SECOND DIVISION

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

- versus JULIETA ARIETE,Respondent.
G.R. No. 164152/ Promulgated: January 21, 2010
The Case

The Commissioner of Internal Revenue (petitioner) filed this

Petition for Review1[1] to reverse the Court of Appeals (CA)

The Chief of the Special Investigation Division (SID Chief)

issued Mission Order No. 118-97 dated 23 May 1997, directing a
Revenue

Officer

to

conduct

preliminary

verification

of

the

denunciation made and submit a progress report. The SID Chief

also sent a request to access the BIR records of Revenue District
No. 112, Tagum, Davao del Norte (RDO), inquiring if the income tax
returns of respondent for the years 1993 to 1996 are available for
examination. The RDO replied that respondent had no records of
income tax returns for the years 1993 to 1996.5[5]

Decision2[2] dated 14 June 2004 in CA-G.R. SP No. 70693. In the

On 15 October 1997, the Revenue Officer submitted a report

assailed decision, the CA affirmed the Court of Tax Appeals (CTA)

stating that respondent admitted her non-filing of income tax

Decision3[3] and Resolution dated 15 January 2002 and 3 May

returns.6[6]

2002, respectively. The CTA cancelled the assessments issued

against Julieta Ariete (respondent) for deficiency income taxes of
P191,463.04 for the years 1993, 1994, 1995, and 1996.

On 2 December 1997, respondent filed her income tax

returns for the years 1993, 1994, 1995, and 1996 under Revenue
Memorandum Order (RMO) No. 59-97 as amended by RMO No. 60-

The Facts
On 21 May 1997, George P. Mercado filed an Affidavit with

97 and RMO No. 63-97, otherwise known as the Voluntary

Assessment Program (VAP).7[7]

the Special Investigation Division, Revenue Region No. 19, Davao

City. The affidavit attested that respondent earned substantial
income in 1994, 1995, and 1996 without paying income tax. 4[4]

On 28 July 1998, the Regional Director issued a Letter of

Authority to investigate respondent for tax purposes covering the
years 1993 to 1996.

1[1]Under Rule 45 of the Rules of Court.

On 14 October 1998, the Revenue Officer submitted a

2[2]Penned by Associate Justice Celia C. Librea-Leagogo with Associate Justices Arturo G. Tayag, and
Edgardo A. Camello, concurring.

3[3]Penned by Presiding Justice Ernesto D. Acosta with Associate Justices Amancio Q. Saga and

Memorandum to the SID Chief recommending that respondent be

5[5]Id. at 12.

Juanito C. Castaeda, Jr., concurring.

6[6]Id.

4[4]Rollo, pp. 42-43.

7[7]Id. at 12-13.

assessed with deficiency income taxes for the years 1993 to 1996.

the request for reinvestigation and disapproving her availment of

On 22 January 1999, four assessment notices were issued against

the VAP. Respondent also contested the issuance of the four

respondent. The total deficiency income taxes, inclusive of interests

assessment notices.

and surcharges amounted to P191,463.04:

On 15 January 2002, the CTA rendered a decision cancelling
1993

P 6,462.188[8]

the

deficiency

assessments.

Petitioner

filed

motion

for

reconsideration but the CTA denied the same in a Resolution dated

9

1994

47,187.39 [9]

1995

24,729.6410[10]

1996

113,083.8311[11]
P

191,463.04

3 May 2002.
Petitioner appealed the CTAs decision to the CA. In a
decision dated 14 June 2004, the CA affirmed the CTAs decision.
Aggrieved

by

the

CAs

decision

affirming

the

cancellation of the tax deficiency assessments, petitioner elevated

the case before this Court.
On 22 February 1999, respondent filed an Assessment
Protest with Prayer for Reinvestigation. On 30 March 1999, the

Ruling of the Court of Tax Appeals

assessment protest was denied.

The CTA stated that when respondent filed her income tax
On 16 April 1999, respondent offered a compromise
settlement but the same was denied.
Respondent filed a petition for review with the CTA assailing
the Bureau of Internal Revenues (BIR) decision denying with finality

8[8]Id. at 56.
9[9]Id. at 57.
10[10]Id. at 58.
11[11]Id. at 59.

returns on 2 December 1997, she was not yet under investigation

by the Special Investigation Division. The Letter of Authority to
investigate respondent for tax purposes was issued only on 28 July
1998. Further, respondents case was not duly recorded in the
Official Registry Book of the BIR before she availed of the VAP.
The CTA, quoting RMO Nos. 59-97, 60-97, and 63-97, ruled
that the requirements before a person may be excluded from the
coverage of the VAP are:
a. The person(s) must be under investigation by the
Tax Fraud Division and/or the regional Special
Investigation Division;

b. The investigation must be as a result of a verified

information filed by an informer under Section 281
of the NIRC, as amended; and
c. The investigation must be duly registered in the
Official Registry Book of the Bureau before the
date of availment under the VAP.12[12]

The CTA ruled that even if respondent violated the National

Internal Revenue Code (Tax Code), she was given the chance to
rectify her fault and be absolved of criminal and civil liabilities
incident to her non-filing of income tax by virtue of the VAP. The
CTA held that respondent is not disqualified to avail of the VAP.
Hence, respondent has no more liabilities after paying the
corresponding taxes due.15[15]

The CTA ruled that the conjunctive word and is used;

The CTA found the four assessments issued against

therefore, all of the above requisites must be present before a

respondent to be erroneous and ordered that the same be

person may be excluded from the coverage of the VAP. The CTA

cancelled.16[16]

explained that the word and is a conjunction connecting words or

Ruling of the Court of Appeals

phrases expressing the idea that the latter is to be added or taken

along with the first.13[13]

The CA explained that the persons who may avail of the VAP

The CTA also stated that the rationale behind the VAP is to

are those who are liable to pay any of the above-cited internal

give taxpayers a final opportunity to come up with a clean slate

revenue taxes for the above specified period who due to

before they will be dealt with strictly for not paying their correct

inadvertence or otherwise, has underdeclared his internal revenue

taxes. The CTA noted that under the RMOs, among the benefits that

tax liabilities or has not filed the required tax returns. The CA

can be availed by the taxpayer-applicant are:

rationalized that the BIR used a broad language to define the

persons qualified to avail of the VAP because the BIR intended to

1)

2)

A bona fide rectification of filing errors and

assessment of tax liabilities under the VAP shall
relieve the taxpayer-applicant from any criminal
or civil liability incident to the misdeclaration of
incomes, purchases, deductions, etc., and nonfiling of a return.
The taxpayer who shall avail of the VAP shall be
liable only for the payment of the basic tax due. 14
[14]

12[12]Id. at 93.
13[13] Id.
14[14] Id. at 93-94.

reach as many taxpayers as possible subject only to the exclusion

of those cases specially enumerated.
The CA ruled that in applying the rules of statutory
construction, the exceptions enumerated in paragraph 317[17] of

15[15] Id. at 95.

16[16] Id.

17[17]

3. Persons/Cases not covered

The following shall be excluded from the coverage of the VAP under this Order:

RMO No. 59-97, as well as those added in RMO No. 63-97, should

The CA affirmed the CTAs findings of facts and ruled that

be strictly construed and all doubts should be resolved in favor of

neither the verified information nor the investigation was recorded

the general provision stated under paragraph 218[18] rather than

in the Official Registry Book of the BIR. The CA disagreed with

the said exceptions.

petitioners contention that the recording in the Official Registry

Book of the BIR is merely a procedural requirement which can be
dispensed with for the purpose of determining who are excluded

3.1. Dealers of petroleum products and purchasers of goods and services from
petroleum companies who have availed of the VAP under RMO No. 39-96, as
amended by RMO No. 10-97;

from the coverage of RMO No. 59-97.

The CA explained that it is clear from the wordings of RMO
No. 59-97 that the recording in the Official Registry Book of the BIR

3.2. Withholding Agents with respect to their withholding tax liabilities;

is a mandatory requirement before a taxpayer-applicant under the

VAP may be excluded from its coverage as this requirement was
preceded by the word and. The use of the conjunction and in

3.3. Persons to whom a validly issued Letter of Authority has been served;

subparagraph 3.4 of RMO No. 59-97 must be understood in its usual

and common meaning for the purpose of determining who are
disqualified from availing of the benefits under the VAP. This

3.4. Persons under investigation as a result of verified information filed by an informer

under Section 281 of the NIRC, as amended, and duly recorded in the Official Registry
Book of the Bureau before the date of availment under VAP; and

interpretation is more in faithful compliance with the mandate of

the RMOs.
Aggrieved by the CA decision, petitioner elevated the case
to this Court.

3.5. Tax cases filed in Court.

Issue

18[18]

2. Who May Avail

Any person liable to pay any of the above-cited internal revenue taxes for the
above specified period; who due to inadvertence or otherwise, has under-declared his
internal revenue tax liabilities or has not filed the required tax return may avail of the benefits
under VAP.

Petitioner submits this sole issue for our consideration:

whether the CA erred in holding that the recording in the Official
Registry Book of the BIR of the information filed by the informer

under

Section

28119[19]

of

the

Tax

Code

is

mandatory

requirement before a taxpayer-applicant may be excluded from the

coverage of the VAP.

Verba Legis
It is well-settled that where the language of the law is clear
and unequivocal, it must be given its literal application and applied
without

interpretation.21[21]

The

general

rule

of

requiring

adherence to the letter in construing statutes applies with

Ruling of the Court

particular strictness to tax laws and provisions of a taxing act are

Petitioner contends that the VAP, being in the nature of a tax

not to be extended by implication. 22[22] A careful reading of the

amnesty, must be strictly construed against the taxpayer-applicant

RMOs pertaining to the VAP shows that the recording of the

such that petitioners failure to record the information in the Official

information in the Official Registry Book of the BIR is a mandatory

Registry

requirement before a taxpayer may be excluded from the coverage

Book

of

the

BIR

does

not

affect

respondents

disqualification from availment of the benefits under the VAP.

of the VAP.

Petitioner argues that taxpayers who are under investigation for

non-filing of income tax returns before their availment of the VAP

On 27 October 1997, the CIR, in implementing the VAP,

are not covered by the program and are not entitiled to its benefits.

issued RMO No. 59-97 to give erring taxpayers a final opportunity

Petitioner alleges that the underlying reason for the disqualification

to come up with a clean slate. Any person liable to pay income tax

is that availment of the VAP by such taxpayer is no longer

on business and compensation income, value-added tax and other

voluntary. Petitioner asserts that voluntariness is the very essence

percentage taxes under Titles II, IV and V, respectively, of the Tax

of the Voluntary Assessment Program.20[20]

Code for the taxable years 1993 to 1996, who due to inadvertence
or otherwise, has not filed the required tax return may avail of the

Respondent claims that where the terms of a statute are

clear and unambiguous, no interpretation is called for, and the law

benefits under the VAP.23[23] RMO No. 59-97 also enumerates the
persons or cases that are excluded from the coverage of the VAP.

is applied as written, for application is the first duty of the court,

and interpretation, only where literal application is impossible or
inadequate.

3. Persons/Cases not covered

21[21]Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159610, 12
June 2008, 554 SCRA 398, 409.

19[19]Now Section 282 of the NIRC, as amended.

22[22] CIR v. Court of Appeals, 338 Phil. 322, 330 (1997).

20[20]Id. at 156-163.

23[23] Items 1 & 2, RMO No. 59-97.

The following shall be

excluded from the coverage of the VAP
under this Order:

xxx
3.4 Persons under investigation by the
Tax Fraud Division and/or the Regional
Special Investigation Divisions as a result of
verified information filed by an informer
under Section 281 of the NIRC, as amended,
and duly recorded in the Official
Registry Book of the Bureau before the
date of availment under the VAP;
(Underscoring in the original, boldfacing
supplied)

xxx
3.4.
Persons
under
investigation as a result of verified
information filed by an informer under
Section 281 of the NIRC, as amended, and
duly recorded in the Official Registry
Book of the Bureau before the date of
availment under the VAP; x x x (Boldfacing
supplied)

On 30 October 1997, the CIR issued RMO No. 60-97 which

supplements RMO No. 59-97 and amended Item No. 3.4 to read as:
3. Persons/Cases not covered

It is evident from these RMOs that the CIR was consistent in

using the word and and has even underscored the word in RMO No.
63-97. This denotes that in addition to the filing of the verified
information, the same should also be duly recorded in the Official
Registry Book of the BIR. The conjunctive word and is not without
legal significance. It means in addition to. The word and, whether it

The following shall be excluded from

the coverage of the VAP under this Order:
xxx
3.4 Persons under investigation by the
Tax Fraud Division and/or the Regional
Special Investigation Divisions as a result of
verified information filed by an informer
under Section 281 of the NIRC, as
amended, and duly recorded in the
Official Registry Book of the Bureau
before the date of availment under VAP;
(Boldfacing supplied)
On 27 November 1997, the CIR issued RMO
No. 63-97 and clarified issues related to the
implementation of the VAP. RMO No. 63-97 provides:
3. Persons/cases not covered:

is used to connect words, phrases or full sentences, must be

accepted as binding together and as relating to one another. 24[24]
And in statutory construction implies conjunction or union. 25[25]
It is sufficiently clear that for a person to be excluded from
the coverage of the VAP, the verified information must not only be
filed under Section 28126[26] of the Tax Code, it must also be duly

24[24] LAUREL, JOSE JESUS, STATUTORY CONSTRUCTION CASES & MATERIALS, 1999
Revised Edition, p. 139.

25[25]LICOMCEN, Incorporated v. Foundation Specialists, Inc., G.R. No. 167022, 31 August 2007, 531
SCRA 705, 722.

26[26] Now Section 282 of the NIRC, as amended.

recorded in the Official Registry Book of the BIR before the date of

expressly limits its application to certain transactions, it cannot be

availment under the VAP. This interpretation of Item 3.4 of RMO

extended to other transactions by interpretation. 28[28]

Nos. 59-97, 60-97, and 63-97 is further bolstered by the fact that
Findings of Fact

on 12 October 2005, the BIR issued Revenue Regulations (RR) No.

18-2005 and reiterated the same provision in the implementation

Generally, the findings of fact of the CTA, a court exercising

of the Enhanced Voluntary Assessment Program (EVAP). RR No. 18-

expertise on the subject of tax, are regarded as final, binding, and

2005 reads:

conclusive upon this Court, especially if these are similar to the

SECTION 1. COVERAGE. x x x
Any person, natural or juridical, including
estates and trusts, liable to pay any of the abovecited internal revenue taxes for the above specified
period/s who, due to inadvertence or otherwise,
erroneously paid his/its internal revenue tax liabilities
or failed to file tax returns/pay taxes, may avail of
the EVAP, except those falling under any of the
following instances:
xxx
b. Persons under investigation as a
result of verified information filed by a
Tax Informer under Section 282 of the
NIRC, duly processed and recorded in
the BIR Official Registry Book on or
before
the
effectivity
of
these
regulations. (Boldfacing supplied)

findings of the Court of Appeals which is normally the final arbiter

of questions of fact.29[29]
In this case, the CA affirmed the CTAs findings of fact which
states:
We will start with the question as to whether or not the
respondent was already under investigation for violation of the Tax
Code provisions at the time she applied under VAP on December 2,
1997. The records show that she was indeed under investigation.
Albeit, the Letter of Authority was issued only on 28 July 1998,
there is no question that on 23 May 1997, a Mission Order No. 11897 had already been issued by the Chief of Special Investigation
Division of the BIR, Revenue Region No. 19 to Intelligence Officer
Eustaquio M. Valdez authorizing the conduct of monitoring and
surveillance activities on the respondent. This investigation was

When a tax provision speaks unequivocally, it is not the

province of a Court to scan its wisdom or its policy. 27[27] The more
correct course of dealing with a question of construction is to take
the words to mean exactly what they say. Where a provision of law

27[27]Commissioner of Customs v. Manila Star Ferry, Inc., G.R. Nos. 31776-78, 21 October 1993, 227
SCRA 317, 322.

preceded by the filing of a verified information by a certain George

Mercado alleging respondents failure to pay her income taxes for
the years 1994 to 1996.

28[28] Canet v. Decena, 465 Phil. 325, 333 (2004).

29[29]Philippine Long Distance Telephone Company v. Commissioner of Internal Revenue G.R. No.
157264, 31 January 2008, 543 SCRA 329, 338 citing Far East Bank and Trust Company v. Court of
Appeals, G.R. No. 129130, 9 December 2005, 477 SCRA 49, 54.

xxx

- versus -

We now proceed to the question as to

whether or not the requirement of recording in the
Official Registry Book of the BIR is present in the
respondents case. At this juncture, we affirm
CTAs
finding
that
neither
the
verified
information nor the investigation was recorded
in the Official Registry Book of the BIR.
Petitioner claims that this was merely a procedural
omission which does not affect respondents
exclusion from the coverage of the VAP. 30[30]
(Boldfacing supplied)

METRO STAR SUPERAMA, INC.,

Respondent.

G.R. No. 185371/ Promulgated: December 8, 2010

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
Decision31[1] of the Court of Tax Appeals En Banc (CTA-En Banc), in
C.T.A. EB No. 306 and 2] its November 18, 2008 Resolution32[2]
denying petitioners motion for reconsideration.
The CTA-En Banc affirmed in toto the decision of its Second

Petitioners failure to effect compliance with the requirement

Division (CTA-Second Division) in CTA Case No. 7169 reversing the

of recording the verified information or investigation in the Official

February 8, 2005 Decision of the CIR which assessed respondent

Registry Book of the BIR means that respondent, even if under

Metro Star Superama, Inc. (Metro Star) of deficiency value-added

investigation, can avail of the benefits of the VAP. Consequently,

tax and withholding tax for the taxable year 1999.

respondent is relieved from any criminal or civil liability incident to

the

non-filing

of

return.

Based on a Joint Stipulation of Facts and Issues 33[3] of the parties,

the CTA Second Division summarized the factual and procedural

WHEREFORE, we DENY the petition. We AFFIRM the Court

antecedents of the case, the pertinent portions of which read:

of Appeals Decision dated 14 June 2004 in CA-G.R. SP No. 70693.

Petitioner is a domestic corporation duly

organized and existing by virtue of the laws of the
Republic of the Philippines, x x x.

SO ORDERED.

31[1]

Rollo, pp. 32-75. Penned by Associate Justice Caesar A. Casanova, with Associate Justices
Erlinda P. Uy, Olga Palanca-Enriquez, concurring and Associate Justices Ernesto D. Acosta and Lovell
R. Bautista, dissenting.

SECOND DIVISION
COMMISSIONER OF INTERNAL REVENUE,Petitioner,

30[30]Rollo, p. 38.

32[2] Id. at 88-96.

33[3] Id. at 308-311.

Gross Sales
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.

P1,697,718.90

Output Tax

P 154,338.08

Less: Input Tax

VAT Payable

P 154,338.08

Add: 25% Surcharge

P 38,584.54

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.

20% Interest

79,746.49

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.

TOTAL

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:

Expanded

110,103.92

Total Tax Due

P 112,876.83

Compromise Penalty
Late Payment

P16,000.00

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

P 291,069.09

WITHHOLDING TAX
Compensation

Less: Tax Withheld

Deficiency Withholding Tax

2,772.91

111,848.27
P 1,028.56

Add: 20% Interest p.a.

ASSESSMENT NOTICE NO. 067-99-003-579072

Compromise Penalty
TOTAL

VALUE ADDED TAX

576.51
200.00
P 1,805.07

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

Film Rental
Audit Fee

412.73

10,000.25

x 10% 1,000.00

193,261.20

x 5% 9,663.00

Rental Expense

Security Service
1,561.42
Service Contractor

41,272.73

x 1%

156,142.01

x 1%

TOTAL

x x x.

Denying that it received a Preliminary Assessment Notice

(PAN) and claiming that it was not accorded due process, Metro
Star filed a petition for review 34[4] with the CTA. The parties then
stipulated on the following issues to be decided by the tax court:

SUMMARIES OF DEFICIENCIES

WITHHOLDING TAX

On
February
8,
2005,
respondent
Commissioner, through its authorized representative,
Revenue Regional Director of Revenue Region 10,
Legaspi City, issued a Decision denying petitioners
Motion for Reconsideration. Petitioner, through
counsel received said Decision on February 18, 2005.

P 110,103.92

Total

VALUE ADDED TAX

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.

P 291,069.09
1,805.07
P 292,874.16

Subsequently, Revenue District Office No. 67

sent a copy of the Final Notice of Seizure dated May
12, 2003, which petitioner received on May 15, 2003,
giving the latter last opportunity to settle its
deficiency tax liabilities within ten (10) [days] from
receipt thereof, otherwise respondent BIR shall be
constrained to serve and execute the Warrants of
Distraint and/or Levy and Garnishment to enforce
collection.
On February 6, 2004, petitioner received from
Revenue District Office No. 67 a Warrant of Distraint
and/or Levy No. 67-0029-23 dated May 12, 2003
demanding payment of deficiency value-added tax
and withholding tax payment in the amount of
P292,874.16.

1. Whether the respondent complied with the due

process requirement as provided under the
National Internal Revenue Code and Revenue
Regulations No. 12-99 with regard to the issuance
of a deficiency tax assessment;
1.1 Whether petitioner is liable for the
respective amounts of P291,069.09
and P1,805.07 as deficiency VAT and
withholding tax for the year 1999;
1.2. Whether the assessment has
become final and executory and
demandable for failure of petitioner
to protest the same within 30 days
from its receipt thereof on April 11,
2002, pursuant to Section 228 of the
National Internal Revenue Code;
2.Whether the deficiency assessments issued by the
respondent are void for failure to state the law
and/or facts upon which they are based.

34[4] Id. at 97-110.

16, 2002. It, accordingly, ruled that the Formal Letter of Demand
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.

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.36[6]

The CIR sought reconsideration37[7] of the decision of the CTASecond Division, but the motion was denied in the latters July 24,
2007 Resolution.38[8]
Aggrieved, the CIR filed a petition for review 39[9] with the CTA-En

The CTA-Second Division found merit in the petition of Metro

Star and, on March 21, 2007, rendered a decision, the decretal

Banc, but the petition was dismissed after a determination that no

new matters were raised. The CTA-En Banc disposed:

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.

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.

The CTA-Second Division opined that [w]hile there [is] a

SO ORDERED.

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

36[6] Id. at 86.

37[7] Id. at 111-119.

the addressee.35[5] It also found that there was no clear showing

that Metro Star actually received the alleged PAN, dated January

35[5] Id. at 85, citing Republic v. Court of Appeals, 233 Phil. 359, 364 (1987).

38[8] Id. at 120-122.

39[9] Id. at 123-138.

The motion for reconsideration40[10] filed by the CIR was likewise

denied by the CTA-En Banc in its November 18, 2008 Resolution. 41
[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.42[12] In Barcelon, Roxas Securities, Inc. (now known as
UBP Securities, Inc.) v. Commissioner of Internal Revenue,43[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

40[10] Id. at 139-152.

41[11] Id. at 88-96.

42[12]

Toshiba Information Equipment (Phils), Inc. v. Commissioner of Internal Revenue, G.R. No.
157594March 9, 2010.

43[13] G.R. No. 150764, August 7, 2006, 498 SCRA 126, 135-136.

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

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

(d) When the excise tax due on exciseable

articles has not been paid; or

taxpayer must first be informed that he is liable for deficiency taxes

(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 law upon which the assessment is made. The law imposes a

through the sending of a PAN. He must be informed of the facts and

substantive,

not

merely

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

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.

present their case and adduce supporting evidence.44[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.

44[14] Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).

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).

by law and its own rules is a denial of Metro Stars right to due
process.45[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. Menguito46[16] cited by the CIR in support
of its argument that only the non-service of the FAN is fatal to the
validity of an assessment, cannot apply to this case because the
issue therein was the non-compliance with the provisions of R. R.
No. 12-85 which sought to interpret Section 229 of the old tax law.
RA No. 8424 has already amended the provision of Section 229 on
protesting an assessment. The old requirement of merely notifying

The same shall be sent to the taxpayer only

by registered mail or by personal delivery.

the taxpayer of the CIRs findings was changed in 1998 to informing

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.

assessment would be made. Otherwise, the assessment itself

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

the taxpayer of not only the law, but also of the facts on which an
would be invalid.47[17] The regulation then, on the other hand,
simply provided that a notice be sent to the respondent in the form
prescribed, and that no consequence would ensue for failure to
comply with that form.
The Court need not belabor to discuss the matter of Metro
Stars failure to file its protest, for it is well-settled that a void
assessment bears no fruit.48[18]

made is but part of the due process requirement in the issuance of

a deficiency tax assessment, the absence of which renders

45[15] Tupas v. Court of Appeals, G.R. No. 89571, February 6, 1991, 193 SCRA 597, 600.

nugatory any assessment made by the tax authorities. The use of

the word shall in subsection 3.1.2 describes the mandatory nature

46[16] G.R. No. 167560, September 17, 2008, 461 SCRA 565.

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

47[17] Commissioner of Internal Revenue v. Azucena T. Reyes, G.R. No. 159694 & G.R. No. 163581
January 27, 2006, 382 SCRA 480.

It is an elementary rule enshrined in the 1987 Constitution

that no person shall be deprived of property without due process of
law.49[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.,50[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.
xxxxxxxxx
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

48[18] Id.
49[19] Section 1, Article III, 1987 Constitution.
50[20] 241 Phil. 829 (1988).

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. 51[21] (Emphasis
supplied).
WHEREFORE, the petition is DENIED. SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 174942

March 7, 2008

BANK OF THE PHILIPPINE ISLANDS (Formerly: Far East Bank

and Trust Company), petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
TINGA, J.:
The Bank of the Philippine Islands (BPI) seeks a review of the
Decision1dated 15 August 2006 and the Resolution2dated 5 October
2006, both of the Court of Tax Appeals (CTA or tax court), which
ruled that BPI is liable for the deficiency documentary stamp tax

51[21] Id. at 830, 836.

(DST) on its cabled instructions to its foreign correspondent bank

and that prescription had not yet set in against the government.
The following undisputed facts are culled from the CTA decision:
Petitioner, the surviving bank after its merger with Far East
Bank and Trust Company, is a corporation duly created and
existing under the laws of the Republic of the Philippines
with principal office at Ayala Avenue corner Paseo de Roxas
Ave., Makati City.
Respondent thru then Revenue Service Chief Cesar M.
Valdez, issued to the petitioner a pre-assessment notice
(PAN) dated November 26, 1986.
Petitioner, in a letter dated November 29, 1986, requested
for the details of the amounts alleged as 1982-1986
deficiency taxes mentioned in the November 26, 1986 PAN.
On April 7, 1989, respondent issued to the petitioner,
assessment/demand notices FAS-1-82 to 86/89-000 and FAS
5-82 to 86/89-000 for deficiency withholding tax at source
(Swap Transactions) and DST involving the amounts of
P190,752,860.82 and P24,587,174.63, respectively, for the
years 1982 to 1986.
On April 20, 1989, petitioner filed a protest on the
demand/assessment notices. On May 8, 1989, petitioner
filed a supplemental protest.
On March 12, 1993, petitioner requested for an opportunity
to present or submit additional documentation on the Swap
Transactions with the then Central Bank (page 240, BIR
Records). Attached to the letter dated June 17, 1994, in
connection with the reinvestigation of the abovementioned
assessment, petitioner submitted to the BIR, Swap Contracts
with the Central Bank.
Petitioner executed several Waivers of the Statutes of
Limitations, the last of which was effective until December
31, 1994.
On August 9, 2002, respondent issued a final decision on
petitioners protest ordering the withdrawal and cancellation

of the deficiency withholding tax assessment in the amount

of P190,752,860.82 and considered the same as closed and
terminated. On the other hand, the deficiency DST
assessment in the amount of P24,587,174.63 was reiterated
and the petitioner was ordered to pay the said amount
within thirty (30) days from receipt of such order. Petitioner
received a copy of the said decision on January 15, 2003.
Thereafter, on January 24, 2003, petitioner filed a Petition
for Review before the Court.
On August 31, 2004, the Court rendered a Decision denying
the petitioners Petition for Review, the dispositive portion of
which is quoted hereunder:
IN VIEW OF ALL THE FOREGOING, the petition is
hereby DENIED for lack of merit. Accordingly,
petitioner is ORDERED to PAY the respondent the
amount of P24,587,174.63 representing deficiency
documentary stamp tax for the period 1982-1986,
plus 20% interest starting February 14, 2003 until the
amount is fully paid pursuant to Section 249 of the
Tax Code.
SO ORDERED.
On September 21, 2004, petitioner filed a Motion for
Reconsideration of the abovementioned Decision which was
denied for lack of merit in a Resolution dated February 14,
2005.
On March 9, 2005, petitioner filed with the Court En Banc a
Motion for Extension of Time to File Petition for Review
praying for an extension of fifteen (15) days from March 10,
2005 or until March 25, 2005. Petitioners motion was
granted in a Resolution dated March 16, 2005.
On March 28, 2005, (March 25 was Good Friday), petitioner
filed the instant Petition for Review, advancing the following
assignment of errors.
I. THIS HONORABLE COURT OVERLOOKED THE
SIGNIFICANCE OF THE WAIVER DULY AND VALIDLY
AGREED UPON BY THE PARTIES AND EFFECTIVE UNTIL
DECEMBER 31, 1994;

II. THIS TAX COURT ERRED IN HOLDING THAT THE

COLLECTION OF ALLEGED DEFICIENCY TAX HAS NOT
PRESCRIBED.
III. THIS HONORABLE COURT ERRED IN HOLDING
THAT RESPONDENT DID NOT VIOLATE PROCEDURAL
DUE PROCESS IN THE ISSUANCE OF ASSESSMENT
NOTICE RELATIVE TO DOCUMENTARY STAMP
DEFICIENCY.
IV. THIS HONORABLE COURT ERRED IN HOLDING
THAT THE 4 MARCH 1987 MEMORANDUM OF THE
LEGAL SERVICE CHIEF DULY APPROVED BY THE BIR
COMMISISONER VESTS NO RIGHTS TO PETITIONER.
V. THIS HONORABLE COURT ERRED IN HOLDING THAT
PETITIONER IS LIABLE FOR DOCUMENTARY STAMP
TAX ON SWAP LOANS TRANSACTIONS FROM 1982 TO
1986.3
The CTA synthesized the foregoing issues into whether the
collection of the deficiency DST is barred by prescription and
whether BPI is liable for DST on its SWAP loan transactions.
On the first issue, the tax court, applying the case of Commissioner
of Internal Revenue v. Wyeth Suaco Laboratories, Inc.,4(Wyeth
Suaco case), ruled that BPIs protest and supplemental protest
should be considered requests for reinvestigation which tolled the
prescriptive period provided by law to collect a tax deficiency by
distraint, levy, or court proceeding. It further held, as regards the
second issue, that BPIs cabled instructions to its foreign
correspondent bank to remit a specific sum in dollars to the Federal
Reserve Bank, the same to be credited to the account of the
Central Bank, are in the nature of a telegraphic transfer subject to
DST under Section 195 of the Tax Code.
In its Petition for Review5 dated 24 November 2006, BPI argues that
the governments right to collect the DST had already prescribed
because the Commissioner of Internal Revenue (CIR) failed to issue
any reply granting BPIs request for reinvestigation manifested in
the protest letters dated 20 April and 8 May 1989. It was only
through the 9 August 2002 Decision ordering BPI to pay deficiency
DST, or after the lapse of more than thirteen (13) years, that the
CIR acted on the request for reinvestigation, warranting the
conclusion that prescription had already set in. It further claims

that the CIR was not precluded from collecting the deficiency within
three (3) years from the time the notice of assessment was issued
on 7 April 1989, or even until the expiration on 31 December 1994
of the last waiver of the statute of limitations signed by BPI.
Moreover, BPI avers that the cabled instructions to its
correspondent bank are not subject to DST because the National
Internal Revenue Code of 1977 (Tax Code of 1977) does not contain
a specific provision that cabled instructions on SWAP transactions
are subject to DST.
The Office of the Solicitor General (OSG) filed a Comment 6 dated 1
June 2007, on behalf of the CIR, asserting that the prescriptive
period was tolled by the protest letters filed by BPI which were
granted and acted upon by the CIR. Such action was allegedly
communicated to BPI as, in fact, the latter submitted additional
documents pertaining to its SWAP transactions in support of its
request for reinvestigation. Thus, it was only upon BPIs receipt on
13 January 2003 of the 9 August 2002 Decision that the period to
collect commenced to run again.
The OSG cites the case of Collector of Internal Revenue v. Suyoc
Consolidated Mining Company, et al.7(Suyoc case) in support of its
argument that BPI is already estopped from raising the defense of
prescription in view of its repeated requests for reinvestigation
which allegedly induced the CIR to delay the collection of the
assessed tax.
In its Reply8dated 30 August 2007, BPI argues against the
application of the Suyoc case on two points: first, it never induced
the CIR to postpone tax collection; second, its request for
reinvestigation was not categorically acted upon by the CIR within
the three-year collection period after assessment. BPI maintains
that it did not receive any communication from the CIR in reply to
its protest letters.
We grant the petition.
Section 3189 of the Tax Code of 1977 provides:
Sec. 318. Period of limitation upon assessment and
collection.Except as provided in the succeeding section,
internal revenue taxes shall be assessed within five years
after the return was filed, and no proceeding in court

without assessment for the collection of such taxes shall be

begun after the expiration of such period. For the purposes
of this section, a return filed before the last day prescribed
by law for the filing thereof shall be considered as filed on
such last day: Provided, That this limitation shall not apply
to cases already investigated prior to the approval of this
Code.
The statute of limitations on assessment and collection of national
internal revenue taxes was shortened from five (5) years to three
(3) years by Batas Pambansa Blg. 700.10 Thus, the CIR has three (3)
years from the date of actual filing of the tax return to assess a
national internal revenue tax or to commence court proceedings for
the collection thereof without an assessment.
When it validly issues an assessment within the three (3)-year
period, it has another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The assessment of the
tax is deemed made and the three (3)-year period for collection of
the assessed tax begins to run on the date the assessment notice
had been released, mailed or sent to the taxpayer.11
As applied to the present case, the CIR had three (3) years from the
time he issued assessment notices to BPI on 7 April 1989 or until 6
April 1992 within which to collect the deficiency DST. However, it
was only on 9 August 2002 that the CIR ordered BPI to pay the
deficiency.
In order to determine whether the prescriptive period for collecting
the tax deficiency was effectively tolled by BPIs filing of the protest
letters dated 20 April and 8 May 1989 as claimed by the CIR, we
need to examine Section 32012 of the Tax Code of 1977, which
states:
Sec. 320. Suspension of running of statute.The running of
the statute of limitations provided in Sections 318 or 319 on
the making of assessment and the beginning of distraint or
levy or a proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during which
the Commissioner is prohibited from making the assessment
or beginning distraint or levy or a proceeding in court and
for sixty days thereafter; when the taxpayer requests for
a re-investigation which is granted by the
Commissioner; when the taxpayer cannot be located in
the address given by him in the return filed upon which a

tax is being assessed or collected: Provided, That if the

taxpayer informs the Commissioner of any change in
address, the running of the statute of limitations will not be
suspended; when the warrant of distraint and levy is duly
served upon the taxpayer, his authorized representative, or
a member of his household with sufficient discretion, and no
property could be located; and when the taxpayer is out of
the Philippines. (Emphasis supplied)
The above section is plainly worded. In order to suspend the
running of the prescriptive periods for assessment and collection,
the request for reinvestigation must be granted by the CIR.
In BPI v. Commissioner of Internal Revenue,13the Court emphasized
the rule that the CIR must first grant the request for reinvestigation
as a requirement for the suspension of the statute of limitations.
The Court said:
In the case of Republic of the Philippines v. Gancayco,
taxpayer Gancayco requested for a thorough reinvestigation
of the assessment against him and placed at the disposal of
the Collector of Internal Revenue all the evidences he had
for such purpose; yet, the Collector ignored the request, and
the records and documents were not at all examined.
Considering the given facts, this Court pronounced that
x x x The act of requesting a reinvestigation alone
does not suspend the period. The request should first
be granted, in order to effect suspension. (Collector v.
Suyoc Consolidated, supra; also Republic v. Ablaza, supra).
Moreover, the Collector gave appellee until April 1, 1949,
within which to submit his evidence, which the latter did one
day before. There were no impediments on the part of the
Collector to file the collection case from April 1, 1949
In Republic of the Philippines v. Acebedo, this Court similarly found
that
x x x T]he defendant, after receiving the assessment notice
of September 24, 1949, asked for a reinvestigation thereof
on October 11, 1949 (Exh. "A"). There is no evidence
that this request was considered or acted upon. In
fact, on October 23, 1950 the then Collector of Internal
Revenue issued a warrant of distraint and levy for the full
amount of the assessment (Exh. "D"), but there was follow-

up of this warrant. Consequently, the request for

reinvestigation did not suspend the running of the
period for filing an action for collection. [Emphasis in
the original]14
The Court went on to declare that the burden of proof that the
request for reinvestigation had been actually granted shall be on
the CIR. Such grant may be expressed in its communications with
the taxpayer or implied from the action of the CIR or his authorized
representative in response to the request for reinvestigation.
There is nothing in the records of this case which indicates,
expressly or impliedly, that the CIR had granted the request for
reinvestigation filed by BPI. What is reflected in the records is the
piercing silence and inaction of the CIR on the request for
reinvestigation, as he considered BPIs letters of protest to be.
In fact, it was only in his comment to the present petition that the
CIR, through the OSG, argued for the first time that he had granted
the request for reinvestigation. His consistent stance invoking the
Wyeth Suaco case, as reflected in the records, is that the
prescriptive period was tolled by BPIs request for reinvestigation,
without any assertion that the same had been granted or at least
acted upon.15
In the Wyeth Suaco case, private respondent Wyeth Suaco
Laboratories, Inc. sent letters seeking the reinvestigation or
reconsideration of the deficiency tax assessments issued by the
BIR. The records of the case showed that as a result of these
protest letters, the BIR Manufacturing Audit Division conducted a
review and reinvestigation of the assessments. The records further
showed that the company, thru its finance manager, communicated
its inability to settle the tax deficiency assessment and admitted
that it knew of the ongoing review and consideration of its protest.
As differentiated from the Wyeth Suaco case, however, there is no
evidence in this case that the CIR actually conducted a
reinvestigation upon the request of BPI or that the latter was made
aware of the action taken on its request. Hence, there is no basis
for the tax courts ruling that the filing of the request for
reinvestigation tolled the running of the prescriptive period for
collecting the tax deficiency.
Neither did the waiver of the statute of limitations signed by BPI
supposedly effective until 31 December 1994 suspend the

prescriptive period. The CIR himself contends that the waiver is

void as it shows no date of acceptance in violation of RMO No. 2090.16 At any rate, the records of this case do not disclose any effort
on the part of the Bureau of Internal Revenue to collect the
deficiency tax after the expiration of the waiver until eight (8) years
thereafter when it finally issued a decision on the protest.
We also find the Suyoc case inapplicable. In that case, several
requests for reinvestigation and reconsideration were filed by
Suyoc Consolidated Mining Company purporting to question the
correctness of tax assessments against it. As a result, the Collector
of Internal Revenue refrained from collecting the tax by distraint,
levy or court proceeding in order to give the company every
opportunity to prove its claim. The Collector also conducted several
reinvestigations which eventually led to a reduced assessment. The
company, however, filed a petition with the CTA claiming that the
right of the government to collect the tax had already prescribed.
When the case reached this Court, we ruled that Suyoc could not
set up the defense of prescription since, by its own action, the
government was induced to delay the collection of taxes to make
the company feel that the demand was not unreasonable or that no
harassment or injustice was meant by the government.
In this case, BPIs letters of protest and submission of additional
documents pertaining to its SWAP transactions, which were never
even acted upon, much less granted, cannot be said to have
persuaded the CIR to postpone the collection of the deficiency DST.
The inordinate delay of the CIR in acting upon and resolving the
request for reinvestigation filed by BPI and in collecting the DST
allegedly due from the latter had resulted in the prescription of the
governments right to collect the deficiency. As this Court declared
in Republic of the Philippines v. Ablaza:17
The law prescribing a limitation of actions for the collection
of the income tax is beneficial both to the Government and
to its citizens; to the Government because tax officers would
be obliged to act promptly in the making of assessment, and
to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against
unscrupulous tax agents who will always find an excuse to
inspect the books of taxpayers, not to determine the latters
real liability, but to take advantage of every opportunity to
molest peaceful, 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.18
Given the prescription of the governments claim, we no longer
deem it necessary to pass upon the validity of the assessment.
WHEREFORE, the petition is GRANTED. The Decisionof the Court of
Tax Appeals dated 15 August 2006 and its Resolution dated 5
October 2006, are hereby REVERSED and SET ASIDE. No
pronouncement as to costs.
SO ORDERED.
Carpio, Acting Chairperson, Carpio-Morales, Azcuna*, Velasco, Jr., JJ.,
concur.

Footnotes

Rollo, pp. 124-127.

Now Sec. 203 of the Tax Reform Act of 1997.

10

Approved on 5 April 1984. The shorter three-year

prescriptive period shall apply to assessments made on or
after 5 April 1984 covering taxable years beginning 1
January 1984.
11

BPI v. Commissioner of Internal Revenue, G.R. No. 139736,

17 October 2005, 473 SCRA 205, 222-223.
12

Now Sec. 223 of the Tax Reform Act of 1997.

13

Bank of the Philippine Islands v. Commissioner of Internal

Revenue, G.R. No. 139736, 17 October 2005, 473 SCRA 205.
14

Id. at 232.

15

CTA Second Division Records, pp. 96-105; Memorandum of

the CIR.
16

CTA En Banc Records, pp. 103-111; Comment of the CIR.

17

108 Phil. 1105 (1960).

18

Id. at 1108.

As replacement of Justice Leonardo A. Quisumbing who is

on official leave per Administrative Circular No. 84-2007.
1

Rollo, pp. 36-47.

Id. at 34-35.

Republic of the Philippines

SUPREME COURT
Manila

Id. at 37-39.

THIRD DIVISION

G.R. No. 76281, 30 September 1991, 202 SCRA 125.

G.R. No. 168498

Rollo, pp. 8-29.

Id. at 106-121.

RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

104 Phil. 819 (1958).

April 24, 2007

RESOLUTION

YNARES-SANTIAGO, J.:
For resolution is petitioners Motion for Reconsideration of our
Decision1 dated June 16, 2006 affirming the Decision of the Court of
Tax Appeals En Banc dated June 7, 2005 in C.T.A. EB No. 50, which
affirmed the Resolutions of the Court of Tax Appeals Second
Division dated May 3, 2004 and November 5, 2004 in C.T.A. Case
No. 6475, denying petitioners Petition for Relief from Judgment and
Motion for Reconsideration, respectively.
Petitioner reiterates its claim that its former counsels failure to file
petition for review with the Court of Tax Appeals within the period
set by Section 228 of the National Internal Revenue Code of 1997
(NIRC) was excusable and raised the following issues for resolution:
A.
THE DENIAL OF PETITIONERS PETITION FOR RELIEF
FROM JUDGMENT WILL RESULT IN THE DENIAL OF
SUBSTANTIVE JUSTICE TO PETITIONER, CONTRARY TO
ESTABLISHED DECISIONS OF THIS HONORABLE
COURT BECAUSE THE ASSESSMENT SOUGHT TO BE
CANCELLED HAS ALREADY PRESCRIBED A FACT NOT
DENIED BY THE RESPONDENT IN ITS ANSWER.
B.
CONTRARY TO THIS HONORABLE COURTS DECISION,
AND FOLLOWING THE LASCONA DECISION, AS WELL
AS THE 2005 REVISED RULES OF THE COURT OF TAX
APPEALS, PETITIONER TIMELY FILED ITS PETITION FOR
REVIEW BEFORE THE COURT OF TAX APPEALS; THUS,
THE COURT OF TAX APPEALS HAD JURISDICTION
OVER THE CASE.

TAX ON SPECIAL SAVINGS ACCOUNTS AND GROSS

ONSHORE TAX, PETITIONER IN THE INTEREST OF
SUBSTANTIVE
JUSTICE
AND
UNIFORMITY
OF
TAXATION, SHOULD BE ALLOWED TO FULLY LITIGATE
THE ISSUE BEFORE THE COURT OF TAX APPEALS.2
Petitioners motion for reconsideration is denied for lack of merit.
Other than the issue of prescription, which is raised herein for the
first time, the issues presented are a mere rehash of petitioners
previous arguments, all of which have been considered and found
without merit in our Decision dated June 16, 2006.
Petitioner maintains that its counsels neglect in not filing the
petition for review within the reglementary period was excusable. It
alleges that the counsels secretary misplaced the Resolution hence
the counsel was not aware of its issuance and that it had become
final and executory.
We are not persuaded.
In our Decision, we held that:
Relief cannot be granted on the flimsy excuse that the failure to
appeal was due to the neglect of petitioners counsel. Otherwise, all
that a losing party would do to salvage his case would be to invoke
neglect or mistake of his counsel as a ground for reversing or
setting aside the adverse judgment, thereby putting no end to
litigation.
Negligence to be "excusable" must be one which ordinary diligence
and prudence could not have guarded against and by reason of
which the rights of an aggrieved party have probably been
impaired. Petitioners former counsels omission could hardly be
characterized as excusable, much less unavoidable.

C.
CONSIDERING THAT THE SUBJECT ASSESSMENT
INVOLVES AN INDUSTRY ISSUE, THAT IS, A
DEFICIENCY ASSESSMENT FOR DOCUMENTARY STAMP

The Court has repeatedly admonished lawyers to adopt a system

whereby they can always receive promptly judicial notices and
pleadings intended for them. Apparently, petitioners counsel was
not only remiss in complying with this admonition but he also failed

to check periodically, as an act of prudence and diligence, the

status of the pending case before the CTA Second Division. The fact
that counsel allegedly had not renewed the employment of his
secretary, thereby making the latter no longer attentive or focused
on her work, did not relieve him of his responsibilities to his client.
It is a problem personal to him which should not in any manner
interfere with his professional commitments.3
Petitioner also argues that, in the interest of substantial justice, the
instant case should be re-opened considering that it was allegedly
not accorded its day in court when the Court of Tax Appeals
dismissed its petition for review for late filing. It claims that rules of
procedure are intended to help secure, not override, substantial
justice.
Petitioners arguments fail to persuade us.
As correctly observed by the Court of Tax Appeals in its Decision
dated June 7, 2005:

from interposing the defenses of legality or validity of the

assessment and prescription of the Governments right to assess.5
The Court of Tax Appeals is a court of special jurisdiction and can
only take cognizance of such matters as are clearly within its
jurisdiction. Section 7 of Republic Act (R.A.) No. 9282, amending
R.A. No. 1125, otherwise known as the Law Creating the Court of
Tax Appeals, provides:
Sec. 7. Jurisdiction. The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein
provided:
(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

If indeed there was negligence, this is obviously on the part of

petitioners own counsel whose prudence in handling the case fell
short of that required under the circumstances. He was well aware
of the motion filed by the respondent for the Court to resolve first
the issue of this Courts jurisdiction on July 15, 2003, that a hearing
was conducted thereon on August 15, 2003 where both counsels
were present and at said hearing the motion was submitted for
resolution. Petitioners counsel apparently did not show enthusiasm
in the case he was handling as he should have been vigilant of the
outcome of said motion and be prepared for the necessary action
to take whatever the outcome may have been. Such kind of
negligence cannot support petitioners claim for relief from
judgment.

(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;

Besides, tax assessments by tax examiners are presumed correct

and made in good faith, and all presumptions are in favor of the
correctness of a tax assessment unless proven otherwise. 4 Also,
petitioners failure to file a petition for review with the Court of Tax
Appeals within the statutory period rendered the disputed
assessment final, executory and demandable, thereby precluding it

xxxx

Also, Section 3, Rule 4 and Section 3(a), Rule 8 of the Revised Rules
of the Court of Tax Appeals6 state:
RULE 4
Jurisdiction of the Court

SECTION 3. Cases Within the Jurisdiction of the Court in Divisions.

The Court in Divisions shall exercise:

(a) Exclusive original or appellate jurisdiction to review by appeal

the following:
(1) Decisions of the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue;
(2) Inaction by the Commissioner of Internal Revenue in cases
involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other matters
arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the
National Internal Revenue Code or other applicable law provides a
specific period for action: Provided, that in case of disputed
assessments, the inaction of the Commissioner of Internal Revenue
within the one hundred eighty day-period under Section 228 of the
National Internal Revenue Code shall be deemed a denial for
purposes of allowing the taxpayer to appeal his case to the Court
and does not necessarily constitute a formal decision of the
Commissioner of Internal Revenue on the tax case; Provided,
further, that should the taxpayer opt to await the final decision of
the Commissioner of Internal Revenue on the disputed assessments
beyond the one hundred eighty day-period abovementioned, the
taxpayer may appeal such final decision to the Court under Section
3(a), Rule 8 of these Rules; and Provided, still further, that in the
case of claims for refund of taxes erroneously or illegally collected,
the taxpayer must file a petition for review with the Court prior to
the expiration of the two-year period under Section 229 of the
National Internal Revenue Code;
xxxx
RULE 8
Procedure in Civil Cases
xxxx

SECTION 3. Who May Appeal; Period to File Petition. (a) A party

adversely affected by a decision, ruling or the inaction of the
Commissioner of Internal Revenue on disputed assessments or
claims for refund of internal revenue taxes, or by a decision or
ruling of the Commissioner of Customs, the Secretary of Finance,
the Secretary of Trade and Industry, the Secretary of Agriculture, or
a Regional Trial Court in the exercise of its original jurisdiction may
appeal to the Court by petition for review filed within thirty days
after receipt of a copy of such decision or ruling, or expiration of
the period fixed by law for the Commissioner of Internal Revenue to
act on the disputed assessments. In case of inaction of the
Commissioner of Internal Revenue on claims for refund of internal
revenue taxes erroneously or illegally collected, the taxpayer must
file a petition for review within the two-year period prescribed by
law from payment or collection of the taxes. (n)
From the foregoing, it is clear that the jurisdiction of the Court of
Tax Appeals has been expanded to include not only decisions or
rulings but inaction as well of the Commissioner of Internal
Revenue. The decisions, rulings or inaction of the Commissioner are
necessary in order to vest the Court of Tax Appeals with jurisdiction
to entertain the appeal, provided it is filed within 30 days after the
receipt of such decision or ruling, or within 30 days after the
expiration of the 180-day period fixed by law for the Commissioner
to act on the disputed assessments. This 30-day period within
which to file an appeal is jurisdictional and failure to comply
therewith would bar the appeal and deprive the Court of Tax
Appeals of its jurisdiction to entertain and determine the
correctness of the assessments. Such period is not merely directory
but mandatory and it is beyond the power of the courts to extend
the same.7
In case the Commissioner failed to act on the disputed assessment
within the 180-day period from date of submission of documents, a
taxpayer can either: 1) file a petition for review with the Court of
Tax Appeals within 30 days after the expiration of the 180-day
period; or 2) await the final decision of the Commissioner on the
disputed assessments and appeal such final decision to the Court
of Tax Appeals within 30 days after receipt of a copy of such

decision. However, these options are mutually exclusive, and resort

to one bars the application of the other.
In the instant case, the Commissioner failed to act on the disputed
assessment within 180 days from date of submission of documents.
Thus, petitioner opted to file a petition for review before the Court
of Tax Appeals. Unfortunately, the petition for review was filed out
of time, i.e., it was filed more than 30 days after the lapse of the
180-day period. Consequently, it was dismissed by the Court of Tax
Appeals for late filing. Petitioner did not file a motion for
reconsideration or make an appeal; hence, the disputed
assessment became final, demandable and executory.
Based on the foregoing, petitioner can not now claim that the
disputed assessment is not yet final as it remained unacted upon
by the Commissioner; that it can still await the final decision of the
Commissioner and thereafter appeal the same to the Court of Tax
Appeals. This legal maneuver cannot be countenanced. After
availing the first option, i.e., filing a petition for review which was
however filed out of time, petitioner can not successfully resort to
the second option, i.e., awaiting the final decision of the
Commissioner and appealing the same to the Court of Tax Appeals,
on the pretext that there is yet no final decision on the disputed
assessment because of the Commissioners inaction.
Lastly, we note that petitioner is raising the issue of prescription for
the first time in the instant motion for reconsideration. Although the
same was raised in the petition for review, it was dismissed for late
filing. No motion for reconsideration was filed hence the disputed
assessment became final, demandable and executory. Thereafter,
petitioner filed with the Court of Tax Appeals a petition for relief
from judgment. However, it failed to raise the issue of prescription
therein. After its petition for relief from judgment was denied by the
Court of Tax Appeals for lack of merit, petitioner filed a petition for
review before this Court without raising the issue of prescription. It
is only in the instant motion for reconsideration that petitioner
raised the issue of prescription which is not allowed. The rule is
well-settled that points of law, theories, issues and arguments not
adequately brought to the attention of the lower court need not be
considered by the reviewing court as they cannot be raised for the

first time on appeal,8 much more in a motion for reconsideration as

in this case, because this would be offensive to the basic rules of
fair play, justice and due process.9 This last ditch effort to shift to a
new theory and raise a new matter in the hope of a favorable result
is a pernicious practice that has consistently been rejected.
WHEREFORE, in view of the foregoing, petitioners motion for
reconsideration is DENIED.

SECOND DIVISION
June 30, 2008

COMMISSIONER
REVENUE,

OF

INTERNAL

G.R. No. 167765

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

Petitioner,
DECISION
Present:
QUISUMBING, J.:
QUISUMBING, J., Chairperson,
For review on certiorari is the Decision52[1] and Resolution53[2]
CARPIO MORALES,
- versus -

TINGA,
VELASCO, JR., and
BRION, JJ.

dated January 31, 2005 and April 14, 2005, respectively, of the
Court of Appeals in CA- G.R. SP No. 79675, which affirmed the
Decision54[3] dated March 20, 2003 of the Court of Tax Appeals
(CTA) in C.T.A. Case No. 6153. In effect, the Court of Appeals
cancelled the assessment notice issued by the Bureau of Internal
Revenue (BIR) for the deficiency income and withholding taxes for
the taxable year 1995 of respondent FMF Development Corporation

FMF DEVELOPMENT CORPORATION,

Promulgated:

(FMF), a domestic corporation organized and existing under

Philippine laws.

Respondent.

The facts are as follows:

52
53
54

On April 15, 1996, FMF filed its Corporate Annual Income Tax

Income Tax Assessment

P1,608,015.50
Compromise Penalty on Income Tax Assessment
20,000.00
Increments on Withholding Tax on Compensation
184,132.26
Compromise Penalty on Increments on Withholding
Tax on Compensation
16,000.00

Return for taxable year 1995 and declared a loss of P3,348,932. On

May 8, 1996, however, it filed an amended return and declared a
loss of P2,826,541. The BIR then sent FMF pre-assessment notices,
all dated October 6, 1998, informing it of its alleged tax liabilities. 55
[4] FMF filed a protest against these notices with the BIR and
requested for a reconsideration/reinvestigation.

Increments on Withholding Tax on Management Fees

209,550.49

On January 22, 1999, Revenue District Officer (RDO) Rogelio

Zambarrano informed FMF that the reinvestigation had been

Compromise Penalty on Increments on Withholding Tax

referred to Revenue Officer Alberto Fortaleza. He also advised FMF

of the informal conference set on February 2, 1999 to allow it to

on Management Fees
16,000.00

present evidence to dispute the BIR assessments.

TOTAL
P2,053,698.2557[6]

On February 9, 1999, FMF President Enrique Fernandez

executed a waiver of the three-year prescriptive period for the BIR
to assess internal revenue taxes, hence extending the assessment
period until October 31, 1999. The waiver was accepted and signed

On November 24, 1999, FMF filed a letter of protest on the

by RDO Zambarrano.

assessment invoking, inter alia,58[7] the defense of prescription by

reason of the invalidity of the waiver. In its reply, the BIR insisted
pre-

that the waiver is valid because it was signed by the RDO, a duly

assessment notices56[5] dated October 6, 1999 from the BIR. FMF

authorized representative of petitioner. It also ordered FMF to

immediately filed a protest on November 3, 1999 but on the same

immediately settle its tax liabilities; otherwise, judicial action will

day, it received BIRs Demand Letter and Assessment Notice No. 33-

be taken. Treating this as BIRs final decision, FMF filed a petition for

1-00487-95 dated October 25, 1999 reflecting FMFs alleged

review with the CTA challenging the validity of the assessment.

On

October

18,

1999,

FMF

received

amended

deficiency taxes and accrued interests, as follows:

55

57

56

58

SO ORDERED.61[10]

On March 20, 2003, the CTA granted the petition and cancelled
Assessment Notice No. 33-1-00487-95 because it was already timebarred. The CTA ruled that the waiver did not extend the three-year
prescriptive period within which the BIR can make a valid

The

Commissioner

of

Internal

Revenue

sought

reconsideration, but it was denied.

assessment because it did not comply with the procedures laid

down in Revenue Memorandum Order (RMO) No. 20-90.59[8] First,

Hence the instant petition, raising the following issues:

the waiver did not state the dates of execution and acceptance of
the waiver, by the taxpayer and the BIR, respectively; thus, it

I.

cannot be determined with certainty if the waiver was executed

WHETHER OR NOT RESPONDENTS WAIVER OF THE

STATUTE OF LIMITATIONS WAS VALIDLY EXECUTED.

and accepted within the prescribed period. Second, the CTA also
found that FMF was not furnished a copy of the waiver signed by

II.

RDO Zambarrano. Third, the CTA pointed out that since the case

WHETHER O[R] NOT THE PERIOD TO ASSESS HAD

PRESCRIBED.

involves an amount of more than P1 million, and the period to

assess is not yet about to prescribe, the waiver should have been

III.

signed by the Commissioner of Internal Revenue, and not a mere

WHETHER OR NOT THE COURT

CORRECTLY
DISREGARDED
SUBSTANTIVE ARGUMENT.62[11]

RDO.60[9] The Commissioner of Internal Revenue filed a motion for

reconsideration, but it was denied.
On appeal to the Court of Appeals, the decision of the CTA
was affirmed. Sustaining the findings of the CTA, the Court of
Appeals held that the waiver did not strictly comply with RMO No.
20-90. Thus, it nullified Assessment Notice No. 33-1-00487-95. The
fallo of the Court of Appeals decision reads:
WHEREFORE, finding the instant petition not
impressed with merit, the same is DENIED DUE
COURSE and is hereby DISMISSED. No costs.

OF APPEALS
PETITIONERS

Essentially, the present controversy deals with the validity of the

waiver and whether it validly extended the original three-year
prescriptive period so as to make Assessment Notice No. 33-100487-95 valid. The basic questions to be resolved therefore are:
(1) Is the waiver valid? and (2) Did the three-year period to assess
internal revenue taxes already prescribe?

59

61

60

62

Petitioner contends that the waiver was validly executed

63

222 (b) of the NIRC. Moreover, a waiver of the statute of limitations

mainly because it complied with Section 222 (b) [12] of the

is not a waiver of the right to invoke the defense of prescription. 65

National Internal Revenue Code (NIRC). Petitioner points out that

[14]

the waiver was in writing, signed by the taxpayer and the

Commissioner, and executed within the three-year prescriptive

After considering the issues and the submissions of the

period. Petitioner also argues that the requirements in RMO No. 20-

parties in the light of the facts of this case, we are in agreement

90 are merely directory; thus, the indication of the dates of

that the petition lacks merit.

execution and acceptance of the waiver, by the taxpayer and the

BIR, respectively, are not required by law. Petitioner adds that there

Under Section 20366[15] of the NIRC, internal revenue taxes

is no provision in RMO No. 20-90 stating that a waiver may be

must be assessed within three years counted from the period fixed

invalidated upon failure of the BIR to furnish the taxpayer a copy of

by law for the filing of the tax return or the actual date of filing,

the waiver. Further, it contends that respondents execution of the

whichever

waiver was a renunciation of its right to invoke prescription.

prescription of the governments right to assess internal revenue

Petitioner also argues that the government cannot be estopped by

taxes primarily to safeguard the interests of taxpayers from

the mistakes committed by its revenue officer in the enforcement

unreasonable investigation. Accordingly, the government must

of RMO No. 20-90.

assess internal revenue taxes on time so as not to extend

is

later.

This

mandate

governs

the

question

of

indefinitely the period of assessment and deprive the taxpayer of

On the other hand, respondent counters that the waiver is void

the assurance that it will no longer be subjected to further

because it did not comply with RMO No. 20-90. Respondent assails

investigation for taxes after the expiration of reasonable period of

the waiver because (1) it was not signed by the Commissioner

time.67[16]

despite the fact that the assessment involves an amount of more

than P1 million; (2) there is no stated date of acceptance by the

An

Commissioner or his duly authorized representative; and (3) it was

assessment of taxes is Section 222 (b) of the NIRC, which provides:

exception

to

the

not furnished a copy of the BIR-accepted waiver. Respondent also

xxxx

cites Philippine Journalists, Inc. v. Commissioner of Internal

Revenue64[13] and contends that the procedures in RMO No. 20-90
are mandatory in character, precisely to give full effect to Section

65

63

66

64

67

three-year

prescriptive

period

on

the

(b) If before the expiration of the time

prescribed in Section 203 for the assessment of the
tax, both the Commissioner and the taxpayer have
agreed in writing to its assessment after such time,
the tax may be assessed within the period agreed
upon. The period so agreed upon may be extended
by subsequent written agreement made before the
expiration of the period previously agreed upon.
xxxx

3.
The following revenue
authorized to sign the waiver.

officials

are

A. In the National Office

xxxx
3. Commissioner
For
involving more than P1M

tax

cases

B. In the Regional Offices

assessment and collect the taxes due is extended to an agreed

1. The Revenue District Officer with

respect to tax cases still pending
investigation and the period to assess
is about to prescribe regardless of
amount.

upon date. Under RMO No. 20-90, which implements Sections 203

xxxx

The above provision authorizes the extension of the original

three-year period by the execution of a valid waiver, where the
taxpayer and the BIR agreed in writing that the period to issue an

and 222 (b), the following procedures should be followed:

1. The waiver must be in the form identified as
Annex A hereof.
2. The waiver shall be signed by the taxpayer
himself or his duly authorized representative. In the
case of a corporation, the waiver must be signed by
any of its responsible officials.
Soon after the waiver is signed by the taxpayer,
the Commissioner of Internal Revenue or the revenue
official authorized by him, as hereinafter provided,
shall sign the waiver indicating that the Bureau has
accepted and agreed to the waiver. The date of
such acceptance by the Bureau should be
indicated. Both the date of execution by the
taxpayer and date of acceptance by the Bureau
should be before the expiration of the period of
prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed.

4.
The waiver must be executed in three
(3) copies, the original copy to be attached to the
docket of the case, the second copy for the
taxpayer and the third copy for the Office accepting
the waiver. The fact of receipt by the taxpayer of
his/her file copy shall be indicated in the
original copy.
5.
The foregoing procedures shall be
strictly followed. Any revenue official found not to
have complied with this Order resulting in
prescription of the right to assess/collect shall be
administratively dealt with. (Emphasis supplied.)

Applying RMO No. 20-90, the waiver in question here was

defective and did not validly extend the original three-year
prescriptive period. Firstly, it was not proven that respondent was
furnished a copy of the BIR-accepted waiver. Secondly, the waiver
was signed only by a revenue district officer, when it should have

been signed by the Commissioner as mandated by the NIRC and

assess and collect taxes. It also had no binding effect on respondent

RMO No. 20-90, considering that the case involves an amount of

because there was no consent by the Commissioner. On this basis,

more than P1 million, and the period to assess is not yet about to

no implied consent can be presumed, nor can it be contended that

prescribe. Lastly, it did not contain the date of acceptance by the

the concurrence to such waiver is a mere formality.71[20]

Commissioner of Internal Revenue, a requisite necessary to

determine whether the waiver was validly accepted before the

Consequently, petitioner cannot rely on its invocation of the

expiration of the original three-year period. Bear in mind that the

rule that the government cannot be estopped by the mistakes of its

waiver in question is a bilateral agreement, thus necessitating the

revenue officers in the enforcement of RMO No. 20-90 because the

very signatures of both the Commissioner and the taxpayer to give

law on prescription should be interpreted in a way conducive to

birth to a valid agreement.68[17]

bringing about the beneficent purpose of affording protection to the

taxpayer

within

the

contemplation

of

the

Commission

which

Petitioner contends that the procedures in RMO No. 20-90 are

recommended the approval of the law. To the Government, its tax

merely directory and that the execution of a waiver was a

officers are obliged to act promptly in the making of assessment so

renunciation of respondents right to invoke prescription. We do not

that taxpayers, after the lapse of the period of prescription, would

agree. RMO No. 20-90 must be strictly followed. In Philippine

have a feeling of security against unscrupulous tax agents who will

Journalists, Inc. v. Commissioner of Internal Revenue,69[18] we ruled

always try to find an excuse to inspect the books of taxpayers, not to

that a waiver of the statute of limitations under the NIRC, to a certain

determine the latters real liability, but to take advantage of a possible

extent being a derogation of the taxpayers right to security against

opportunity to harass even law-abiding businessmen. Without such

prolonged and unscrupulous investigations, must be carefully and

legal defense, taxpayers would be open season to harassment by

strictly construed. The waiver of the statute of limitations does not

unscrupulous tax agents.72[21]

mean that the taxpayer relinquishes the right to invoke prescription

unequivocally, particularly where the language of the document is
70

In fine, Assessment Notice No. 33-1-00487-95 dated October

equivocal. [19] Notably, in this case, the waiver became unlimited

25, 1999, was issued beyond the three-year prescriptive period. The

in time because it did not specify a definite date, agreed upon

waiver was incomplete and defective and thus, the three-year

between the BIR and respondent, within which the former may

prescriptive period was not tolled nor extended and continued to run
until April 15, 1999. Even if the three-year period be counted from

68

May 8, 1996, the date of filing of the amended return, assuming the

69

71

70

72

amended return was substantially different from the original return, a

case which affects the reckoning point of the prescriptive period, 73
[22] still, the subject assessment is definitely considered time-barred.
WHEREFORE, the petition is DENIED for lack of merit. The
assailed Decision and Resolution dated January 31, 2005 and April 14,
2005, respectively, of the Court of Appeals in CA-G.R. SP No. 79675
are hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

73

COMMISSIONER
INTERNAL

OF

G.R. No. 178087

REVENUE,

Petitioner,

Present:

CARPIO, J., Chairperson,

Republic of the Philippines

BRION,

Supreme Court
Manila

- versus -

DEL CASTILLO,

ABAD, and

SECOND DIVISION

PEREZ, JJ.

This Petition for Review on Certiorari seeks to set aside the

Decision75[2] dated March 30, 2007 of the Court of Tax Appeals (CTA)
affirming the cancellation of the assessment notices for having been
KUDOS
CORPORATION,

Respondent.

METAL

Promulgated:

issued beyond the prescriptive period and the Resolution76[3] dated May
18, 2007 denying the motion for reconsideration.

May 5, 2010

Factual Antecedents

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

On April 15, 1999, respondent Kudos Metal Corporation filed its

Annual Income Tax Return (ITR) for the taxable year 1998.

DECISION

Pursuant to a Letter of Authority dated September 7, 1999, the

Bureau of Internal Revenue (BIR) served upon respondent three Notices
of Presentation of Records. Respondent failed to comply with these
notices, hence, the BIR issued a Subpeona Duces Tecum dated

DEL CASTILLO, J.:

September 21, 2006, receipt of which was acknowledged by respondents

President, Mr. Chan Ching Bio, in a letter dated October 20, 2000.

The prescriptive period on when to assess taxes benefits both the

A review and audit of respondents records then ensued.

government and the taxpayer.74[1] Exceptions extending the period to

assess must, therefore, be strictly construed.

75
74

76

On December 10, 2001, Nelia Pasco (Pasco), respondents

On June 22, 2004, the BIR rendered a final Decision 79[6] on the

accountant, executed a Waiver of the Defense of Prescription,77[4] which

matter, requesting the immediate payment of the following tax liabilities:

was notarized on January 22, 2002, received by the BIR Enforcement

Service on January 31, 2002 and by the BIR Tax Fraud Division on
February 4, 2002, and accepted by the Assistant Commissioner of the

Kind of Tax

Enforcement Service, Percival T. Salazar (Salazar).

Amount

Income Tax
9,693,897.85
VAT
13,962,460.90
EWT
1,712,336.76
Withholding Tax-Compensation
247,353.24
Penalties
8,000.00
Total
P25,624,048.76

This was followed by a second Waiver of Defense of

Prescription78[5] executed by Pasco on February 18, 2003, notarized on
February 19, 2003, received by the BIR Tax Fraud Division on February
28, 2003 and accepted by Assistant Commissioner Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment

Notice for the taxable year 1998 against the respondent. This was

followed by a Formal Letter of Demand with Assessment Notices for

taxable year 1998, dated September 26, 2003 which was received by
respondent on November 12, 2003.
Respondent challenged the assessments by filing its Protest on

Ruling of the Court of Tax Appeals, Second Division

Various Tax Assessments on December 3, 2003 and its Legal Arguments

and Documents in Support of Protests against Various Assessments on
February 2, 2004.

Believing that the governments right to assess taxes had

prescribed, respondent filed on August 27, 2004 a Petition for Review 80[7]
with the CTA. Petitioner in turn filed his Answer.81[8]

79
77

80

78

81

On April 11, 2005, respondent filed an Urgent Motion for

The subject waiver is therefore incomplete and

defective. As such, the three-year prescriptive period was
not tolled or extended and continued to run. x x x84[11]

82

Preferential Resolution of the Issue on Prescription. [9]

On October 4, 2005, the CTA Second Division issued a

Resolution83[10] canceling the assessment notices issued against
respondent for having been issued beyond the prescriptive period. It
found the first Waiver of the Statute of Limitations incomplete and

Petitioner moved for reconsideration but the CTA Second Division denied
the motion in a Resolution85[12] dated April 18, 2006.

defective for failure to comply with the provisions of Revenue

Memorandum Order (RMO) No. 20-90. Thus:
First, the Assistant Commissioner is not the
revenue official authorized to sign the waiver, as the tax
case involves more than P1,000,000.00. In this regard,
only the Commissioner is authorized to enter into
agreement with the petitioner in extending the period of
assessment;
Secondly, the waiver failed to indicate the date of
acceptance. Such date of acceptance is necessary to
determine whether the acceptance was made within the
prescriptive period;

Ruling of the Court of Tax Appeals, En Banc

On appeal, the CTA En Banc affirmed the cancellation of the assessment

notices. Although it ruled that the Assistant Commissioner was
authorized to sign the waiver pursuant to Revenue Delegation Authority
Order (RDAO) No. 05-01, it found that the first waiver was still invalid
based on the second and third grounds stated by the CTA Second
Division. Pertinent portions of the Decision read as follows:

Third, the fact of receipt by the taxpayer of his file

copy was not indicated on the original copy. The
requirement to furnish the taxpayer with a copy of the
waiver is not only to give notice of the existence of the
document but also of the acceptance by the BIR and the
perfection of the agreement.

82
83

While the Court En Banc agrees with the second

and third grounds for invalidating the first waiver, it finds
that the Assistant Commissioner of the Enforcement
Service is authorized to sign the waiver pursuant to RDAO
No. 05-01, which provides in part as follows:

84
85

A.

a Duces
Tecum

For National Office cases

Designated Revenue Official

4. ACIR, Assessment Service (AS)

cases which are

1. Assistant Commissioner (ACIR),

fraud and policy
Enforcement Service

For tax

2. ACIR, Large Taxpayers Service

large taxpayers cases

For

cases

other
than
those
cases
falling
under
Subsecti
on
B
hereof
3. ACIR, Legal Service
pending

For

cases

verification and awaiting

resolutio
n
of
certain
legal
issues
prior to
prescripti
on
and
for
issuance/
complian
ce
of
Subpoen

For

pending in
or subject to
revi
ew
or
ap
pro
val
by
the
ACI
R,
AS
Based on the foregoing, the Assistant
Commissioner, Enforcement Service is authorized to sign
waivers in tax fraud cases. A perusal of the records
reveals that the investigation of the subject deficiency
taxes in this case was conducted by the National
Investigation Division of the BIR, which was formerly
named the Tax Fraud Division. Thus, the subject
assessment is a tax fraud case.
Nevertheless, the first waiver is still invalid based
on the second and third grounds stated by the Court in
Division. Hence, it did not extend the prescriptive period
to assess.
Moreover, assuming arguendo that the first
waiver is valid, the second waiver is invalid for violating
Section 222(b) of the 1997 Tax Code which mandates
that the period agreed upon in a waiver of the statute can
still be extended by subsequent written agreement,
provided that it is executed prior to the expiration of the

first period agreed upon. As previously discussed, the

exceptions to the law on prescription must be strictly
construed.
In the case at bar, the period agreed upon in the
subject first waiver expired on December 31, 2002. The
second waiver in the instant case which was supposed to
extend the period to assess to December 31, 2003 was
executed on February 18, 2003 and was notarized on
February 19, 2003. Clearly, the second waiver was
executed after the expiration of the first period agreed
upon. Consequently, the same could not have tolled the
3-year prescriptive period to assess.86[13]

Petitioners Arguments

Petitioner argues that the governments right to assess taxes is

not barred by prescription as the two waivers executed by respondent,
through its accountant, effectively tolled or extended the period within
which the assessment can be made. In disputing the conclusion of the
CTA that the waivers are invalid, petitioner claims that respondent is
estopped from adopting a position contrary to what it has previously
taken. Petitioner insists that by acquiescing to the audit during the period

Petitioner sought reconsideration but the same was unavailing.

specified in the waivers, respondent led the government to believe that

the delay in the process would not be utilized against it. Thus, respondent
may no longer repudiate the validity of the waivers and raise the issue of
prescription.

Issue

Respondents Arguments
Hence, the present recourse where petitioner interposes that:

Respondent maintains that prescription had set in due to the invalidity of

THE COURT OF TAX APPEALS EN BANC ERRED IN RULING
THAT THE GOVERNMENTS RIGHT TO ASSESS UNPAID
TAXES OF RESPONDENT PRESCRIBED.87[14]

the waivers executed by Pasco, who executed the same without any
written authority from it, in clear violation of RDAO No. 5-01. As to the
doctrine of estoppel by acquiescence relied upon by petitioner,

86

respondent counters that the principle of equity comes into play only
when the law is doubtful, which is not present in the instant case.

87

Petitioner does not deny that the assessment notices were issued
beyond the three-year prescriptive period, but claims that the period was
Our Ruling

extended by the two waivers executed by respondents accountant.

The petition is bereft of merit.

We do not agree.

Section 20388[15] of the National Internal Revenue Code of 1997

Section 222 (b) of the NIRC provides that the period to assess and

(NIRC) mandates the government to assess internal revenue taxes within

collect taxes may only be extended upon a written agreement between

three years from the last day prescribed by law for the filing of the tax

the CIR and the taxpayer executed before the expiration of the three-

return or the actual date of filing of such return, whichever comes later.

year period. RMO 20-9090[17] issued on April 4, 1990 and RDAO 05-

Hence, an assessment notice issued after the three-year prescriptive

0191[18] issued on August 2, 2001 lay down the procedure for the proper

period is no longer valid and effective. Exceptions however are provided

execution of the waiver, to wit:

under Section 22289[16] of the NIRC.

1. The waiver must be in the proper form prescribed by

The waivers executed
by
respondents
accountant
did
not
extend
the
period
within
which
the
assessment can be
made

RMO 20-90. The phrase but not after ______ 19 ___,

which indicates the expiry date of the period agreed
upon to assess/collect the tax after the regular threeyear period of prescription, should be filled up.
2. The waiver must be signed by the taxpayer himself or
his duly authorized representative. In the case of a
corporation, the waiver must be signed by any of its
responsible officials. In case the authority is delegated

88

90

89

91

by the taxpayer to a representative, such delegation

should be in writing and duly notarized.
A perusal of the waivers executed by respondents accountant
3. The waiver should be duly notarized.

reveals the following infirmities:

4. The CIR or the revenue official authorized by him

must sign the waiver indicating that the BIR has
accepted and agreed to the waiver. The date of such

1.

The waivers were executed without the

acceptance by the BIR should be indicated. However,

notarized written authority of Pasco to sign the waiver

before signing the waiver, the CIR or the revenue

in behalf of respondent.

official authorized by him must make sure that the

waiver is in the prescribed form, duly notarized, and

2.

acceptance.

executed by the taxpayer or his duly authorized

representative.

The waivers failed to indicate the date of

3.

The fact of receipt by the respondent of its file

copy was not indicated in the original copies of the

5. Both the date of execution by the taxpayer and date

waivers.

of acceptance by the Bureau should be before the

expiration of the period of prescription or before the
lapse of the period agreed upon in case a subsequent
agreement is executed.
6. The waiver must be executed in three copies, the
original copy to be attached to the docket of the case,

Due to the defects in the waivers, the period to assess or collect

taxes was not extended. Consequently, the assessments were issued by
the BIR beyond the three-year period and are void.

the second copy for the taxpayer and the third copy
for the Office accepting the waiver. The fact of receipt
by the taxpayer of his/her file copy must be indicated

Estoppel

in the original copy to show that the taxpayer was

apply in this case

does

not

notified of the acceptance of the BIR and the

perfection of the agreement.92[19]
We find no merit in petitioners claim that respondent is now

92

estopped from claiming prescription since by executing the waivers, it

was the one which asked for additional time to submit the required
documents.
In Collector of Internal Revenue v. Suyoc Consolidated Mining

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.

Company,93[20] the doctrine of estoppel prevented the taxpayer from

raising the defense of prescription against the efforts of the government
to collect the assessed tax. However, it must be stressed that in the said
case, estoppel was applied as an exception to the statute of limitations
on collection of taxes and not on the assessment of taxes, as the BIR was
able to make an assessment within the prescribed period. More
important, there was a finding that the taxpayer made several requests
or positive acts to convince the government to postpone the collection of
taxes, viz:

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,

93

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].94[21]

broadly defined, is justice according to natural law and right. 95[22] As

such, the doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy. 96[23] It should be
resorted to solely as a means of preventing injustice and should not be
permitted to defeat the administration of the law, or to accomplish a
wrong or secure an undue advantage, or to extend beyond them
requirements of the transactions in which they originate.97[24] Simply
put, the doctrine of estoppel must be sparingly applied.

Moreover, the BIR cannot hide behind the doctrine of estoppel to

cover its failure to comply with RMO 20-90 and RDAO 05-01, which the
BIR itself issued. As stated earlier, the BIR failed to verify whether a
notarized written authority was given by the respondent to its
accountant, and to indicate the date of acceptance and the receipt by
the respondent of the waivers. Having caused the defects in the waivers,
the BIR must bear the consequence. It cannot shift the blame to the

Conversely, in this case, the assessments were issued beyond

taxpayer. To stress, a waiver of the statute of limitations, being a

the prescribed period. Also, there is no showing that respondent made

derogation of the taxpayers right to security against prolonged and

any request to persuade the BIR to postpone the issuance of the

unscrupulous investigations, must be carefully and strictly construed.98

assessments.

[25]

The doctrine of estoppel cannot be applied in this case as an

exception to the statute of limitations on the assessment of taxes
considering that there is a detailed procedure for the proper execution of
the waiver, which the BIR must strictly follow. As we have often said, the
doctrine of estoppel is predicated on, and has its origin in, equity which,

94

95
96
97
98

As to the alleged delay of the respondent to furnish the BIR of the

required documents, this cannot be taken against respondent. Neither
can the BIR use this as an excuse for issuing the assessments beyond the
three-year period because with or without the required documents, the
CIR has the power to make assessments based on the best evidence
obtainable.99[26]

WHEREFORE, the petition is DENIED. The assailed Decision

dated March 30, 2007 and Resolution dated May 18, 2007 of the Court of
Tax Appeals are hereby AFFIRMED.

SO ORDERED.

99

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 184823

October 6, 2010

COMMISSIONER OF INTERNAL REVENUE, Petitioner,

vs.
AICHI FORGING COMPANY OF ASIA, INC., Respondent.

processing of steel and its by-products. 3 It is registered with the

Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity 4
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 Inter-Agency Tax Credit and Duty
Drawback Center.6
Proceedings before the Second Division of the CTA

DECISION

On even date, respondent filed a Petition for Review 7 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.

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 non-observance of the
prescriptive periods within which to file the administrative and the
judicial claims would result in the denial of his claim.

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 zero-rated
sales;10 and 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

DEL CASTILLO, J.:

This Petition for Review on Certiorari under Rule 45 of the Rules of

Court seeks to set aside the July 30, 2008 Decision 1 and the
October 6, 2008 Resolution2 of the Court of Tax Appeals (CTA) En
Banc.

In response, petitioner filed his Answer 12 raising the following

special and affirmative defenses, to wit:

Factual Antecedents

4. Petitioners alleged claim for refund is subject to administrative

investigation by the Bureau;

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

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:

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 "KK-394" 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.

SEC. 112. Refunds or Tax Credits of Input Tax.

xxxx
(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 VATregistered; (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.

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

P 3,891,123.82

Less:
41,020.37
Exceptions as found by the ICPA
Net Creditable Input VAT

P 3,850,103.45

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

Less:
Output VAT Due

610,984.20
P 3,239,119.25

Excess Creditable Input VAT

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 twoyear 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

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:
Petitioner argues that the administrative and judicial claims were
filed beyond the period allowed by law and hence, the honorable
Court has no jurisdiction over the same. In addition, petitioner
further contends that respondent's filing of the administrative and
judicial [claims] effectively eliminates the authority of the
honorable Court to exercise jurisdiction over the judicial claim.
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 VAT-registered persons shall pay the valueadded 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.
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 two-year
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.

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
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

SO ORDERED.22
Respondents Arguments
Petitioner sought reconsideration but the CTA En Banc denied23 his
Motion for Reconsideration.

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 One-Stop 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. 49702 36 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.
Unutilized input VAT must be claimed within two years after the
close of the taxable quarter when the sales were made
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:

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: 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 zero-rated 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.
(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 VAT-registered persons shall pay the valueadded tax on a monthly basis.
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.

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.
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 zerorated 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.

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.

xxxx
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.
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 a 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.
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

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 twoyear 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.
Relying on Article 13 of the Civil Code, 47 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:

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

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 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.

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

There obviously exists a manifest incompatibility in the manner of

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 2 13th calendar month

April 15, 1999 to May 14, 1999

14th calendar month

May 15, 1999 to June 14, 1999

15th calendar month

June 15, 1999 to July 14, 1999

16th calendar month

July 15, 1999 to August 14, 1999

17th calendar month

August 15, 1999 to September 14, 1999

18th calendar month

September 15, 1999 to October 14, 1999

Year 1 1st calendar month

April 15, 1998 to May 14, 1998

19th calendar month

October 15, 1999 to November 14, 1999

2nd calendar month

May 15, 1998 to June 14, 1998

20th calendar month

November 15, 1999 to December 14, 1999

3rd calendar month

June 15, 1998 to July 14, 1998

21st calendar month

December 15, 1999 to January 14, 2000

4th calendar month

July 15, 1998 to August 14, 1998

22nd calendar month

January 15, 2000 to February 14, 2000

5th calendar month

August 15, 1998 to September 14, 1998

23rd calendar month

February 15, 2000 to March 14, 2000

24th calendar month

March 15, 2000 to April 14, 2000

We therefore hold that respondent's petition (filed on April 14,

2000) was 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
Applying this to the present case, 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 30, 2004. Hence, respondents
administrative claim was timely filed.
The filing of the judicial claim was premature
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:
SEC. 112. Refunds or Tax Credits of Input Tax.
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) days from the date of submission of
complete documents in support of the application filed in
accordance with Subsections (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. (Emphasis supplied.)

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 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 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 CIR to CTA within 30 days.
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 find the filing of the judicial claim with
the CTA premature.
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 basis.
There is nothing in Section 112 of the NIRC to support respondents
view. Subsection (A) of the said provision states that "any VATregistered person, whose sales are zero-rated or effectively zerorated 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.

FIRST DIVISION
COMMISSIONER OF INTERNAL G.R. No. 166387
REVENUE,
Petitioner,
Present:
PUNO, C.J., Chair
person,
CARPIO,
- v e r s u s - CORONA,
AZCUNA and
LEONARDO-DE
CASTRO, JJ.
ENRON SUBIC POWER
CORPORATION,
Respondent. Promulgated:
January 19, 2009
x------------------------------------------- - - - - - - -x
RESOLUTION
CORONA, J.:

In this petition for review on certiorari under Rule 45 of the Rules of

Court, petitioner Commissioner of Internal Revenue (CIR) assails

(CTA). It argued that the deficiency tax assessment disregarded the

provisions of Section 228 of the National Internal Revenue Code
(NIRC), as amended,[8] and Section 3.1.4 of Revenue Regulations

the November 24, 2004 decision

[1]

of the Court of Appeals (CA)

(RR) No. 12-99[9] by not providing the legal and factual bases of the

annulling the formal assessment notice issued by the CIR against

respondent Enron Subic Power Corporation (Enron) for failure to
state the legal and factual bases for such assessment.

Metropolitan Authority as a freeport enterprise,[2] filed its annual

income tax return for the year 1996 on April 12, 1997. It indicated a
net loss of P7,684,948. Subsequently, the Bureau of Internal
Revenue, through a preliminary five-day letter, [3] informed it of a
assessment

of

an

alleged P2,880,817.25

the assessment.[10]
In a decision dated September 12, 2001, the CTA granted

Enron, a domestic corporation registered with the Subic Bay

proposed

assessment. Enron likewise questioned the substantive validity of

deficiency

Enrons petition and ordered the cancellation of its deficiency tax

assessment for the year 1996. The CTA reasoned that the
assessment notice sent to Enron failed to comply with the
requirements of a valid written notice under Section 228 of the
NIRC and RR No. 12-99. The CIRs motion for reconsideration of the
CTA decision was denied in a resolution dated November 12, 2001.

income tax.[4] Enron disputed the proposed deficiency assessment

in its first protest letter.[5]

The CIR appealed the CTA decision to the CA but the CA

affirmed it. The CA held that the audit working papers did not

On May 26, 1999, Enron received from the CIR a formal

substantially comply with Section 228 of the NIRC and RR No. 12-99
assessment notice[6] requiring it to pay the alleged deficiency
because they failed to show the applicability of the cited law to the
income tax of P2,880,817.25 for the taxable year 1996. Enron
facts of the assessment. The CIR filed a motion for reconsideration
protested this deficiency tax assessment.[7]
but this was deemed abandoned when he filed a motion for
Due to the non-resolution of its protest within the 180-day
period, Enron filed a petition for review in the Court of Tax Appeals

extension to file a petition for review in this Court.

The CIR now argues that respondent was informed of the

and the notice of assessment shall be void.

(emphasis supplied)[12]

legal and factual bases of the deficiency assessment against it.

Section 228 of the NIRC provides that the taxpayer shall be
We adopt in toto the findings of fact of the CTA, as affirmed by the
CA. In Compagnie Financiere Sucres et Denrees v. CIR,[11] we held:
We reiterate the well-established doctrine that as a
matter of practice and principle, [we] will not set
aside the conclusion reached by an agency, like the
CTA, especially if affirmed by the [CA]. By the very
nature of its function, it has dedicated itself to the
study and consideration of tax problems and has
necessarily developed an expertise on the subject,
unless there has been an abuse or improvident
exercise of authority on its part, which is not present
here.
The CIR errs in insisting that the notice of assessment in
question complied with the requirements of the NIRC and RR No.
12-99.

informed in writing of the law and the facts on which the

assessment is made. Otherwise, the assessment is void. To
implement the provisions of Section 228 of the NIRC, RR No. 12-99
was enacted. Section 3.1.4 of the revenue regulation reads:
3.1.4. Formal
Letter
of
Demand
and
Assessment Notice. The formal letter of demand and
assessment notice shall be issued by the
Commissioner
or
his
duly
authorized
representative.The letter of demand calling for
payment of the taxpayers deficiency tax or
taxes shall state the facts, the law, rules and
regulations, or jurisprudence on which the
assessment is based, otherwise, the formal
letter of demand and assessment notice shall
be void. The same shall be sent to the taxpayer only
by registered mail or by personal delivery. xxx
(emphasis supplied)

A notice of assessment is:

[A] declaration of deficiency taxes issued to a
[t]axpayer who fails to respond to a Pre-Assessment
Notice (PAN) within the prescribed period of time, or
whose reply to the PAN was found to be without
merit. The Notice of Assessment shall inform the
[t]axpayer of this fact, and that the report of
investigation submitted by the Revenue Officer
conducting the audit shall be given due course.
The formal letter of demand calling for payment of
the taxpayers deficiency tax or taxes shall state the
fact, the law, rules and regulations or
jurisprudence on which the assessment is
based, otherwise the formal letter of demand

It is clear from the foregoing that a taxpayer must be informed in

writing of the legal and factual bases of the tax assessment made
against him. The use of the word shall in these legal provisions
indicates the mandatory nature of the requirements laid down
therein. We note the CTAs findings:
In [this] case, [the CIR] merely issued a formal
assessment and indicated therein the supposed tax,
surcharge, interest and compromise penalty due
thereon. The Revenue Officers of the [the CIR] in the

issuance of the Final Assessment Notice did not

provide Enron with the written bases of the law and
facts on which the subject assessment is based. [The
CIR] did not bother to explain how it arrived at such
an assessment. Moreso, he failed to mention the
specific provision of the Tax Code or rules and
regulations which were not complied with by Enron.

legal and factual bases of the assessment. These steps were mere
perfunctory discharges of the CIRs duties in correctly assessing a
taxpayer.[15] The requirement for issuing a preliminary or final

[13]

notice, as the case may be, informing a taxpayer of the existence

of a deficiency tax assessment is markedly different from the

Both the CTA and the CA concluded that the deficiency tax
assessment

merely

itemized

the

deductions

disallowed

requirement of what such notice must contain. Just because the CIR

and

issued an advice, a preliminary letter during the pre-assessment

included these in the gross income. It also imposed the preferential

stage and a final notice, in the order required by law, does not

rate of 5% on some items categorized by Enron as costs. The legal

necessarily mean that Enron was informed of the law and facts on

and factual bases were, however, not indicated.

which the deficiency tax assessment was made.

The CIR insists that an examination of the facts shows that

Enron was properly apprised of its tax deficiency. During the preassessment stage, the CIR advised Enrons representative of the tax
deficiency, informed it of the proposed tax deficiency assessment
through a preliminary five-day letter and furnished Enron a copy of
the audit working paper[14] allegedly showing in detail the legal and
factual bases of the assessment. The CIR argues that these steps
sufficed to inform Enron of the laws and facts on which the
deficiency tax assessment was based.

The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed. Otherwise, the
express provisions of Article 228 of the NIRC and RR No. 12-99
would be rendered nugatory. The alleged factual bases in the
advice, preliminary letter and audit working papers did not suffice.
There was no going around the mandate of the law that the legal
and factual bases of the assessment be stated in writing in the
formal letter of demand accompanying the assessment notice.

We disagree. The advice of tax deficiency, given by the CIR

to an employee of Enron, as well as the preliminary five-day letter,
were not valid substitutes for the mandatory notice in writing of the

We note that the old law merely required that the taxpayer
be notified of the assessment made by the CIR. This was changed

Verily, taxes are the lifeblood of the

Government and so should be collected
without unnecessary hindrance. However,
such collection should be made in accordance
with law as any arbitrariness will negate the
very reason for the Government itself.

in 1998 and the taxpayer must now be informed not only of the law
but also of the facts on which the assessment is made. [16] Such
amendment is in keeping with the constitutional principle that no
person shall be deprived of property without due process. [17] In view
of the absence of a fair opportunity for Enron to be informed of the
legal and factual bases of the assessment against it, the

WHEREFORE, the petition is hereby DENIED. The November 24,

2004 decision of the Court of Appeals is AFFIRMED.
No costs.

assessment in question was void. We reiterate our ruling in Reyes

v. Almanzor, et al.:[18]

SO ORDERED.