CIR Vs Reyes

6/27/2016 SUPREME COURT REPORTS ANNOTATED VOLUME 480
382 SUPREMECOURTREPORTSANNOTATED
CommissionerofInternalRevenuevs.Reyes
*
G.R.No.159694.January27,2006.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

AZUCENAT.REYES,respondent.
*
G.R.No.163581.January27,2006.
AZUCENA T. REYES, petitioner, vs. COMMISSIONER OF

INTERNALREVENUE,respondent.
TaxationAssessmentTaxpayersshallbeinformedinwritingofthelaw
andthefactsonwhichtheassessmentismade,otherwise,theassessmentshall
bevoid.ThesecondparagraphofSection228oftheTaxCodeisclearand
mandatory.Itprovidesasfollows:Sec.228.ProtestingofAssessment.xxx
xxxxxxThetaxpayersshallbeinformedinwritingofthelawandthefacts
onwhichtheassessmentismade:otherwise,theassessmentshallbevoid.
SameSameTheoldrequirementofmerelynotifyingthetaxpayerofthe
CIRsfindingswaschangedin1998toinformingthetaxpayerofnotonlythe
lawbutalsoofthefactsonwhichanassessmentwouldbemade.RA8424
has already amended the provision of Section 229 on protesting an
assessment.TheoldrequirementofmerelynotifyingthetaxpayeroftheCIRs
findingswaschangedin1998toinformingthetaxpayerofnotonlythelaw,
butalsoofthefactsonwhichanassessmentwouldbemadeotherwise,the
assessmentitselfwouldbeinvalid.
SameSameStatutesStatutoryConstructionStatutesthatareremedial,
or that do not create new or take away vested rights, do not fall under the
general rule against the retroactive operation of statutes RA 8424 does not
state, either expressly or by necessary implication, that pending actions are
excepted from the operation of Section 228, or that applying it to pending
proceedingswouldimpairvestedrights.Thegeneralruleisthatstatutesare
prospective.However,statutesthatareremedial,orthatdonotcreatenewor
take away vested rights, do not fall under the general rule against the
retroactive operation of statutes. Clearly, Section 228 provides for the
procedureincaseanassessmentisprotested.Theprovision
http://www.central.com.ph/sfsreader/session/0000015590a374e91e19e4a0003600fb002c009e/t/?o=False 1/16
_______________
*FIRSTDIVISION.
383
VOL.480,JANUARY27,2006 383
doesnotcreatenewortakeawayvestedrights.Inbothinstances,itcansurely
beappliedretroactively.Moreover,RA8424doesnotstate,eitherexpresslyor
bynecessaryimplication,thatpendingactionsareexceptedfromtheoperation
ofSection228,orthatapplyingittopendingproceedingswouldimpairvested
rights.
Same Same Same Same A tax regulation is promulgated by the
financesecretarytoimplementtheprovisionsoftheTaxCodeTheabsenceof
theregulationdoesnotautomaticallymeanthatthelawitselfwouldbecome
inoperative.The nonretroactive application of Revenue Regulation (RR)
No.1299isofnomoment,consideringthatitmerelyimplementsthelaw.A
tax regulation is promulgated by the finance secretary to implement the
provisionsoftheTaxCode.Whileitisdesirableforthegovernmentauthority
oradministrativeagencytohaveoneimmediatelyissuedafteralawispassed,
theabsenceoftheregulationdoesnotautomaticallymeanthatthelawitself
wouldbecomeinoperative.
Same Same Same Same An administrative rule interpretive of a
statuteandnotdeclarativeofcertainrightsandcorrespondingobligations,is
given retroactive effect as of the date of the effectivity of the statute.An
administrative rule interpretive of a statute, and not declarative of certain
rightsandcorrespondingobligations,isgivenretroactiveeffectasofthedate
oftheeffectivityofthestatute.RR1299isonesuchrule.Beinginterpretive
oftheprovisionsoftheTaxCode,evenifitwasissuedonlyonSeptember6,
1999,thisregulationwastoretroacttoJanuary1,1998adatepriortothe
issuanceofthepreliminaryassessmentnoticeanddemandletter.
Same Same Same Same In case of discrepancy between the law as
amended and its implementing but old regulation, the former necessarily
prevailsBetweenSection228oftheTaxCodeandthepertinentprovisionsof
RR1285,thelattercannotstandbecauseitcannotgobeyondtheprovisionof
thelaw.Section228hasreplacedSection229.Theprovisiononprotesting
an assessment has been amended. Furthermore, in case of discrepancy
between the law as amended and its implementing but old regulation, the
formernecessarilyprevails.Thus,betweenSection228oftheTaxCodeand
thepertinentprovisionsofRR1285,thelattercannotstandbecauseitcannot
go beyond the provision of the law. The law must still be followed, even
though the existing tax regulation at that time provided for a different
procedure.Theregulationthensimplyprovided
384
that notice be sent to the respondent in the form prescribed, and that no
consequencewouldensueforfailuretocomplywiththatform.
Same Same To proceed heedlessly with tax collection without first
establishingavalidassessmentisevidentlyviolativeofthecardinalprinciple
inadministrativeinvestigations:thattaxpayersshouldbeabletopresenttheir
case and adduce supporting evidence.The law imposes a substantive, not
merely a formal, requirement. To proceed heedlessly with tax collection
without first establishing a valid assessment is evidently violative of the
cardinal principle in administrative investigations: that taxpayers should be
abletopresenttheircaseandadducesupportingevidence.Intheinstantcase,
respondent has not been informed of the basis of the estate tax liability.
Without complying with the unequivocal mandate of first informing the
taxpayerofthegovernmentsclaim,therecanbenodeprivationofproperty,
becausenoeffectiveprotestcanbemade.Thehaphazardshotatslappingan
assessment,supposedlybasedonestatetaxationsgeneralprovisionsthatare
expectedtobeknownbythetaxpayer,isutterchicanery.
SameSame Although taxes are the lifeblood of the government, their
assessment and collection should be made in accordance with law as any
arbitrariness will negate the very reason for government itself.Even a
cursory review of the preliminary assessment notice, as well as the demand
lettersent,revealsthelackofbasisfornottomentiontheinsufficiencyof
thegrossfiguresanddetailsoftheitemizeddeductionsindicatedinthenotice
and the letter. This Court cannot countenance an assessment based on
estimates that appear to have been arbitrarily or capriciously arrived at.
Although taxes are the lifeblood of the government, their assessment and
collection should be made in accordance with law as any arbitrariness will
negatetheveryreasonforgovernmentitself.
SameSameFailuretocomplywithSection228doesnotonlyrenderthe
assessmentvoid,butalsofindsnovalidationinanyprovisionintheTaxCode.
Taxlawsarecivilinnature.UnderourCivilCode,actsexecutedagainstthe
mandatory provisions of law are void, except when the law itself authorizes
the validity of those acts. Failure to comply with Section 228 does not only
rendertheassessmentvoid,butalsofindsnovalidationinanyprovisioninthe
TaxCode.Wecannotcondoneerrantorenterprisingtaxofficials,astheyare
expectedtobevigilantandlawabiding.
385
VOL.480,JANUARY27,2006 385
PETITIONS for review on certiorari of a decision of the Court of

Appeals.
ThefactsarestatedintheopinionoftheCourt.
ReynosoB.Florezaforpetitioner.
TheSolicitorGeneralforCommissionerofInternalRevenue.
PANGANIBAN,C.J.:
Under the present provisions of the Tax Code and pursuant to

elementary due process, taxpayers must be informed in writing of
the law and the facts upon which a tax assessment is based
otherwise, the assessment is void. Being invalid, the assessment
cannot in turn be used as a basis for the perfection of a tax
compromise.
TheCase
1 2
Before us are two consolidated Petitions for Review filed under
Rule45oftheRulesofCourt,assailingtheAugust8,
_______________
1The June 21, 2004 Resolution ordering the consolidation of G.R. No. 163581
withG.R.No.159694hadbeenissuedbeforethepetitionerintheformercasefiled
aPetitionforReview.(G.R.No.163581Rollo,p.5.)
Afterwards,perResolutiondatedAugust16,2004,thisCourtdeniedthePetition
forReviewinG.R.No.163581forfailuretocomplywiththerequirementsinRules
46and56ofthe1997RulesofCivilProcedure.Lackingwasanaffidavitofservice
of copies on the CA and on the respondent, and a duplicate original or a certified
truecopyoftheassailedDecisionandResolution.(G.R.No.163581Rollo,pp.80
81.)
Ultimately, per Resolution dated December 6, 2004, this Court denied with
finality petitioners Motion for Reconsideration in G.R. No. 163581 of theAugust
16,2004Resolution.(G.R.No.163581Rollo,unnumberedafterp.105.)
2G.R.No.159694,Rollo,pp.840G.R.No.163581,Rollo,pp.720.
386
3
2003 Decision of the Court ofAppeals (CA) in CAG.R. SP No.
71392. The dispositive portion of the assailed Decision reads as
follows:
WHEREFORE, the petition is GRANTED. The assailed decision of the

CourtofTaxAppealsisANNULLEDandSETASIDEwithoutprejudiceto
the action of the National Evaluation Board on the proposed
4
compromise
settlementoftheMariaC.Tancincoestatestaxliability.
TheFacts
TheCAnarratedthefactsasfollows:
On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292

squaremeter residential lot and an old house thereon (or subject property)
locatedat4931PasayRoad,DasmariasVillage,MakatiCity.
On the basis of a sworn informationforreward filed on February 17,
1997byacertainRaymondAbad(orAbad),RevenueDistrictOfficeNo.50
(South Makati) conducted an investigation on the decedents estate (or
estate).Subsequently,itissuedaReturnVerificationOrder.Butwithoutthe
required preliminary findings being submitted, it issued Letter ofAuthority
No. 132963 for the regular investigation of the estate tax case.Azucena T.
Reyes (or [Reyes]), one of the decedents heirs, received the Letter of
AuthorityonMarch14,1997.
OnFebruary12,1998,theChief,AssessmentDivision,BureauofInternal
Revenue(orBIR),issuedapreliminaryassessmentnoticeagainsttheestate
intheamountofP14,580,618.67.OnMay10,1998,theheirsofthedecedent
(orheirs)receivedafinalestatetaxassessmentnoticeandademandletter,
both dated April 22, 1998, for the amount of P14,912,205.47, inclusive of
surchargeandinterest.
_______________
3 Eighth Division. Penned by Justice Edgardo P. Cruz, with the concurrence of
JusticesConradoM.Vasquez,Jr.(chair)andNoelG.Tijam(member).
4 CA Decision, p. 14 G.R. No. 159694 Rollo, p. 56. Uppercase and boldface
copiedverbatim.
387
VOL.480,JANUARY27,2006 387
OnJune1,1998,acertainFelixM.Sumbillo(orSumbillo)protestedthe
assessment[o]nbehalfoftheheirsonthegroundthatthesubjectpropertyhad
alreadybeensoldbythedecedentsometimein1990.
On November 12, 1998, the Commissioner of Internal Revenue (or
[CIR])issuedapreliminarycollectionletterto[Reyes],followedbyaFinal
NoticeBeforeSeizuredatedDecember4,1998.
OnJanuary5,1999,aWarrantofDistraintand/orLevywasservedupon
the estate, followed on February 11, 1999 by Notices of Levy on Real
PropertyandTaxLienagainstit.
On March 2, 1999, [Reyes] protested the notice of levy. However, on
March 11, 1999, the heirs proposed a compromise settlement of
P1,000,000.00.
Inaletterto[theCIR]datedJanuary27,2000,[Reyes]proposedtopay
50%ofthebasictaxdue,citingtheheirsinabilitytopaythetaxassessment.
OnMarch20,2000,[theCIR]rejected[Reyess]offer,pointingoutthatsince
the estate tax is a charge on the estate and not on the heirs, the latters
financial incapacity is immaterial as, in fact, the gross value of the estate
amountingtoP32,420,360.00ismorethansufficienttosettlethetaxliability.
Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or
beforeApril15,2000[]otherwise,thenoticeofsaleofthesubjectproperty
wouldbepublished.
OnApril11,2000,[Reyes]againwroteto[theCIR],thistimeproposing
to pay 100% of the basic tax due in the amount of P5,313,891.00. She
reiteratedtheproposalinaletterdatedMay18,2000.
As the estate failed to pay its tax liability within the April 15, 2000
deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes]
onJune6,2000thatthesubjectpropertywouldbesoldatpublicauctionon
August8,2000.
On June 13, 2000, [Reyes] filed a protest with the BIR Appellate
Division. Assailing the scheduled auction sale, she asserted that x x x the
assessment, letter of demand[,] and the whole tax proceedings against the
estatearevoidabinitio.Sheofferedtofilethecorrespondingestatetaxreturn
andpaythecorrectamountoftaxwithoutsurcharge[or]interest.
Without acting on [Reyess] protest and offer, [the CIR] instructed the
CollectionEnforcementDivisiontoproceedwiththe
388
August8,2000auctionsale.Consequently,onJune28,2000,[Reyes]fileda
[P]etitionfor[R]eviewwiththeCourtofTaxAppeals(orCTA),docketedas
CTACaseNo.6124.
On July 17, 2000, [Reyes] filed a Motion for the Issuance of aWrit of
PreliminaryInjunctionorStatusQuoOrder,whichwasgrantedbytheCTAon
July 26, 2000. Upon [Reyess] filing of a surety bond in the amount of
P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000
ordering[theCIR]todesistandrefrainfromproceedingwiththeauctionsale
of the subject property or from issuing a [W]arrant of [D]istraint or
[G]arnishment of [B]ank [A]ccount[,] pending determination of the case
and/orunlessacontraryorderisissued.
[The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i)
thattheCTAnolongerhasjurisdictionoverthecase[,]becausetheassessment
againsttheestateisalreadyfinalandexecutoryand(ii)thatthepetitionwas
filedoutoftime.Ina[R]esolutiondatedNovember23,2000,theCTAdenied
[theCIRs]motion.
During the pendency of the [P]etition for [R]eview with the CTA,
however, the BIR issued Revenue Regulation (or RR) No. 62000 and
Revenue Memorandum Order (or RMO) No. 422000 offering certain
taxpayers with delinquent accounts and disputed assessments an opportunity
tocompromisetheirtaxliability.
OnNovember25,2000,[Reyes]filedanapplicationwiththeBIRforthe
compromisesettlement(orcompromise)oftheassessmentagainsttheestate
pursuanttoSec.204(A)oftheTaxCode,asimplementedbyRRNo.62000
andRMONo.422000.
On December 26, 2000, [Reyes] filed an ExParte Motion for
Postponement of the hearing before the CTA scheduled on January 9, 2001,
citingherpendingapplicationforcompromisewiththeBIR.Themotionwas
grantedandthehearingwasresettoFebruary6,2001.
OnJanuary29,2001,[Reyes]movedforpostponementofthehearingset
on February 6, 2001, this time on the ground that she had already paid the
compromise amount of P1,062,778.20 but was still awaiting approval of the
NationalEvaluationBoard(orNEB).TheCTAgrantedthemotionandreset
thehearingtoFebruary27,2001.
389
VOL.480,JANUARY27,2006 389
OnFebruary19,2001,[Reyes]filedaMotiontoDeclareApplicationforthe
Settlement of Disputed Assessment as a Perfected Compromise. In said
motion, she alleged that [the CIR] had not yet signed the compromise[,]
because of procedural red tape requiring the initials of four Deputy
Commissionersonrelevantdocumentsbeforethecompromiseissignedbythe
[CIR]. [Reyes] posited that the absence of the requisite initials and
signature[s]onsaiddocumentsdoesnotvitiatetheperfectedcompromise.
Commenting on the motion, [the CIR] countered that[,] without the
approval of the NEB, [Reyess] application for compromise with the BIR
cannotbeconsideredaperfectedorconsummatedcompromise.
On March 9, 2001, the CTA denied [Reyess] motion, prompting her to
fileaMotionforReconsiderationAdCautelam.Ina[R]esolutiondatedApril
10, 2001, the CTA denied the [M]otion for [R]econsideration with the
suggestion that[,] for an orderly presentation of her case and to prevent
piecemealresolutionsofdifferentissues,[Reyes]shouldfilea[S]upplemental
[P]etition for [R]eview[,] setting forth the new issue of whether there was
alreadyaperfectedcompromise.
OnMay2,2001,[Reyes]filedaSupplementalPetitionforReviewwith
theCTA,followedonJune4,2001byitsAmplificatoryArguments(forthe
SupplementalPetitionforReview),raisingthefollowingissues:
1. Whether or not an offer to compromise by the [CIR], with the

acquiescencebytheSecretaryofFinance,ofataxliabilitypendingin
court,thatwasacceptedandpaidbythetaxpayer,isaperfectedand
consummatedcompromise.
2. WhetherthiscompromiseiscoveredbytheprovisionsofSection204
oftheTaxCode(CTRP)thatrequiresapprovalbytheBIR[NEB].
Answering the Supplemental Petition, [the CIR] averred that an

applicationforcompromiseofataxliabilityunderRRNo.62000andRMO
No. 422000 requires the evaluation and approval of either the NEB or the
RegionalEvaluationBoard(orREB),asthecasemaybe.
OnJune14,2001,[Reyes]filedaMotionforJudgmentonthePleadings
themotionwasgrantedonJuly11,2001.Aftersubmissionofmemoranda,the
casewassubmittedfor[D]ecision.
390
On June 19, 2002, the CTA rendered a [D]ecision, the decretal portion of
whichpertinentlyreads:
WHEREFORE,inviewofalltheforegoing,theinstant[P]etitionfor[R]eviewis
hereby DENIED. Accordingly, [Reyes] is hereby ORDERED to PAY deficiency
estatetaxintheamountofNineteenMillionFiveHundredTwentyFourThousand
NineHundredNineand78/100(P19,524,909.78),computedasfollows:
xxxxxxxxx
[Reyes]islikewiseORDEREDtoPAY20%delinquencyinterestondeficiency
estatetaxdueofP17,934,382.13fromJanuary11,2001untilfullpaymentthereof
pursuanttoSection249(c)oftheTaxCode,asamended.
Inarrivingatitsdecision,theCTAratiocinatedthattherecanonlybea
perfected and consummated compromise of the estates tax liability[,] if the
NEBhasapproved[Reyess]applicationforcompromiseinaccordancewith
RRNo.62000,asimplementedbyRMONo.422000.
Anentthevalidityoftheassessmentnoticeandletterofdemandagainst
the estate, the CTA stated that at the time the questioned assessment notice
and letter of demand were issued, the heirs knew very well the law and the
factsonwhichthesamewerebased.Italsoobservedthatthepetitionwasnot
filed within the 30day reglementary period5 provided under Sec. 11 of Rep.
ActNo.1125andSec.228oftheTaxCode.
RulingoftheCourtofAppeals
In partly granting the Petition, the CA said that Section 228 of the
Tax Code and RR 1299 were mandatory and unequivocal in their
requirement. The assessment notice and the demand letter should
have stated the facts and the law 6
on which they were based
otherwise, they were deemed void. The appellate court held that
whileadministrativeagencies,
_______________
5Id.,pp.17&4349.Uppercaseanditalicscopied.
6Id.,pp.9&51.
391
VOL.480,JANUARY27,2006 391
liketheBIR,werenotboundbyproceduralrequirements,theywere
stillrequiredbylawandequitytoobservesubstantivedueprocess.
Thereasonbehindthisrequirement,saidtheCA,wastoensurethat
taxpayerswouldbedulyapprisedofandcouldeffectivelyprotest
7
the basis of tax assessments against them. Since the assessment
and the demand were void, the proceedings emanating from them
werelikewisevoid,andanyorderemanatingfromthemcouldnever
attainfinality.
The appellate court added, however, that it was premature to
declare as perfected and consummated the compromise of the
estates tax liability. It explained that, where the basic tax assessed
exceededP1million,orwherethesettlementofferwaslessthanthe
prescribed minimum rates, the National Evaluation Boards (NEB)
priorevaluationandapprovalweretheconditiosinequanontothe
8
perfectionandconsummationofanycompromise. Besides,theCA
pointed out, Section 204(A) of the Tax Code9 applied to all
compromises,whethergovernmentinitiatedornot. Where the law
didnotdistinguish,courtstooshouldnotdistinguish.
10
Hence,thisPetition.
TheIssues
In G.R. No. 159694, petitioner raises the following issues for the
Courtsconsideration:
_______________
7Id.,pp.10&52.
8Id.,pp.11&53.
9Id.,pp.14&56.
10This case was deemed submitted for decision onAugust 30, 2004, upon this
Courts receipt in G.R. No. 159694 of Petitioners Memorandum, signed by

AssistantSolicitorGeneralVidaG.SanVicenteandAssociateSolicitorSherriLynn
S. Cheng. Respondents Memorandum, signed by Atty. Reynoso B. Floreza, was
receivedbythisCourtonJuly28,2004.
392
I.
Whetherpetitionersassessmentagainsttheestateisvalid.
II.
Whetherrespondentcanvalidlyarguethatshe,aswellastheotherheirs,
wasnotawareofthefactsandthelawonwhichtheassessmentinquestionis
based, after she had opted to propose several compromises on the estate tax
due,andevenprematurelyactingonsuchproposalbypaying20%ofthebasic
11
estatetaxdue.
Theforegoingissuescanbesimplifiedasfollows:first,whetherthe
assessment against the estate is valid and, second, whether the
compromiseenteredintoisalsovalid.
TheCourtsRuling
ThePetitionisunmeritorious.
FirstIssue:ValidityoftheAssessmentAgainsttheEstate
12
ThesecondparagraphofSection228oftheTaxCode isclearand
mandatory.Itprovidesasfollows:
Sec.228.ProtestingofAssessment.
xxxxxxxxx
The taxpayers shall be informed in writing of the law and the facts on
whichtheassessmentismade:otherwise,theassessmentshallbevoid.
_______________
11 G.R. No. 159694. Petitioners Memorandum, pp. 1213 Rollo, pp. 259260.
Originalinuppercase.
12TheTaxCodereferredtoisRepublicAct(RA)No.8424,asamended.
393
VOL.480,JANUARY27,2006 393
In the present case, Reyes was not informed in writing of the law
andthefactsonwhichtheassessmentofestatetaxeshadbeenmade.
ShewasmerelynotifiedofthefindingsbytheCIR,whohadsimply
13
relied upon the provisions of former Section 229 prior to its
amendment by RepublicAct (RA) No. 8424, otherwise known as
theTaxReformActof1997.
First,RA8424hasalreadyamendedtheprovisionofSection229
on protesting an assessment. The old requirement of merely
notifyingthetaxpayeroftheCIRsfindingswaschangedin1998to
informingthetaxpayerofnotonlythelaw,butalsoofthefactson
which an assessment would be made otherwise, the assessment
itselfwouldbeinvalid.
ItwasonFebruary12,1998,thatapreliminaryassessmentnotice
wasissuedagainsttheestate.OnApril22,1998,thefinalestatetax
assessmentnotice,aswellasdemand
_______________
13TheNationalInternalRevenueCodeof1977provides:
SECTION229.Protestingofassessment.WhentheCommissionerofInternalRevenue
or his duly authorized representative finds that proper taxes should be assessed, he shall
firstnotifythetaxpayerofhisfindings.Withinaperiodtobeprescribedbyimplementing
regulations,thetaxpayershallberequiredtorespondtosaidnotice.Ifthetaxpayerfailsto
respond,theCommissionershallissueanassessmentbasedonhisfindings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigation in such form and manner as may be prescribed by
implementingregulationwithinthirty(30)daysfromreceiptoftheassessmentotherwise,
theassessmentshallbecomefinalandunappealable.
If the protest is denied in whole or in part, the individual, association or corporation
adversely affected by the decision on the protest may appeal to the Court ofTaxAppeals
within thirty (30) days from receipt of the said decision otherwise, the decision shall
becomefinal,executoryanddemandable.
394
letter,wasalsoissued.Duringthosedates,RA8424wasalreadyin
effect. The notice required under the old law was no longer
sufficientunderthenewlaw.
To be simply informed in writing of the investigation being
conducted and of the recommendation for the assessment of the
estate taxes due is nothing but a perfunctory discharge of the tax
functionofcorrectlyassessingataxpayer.Theactcannotbetakento
mean that Reyes already knew the law and the facts on which the
assessmentwasbased.Itdoesnotatallconformtothecompulsory
requirement under Section 228. Moreover, the Letter of Authority
receivedbyrespondentonMarch14,1997wasforthesheerpurpose
ofinvestigationandwasnoteventherequisitenoticeunderthelaw.
TheprocedureforprotestinganassessmentundertheTaxCode
is found in Chapter III of Title VIII, which deals with remedies.
Being procedural in nature, can its provision then be applied
retroactively?Theanswerisyes.
The general rule is that statutes are prospective. However,
statutes that are remedial, or that do not create new or take away
vested rights, do not fall under14
the general rule against the
retroactiveoperationofstatutes. Clearly, Section228 providesfor
theprocedureincaseanassessmentisprotested.Theprovisiondoes
notcreatenewortakeawayvestedrights.Inbothinstances,itcan
surely be applied retroactively. Moreover, RA 8424 does not state,
eitherexpresslyorbynecessaryimplication,thatpendingactionsare
excepted from the operation of Section 228, or that applying it to

pendingproceedingswouldimpairvestedrights.
Second, the nonretroactive application of Revenue Regulation
(RR) No. 1299 is of no moment, considering that it merely
implementsthelaw.
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14Agpalo,StatutoryConstruction(4thed.,1998),p.373.
395
VOL.480,JANUARY27,2006 395
A tax regulation is promulgated by the 15

finance secretary to
implementtheprovisionsoftheTaxCode. Whileitisdesirablefor
the government authority or administrative agency to have one
immediately issued after a law is passed, the absence of the
regulation does not automatically mean that the law itself would
becomeinoperative.
At the time the preassessment notice was issued to Reyes, RA
8424alreadystatedthatthetaxpayermustbeinformedofboththe
law and facts on which the assessment was based. Thus, the CIR
should have required the assessment officers of the Bureau of
InternalRevenue(BIR)tofollowtheclearmandateofthenewlaw.
The old regulation governing the issuance of estate tax assessment
noticesranafouloftherulethattaxregulationsoldastheywere 16
shouldbeinharmonywith,andnotsupplantormodify,thelaw.
It may be argued that the Tax Code provisions are not self
executory.Itwouldbetoowideastretchoftheimagination,though,
to still issue a regulation that would simply require tax officials to
inform the taxpayer, in any manner, of the law and the facts on
whichanassessmentwasbased.Thatrequirementisneitherdifficult
tomakenoritsdesiredresultshardtoachieve.
Moreover,anadministrativeruleinterpretiveofastatute,andnot
declarativeofcertainrightsandcorrespondingobligations,isgiven 17
retroactiveeffectasofthedateoftheeffectivityofthestatute. RR
1299 is one such rule. Being interpretive of the provisions of the
Tax Code, even if it was issued only on September 6, 1999, this
regulationwastoretroactto
_______________
15244oftheTaxCode.
16Aban,LawofBasicTaxationinthePhilippines(2001),p.149.
17 Agpalo, Statutory Construction, id., p. 375. See also Adamson Ozanom

Educational Institution, Inc. v. Adamson University Faculty and Employees
Association,179SCRA279,November9,1989.
396
January 1, 1998a date prior to the issuance of the preliminary

assessmentnoticeanddemandletter.
Third,neitherSection229norRR1285canprevailoverSection
228oftheTaxCode.
No doubt, Section 228 has replaced Section 229.The provision
onprotestinganassessmenthasbeenamended.Furthermore,incase
of discrepancy between the law as amended and its 18
implementing
but old regulation, the former necessarily prevails. Thus, between
Section228oftheTaxCodeandthepertinentprovisionsofRR12
85,thelattercannotstandbecauseitcannotgobeyondtheprovision
ofthelaw.Thelawmuststillbefollowed,eventhoughtheexisting
tax regulation at that time provided for a different procedure. The
regulationthensimplyprovidedthatnoticebesenttotherespondent
in the form prescribed, and that no consequence would ensue for
failuretocomplywiththatform.
Fourth,petitionerviolatedthecardinalruleinadministrativelaw
that the taxpayer be accorded due process. Not only was the law
here disregarded, but no valid notice was sent, either. A void
assessmentbearsnovalidfruit.
Thelawimposesasubstantive,notmerelyaformal,requirement.
Toproceedheedlesslywithtaxcollectionwithoutfirstestablishinga
valid assessment is evidently violative of the cardinal principle in
administrative investigations: that taxpayers should 19
be able to
present their case and adduce supporting evidence. In the instant
case,respondenthasnotbeeninformedofthebasisoftheestatetax
liability. Without complying with the unequivocal mandate of first
informing the taxpayer of the governments claim, there can be no
deprivationofproperty,becausenoeffectiveprotestcanbe
_______________
18PhilippinePetroleumCorp.v.MunicipalityofPililla,Rizal,198SCRA82,88,
June 3, 1991, citing Shell Philippines, Inc. v. Central Bank of the Philippines,162
SCRA628,634,June27,1988.
19AngTibayv.CourtofIndustrialRelations,69Phil.635,February27,1940.
397
VOL.480,JANUARY27,2006 397
20
made. The haphazard shot at slapping an assessment, supposedly
basedonestatetaxationsgeneralprovisionsthatareexpectedtobe
knownbythetaxpayer,isutterchicanery.
Even a cursory review of the preliminary assessment notice, as
wellasthedemandlettersent,revealsthelackofbasisfornotto
mention the insufficiency ofthe gross figures and details of the
itemizeddeductionsindicatedinthenoticeandtheletter.ThisCourt
cannotcountenanceanassessmentbasedonestimatesthatappearto
have been arbitrarily or capriciously arrived at.Although taxes are
the lifeblood of the government, their assessment and collection
should be made in accordance with law as21any arbitrariness will
negatetheveryreasonforgovernmentitself.
Fifth, the rule against estoppel does not apply. Although the
governmentcannotbeestoppedbythenegligenceoromissionofits
agents, the obligatory provision on protesting a tax assessment
cannotberenderednugatorybyamereactoftheCIR.
22
Tax laws are civil in nature. Under our Civil Code, acts
executed against the mandatory provisions of law are void,
23
except
whenthelawitselfauthorizesthevalidityofthoseacts. Failureto
complywithSection228doesnotonlyrendertheassessmentvoid,
but also finds no validation in any provision in the Tax Code. We
cannot condone errant or enterprising tax officials, as they are
expectedtobevigilantandlawabiding.
_______________
20 See Ang Ping v. Court of Appeals, 369 Phil. 607 310 SCRA 343, July 15,
1999.
21MarcosIIv.CourtofAppeals,273SCRA47,57,June5,1997,perTorresJr.,
J.
22Aban,LawofBasicTaxationinthePhilippines,id.,p.143.
23Art.5oftheCivilCode.
398
SecondIssue:ValidityofCompromise
ItwouldbeprematureforthisCourttodeclarethatthecompromise
on the estate tax liability has been perfected and consummated,
consideringtheearlierdeterminationthattheassessmentagainstthe
estatewasvoid.Nothinghasbeensettledorfinalized.UnderSection
204(A)oftheTaxCode,wherethebasictaxinvolvedexceedsone
million pesos or the settlement offered is less than the prescribed
minimumrates,thecompromiseshallbesubjecttotheapprovalof
theNEBcomposedofthepetitionerandfourdeputycommissioners.
Finally, as correctly held by the appellate court, this provision
applies to all compromises, whether governmentinitiated or not.
Ubilexnondistinguit,necnosdistingueredebemos.Wherethelaw
doesnotdistinguish,weshouldnotdistinguish.
WHEREFORE,thePetitionisherebyDENIEDandtheassailed
DecisionAFFIRMED.Nopronouncementastocosts.
SOORDERED.
YnaresSantiago,AustriaMartinez,Callejo,Sr.andChico
Nazario,JJ.,concur.
Petitiondenied,assaileddecisionaffirmed.
Note.A taxpayer only has thirty (30) days within which to

protest an assessment. (Protectors Services, Inc. vs. Court of
Appeals,330SCRA404[2000])
o0o
399
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CIR Vs Reyes

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CIR Vs Reyes

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6/27/2016 SUPREME COURT REPORTS ANNOTATED VOLUME 480

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs.

AZUCENA T. REYES, petitioner, vs. COMMISSIONER OF

PETITIONS for review on certiorari of a decision of the Court of

Under the present provisions of the Tax Code and pursuant to

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

On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292

3 Eighth Division. Penned by Justice Edgardo P. Cruz, with the concurrence of

1. Whether or not an offer to compromise by the [CIR], with the

Answering the Supplemental Petition, [the CIR] averred that an

Courts receipt in G.R. No. 159694 of Petitioners Memorandum, signed by

excepted from the operation of Section 228, or that applying it to

A tax regulation is promulgated by the 15

17 Agpalo, Statutory Construction, id., p. 375. See also Adamson Ozanom

January 1, 1998a date prior to the issuance of the preliminary

Note.A taxpayer only has thirty (30) days within which to

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