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SECOND DIVISION

[G.R. No. 120880. June 5, 1997]


FERDINAND R. MARCOS II, petitioner, vs. COURT OF APPEALS, THE
COMMISSIONER OF THE BUREAU OF INTERNAL REVENUE and HERMINIA
D. DE GUZMAN, respondents.

DECISION
TORRES, JR., J.:

In this Petition for Review on Certiorari, Government action is once again assailed as
precipitate and unfair, suffering the basic and oftly implored requisites of due process of
law.Specifically, the petition assails the Decision[1] of the Court of Appeals dated
November 29, 1994 in CA-G.R. SP No. 31363, where the said court held:

"In view of all the foregoing, we rule that the deficiency income tax assessments and
estate tax assessment, are already final and (u)nappealable -and- the subsequent levy
of real properties is a tax remedy resorted to by the government, sanctioned by Section
213 and 218 of the National Internal Revenue Code. This summary tax remedy is distinct
and separate from the other tax remedies (such as Judicial Civil actions and Criminal
actions), and is not affected or precluded by the pendency of any other tax remedies
instituted by the government.

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the


petition for certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to costs.

SO ORDERED."

More than seven years since the demise of the late Ferdinand E. Marcos, the former
President of the Republic of the Philippines, the matter of the settlement of his estate,
and its dues to the government in estate taxes, are still unresolved, the latter issue being
now before this Court for resolution. Specifically, petitioner Ferdinand R. Marcos II, the
eldest son of the decedent, questions the actuations of the respondent Commissioner of
Internal Revenue in assessing, and collecting through the summary remedy of Levy on
Real Properties, estate and income tax delinquencies upon the estate and properties of
his father, despite the pendency of the proceedings on probate of the will of the late
president, which is docketed as Sp. Proc. No. 10279 in the Regional Trial Court of Pasig,
Branch 156.
Petitioner had filed with the respondent Court of Appeals a Petition for Certiorari and
Prohibition with an application for writ of preliminary injunction and/or temporary
restraining order on June 28, 1993, seeking to -

I. Annul and set aside the Notices of Levy on real property dated February 22, 1993 and
May 20, 1993, issued by respondent Commissioner of Internal Revenue;
II. Annul and set aside the Notices of Sale dated May 26, 1993;

III. Enjoin the Head Revenue Executive Assistant Director II (Collection Service), from
proceeding with the Auction of the real properties covered by Notices of Sale.

After the parties had pleaded their case, the Court of Appeals rendered its
Decision[2] on November 29, 1994, ruling that the deficiency assessments for estate and
income tax made upon the petitioner and the estate of the deceased President Marcos
have already become final and unappealable, and may thus be enforced by the summary
remedy of levying upon the properties of the late President, as was done by the
respondent Commissioner of Internal Revenue.

"WHEREFORE, premises considered judgment is hereby rendered DISMISSING the


petition for Certiorari with prayer for Restraining Order and Injunction.

No pronouncements as to cost.

SO ORDERED."

Unperturbed, petitioner is now before us assailing the validity of the appellate court's
decision, assigning the following as errors:
A. RESPONDENT COURT MANIFESTLY ERRED IN RULING THAT THE
SUMMARY TAX REMEDIES RESORTED TO BY THE GOVERNMENT ARE NOT
AFFECTED AND PRECLUDED BY THE PENDENCY OF THE SPECIAL PROCEEDING
FOR THE ALLOWANCE OF THE LATE PRESIDENT'S ALLEGED WILL. TO THE
CONTRARY, THIS PROBATE PROCEEDING PRECISELY PLACED ALL PROPERTIES
WHICH FORM PART OF THE LATE PRESIDENT'S ESTATE IN CUSTODIA LEGIS OF
THE PROBATE COURT TO THE EXCLUSION OF ALL OTHER COURTS AND
ADMINISTRATIVE AGENCIES.
B. RESPONDENT COURT ARBITRARILY ERRED IN SWEEPINGLY DECIDING
THAT SINCE THE TAX ASSESSMENTS OF PETITIONER AND HIS PARENTS HAD
ALREADY BECOME FINAL AND UNAPPEALABLE, THERE WAS NO NEED TO GO
INTO THE MERITS OF THE GROUNDS CITED IN THE PETITION. INDEPENDENT OF
WHETHER THE TAX ASSESSMENTS HAD ALREADY BECOME FINAL, HOWEVER,
PETITIONER HAS THE RIGHT TO QUESTION THE UNLAWFUL MANNER AND
METHOD IN WHICH TAX COLLECTION IS SOUGHT TO BE ENFORCED BY
RESPONDENTS COMMISSIONER AND DE GUZMAN. THUS, RESPONDENT COURT
SHOULD HAVE FAVORABLY CONSIDERED THE MERITS OF THE FOLLOWING
GROUNDS IN THE PETITION:

(1) The Notices of Levy on Real Property were issued beyond the period provided in
the Revenue Memorandum Circular No. 38-68.

(2) [a] The numerous pending court cases questioning the late President's ownership
or interests in several properties (both personal and real) make the total value of his
estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents assessment of the estate tax and their
issuance of the Notices of Levy and Sale are premature, confiscatory and oppressive.

[b] Petitioner, as one of the late President's compulsory heirs, was never notified,
much less served with copies of the Notices of Levy, contrary to the mandate of
Section 213 of the NIRC. As such, petitioner was never given an opportunity to
contest the Notices in violation of his right to due process of law.

C. ON ACCOUNT OF THE CLEAR MERIT OF THE PETITION, RESPONDENT


COURT MANIFESTLY ERRED IN RULING THAT IT HAD NO POWER TO GRANT
INJUNCTIVE RELIEF TO PETITIONER. SECTION 219 OF THE NIRC
NOTWITHSTANDING, COURTS POSSESS THE POWER TO ISSUE A WRIT OF
PRELIMINARY INJUNCTION TO RESTRAIN RESPONDENTS COMMISSIONER'S
AND DE GUZMAN'S ARBITRARY METHOD OF COLLECTING THE ALLEGED
DEFICIENCY ESTATE AND INCOME TAXES BY MEANS OF LEVY.
The facts as found by the appellate court are undisputed, and are hereby adopted:

"On September 29, 1989, former President Ferdinand Marcos died in Honolulu, Hawaii,
USA.

On June 27, 1990, a Special Tax Audit Team was created to conduct investigations and
examinations of the tax liabilities and obligations of the late president, as well as that of
his family, associates and "cronies". Said audit team concluded its investigation with a
Memorandum dated July 26, 1991. The investigation disclosed that the Marcoses failed
to file a written notice of the death of the decedent, an estate tax returns [sic], as well as
several income tax returns covering the years 1982 to 1986, -all in violation of the National
Internal Revenue Code (NIRC).

Subsequently, criminal charges were filed against Mrs. Imelda R. Marcos before the
Regional Trial of Quezon City for violations of Sections 82, 83 and 84 (has penalized
under Sections 253 and 254 in relation to Section 252- a & b) of the National Internal
Revenue Code (NIRC).

The Commissioner of Internal Revenue thereby caused the preparation and filing of the
Estate Tax Return for the estate of the late president, the Income Tax Returns of the
Spouses Marcos for the years 1985 to 1986, and the Income Tax Returns of
petitioner Ferdinand 'Bongbong' Marcos II for the years 1982 to 1985.

On July 26, 1991, the BIR issued the following: (1) Deficiency estate tax assessment no.
FAC-2-89-91-002464 (against the estate of the late president Ferdinand Marcos in the
amount of P23,293,607,638.00 Pesos); (2) Deficiency income tax assessment no. FAC-
1-85-91-002452 and Deficiency income tax assessment no. FAC-1-86-91-002451
(against the Spouses Ferdinand and Imelda Marcos in the amounts of P149,551.70 and
P184,009,737.40 representing deficiency income tax for the years 1985 and 1986); (3)
Deficiency income tax assessment nos. FAC-1-82-91-002460 to FAC-1-85-91-002463
(against petitioner Ferdinand 'Bongbong' Marcos II in the amounts of P258.70 pesos;
P9,386.40 Pesos; P4,388.30 Pesos; and P6,376.60 Pesos representing his deficiency
income taxes for the years 1982 to 1985).

The Commissioner of Internal Revenue avers that copies of the deficiency estate and
income tax assessments were all personally and constructively served on August 26,
1991 and September 12, 1991 upon Mrs. Imelda Marcos (through her caretaker Mr.
Martinez) at her last known address at No. 204 Ortega St., San Juan, M.M. (Annexes 'D'
and 'E' of the Petition). Likewise, copies of the deficiency tax assessments issued against
petitioner Ferdinand 'Bongbong' Marcos II were also personally and constructively served
upon him (through his caretaker) on September 12, 1991, at his last known address at
Don Mariano Marcos St. corner P. Guevarra St., San Juan, M.M. (Annexes 'J' and 'J-1'
of the Petition). Thereafter, Formal Assessment notices were served on October 20,
1992, upon Mrs. Marcos c/o petitioner, at his office, House of Representatives, Batasan
Pambansa, Quezon City. Moreover, a notice to Taxpayer inviting Mrs. Marcos (or her duly
authorized representative or counsel), to a conference, was furnished the counsel of Mrs.
Marcos, Dean Antonio Coronel - but to no avail.

The deficiency tax assessments were not protested administratively, by Mrs. Marcos and
the other heirs of the late president, within 30 days from service of said assessments.

On February 22, 1993, the BIR Commissioner issued twenty-two notices of levy on real
property against certain parcels of land owned by the Marcoses - to satisfy the alleged
estate tax and deficiency income taxes of Spouses Marcos.

On May 20, 1993, four more Notices of Levy on real property were issued for the purpose
of satisfying the deficiency income taxes.

On May 26, 1993, additional four (4) notices of Levy on real property were again
issued. The foregoing tax remedies were resorted to pursuant to Sections 205 and 213
of the National Internal Revenue Code (NIRC).

In response to a letter dated March 12, 1993 sent by Atty. Loreto Ata (counsel of herein
petitioner) calling the attention of the BIR and requesting that they be duly notified of any
action taken by the BIR affecting the interest of their client Ferdinand 'Bongbong Marcos
II, as well as the interest of the late president - copies of the aforesaid notices were served
on April 7, 1993 and on June 10, 1993, upon Mrs. Imelda Marcos, the petitioner, and their
counsel of record, 'De Borja, Medialdea, Ata, Bello, Guevarra and Serapio Law Office'.

Notices of sale at public auction were posted on May 26, 1993, at the lobby of the City
Hall of Tacloban City. The public auction for the sale of the eleven (11) parcels of land
took place on July 5, 1993.There being no bidder, the lots were declared forfeited in favor
of the government.
On June 25, 1993, petitioner Ferdinand 'Bongbong' Marcos II filed the instant petition for
certiorari and prohibition under Rule 65 of the Rules of Court, with prayer for temporary
restraining order and/or writ of preliminary injunction."

It has been repeatedly observed, and not without merit, that the enforcement of tax
laws and the collection of taxes, is of paramount importance for the sustenance of
government.Taxes are the lifeblood of the government and 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 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."[3]
Whether or not the proper avenues of assessment and collection of the said tax
obligations were taken by the respondent Bureau is now the subject of the Court's inquiry.
Petitioner posits that notices of levy, notices of sale, and subsequent sale of
properties of the late President Marcos effected by the BIR are null and void for
disregarding the established procedure for the enforcement of taxes due upon the estate
of the deceased. The case of Domingo vs. Garlitos[4] is specifically cited to bolster the
argument that "the ordinary procedure by which to settle claims of indebtedness against
the estate of a deceased, person, as in an inheritance (estate) tax, is for the claimant to
present a claim before the probate court so that said court may order the administrator to
pay the amount therefor." This remedy is allegedly, exclusive, and cannot be effected
through any other means.
Petitioner goes further, submitting that the probate court is not precluded from
denying a request by the government for the immediate payment of taxes, and should
order the payment of the same only within the period fixed by the probate court for the
payment of all the debts of the decedent. In this regard, petitioner cites the case of
Collector of Internal Revenue vs. The Administratrix of the Estate of Echarri (67 Phil 502),
where it was held that:

"The case of Pineda vs. Court of First Instance of Tayabas and Collector of Internal
Revenue (52 Phil 803), relied upon by the petitioner-appellant is good authority on the
proposition that the court having control over the administration proceedings has
jurisdiction to entertain the claim presented by the government for taxes due and to order
the administrator to pay the tax should it find that the assessment was proper, and that
the tax was legal, due and collectible. And the rule laid down in that case must be
understood in relation to the case of Collector of Customs vs. Haygood, supra., as to the
procedure to be followed in a given case by the government to effectuate the collection
of the tax. Categorically stated, where during the pendency of judicial administration over
the estate of a deceased person a claim for taxes is presented by the government, the
court has the authority to order payment by the administrator; but, in the same way that it
has authority to order payment or satisfaction, it also has the negative authority to deny
the same. While there are cases where courts are required to perform certain duties
mandatory and ministerial in character, the function of the court in a case of the present
character is not one of them; and here, the court cannot be an organism endowed
with latitude of judgment in one direction, and converted into a mere mechanical
contrivance in another direction."

On the other hand, it is argued by the BIR, that the state's authority to collect internal
revenue taxes is paramount. Thus, the pendency of probate proceedings over the estate
of the deceased does not preclude the assessment and collection, through summary
remedies, of estate taxes over the same. According to the respondent, claims for payment
of estate and income taxes due and assessed after the death of the decedent need not
be presented in the form of a claim against the estate. These can and should be paid
immediately. The probate court is not the government agency to decide whether an estate
is liable for payment of estate of income taxes. Well-settled is the rule that the probate
court is a court with special and limited jurisdiction.
Concededly, the authority of the Regional Trial Court, sitting, albeit with limited
jurisdiction, as a probate court over estate of deceased individual, is not a trifling
thing. The court's jurisdiction, once invoked, and made effective, cannot be treated with
indifference nor should it be ignored with impunity by the very parties invoking its
authority.
In testament to this, it has been held that it is within the jurisdiction of the probate
court to approve the sale of properties of a deceased person by his prospective heirs
before final adjudication;[5] to determine who are the heirs of the decedent;[6] the
recognition of a natural child;[7] the status of a woman claiming to be the legal wife of the
decedent;[8] the legality of disinheritance of an heir by the testator;[9] and to pass upon the
validity of a waiver of hereditary rights.[10]
The pivotal question the court is tasked to resolve refers to the authority of the Bureau
of Internal Revenue to collect by the summary remedy of levying upon, and sale of real
properties of the decedent, estate tax deficiencies, without the cognition and authority of
the court sitting in probate over the supposed will of the deceased.
The nature of the process of estate tax collection has been described as follows:

"Strictly speaking, the assessment of an inheritance tax does not directly involve the
administration of a decedent's estate, although it may be viewed as an incident to the
complete settlement of an estate, and, under some statutes, it is made the duty of the
probate court to make the amount of the inheritance tax a part of the final decree of
distribution of the estate. It is not against the property of decedent, nor is it a claim against
the estate as such, but it is against the interest or property right which the heir, legatee,
devisee, etc., has in the property formerly held by decedent. Further, under some
statutes, it has been held that it is not a suit or controversy between the parties, nor is it
an adversary proceeding between the state and the person who owes the tax on the
inheritance. However, under other statutes it has been held that the hearing and
determination of the cash value of the assets and the determination of the tax are
adversary proceedings. The proceeding has been held to be necessarily a proceeding in
rem.[11]
In the Philippine experience, the enforcement and collection of estate tax, is executive
in character, as the legislature has seen it fit to ascribe this task to the Bureau of Internal
Revenue. Section 3 of the National Internal Revenue Code attests to this:

"Sec. 3. Powers and duties of the Bureau.-The powers and duties of the Bureau of Internal
Revenue shall comprehend the assessment and collection of all national internal revenue
taxes, fees, and charges, and the enforcement of all forfeitures, penalties, and fines
connected therewith, including the execution of judgments in all cases decided in its favor
by the Court of Tax Appeals and the ordinary courts. Said Bureau shall also give effect to
and administer the supervisory and police power conferred to it by this Code or other
laws."

Thus, it was in Vera vs. Fernandez[12] that the court recognized the liberal treatment
of claims for taxes charged against the estate of the decedent. Such taxes, we said, were
exempted from the application of the statute of non-claims, and this is justified by the
necessity of government funding, immortalized in the maxim that taxes are the lifeblood
of the government.Vectigalia nervi sunt rei publicae - taxes are the sinews of the state.

"Taxes assessed against the estate of a deceased person, after administration is opened,
need not be submitted to the committee on claims in the ordinary course of
administration. In the exercise of its control over the administrator, the court may direct
the payment of such taxes upon motion showing that the taxes have been assessed
against the estate."

Such liberal treatment of internal revenue taxes in the probate proceedings extends
so far, even to allowing the enforcement of tax obligations against the heirs of the
decedent, even after distribution of the estate's properties.

"Claims for taxes, whether assessed before or after the death of the deceased, can be
collected from the heirs even after the distribution of the properties of the decedent. They
are exempted from the application of the statute of non-claims. The heirs shall be liable
therefor, in proportion to their share in the inheritance."[13]

"Thus, the Government has two ways of collecting the taxes in question. One, by going
after all the heirs and collecting from each one of them the amount of the tax proportionate
to the inheritance received.Another remedy, pursuant to the lien created by Section 315
of the Tax Code upon all property and rights to property belong to the taxpayer for unpaid
income tax, is by subjecting said property of the estate which is in the hands of an heir or
transferee to the payment of the tax due the estate. (Commissioner of Internal Revenue
vs. Pineda, 21 SCRA 105, September 15, 1967.)

From the foregoing, it is discernible that the approval of the court, sitting in probate,
or as a settlement tribunal over the deceased is not a mandatory requirement in the
collection of estate taxes. It cannot therefore be argued that the Tax Bureau erred in
proceeding with the levying and sale of the properties allegedly owned by the late
President, on the ground that it was required to seek first the probate court's
sanction. There is nothing in the Tax Code, and in the pertinent remedial laws that implies
the necessity of the probate or estate settlement court's approval of the state's claim for
estate taxes, before the same can be enforced and collected.
On the contrary, under Section 87 of the NIRC, it is the probate or settlement court
which is bidden not to authorize the executor or judicial administrator of the decedent's
estate to deliver any distributive share to any party interested in the estate, unless it is
shown a Certification by the Commissioner of Internal Revenue that the estate taxes have
been paid. This provision disproves the petitioner's contention that it is the probate court
which approves the assessment and collection of the estate tax.
If there is any issue as to the validity of the BIR's decision to assess the estate taxes,
this should have been pursued through the proper administrative and judicial avenues
provided for by law.
Section 229 of the NIRC tells us how:

"Sec. 229. Protesting of assessment.-When the Commissioner of Internal Revenue or his


duly authorized representative finds that proper taxes should be assessed, he shall first
notify the taxpayer of his findings. Within a period to be prescribed by implementing
regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails
to respond, the Commissioner shall issue an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration


or reinvestigation in such form and manner as may be prescribed by implementing
regulations within (30) days from receipt of the assessment; otherwise, the assessment
shall become final and unappealable.

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 of Tax Appeals
within thirty (30) days from receipt of said decision; otherwise, the decision shall become
final, executory and demandable. (As inserted by P.D. 1773)"

Apart from failing to file the required estate tax return within the time required for the
filing of the same, petitioner, and the other heirs never questioned the assessments
served upon them, allowing the same to lapse into finality, and prompting the BIR to
collect the said taxes by levying upon the properties left by President Marcos.
Petitioner submits, however, that "while the assessment of taxes may have been
validly undertaken by the Government, collection thereof may have been done in violation
of the law.Thus, the manner and method in which the latter is enforced may be questioned
separately, and irrespective of the finality of the former, because the Government does
not have the unbridled discretion to enforce collection without regard to the clear provision
of law."[14]
Petitioner specifically points out that applying Memorandum Circular No. 38-68,
implementing Sections 318 and 324 of the old tax code (Republic Act 5203), the BIR's
Notices of Levy on the Marcos properties, were issued beyond the allowed period, and
are therefore null and void:
"...the Notices of Levy on Real Property (Annexes 0 to NN of Annex C of this Petition) in
satisfaction of said assessments were still issued by respondents well beyond the period
mandated in Revenue Memorandum Circular No. 38-68. These Notices of Levy were
issued only on 22 February 1993 and 20 May 1993 when at least seventeen (17) months
had already lapsed from the last service of tax assessment on 12 September 1991. As
no notices of distraint of personal property were first issued by respondents, the latter
should have complied with Revenue Memorandum Circular No. 38-68 and issued these
Notices of Levy not earlier than three (3) months nor later than six (6) months from 12
September 1991. In accordance with the Circular, respondents only had until 12 March
1992 (the last day of the sixth month) within which to issue these Notices of Levy. The
Notices of Levy, having been issued beyond the period allowed by law, are thus void and
of no effect."[15]

We hold otherwise. The Notices of Levy upon real property were issued within the
prescriptive period and in accordance with the provisions of the present Tax Code. The
deficiency tax assessment, having already become final, executory, and demandable, the
same can now be collected through the summary remedy of distraint or levy pursuant to
Section 205 of the NIRC.
The applicable provision in regard to the prescriptive period for the assessment and
collection of tax deficiency in this instance is Article 223 of the NIRC, which pertinently
provides:

"Sec. 223. Exceptions as to a period of limitation of assessment and collection of taxes.-


(a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file
a return, the tax may be assessed, or a proceeding in court for the collection of such tax
may be begun without assessment, at any time within ten (10) years after the discovery
of the falsity, fraud, or omission: Provided, That, in a fraud assessment which has become
final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or
criminal action for the collection thereof.

xxx

(c) Any internal revenue tax which has been assessed within the period of limitation above
prescribed, may be collected by distraint or levy or by a proceeding in court within three
years following the assessment of the tax.

xxx
The omission to file an estate tax return, and the subsequent failure to contest or
appeal the assessment made by the BIR is fatal to the petitioner's cause, as under the
above-cited provision, in case of failure to file a return, the tax may be assessed at any
time within ten years after the omission, and any tax so assessed may be collected by
levy upon real property within three years following the assessment of the tax. Since the
estate tax assessment had become final and unappealable by the petitioner's default as
regards protesting the validity of the said assessment, there is now no reason why the
BIR cannot continue with the collection of the said tax. Any objection against the
assessment should have been pursued following the avenue paved in Section 229 of the
NIRC on protests on assessments of internal revenue taxes.
Petitioner further argues that "the numerous pending court cases questioning the late
president's ownership or interests in several properties (both real and personal) make the
total value of his estate, and the consequent estate tax due, incapable of exact pecuniary
determination at this time. Thus, respondents' assessment of the estate tax and their
issuance of the Notices of Levy and sale are premature and oppressive." He points out
the pendency of Sandiganbayan Civil Case Nos. 0001-0034 and 0141, which were filed
by the government to question the ownership and interests of the late President in real
and personal properties located within and outside the Philippines. Petitioner, however,
omits to allege whether the properties levied upon by the BIR in the collection of estate
taxes upon the decedent's estate were among those involved in the said cases pending
in the Sandiganbayan. Indeed, the court is at a loss as to how these cases are relevant
to the matter at issue. The mere fact that the decedent has pending cases involving ill-
gotten wealth does not affect the enforcement of tax assessments over the properties
indubitably included in his estate.
Petitioner also expresses his reservation as to the propriety of the BIR's total
assessment of P23,292,607,638.00, stating that this amount deviates from the findings
of the Department of Justice's Panel of Prosecutors as per its resolution of 20 September
1991. Allegedly, this is clear evidence of the uncertainty on the part of the Government
as to the total value of the estate of the late President.
This is, to our mind, the petitioner's last ditch effort to assail the assessment of estate
tax which had already become final and unappealable.
It is not the Department of Justice which is the government agency tasked to
determine the amount of taxes due upon the subject estate, but the Bureau of Internal
Revenue[16] whose determinations and assessments are presumed correct and made in
good faith.[17] The taxpayer has the duty of proving otherwise. In the absence of proof of
any irregularities in the performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is prima facie valid and lawful where
it does not appear to have been arrived at arbitrarily or capriciously. The burden of proof
is upon the complaining party to show clearly that the assessment is erroneous. Failure
to present proof of error in the assessment will justify the judicial affirmance of said
assessment.[18] In this instance, petitioner has not pointed out one single provision in the
Memorandum of the Special Audit Team which gave rise to the questioned assessment,
which bears a trace of falsity. Indeed, the petitioner's attack on the assessment bears
mainly on the alleged improbable and unconscionable amount of the taxes charged. But
mere rhetoric cannot supply the basis for the charge of impropriety of the assessments
made.
Moreover, these objections to the assessments should have been raised, considering
the ample remedies afforded the taxpayer by the Tax Code, with the Bureau of Internal
Revenue and the Court of Tax Appeals, as described earlier, and cannot be raised now
via Petition for Certiorari, under the pretext of grave abuse of discretion. The course of
action taken by the petitioner reflects his disregard or even repugnance of the established
institutions for governance in the scheme of a well-ordered society. The subject tax
assessments having become final, executory and enforceable, the same can no longer
be contested by means of a disguised protest. In the main, Certiorari may not be used as
a substitute for a lost appeal or remedy.[19]This judicial policy becomes more pronounced
in view of the absence of sufficient attack against the actuations of government.
On the matter of sufficiency of service of Notices of Assessment to the petitioner, we
find the respondent appellate court's pronouncements sound and resilient to petitioner's
attacks.

"Anent grounds 3(b) and (B) - both alleging/claiming lack of notice - We find, after
considering the facts and circumstances, as well as evidences, that there was sufficient,
constructive and/or actual notice of assessments, levy and sale, sent to herein petitioner
Ferdinand "Bongbong" Marcos as well as to his mother Mrs. Imelda Marcos.

Even if we are to rule out the notices of assessments personally given to the caretaker of
Mrs. Marcos at the latter's last known address, on August 26, 1991 and September 12,
1991, as well as the notices of assessment personally given to the caretaker of petitioner
also at his last known address on September 12, 1991 - the subsequent notices given
thereafter could no longer be ignored as they were sent at a time when petitioner was
already here in the Philippines, and at a place where said notices would surely be called
to petitioner's attention, and received by responsible persons of sufficient age and
discretion.

Thus, on October 20, 1992, formal assessment notices were served upon Mrs. Marcos
c/o the petitioner, at his office, House of Representatives, Batasan Pambansa, Q.C.
(Annexes "A", "A-1", "A-2", "A-3"; pp. 207-210, Comment/Memorandum of
OSG). Moreover, a notice to taxpayer dated October 8, 1992 inviting Mrs. Marcos to a
conference relative to her tax liabilities, was furnished the counsel of Mrs. Marcos - Dean
Antonio Coronel (Annex "B", p. 211, ibid). Thereafter, copies of Notices were also served
upon Mrs. Imelda Marcos, the petitioner and their counsel "De Borja, Medialdea, Ata,
Bello, Guevarra and Serapio Law Office", on April 7, 1993 and June 10, 1993. Despite all
of these Notices, petitioner never lifted a finger to protest the assessments, (upon which
the Levy and sale of properties were based), nor appealed the same to the Court of Tax
Appeals.

There being sufficient service of Notices to herein petitioner (and his mother) and it
appearing that petitioner continuously ignored said Notices despite several opportunities
given him to file a protest and to thereafter appeal to the Court of Tax Appeals, - the tax
assessments subject of this case, upon which the levy and sale of properties were based,
could no longer be contested (directly or indirectly) via this instant petition for certiorari."[20]

Petitioner argues that all the questioned Notices of Levy, however, must be nullified
for having been issued without validly serving copies thereof to the petitioner. As a
mandatory heir of the decedent, petitioner avers that he has an interest in the subject
estate, and notices of levy upon its properties should have been served upon him.
We do not agree. In the case of notices of levy issued to satisfy the delinquent estate
tax, the delinquent taxpayer is the Estate of the decedent, and not necessarily, and
exclusively, the petitioner as heir of the deceased. In the same vein, in the matter of
income tax delinquency of the late president and his spouse, petitioner is not the taxpayer
liable. Thus, it follows that service of notices of levy in satisfaction of these tax
delinquencies upon the petitioner is not required by law, as under Section 213 of the
NIRC, which pertinently states:
"xxx

...Levy shall be effected by writing upon said certificate a description of the property upon
which levy is made. At the same time, written notice of the levy shall be mailed to or
served upon the Register of Deeds of the province or city where the property is located
and upon the delinquent taxpayer, or if he be absent from the Philippines, to his agent or
the manager of the business in respect to which the liability arose, or if there be none, to
the occupant of the property in question.

xxx"
The foregoing notwithstanding, the record shows that notices of warrants of distraint
and levy of sale were furnished the counsel of petitioner on April 7, 1993, and June 10,
1993, and the petitioner himself on April 12, 1993 at his office at the Batasang
Pambansa.[21] We cannot therefore, countenance petitioner's insistence that he was
denied due process. Where there was an opportunity to raise objections to government
action, and such opportunity was disregarded, for no justifiable reason, the party claiming
oppression then becomes the oppressor of the orderly functions of government. He who
comes to court must come with clean hands. Otherwise, he not only taints his name, but
ridicules the very structure of established authority.
IN VIEW WHEREOF, the Court RESOLVED to DENY the present petition. The
Decision of the Court of Appeals dated November 29, 1994 is hereby AFFIRMED in all
respects.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 197515 July 2, 2014
COMMISSIONER OF INTERNAL REVENUE, Petitioner,
vs.
UNITED SALVAGE AND TOWAGE (PHILS.), INC., Respondent.
DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules
of Court which seeks to review, reverse and set aside the Decision1 of the Court of Tax
Appeals En Banc (CTA En Banc), dated June 27, 2011, in the case entitled Commissioner
of Internal Revenue v. United Salvage and Towage (Phils.), Inc. (USTP), docketed as
C.T.A. EB No. 662. The facts as culled from the records:

Respondent is engaged in the business of sub-contracting work for service contractors


engaged in petroleum operations in the Philippines.2 During the taxable years in question,
it had entered into various contracts and/or sub-contracts with several petroleum service
contractors, such as Shell Philippines Exploration, B.V. and Alorn Production Philippines
for the supply of service vessels.3

In the course of respondent’s operations, petitioner found respondent liable for deficiency
income tax, withholding tax, value-added tax (VAT) and documentary stamp tax (DST)
for taxable years 1992,1994, 1997 and 1998.4Particularly, petitioner, through BIR officials,
issued demand letters with attached assessment notices for withholding tax on
compensation (WTC) and expanded withholding tax (EWT) for taxable years 1992, 1994
and 1998,5 detailed as follows:

Assessment Notice No. Tax Covered Period Amount


25-1-000545-92 WTC 1992 ₱50,429.18
25-1-000546-92 EWT 1992 ₱14,079.45
034-14-000029-94 EWT 1994 ₱48,461.76
034-1-000080-98 EWT 1998 ₱22,437.016

On January 29, 1998 and October 24, 2001, USTP filed administrative protests against
the 1994 and 1998 EWT assessments, respectively.7

On February 21, 2003, USTP appealed by way of Petition for Review before the Court in
action (which was thereafter raffled to the CTA-Special First Division) alleging, among
others, that the Notices of Assessment are bereft of any facts, law, rules and regulations
or jurisprudence; thus, the assessments are void and the right of the government to
assess and collect deficiency taxes from it has prescribed on account of the failure to
issue a valid notice of assessment within the applicable period.8

During the pendency of the proceedings, USTP moved to withdraw the aforesaid Petition
because it availed of the benefits of the Tax Amnesty Program under Republic Act (R.A.)
No. 9480.9 Having complied with all the requirements therefor, the CTA-Special First
Division partially granted the Motion to Withdraw and declared the issues on income tax,
VAT and DST deficiencies closed and terminated in accordance with our pronouncement
in Philippine Banking Corporation v. Commissioner of Internal Revenue.10 Consequently,
the case was submitted for decision covering the remaining issue on deficiency EWT and
WTC, respectively, for taxable years 1992, 1994 and 1998.11

The CTA-Special First Division held that the Preliminary Assessment Notices (PANs) for
deficiency EWT for taxable years 1994 and 1998 were not formally offered; hence,
pursuant to Section 34, Rule 132 of the Revised Rules of Court, the Court shall neither
consider the same as evidence nor rule on their validity. 12 As regards the Final
Assessment Notices (FANs) for deficiency EWT for taxable years 1994 and 1998, the
CTA-Special First Division held that the same do not show the law and the facts on which
the assessments were based.13 Said assessments were, therefore, declared void for
failure to comply with Section 228 of the 1997 National Internal Revenue Code (Tax
Code).14 From the foregoing, the only remaining valid assessment is for taxable year
1992.15

Nevertheless, the CTA-Special First Division declared that the right of petitioner to collect
the deficiency EWT and WTC, respectively, for taxable year 1992 had already lapsed
pursuant to Section 203 of the Tax Code.16 Thus, in ruling for USTP, the CTA-Special
First Division cancelled Assessment Notice Nos. 25-1-00546-92 and 25-1-000545-92,
both dated January 9, 1996 and covering the period of 1992, as declared in its
Decision17 dated March 12, 2010, the dispositive portion of which provides:

WHEREFORE, the instant Petition for Review is hereby GRANTED. Accordingly,


Assessment Notice No. 25-1-00546-92 dated January 9, 1996 for deficiency Expanded
Withholding Tax and Assessment Notice No. 25-1-000545 dated January 9, 1996 for
deficiency Withholding Tax on Compensation are hereby CANCELLED.

SO ORDERED.18

Dissatisfied, petitioner moved to reconsider the aforesaid ruling. However, in a


Resolution19 dated July 15, 2010, the CTA-Special First Division denied the same for lack
of merit.

On August 18, 2010, petitioner filed a Petition for Review with the CTA En Banc praying
that the Decision of the CTA-Special First Division, dated March 12, 2010,be set aside.20
On June 27, 2011, the CTA En Banc promulgated a Decision which affirmed with
modification the Decision dated March 12, 2010 and the Resolution dated July 15, 2010
of the CTA-Special First Division, the dispositive portion of which reads:

WHEREFORE, premises considered, the Petition is PARTLY GRANTED. The Decision


dated March 12, 2010 and the Resolution dated July 15, 2010 are AFFIRMED with
MODIFICATION upholding the 1998 EWT assessment. In addition to the basic EWT
deficiency of ₱14,496.79, USTP is ordered to pay surcharge, annual deficiency interest,
and annual delinquency interest from the date due until full payment pursuant to Section
249 of the 1997 NIRC.

SO ORDERED.21

Hence, the instant petition raising the following issues:

1. Whether or not the Court of Tax Appeals is governed strictly by the technical
rules of evidence;

2. Whether or not the Expanded Withholding Tax Assessments issued by petitioner


against the respondent for taxable year 1994 was without any factual and legal
basis; and

3. Whether or not petitioner’s right to collect the creditable withholding tax and
expanded withholding tax for taxable year 1992 has already prescribed. 22

After careful review of the records and evidence presented before us, we find no basis to
overturn the decision of the CTA En Banc.

On this score, our ruling in Compagnie Financiere Sucres Et Denrees v. CIR, 23 is


enlightening, to wit:

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.24

Now, to the first issue.

Petitioner implores unto this Court that technical rules of evidence should not be strictly
applied in the interest of substantial justice, considering that the mandate of the CTA
explicitly provides that its proceedings shall not be governed by the technical rules of
evidence.25 Relying thereon, petitioner avers that while it failed to formally offer the PANs
of EWTs for taxable years 1994and 1998, their existence and due execution were duly
tackled during the presentation of petitioner’s witnesses, Ruleo Badilles and Carmelita
Lynne de Guzman (for taxable year 1994) and Susan Salcedo-De Castro and Edna A.
Ortalla (for taxable year 1998).26 Petitioner further claims that although the PANs were
not marked as exhibits, their existence and value were properly established, since the
BIR records for taxable years 1994 and 1998 were forwarded by petitioner to the CTA in
compliance with the latter’s directive and were, in fact, made part of the CTA records. 27

Under Section 828 of Republic Act (R.A.) No. 1125, the CTA is categorically described as
a court of record.29 As such, it shall have the power to promulgate rules and regulations
for the conduct of its business, and as may be needed, for the uniformity of decisions
within its jurisdiction.30 Moreover, as cases filed before it are litigated de novo, party-
litigants shall prove every minute aspect of their cases. 31 Thus, no evidentiary value can
be given the pieces of evidence submitted by the BIR, as the rules on documentary
evidence require that these documents must be formally offered before the
CTA.32 Pertinent is Section 34, Rule 132 of the Revised Rules on Evidence which reads:

SEC. 34. Offer of evidence. – The court shall consider no evidence which has not been
formally offered. The purpose for which the evidence is offered must be specified.

Although in a long line of cases, we have relaxed the foregoing rule and allowed evidence
not formally offered to be admitted and considered by the trial court, we exercised extreme
caution in applying the exceptions to the rule, as pronounced in Vda. de Oñate v. Court
of Appeals,33 thus:

From the foregoing provision, it is clear that for evidence to be considered, the same must
be formally offered. Corollarily, the mere fact that a particular document is identified and
marked as an exhibit does not mean that it has already been offered as part of the
evidence of a party. In Interpacific Transit, Inc. v. Aviles[186 SCRA 385, 388-389 (1990)],
we had the occasion to make a distinction between identification of documentary
evidence and its formal offer as an exhibit. We said that the first is done in the course of
the trial and is accompanied by the marking of the evidence as an exhibit while the second
is done only when the party rests its case and not before. A party, therefore, may opt to
formally offer his evidence if he believes that it will advance his cause or not to do so at
all. In the event he chooses to do the latter, the trial court is not authorized by the Rules
to consider the same.

However, in People v. Napat-a[179 SCRA 403 (1989)] citing People v. Mate[103 SCRA
484 (1980)], we relaxed the foregoing rule and allowed evidence not formally offered to
be admitted and considered by the trial court provided the following requirements are
present, viz.: first, the same must have been duly identified by testimony duly recorded
and, second, the same must have been incorporated in the records of the case. 34

The evidence may, therefore, be admitted provided the following requirements are
present: (1) the same must have been duly identified by testimony duly recorded; and (2)
the same must have been incorporated in the records of the case. Being an exception,
the same may only be applied when there is strict compliance with the requisites
mentioned above; otherwise, the general rule in Section 34 of Rule 132 of the Rules of
Court should prevail.35

In the case at bar, petitioner categorically admitted that it failed to formally offer the PANs
as evidence. Worse, it advanced no justifiable reason for such fatal omission. Instead, it
merely alleged that the existence and due execution of the PANs were duly tackled by
petitioner’s witnesses. We hold that such is not sufficient to seek exception from the
general rule requiring a formal offer of evidence, since no evidence of positive
identification of such PANs by petitioner’s witnesses was presented. Hence, we agree
with the CTA En Banc’s observation that the 1994 and 1998 PANs for EWT deficiencies
were not duly identified by testimony and were not incorporated in the records of the case,
as required by jurisprudence.

While we concur with petitioner that the CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in themselves but are primarily intended as
tools in the administration of justice,36 the presentation of PANs as evidence of the
taxpayer’s liability is not mere procedural technicality. It is a means by which a taxpayer
is informed of his liability for deficiency taxes. It serves as basis for the taxpayer to answer
the notices, present his case and adduce supporting evidence.37 More so, the same is
the only means by which the CTA may ascertain and verify the truth of respondent's
claims. We are, therefore, constrained to apply our ruling in Heirs of Pedro Pasag v.
Spouses Parocha,38 viz.:

x x x. A formal offer is necessary because judges are mandated to rest their findings of
facts and their judgment only and strictly upon the evidence offered by the parties at the
trial. Its function is to enable the trial judge to know the purpose or purposes for which the
proponent is presenting the evidence. On the other hand, this allows opposing parties to
examine the evidence and object to its admissibility. Moreover, it facilitates review as the
appellate court will not be required to review documents not previously scrutinized by the
trial court.

Strict adherence to the said rule is not a trivial matter. The Court in Constantino v. Court
of Appeals ruled that the formal offer of one's evidence is deemed waived after failing to
submit it within a considerable period of time. It explained that the court cannot admit an
offer of evidence made after a lapse of three (3) months because to do so would "condone
an inexcusable laxity if not non-compliance with a court order which, in effect, would
encourage needless delays and derail the speedy administration of justice."

Applying the aforementioned principle in this case, we find that the trial court had
reasonable ground to consider that petitioners had waived their right to make a formal
offer of documentary or object evidence. Despite several extensions of time to make their
formal offer, petitioners failed to comply with their commitment and allowed almost five
months to lapse before finally submitting it. Petitioners' failure to comply with the rule on
admissibility of evidence is anathema to the efficient, effective, and expeditious
dispensation of justice. x x x.39
Anent the second issue, petitioner claims that the EWT assessment issued for taxable
year 1994 has factual and legal basis because at the time the PAN and FAN were issued
by petitioner to respondent on January 19, 1998, the provisions of Revenue Regulation
No. 12-9940 which governs the issuance of assessments was not yet operative. Hence,
its compliance with Revenue Regulation No. 12-8541 was sufficient. In any case, petitioner
argues that a scrutiny of the BIR records of respondent for taxable year 1994 would show
that the details of the factual finding of EWT were itemized from the PAN issued by
petitioner.42

In order to determine whether the requirement for a valid assessment is duly complied
with, it is important to ascertain the governing law, rules and regulations and
jurisprudence at the time the assessment was issued. In the instant case, the PANs and
FANs pertaining to the deficiency EWT for taxable years 1994 and 1998, respectively,
were issued on January 19, 1998, when the Tax Code was already in effect, as correctly
found by the CTA En Banc:

The date of issuance of the notice of assessment determines which law applies- the 1997
NIRC or the old Tax Code. The case of Commissioner of Internal Revenue v. Bank of
Philippine Islands is instructive:

In merely notifying BPI of his findings, the CIR relied on the provisions of the former
Section 270 prior to its amendment by RA 8424 (also known as the Tax Reform Act of
1997). In CIR v. Reyes, we held that:

In the present case, Reyes was not informed in writing of the law and the facts on which
the assessment of estate taxes had been made. She was merely notified of the findings
by the CIR, who had simply relied upon the provisions of former Section 229 prior to its
amendment by [RA] 8424, otherwise known as the Tax Reform Act of 1997.

First, RA 8424 has already amended the provision of Section 229 on protesting an
assessment. The old requirement of merely notifying the taxpayer of the CIR's findings
was changed in 1998to informing the taxpayer of not only the law, but also of the facts on
which an assessment would be made; otherwise, the assessment itself would be invalid.

It was on February 12, 1998, that a preliminary assessment notice was issued against
the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand
letter, was also issued. During those dates, RA 8424 was already in effect. The notice
required under the old law was no longer sufficient under the new law.(Emphasis ours.)

In the instant case, the 1997 NIRC covers the 1994 and 1998 EWT FANs because there
were issued on January 19, 1998 and September 21, 2001, respectively, at the time of
the effectivity of the 1997 NIRC. Clearly, the assessments are governed by the law. 43

Indeed, Section 228 of the Tax Code provides that the taxpayer shall be informed in
writing of the law and the facts on which the assessment is made. Otherwise, the
assessment is void. To implement the aforesaid provision, Revenue Regulation No. 12-
99was enacted by the BIR, of which Section 3.1.4 thereof 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 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. The same shall be sent to the taxpayer only by registered mail or by personal
delivery. x x x44

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.

In the present case, a mere perusal of the FAN for the deficiency EWT for taxable year
1994will show that other than a tabulation of the alleged deficiency taxes due, no further
detail regarding the assessment was provided by petitioner. Only the resulting interest,
surcharge and penalty were anchored with legal basis.45 Petitioner should have at least
attached a detailed notice of discrepancy or stated an explanation why the amount of
₱48,461.76 is collectible against respondent46 and how the same was arrived at. Any
short-cuts to the prescribed content of the assessment or the process thereof should not
be countenanced, in consonance with the ruling in Commissioner of Internal Revenue v.
Enron Subic Power Corporation47 to wit:

The CIR insists that an examination of the facts shows that Enron was properly apprised
of its tax deficiency. During the pre-assessment stage, the CIR advised Enron’s
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 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.

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 legal and factual bases of the assessment. These steps were mere
perfunctory discharges of the CIR’s duties incorrectly assessing a taxpayer. The
requirement for issuing a preliminary or final notice, as the case may be, informing a
taxpayer of the existence of a deficiency tax assessment is markedly different from the
requirement of what such notice must contain. Just because the CIR issued an advice, a
preliminary letter during the pre-assessment stage and a final notice, in the order required
by law, does not necessarily mean that Enron was informed of the law and facts on which
the deficiency tax assessment was made.
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 note that the old law merely required that the taxpayer be notified of the assessment
made by the CIR. This was changed 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. Such amendment
is in keeping with the constitutional principle that no person shall be deprived of property
without due process. 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 assessment in question
was void. x x x.48

In the same vein, we have held in Commissioner of Internal Revenue v. Reyes,49 that:

Even a cursory review of the preliminary assessment notice, as well as the demand letter
sent, reveals the lack of basis for -- not to mention the insufficiency of -- the gross figures
and details of the itemized deductions indicated in the notice and the letter. This Court
cannot countenance an assessment based on estimates that appear to have been
arbitrarily or capriciously arrived at. Although taxes are the lifeblood of the government,
their assessment and collection "should be made in accordance with law as any
arbitrariness will negate the very reason for government itself." 50

Applying the aforequoted rulings to the case at bar, it is clear that the assailed deficiency
tax assessment for the EWT in 1994disregarded the provisions of Section 228 of the Tax
Code, as amended, as well as Section 3.1.4 of Revenue Regulations No. 12-99 by not
providing the legal and factual bases of the assessment. Hence, the formal letter of
demand and the notice of assessment issued relative thereto are void.

In any case, we find no basis in petitioner’s claim that Revenue Regulation No. 12-99 is
not applicable at the time the PAN and FAN for the deficiency EWT for taxable year 1994
were issued. Considering that such regulation merely implements the law, and does not
create or take away vested rights, the same may be applied retroactively, as held in
Reyes:

x x x x.

Second, the non-retroactive application of Revenue Regulation (RR) No. 12-99 is of no


moment, considering that it merely implements the law.

A tax regulation is promulgated by the finance secretary to implement the provisions of


the Tax Code. While it is desirable for the government authority or administrative agency
to have one immediately issued after a law is passed, the absence of the regulation does
not automatically mean that the law itself would become inoperative.

At the time the pre-assessment notice was issued to Reyes, RA 8424 already stated that
the taxpayer must be informed of both the law and facts on which the assessment was
based. Thus, the CIR should have required the assessment officers of the Bureau of
Internal Revenue (BIR) to follow the clear mandate of the new law. The old regulation
governing the issuance of estate tax assessment notices ran afoul of the rule that tax
regulations-- old as they were -- should be in harmony with, and not supplant or modify,
the law.

It may be argued that the Tax Code provisions are not self- executory. It would be too
wide a stretch of the imagination, though, to still issue a regulation that would simply
require tax officials to inform the taxpayer, in any manner, of the law and the facts on
which an assessment was based. That requirement is neither difficult to make nor its
desired results hard to achieve. Moreover, an administrative rule interpretive of a statute,
and not declarative of certain rights and corresponding obligations, is given retroactive
effect as of the date of the effectivity of the statute. RR 12-99 is one such rule. Being
interpretive of the provisions of the Tax Code, even if it was issued only on September 6,
1999, this regulation was to retroact to January 1, 1998 -- a date prior to the issuance of
the preliminary assessment notice and demand letter.51

Indubitably, the disputed assessments for taxable year 1994 should have already
complied with the requirements laid down under Revenue Regulation No. 12-99. Having
failed so, the same produces no legal effect.

Notwithstanding the foregoing findings, we sustain the CTA En Banc’s findings on the
deficiency EWT for taxable year 1998 considering that it complies with Section 228 of the
Tax Code as well as Revenue Regulation No. 12-99, thus:

On the other hand, the 1998 EWT FAN reflected the following: a detailed factual account
why the basic EWT is ₱14,496.79 and the legal basis, Section 57 B of the 1997 NIRC
supporting findings of EWT liability of ₱22,437.01. Thus, the EWT FAN for 1998 is duly
issued in accordance with the law.52

As to the last issue, petitioner avers that its right to collect the EWT for taxable year 1992
has not yet prescribed. It argues that while the final assessment notice and demand letter
on EWT for taxable year 1992 were all issued on January 9, 1996, the five (5)-year
prescriptive period to collect was interrupted when respondent filed its request for
reinvestigation on March 14, 1997 which was granted by petitioner on January 22, 2001
through the issuance of Tax Verification Notice No. 00165498 on even date. 53 Thus, the
period for tax collection should have begun to run from the date of the reconsidered or
modified assessment.54

This argument fails to persuade us.


The statute of limitations on assessment and collection of national internal revenue taxes
was shortened from five (5) years to three (3) years by virtue of Batas Pambansa Blg.
700.55 Thus, petitioner 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.56 However, 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. 57The 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.58

On this matter, we note the findings of the CTA-Special First Division that no evidence
was formally offered to prove when respondent filed its returns and paid the
corresponding EWT and WTC for taxable year 1992.59

Nevertheless, as correctly held by the CTA En Banc, the Preliminary Collection Letter for
deficiency taxes for taxable year 1992 was only issued on February 21, 2002, despite the
fact that the FANs for the deficiency EWT and WTC for taxable year 1992 was issued as
early as January 9, 1996. Clearly, five (5) long years had already lapsed, beyond the
three (3)-year prescriptive period, before collection was pursued by petitioner.

Further, while the request for reinvestigation was made on March 14, 1997, the same was
only acted upon by petitioner on January22, 2001, also beyond the three (3) year statute
of limitations reckoned from January 9, 1996, notwithstanding the lack of impediment to
rule upon such issue. We cannot countenance such inaction by petitioner to the prejudice
of respondent pursuant to our ruling in Commissioner of Internal Revenue v. Philippine
Global Communication, Inc.,60 to wit:

The assessment, in this case, was presumably issued on 14 April 1994 since the
respondent did not dispute the CIR’s claim. Therefore, the BIR had until 13 April 1997.
However, as there was no Warrant of Distraint and/or Levy served on the respondents
nor any judicial proceedings initiated by the BIR, the earliest attempt of the BIR to collect
the tax due based on this assessment was when it filed its Answer in CTA Case No. 6568
on 9 January 2003, which was several years beyond the three-year prescriptive period.
Thus, the CIR is now prescribed from collecting the assessed tax.61

Here, petitioner had ample time to make a factually and legally well-founded assessment
and implement collection pursuant thereto.1âwphi1 Whatever examination that petitioner
may have conducted cannot possibly outlast the entire three (3)-year prescriptive period
provided by law to collect the assessed tax. Thus, there is no reason to suspend the
running of the statute of limitations in this case.

Moreover, in Bank of the Philippine Islands, citing earlier jurisprudence, we held that the
request for reinvestigation should be granted or at least acted upon in due course before
the suspension of the statute of limitations may set in, thus:
In BPI v. Commissioner of Internal Revenue, the 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]62With respect to petitioner’s argument that
respondent’s act of elevating its protest to the CTA has fortified the continuing interruption
of petitioner’s prescriptive period to collect under Section 223 of the Tax Code, 63 the same
is flawed at best because respondent was merely exercising its right to resort to the proper
Court, and does not in any way deter petitioner’s right to collect taxes from respondent
under existing laws.

On the strength of the foregoing observations, we ought to reiterate our earlier teachings
that "in balancing the scales between the power of the State to tax and its inherent right
to prosecute perceived transgressors of the law on one side, and the constitutional rights
of a citizen to due process of law and the equal protection of the laws on the other, the
scales must tilt in favor of the individual, for a citizen’s right is amply protected by the Bill
of Rights under the Constitution."64 Thus, while "taxes are the lifeblood of the
government," the power to tax has its limits, in spite of all its plenitude. 65 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.66

After all, the statute of limitations on the collection of taxes was also enacted to benefit
and protect the taxpayers, as elucidated in the case of Philippine Global
Communication,