wherein we ruled that a pending refund
may be set off against an existing tax liability even though the refund has not
yet been approved by the Commissioner, 21 is no longer without any support
in statutory law.
It is important to note, that the premise of our ruling in the aforementioned

case was anchored on Section 51 (d) of the National Revenue Code of
1939. However, when the National Internal Revenue Code of 1977 was
enacted, the same provision upon which the Itogon-Suyoc pronouncement
was based was omitted. 22 Accordingly, the doctrine enunciated in ItogonSuyoc cannot be invoked by Philex.
Despite the foregoing rulings clearly adverse to Philex's position, it asserts
that the imposition of surcharge and interest for the non-payment of the
excise taxes within the time prescribed was unjustified. Philex posits the
theory that it had no obligation to pay the excise tax liabilities within the
prescribed period since, after all, it still has pending claims for VAT input
credit/refund with BIR. 23
We fail to see the logic of Philex's claim for this is an outright disregard of the
basic principle in tax law that taxes are the lifeblood of the government and
so should be collected without unnecessary hindrance. 24 Evidently, to
countenance Philex's whimsical reason would render ineffective our tax
collection system. Too simplistic, it finds no support in law or in
jurisprudence.
To be sure, we cannot allow Philex to refuse the payment of its tax liabilities
on the ground that it has a pending tax claim for refund or credit against the
government which has not yet been granted. It must be noted that a
distinguishing feature of a tax is that it is compulsory rather than a matter of
bargain. 25 Hence, a tax does not depend upon the consent of the
taxpayer. 26 If any taxpayer can defer the payment of taxes by raising the
defense that it still has a pending claim for refund or credit, this would
adversely affect the government revenue system. A taxpayer cannot refuse
to pay his taxes when they fall due simply because he has a claim against
the government or that the collection of the tax is contingent on the result of
the lawsuit it filed against the government. 27 Moreover, Philex's theory that
would automatically apply its VAT input credit/refund against its tax liabilities
can easily give rise to confusion and abuse, depriving the government of
authority over the manner by which taxpayers credit and offset their tax
liabilities.
Corollarily, the fact that Philex has pending claims for VAT input claim/refund
with the government is immaterial for the imposition of charges and penalties
prescribed under Section 248 and 249 of the Tax Code of 1977. The
payment of the surcharge is mandatory and the BIR is not vested with any
authority to waive the collection thereof. 28 The same cannot be condoned
for flimsy reasons, 29 similar to the one advanced by Philex in justifying its
non-payment of its tax liabilities.
Finally, Philex asserts that the BIR violated Section 106 (e) 30 of the National
Internal Revenue Code of 1977, which requires the refund of input taxes
within 60 days, 31 when it took five years for the latter to grant its tax claim for
VAT input credit/refund. 32
In this regard, we agree with Philex. While there is no dispute that a claimant
has the burden of proof to establish the factual basis of his or her claim for
tax credit or refund, 33 however, once the claimant has submitted all the
required documents it is the function of the BIR to assess these documents
with purposeful dispatch. After all, since taxpayers owe honestly to
government it is but just that government render fair service to the
taxpayers. 34
In the instant case, the VAT input taxes were paid between 1989 to 1991 but
the refund of these erroneously paid taxes was only granted in 1996.
Obviously, had the BIR been more diligent and judicious with their duty, it
could have granted the refund earlier. We need not remind the BIR that
simple justice requires the speedy refund of wrongly-held taxes. 35 Fair
dealing and nothing less, is expected by the taxpayer from the BIR in the
latter's discharge of its function. As aptly held inRoxas v. Court of Tax
Appeals: 36
The power of taxation is sometimes called also the power
to destroy. Therefore it should be exercised with caution to
minimize injury to the proprietary rights of a taxpayer. It
must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg" And, in
order to maintain the general public's trust and confidence
in the Government this power must be used justly and not
treacherously.
Despite our concern with the lethargic manner by which the BIR handled
Philex's tax claim, it is a settled rule that in the performance of governmental
function, the State is not bound by the neglect of its agents and officers.
Nowhere is this more true than in the field of taxation. 37 Again, while we
understand Philex's predicament, it must be stressed that the same is not a
valid reason for the non-payment of its tax liabilities.
To be sure, this is not to state that the taxpayer is devoid of remedy against
public servants or employees, especially BIR examiners who, in
investigating tax claims are seen to drag their feet needlessly. First, if the
BIR takes time in acting upon the taxpayer's claim for refund, the latter can
seek judicial remedy before the Court of Tax Appeals in the manner
prescribed by law. 38 Second, if the inaction can be characterized as willful
neglect of duty, then recourse under the Civil Code and the Tax Code can
also be availed of.
Art. 27 of the Civil Code provides:
Art. 27. Any person suffering material or moral loss
because a public servant or employee refuses or neglects,
without just cause, to perform his official duty may file an
action for damages and other relief against the latter,
without prejudice to any disciplinary action that may be
taken.
More importantly, Section 269 (c) of the National Internal Revenue Act of
1997 states:
xxx xxx xxx
(c) Wilfully neglecting to give receipts, as by law required
for any sum collected in the performance of duty or wilfully
neglecting to perform, any other duties enjoyed by law.
Simply put, both provisions abhor official inaction, willful neglect and
unreasonable delay in the performance of official duties. 39 In no uncertain
terms must we stress that every public employee or servant must strive to
render service to the people with utmost diligence and efficiency. Insolence
and delay have no place in government service. The BIR, being the
government collecting arm, must and should do no less. It simply cannot be
apathetic and laggard in rendering service to the taxpayer if it wishes to
remain true to its mission of hastening the country's development. We take
judicial notice of the taxpayer's generally negative perception towards the
BIR; hence, it is up to the latter to prove its detractors wrong.
In sum, while we can never condone the BIR's apparent callousness in
performing its duties, still, the same cannot justify Philex's non-payment of its
tax liabilities. The adage "no one should take the law into his own hands"
should have guided Philex's action.
WHEREFORE, in view of the foregoing, the instant petition is hereby

DISMISSED. The assailed decision of the Court of Appeals dated April 8,
1996 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concur.

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FIRST DIVISION

[G.R. No. 127777. October 1, 1999]

prosecutor. He considered the reinvestigation as terminated, and recommended the

Petitioner was charged with nonpayment of deficiency corporate income tax

is to ascertain the amount that each taxpayer is to pay.[18] An assessment is a notice to

Republic of the Philippines

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

On November 8, 2001, Revenue District Officer Socorro O. Ramos-Lafuente

Less: Input Tax

Add: 25% Surcharge

Petitioner is a domestic corporation duly organized and existing by virtue of

Failure to File VAT

P 1,028.56 On February 8, 2005, respondent Commissioner, through its authorized

Deficiency Withholding Tax

97,466.71 Denying that it received a Preliminary Assessment Notice (PAN) and

1.1 Whether petitioner is liable for the respective amounts

1. Whether the respondent complied with the due process

1.2. Whether the assessment has become final and

respond, the Commissioner or his duly authorized representative shall issue

(ii) When a discrepancy has been determined between the

process requirement in the issuance of a deficiency tax assessment," the

purpose of taxation, which is the promotion of the common good, may be

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

January 27, 2006

AZUCENA T. REYES, Petitioner,

WHEREFORE, the petition is DENIED.

JOSE CATRAL MENDOZA

Republic of the Philippines

January 27, 2006

"WHEREFORE, the petition is GRANTED. The assailed decision of the

conditio sine qua non to the perfection and consummation of any

"Sec. 228. Protesting of Assessment. -xxxxxxxxx

Moreover, an administrative rule interpretive of a statute, and not declarative

Even a cursory review of the preliminary assessment notice, as well as the

WHEREFORE, the Petition is hereby DENIED and the assailed Decision

Republic of the Philippines

1. That petitioner is a corporation, engaged in the business of

April 30, 1964

COMMISSIONER OF INTERNAL REVENUE, petitioner,

3. That in an investigation conducted by an examiner of the

For the year ended Dec. 31, 1948 ...................................

For the year ended Dec. 31, 1948 ...................................

For the year ended Dec. 31, 1948 ...................................

4. That respondent sent income tax assessment notices dated April

8. That on September 20, 1955, respondent replied to petitioner's

follows that the right of respondent Commissioner to collect said

It appearing that deficiency assessments in question were made on

1950 2,075.30 35-ACR-125346-52/50

We have no way of determining the items composing above and we

On September 2, 1959, petitioner made another demand on respondent for

On September 16, 1959, respondent taxpayer tasked the Commissioner of

disallowances on July 1, 1955 or after 10 days. This request was denied on

Republic of the Philippines

REPUBLIC OF THE PHILIPPINES, represented by the Solicitor General,

FISHWEALTH CANNING CORPORATION,

G.R. No. 179343

PUNO, C.J., Chairperson,

COMMISSIONER OF INTERNAL REVENUE,

CARPIO MORALES, J.:

on August 30, 2000.[2]

By a Preliminary Collection Letter dated September 6, 2005, respondent

books of accounts. Petitioner requested the cancellation of the subpoena on the

demanded payment of petitioners tax liabilities, [9] drawing petitioner to file