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CIR V PASCOR REALTY G.

R 128315 June 29, 1999 Facts: The CIR authorized certain BIR officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corp. (PRDC) for 1986, 1987 and 1988. The examination resulted in recommendation for the issuance of an assessment of P7,498,434.65 and P3,015,236.35 for 1986 and 1987, respectively. On March 1, 1995, Commissioner filed a criminal complaint for tax evasion against PRDC, its president and treasurer before the DOJ. Private respondents filed immediately an urgent request for reconsideration on reinvestigation disputing the tax assessment and tax liability. On March 23, 1995, private respondents received a subpoena from the DOJ in connection with the criminal complaint. In a letter dated, May 17, 1995, the Commissioner denied private respondents request for reconsideration (reinvestigation on the ground that no formal assessment has been issued which the latter elevated to the CTA on a petition for review. The Commissioners motion to dismiss on the ground of the CTAs lack of jurisdiction inasmuch as no formal assessment was issued against private respondent was denied by CTA and ordered the Commissioner to file an answer but did not instead filed a petition with the CA alleging grave abuse of discretion and lack of jurisdiction on the part of CTA for considering the affidavit/report of the revenue officers and the endorsement of said report as assessment which may be appealed to he CTA. The CA sustained the CTA decision and dismissed the petition. Issues: 1. Whether or not the criminal complaint for tax evasion can be construed as an assessment. 2. Whether or not an assessment is necessary before criminal charges for tax evasion may be instituted.

Held: The filing of the criminal complaint with the DOJ cannot be construed as a formal assessment. Neither the Tax Code nor the revenue regulations governing the protest assessments provide a specific definition or form of an assessment. An assessment must be sent to and received by the taxpayer, and must demand payment of the taxes described therein within a specific period. The revenue officers affidavit merely contained a computation of respondents tax liability. It did not state a demand or period for payment. It was addressed to the Secretary of Justice not to the taxpayer. They joint affidavit was meant to support the criminal complaint for tax evasion; it was not meant to be a notice of tax due and a demand to private respondents for the payment thereof. The fact that the complaint was sent to the DOJ, and not to private respondent, shows that commissioner intended to file a criminal complaint for tax evasion, not to issue an assessment. An assessment is not necessary before criminal charges can be filed. A criminal charge need not only be supported by a prima facie showing of failure to file a required return. The CIR had, in such tax evasion cases, discretion on whether to issue an assessment, or to file a criminal case against the taxpayer, or to do both. MARCOS II V CA GR No. 120880, June 5, 1997 Following the death of former President Marcos in 1989, a Special Tax Audit Team was created on June 27, 1990 to conduct investigations and examinations of tax liabilities of the late president, his family, associates and cronies. The investigation disclosed that the Marcoses failed to file a written notice of death of the decedent estate tax return and income tax returns for the years 1982 to 1986, all in violation of the Tax Code. Criminal charges were field against Mrs. Marcos for violation of Secs. 82, 83 and 84, NIRC.

The CIR thereby caused the preparation of the estate tax return for the estate of the late president, the income returns of the Marcos spouses for 1985 and 1986 and the income tax returns of petitioner Marcos II for 1982 to 1985. On July 26, 1991, the BIR issued deficiency estate tax assessments and the corresponding deficiency income tax assessments. Copies of deficiency estate and income tax assessments were served personally and constructively on August 26, 1991 and September 12, 1991 upon Mrs. Marcos. Likewise, copies of the deficiency income tax assessments against petitioner Marcos were personally and constructively served. Formal assessment notices were served upon Mrs. Marcos on October 20, 1992. The deficiency tax assessments were not administratively protested by the Marcoses within 30 days from service thereof. Subsequently, the CIR issued a total of 30 notices to levy on real property against certain parcels of land and other real property owned by Marcoses. Notices of sale at public auction were duly posted at the Tacloban City Hall and the public auction for the sale of 11 parcels of land took place on July 5, 1993. There being no bidder, the lots were declared forfeited in favor of the government. Petitioner filed a petition for certiorari and prohibition with an application for TRO before the CA to annul and set aside the notices of levy as well as the notice of sale and to enjoin the BIR from proceeding with the auction. The CA dismissed the petition ruling that the deficiency assessments for the estate and income taxes have already become final and unappealable and may thus be enforced by summary remedy of levying upon the real property

ISSUE: WON BIR may collect on estate and income tax of a deceased pending probate proceedings HELD: 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. 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 Sec. 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. 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. The court recognized the liberal treatment of claims for taxes charged against the
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estate of the decedent. Such taxes 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. (sinews: source of strength; tendon) Meralco Securities Corp. vs. Savellano GR L-36181, 23 October 1982 Facts: In 1967, the late Juan G. Maniago submitted to the Commissioner confidential denunciation against the Meralco Securities Corp. for tax evasion for not having paid income tax on 25% of the dividends it received from the Manila Electric Co. for years 1962 to 1966. The Commissioner caused the investigation of the denunciation and found that no deficiency corporate tax was due from Meralco Securities. Maniago was informed of the findings. The Secretary of Finance sustained the Commissioners action. Maniago filed a petition for mandamus against the Commissioner so as to compel it to impose the alleged deficiency tax assessment against Meralco Securities and to award him the corresponding informers award. Issue: Whether the Commissioner may be compelled to impose the alleged deficiency tax assessment. Held: Mandamus only lies to enforce the performance of a ministerial act or duty and not to control the performance of discretionary power. Mandamus may not be made against the Commissioner to compel him to impose a tax assessment not found by him to be due or proper, for that would be tantamount to a usurpation of executive functions. Purely administrative and discretionary functions may not be interfered with by the Courts. The discretionary power vested in

the proper executive official, in the absence of arbitrariness or grave abuse so as to go beyond the statutory authority, is not subject to the contrary judgment or control of others [G.R. No. 139050. October 2, 2001] REPUBLIC OF THE PHILIPPINES, represented by the COMMISSIONER OF CUSTOMS, petitioner, vs. THE COURT OF TAX APPEALS and AGFHA, INCORPORATED, VITUG, J.: On 12 December 1992, a shipment of bales of textile gray cloth arrived at the Manila International Container Port (MICP) aboard the vessel "S/S ACX Daisy." The shipment's Inward Foreign Manifest stated that the bales of cloth were consigned to GQ GARMENTS, Inc. The Clean Report of Findings (CRF) issued by the Societe Generale de Surveilance (SGS), however, mentioned AGFHA, Incorporated, to be the consignee of the shipment. Forthwith, the shipping agent, FIL-JAPAN, requested for an amendment of the Inward Foreign Manifest so as to correct the name of the consignee from that of GQ GARMENTS, Inc., to that of AGFHA, Inc. On 22 January 1993, FIL-JAPAN forwarded to AGFHA, Inc., the amended Inward Foreign Manifest which the latter, in turn, submitted to the MICP Law Division. The MICP indorsed the document to the Customs Intelligence Investigation Services (CIIS). The CIIS placed the subject shipment under Hold Order, on the ground that GQ GARMENTS, Inc., could not be located in its given address at 244 Escolta Street, Binondo, Manila, and was thus suspected to be a fictitious firm. Forfeiture proceedings under Section 2530(f) and (l) (3-5) of the Tariff and Customs Code were initiated. AGFHA, Inc., through its president Wilson Kho, filed a motion for intervention contending that AGFHA,
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Inc., is the lawful owner and actual consignee of the subject shipment. The motion for intervention was granted on 2 March 1993. Following a hearing, the Collector of Customs came up with a draft decision ordering the lifting of the warrant of seizure and detention on the basis of its findings that GQ GARMENTS, Inc., was not a fictitious corporation and that there was a valid waiver of rights over the bales of cloth by GQ GARMENTS, Inc., in favor of AGFHA, Inc. The draft decision was submitted to the Deputy Commissioner for clearance and approval, who, in turn, transmitted it to the CIIS for comment. The CIIS opposed the draft decision, insisting that GQ GARMENTS, Inc., was a fictitious corporation and that even if it did exist, its president, John Barlin, had no authority to waive the right over the subject shipment in favor of AGFHA, Inc. The Deputy Commissioner, relying on the comment of the CIIS, rejected the draft decision of the Collector of Customs. GQ GARMENTS, Inc., and AGFHA, Inc., filed a joint motion for reconsideration which was in another draft decision granted. The Office of the Commissioner of Customs, however, disapproved the new draft decision and denied the release of the goods; it ruled: "1. x x x [I]t is quite suspicious that it took more than one month before the alleged error in the consignee was discovered by the shipper and by AGFHA, Inc., and by GQ Garments especially considering the fact that there is a CRF naming therein AGFHA as consignee of the subject shipment which means that the shipper was contracted by SGS so that the latter can inspect the subject shipment to be imported by consignee; that Mr. Wilson Kho admitted it was AGFHA who ordered the shipment by telephone call; that prior

to this shipment there was no order placed in the name of GQ Garments from Indonesia; and that this is already the second of four shipments ordered by AGFHA, Inc., from Jakarta, Indonesia. "2. Mr. Wilson Kho's explanation that the shipper committed an error in naming GQ GARMENTS as the consignee of the subject shipment because his business card contains the name of both GQ GARMENTS and AGFHA, Inc. appears to be an afterthought and self-serving. Moreover, he admitted that he is not an officer nor even a stockholder of GQ GARMENTS so why should his business card indicate his name as President/General Manager of GQ GARMENTS and AGFHA, Inc. That is clearly a misrepresentation. "3. During the hearing on April 15, 1994, Mr. John John Barlin of GQ GARMENTS admitted that the letter dated February 11, 1993 purportedly signed by him (in which he allegedly informed the Collector of Customs that AGFHA, Inc., is the rightful owner of the subject shipment and that GQ GARMENTS is waiving its right over the same) actually came from Wilson Kho. In other words, the said letter is spurious. "4. From the admissions of both Mr. Wilson Kho and Mr. John John Barlin, it is clear that GQ GARMENTS is actually owned by Mr. Wilson Kho and its corporate franchise appears to be being used to perpetrate fraud and other scheme to confuse authorities In deference to the directive of the Commissioner, the District Collector of Customs ordered the forfeiture of the shipment. On 14 October 1994, AGFHA, Inc., interposed an appeal which was dismissed consistently with the Commissioner's earlier stand that disapproved the Collector of Customs' draft decision.
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On 5 October 1995, AGFHA, Inc., filed a petition for review with the Court of Tax Appeals questioning the forfeiture of the bales of textile cloth. Finding merit in the plea of appellants, the Court of Tax Appeals granted the petition and ordered the release of the goods to AGFHA, Inc. In its decision, dated 31 May 1999, the Court of Appeals dismissed the appeal and ruled that the Bureau of Customs has failed to satisfy its burden of proving fraud on the part of the importer or consignee. It expounded thusly: "Section 2530 (f) and (1) 3-5 of the Tariff and Customs Code, provide that in order that a shipment be liable to forfeiture, it must be proved that fraud has been committed by the importer/consignee to evade payment of the duties due. To establish the existence of fraud, the onus probandi is on the part of the Bureau of Customs who ordered the forfeiture of the subject shipments. The BOC, however, failed. "'x x x This Court could not fathom any individual or collective importance of the x x x findings [of the BOC] as indicative of the actual commission of fraud or any attempt or frustration thereof. As defined, actual or intentional fraud consists of deception willfully and deliberately done or resorted to in order to induce another to give up some right. It must amount to intentional wrongdoing with the sole object of avoiding the tax. `The circumstances or findings presented by the [BOC] do not reveal x x x any kind of deception that could have been played upon [the] Bureau to give up some of its right, e.g., to collect correct taxes on properly declared shipment of goods. `[BOC] is saying that the shipper knew all along that AGFHA, Inc., was the real consignee due to the preinspection done by SGS and the corresponding

issuance of the CRF naming AGFHA, Inc. as the consignee. So that in naming GQ GARMENTS Inc. as the consignee in the Bill of Lading and Inward Foreign Manifest, the same was intentional and deliberately done and not a case of error or inadvertence x x x. `[The Court] could not believe that [BOC] assumed the above circumstance as a fact in his attempt to forfeit the subject shipment in favor of the government. The respondent is trying to second guess the act of the shipper that the latter had prior knowledge of AGFHA Inc., as the true consignee before the shipment. [The Court] deem[s] such conclusion as pure hearsay. Obviously, it is only the shipper and/or the SGS who could personally vouch for events that transpired prior to the shipment of the goods subject matter of this case. `x x x [AGFHA Inc.] has offered the following controverting and convincing evidence x x x: `1. Telex message from the shipping agent of shipper P.T. Mandala Subur Textile Industry to FILJAPAN Shipping Company Manila, requesting amendment of the Bill of Lading and other shipping records, to change consignee from GQ Garments, Inc. to Agfha, Inc.; `2. Application for Amendment of the Inward Foreign Manifest filed by the shipper's agent, FIL-JAPAN Shipping Company, for approval with the Customs Law Division, Manila International Container Port (MICP), to change the name of the consignee from GQ Garments, Inc. to Agfha, Inc. `3. Letter dated February 10, 1993 by Wilson Kho, president of Agfha, Inc. addressed to Atty. Buenaventura Maniego, District Collector of Customs, MICP, North Harbor, Manila manifesting
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the former's intention and willingness to pay the corresponding duties and taxes on the subject shipment based on a higher valuation indicated in the Clean Report of Findings (CRF) as recommended by the SGS, as against the lower valuation indicated in the invoice. `4. Bill of Lading covering the subject shipment showing the shipper as P.T. Mandala Subur Textile Industry and the consignee as GQ Garments, Inc. `5. The Clean Report of Findings (CRF) dated December 9, 1992 showing the consignee of the subject shipment as Agfha, Inc. and the shipper as P.T. Mandala Subur Textile Industry. `6. Import Authority No. (IAN) 18.012.37679, assigned by the Central Bank of the Philippines appearing on the right hand portion of the CRF. `The above evidence speak for themselves. If any deception is intended by petitioner Agfha, Inc., why would it apply for an Import Authority Number under its name? It knew for certain that the subject goods will be pre-inspected by SGS under its name. `x x x [AGFHA Inc.] expressed its willingness to pay the higher duties and taxes imposed on the subject shipment as indicated in the CRF. x x x From the very start up to the end, petitioner had been consistent in its actuations. It applied for an Import Authority with the Central Bank of the Philippines which authority was used by the SGS in making the necessary pre-inspection and issuing the CRF. It undertook remedial measures to amend the consignee in the Bill of Lading and Inward Foreign Manifest when the shipper made a mistake. It then manifested to pay the correct taxes and duties. The government stands to lose nothing.'"[2]

The Court of Appeals attributed the error in indicating GQ GARMENTS, Inc., instead of AGFHA, Inc., in the Inward Foreign Manifest as being the consignee of the subject shipment to the shipping agent. It also noted the finding of the tax court that GQ GARMENTS, Inc., was, in fact, a registered importer with Registration No. 91-5624 per the Customs Intelligence and Investigation Service List of Registered Importers contained in Customs Memorandum Order No. 149-88 for the year 1991. The BOC instituted the instant petition for review under Rule 45 of the Revised Rules of Court assailing the affirmance by the Court of Appeals of the tax court's decision of 04 November 1996. The appeal is not meritorious. Section 2530 (f) and (1) (3-5) provides: "Section 2530. Property Subject to Forfeiture Under Tariff and Customs Law. - Any vehicle, vessel or aircraft, cargo, article and other objects shall, under the following conditions be subjected to forfeiture; "f. Any article the importation or exportation of which is effected or attempted contrary to law, or any article of prohibited importation or exportation, and all other articles which, in the opinion of the Collector, have been used, are or were entered to be used as instruments in the importation or exportation of the former. "1. Any article sought to be imported or exported: "(3) On the strength of a false declaration or affidavit executed by the owner, importer, exporter or consignee concerning the importation of such article; (4) On the strength of a false invoice or other document executed by the owner, importer,
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exporter or consignee concerning the importation or exportation of such article; and "(5) Through any other practice or device contrary to law by means of which such articles was entered through a customhouse to the prejudice of the government." The requisites for the forfeiture of goods under Section 2530(f), in relation to (1) (3-5), of the Tariff and Customs Code are: (a) the wrongful making by the owner, importer, exporter or consignee of any declaration or affidavit, or the wrongful making or delivery by the same person of any invoice, letter or paper - all touching on the importation or exportation of merchandise; (b) the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an intention on the part of the importer/consignee to evade the payment of the duties due.[3] Petitioner asserts that all of these requisites are present in this case. It contends that it did not presume fraud, rather the events positively point to the existence of fraud. Private respondent AGFHA, Inc., on the other hand, maintains that there has only been an inadvertent error and not an intentional wrongful declaration by the shipper to evade payment of any tax due. The resolution of this issue would entail a reevaluation of the attendant circumstances, a matter that cannot be freely undertaken by this Tribunal. It has been a settled rule that the Supreme Court is not a trier of facts.[4] Findings of the appellate court are generally binding and cannot be disturbed by this Court unless it is sufficiently shown that there has been no evidence on record to support such findings.[5] The assessment made by the appellate court carry even more weight when it is consistent with that of the trial court.[6] Consonantly, the factual determination of the Court of Tax Appeals,

when supported by substantial evidence, will not be reversed on appeal unless it is clear that the said court has committed gross error in the process.[7] The Collector of Customs, Court of Tax Appeals and the Court of Appeals are unanimous in concluding that no fraud has been committed by private respondent in the importation of the bales of cloth. The records do appear to sustain this conclusion. Fraud must be proved to justify forfeiture.[8] It must be actual, amounting to intentional wrongdoing with the clear purpose of avoiding the tax.[9] Forfeiture is not favored in law nor in equity.[10] Mere negligence is not equivalent to the fraud contemplated by law.[11] What is here involved is an honest mistake, not even directly attributable to private respondent, which will not deprive the government of its right to collect the proper tax. The conclusion of the appellate court, being consistent with the evidence on record and not contrary to law and jurisprudence, hardly can be overturned by this Court. WHEREFORE, the petition is hereby DENIED and the assailed decision of the Court of Appeals is AFFIRMED. Aznar vs. Court of Tax Appeals GR No. 20569, 23 August 1974 Facts: Petitioner, as administrator of the estate of the deceased, Matias H. Aznar, seeks a review and nullification of the decision of the Court of Tax Appeals ordering the petitioner to pay the government the sum of P227,691.77 representing deficiency income taxes for the years 1946 to 1951. An investigation by the Commissioner of Internal Revenue (CIR) ascertained the assets and liabilities of the taxpayer and it was discovered that from 1946 to 1951, his net worth had increased every year, which increases in net worth was very much
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more than the income reported during said years. The findings clearly indicated that the taxpayer did not declare correctly the income reported in his income tax returns for the aforesaid years. Petitioner avers that according to the NIRC, the right of the CIR to assess deficiency income taxes of the late Aznar for the years 1946, 1947, and 1948 had already prescribed at the time the assessment was made on November 28, 1952; there being a five year limitation upon assessment and collection from the filing of the returns. Meanwhile, respondents believe that the prescription period in the case at bar that is applicable is under Sec. 332 of the NIRC which provides that: "(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 years after the discovery of the falsity, fraud or omission". Petitioner argues said provision does not apply because the taxpayer did not file false and fraudulent returns with intent to evade tax. Issue: Whether or not the deceased Aznar filed false or fraudulent income tax returns and subsequently, whether the action has not prescribed. Held: The petition is without merit. The respondent CTA concluded that the very "substantial under declarations of income for six consecutive years eloquently demonstrate the falsity or fraudulence of the income tax returns with an intent to evade the payment of tax." The ordinary period of prescription of 5 years within which to assess tax liabilities under Sec. 331 of the NIRC should be applicable to normal circumstances, but whenever the government is placed at a disadvantage so as to prevent its lawful

agents from proper assessment of tax liabilities due to false returns, fraudulent return intended to evade payment of tax, or failure to file returns, the period of ten years from the time of the discovery of the falsity, fraud or omission even seems to be inadequate. There being undoubtedly false tax returns in this case, We affirm the conclusion of the respondent Court of Tax Appeals that Sec. 332 (a) of the NIRC should apply and that the period of ten years within which to assess petitioner's tax liability had not expired at the time said assessment was made. Commissioner vs. CTA, R.O.H. AUTO PRODUCTS GR 108358, 20 January 1995 Facts: On 22 August 1986, Executive Order 41 was promulgated declaring a one-time tax amnesty on unpaid income taxes, later amended to include estate and donors taxes and taxes on business for the taxable years 1981 to 19985. Availing itself of the amnesty, ROH Autoparts Philippines Inc. filed its Tax Amnesty Return and paid the corresponding amnesty taxes due. The Company requested that the deficiency tax notice (13 August 1986) be cancelled and withdrawn as it has availed of the tax amnesty. The Commissioner denied the request, construing that the amnesty coverage include only assessments issued by the BIR after the promulgation of EO41 and not to assessments theretofore made. Issue: Whether the assessment can withstand effects of tax amnesty. Held: A tax amnesty, being a general pardon or intentional overlooking by the state its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the government itself of its right to collect what otherwise would be due it, and in this sense,
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prejudicial thereto, to give tax evaders, who wish to relent and are willing to reform a chance to do so and thereby become a part of the new society with a clean slate. Section 4 of EO 41 enumerated, in no uncertain terms, taxpayers who may not avail to the amnesty granted. The company does not fall under any of the exceptions. The added exception urged by the Commissioner based on Revenue Memorandum Order 4-87, further restricting the scope of the amnesty, work against the raison detre of EO 41 and clearly amounts to an alt of administrative legislation contrary to the mandate of the law which the regulation ought to implement. The rule in the order that only assessments issued after 21 August 1986 shall be abated is beyond the contemplation of the law Commissioner vs. Court of Appeals GR 119761, 29 August 1996 Facts: Fortune Tobacco is engaged in the manufacture of different brands of cigarettes, specifically Champion, Hope4, and More (which are foreign brands listed in the World Tobacco Directory as belonging to foreign companies. Fortune Tobacco, however, changed names of Hope to Luxury and More to Premium More thereby removing said brands from the foreign brand category. Proof was also made/ submitted to the BIR that Champion was an original Fortune Tobacco Corp. register and thus a local brand. RA 7654 was enacted on 10 June 1993, levying a P5 minimum tax on locally manufactured cigarettes taxed at 55% or exportation of which is not authorized by contract, and P2 minimum tax per pack on other locally manufactured cigarette. The BIR sent the Company a month later a copy Revenue Memorandum Circular 37-93 declaring Hope, More and Champion as foreign brands, and

thus subjecting them to 55% as valorem tax, a review of RMC 37-93 was denied. Issue: Whether the brands may be placed within the scope of the amendatory law (RA 7654) and subject then to an increased, through RMC 37-93. Held: Prior to the issuance of RMC 37-93, the brands were in the category of locally manufactured cigarettes not bearing foreign brands, subject to 45% ad valorem tax. Without RMC 37-93, the enactment of RA7654 would not have new tax rate consequences on the companys products. In issuing RMC 37-93, the BIR legislated under its quasi-legislative authority and not simply interpreted the law. When an administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed. It behoves the agency to accord at least to those directly affected a chance to be heard, and thereby be duly informed, before that new issuance is given the force and effect of law. CIR v. BENGUET CORP. G.R. Nos. 134587 & 134588, August 08, 2005

FACTS: Benguet Corp. (Benguet) is a domestic corporation engaged in mining. It is a VATregistered enterprise. In January 1988, Benguet filed an application for zero-rating of its sales of mine products. The application was approved. 1ST VAT RULING (AUG. 1988): The CIR issued VAT Ruling No. 378-88 which declared that the sale of gold to the Central Bank (CB) is considered an export sale and therefor subject to 0% VAT. From 1988 to 1990, the CIR (more than 5 times) reiterated and confirmed its position that the sale
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of gold by a VAT-registered taxpayer to the CB is subject to 0% VAT. In reliance to the CIRs position, Benguet (from January 1988 to July 1989) sold gold to the CB and treated these sales as 0% VAT rated. In this same period, Benguet incurred input taxes attributable to its sale of gold to the CB. Consequently, Benguet filed with the CIR applications for the issuance of Tax Credit Certificates for input VAT Credits attributable to its export sales (inclusive of direct export sales and sale of gold to the CB). 2ND VAT RULING (JAN. 1992): The CIR issued VAT Ruling No. 008-92 declaring that the sales of gold to the CB are considered domestic sales subject to 10% VAT (instead of 0% from 1998-1990 in the 1ST VAT RULING). 3RD VAT RULING (AUG. 1992): The CIR issued VAT Ruling No. 59-92. It stated the retroactive application of the 2ND VAT RULING to all such sales starting January 1, 1988. It also said that mining companies will not be unduly prejudiced by the retroactive application of the 2ND VAT RULING because their claim for refund of input taxes are not lost because they are allowable on its: (1) Output taxes on the sales of gold to CB (2) Output taxes on other sales (3) As a deduction to income tax The CIR treated Benguets sales to CB as domestic sales subject to 10% VAT but allowed Benguet a total tax credit of only around P81M which corresponded to VAT input taxes attributable only to its direct EXPORT SALES. Despite this, Benguet was not refunded the said amounts of tax credit claimed. Hence, Benguet prayed for the issuance of Tax Credit Certificates with the CTA. Benguets computation of tax credit amounted to P131M

which included input tax to BOTH EXPORT SALES and SALES OF GOLD TO THE CB. CTA: Denied Benguets claim for tax credit. The alleged prejudice to Benguet of the retroactive application is merely speculative and not actual and imminent so as to prohibit its retroactivity. There wont be any prejudice because the 3RD VAT RULING provides for the remedies for the recovery of the input VAT. CA: Affirmed the CTA. On MR, the CA reversed itself. Ergo, the P131M tax credit claim was approved! According to the CA, the P131M includes: (1) P81M (input VAT credits attributable to direct EXPORT SALES) (2) P50M (input VAT credits attributable to SALES OF GOLD TO CB which were subject to 0% when the said sales were made) ISSUES: W/N the 2ND VAT RULING (subjecting sales of gold to the CB to 10% VAT) would be prejudicial to Benguet. CIRS POSITION: The CA erred in rejecting the retroactive application of the 2ND VAT RULING because its retroactive application will not prejudice Benguet. It may: (1) Use said input taxes in paying its output taxes in connection with its other sales transactions which are subject to the 10% VAT (2) If there are no other sales transaction subject to the 10% VAT, treat the input VAT as cost and deduct the same from income for income tax purposes.

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HELD: CIR FAIL! BENGUET FTW! The prejudice to Benguet is obvious! No retroactive effect! Benguet may claim the P50M input VAT credit! The VAT system allows a VAT-registered taxpayer to recover its input VAT either by: (1) Passing on the 10% output VAT (now 12%) on the gross selling price or gross receipts to its buyers. (2) If the input tax is attributable to the purchase of capital goods or to zero-rated sales, by filing a claim for a refund or tax credit with the BIR. Benguets claimed tax credit of input tax amounting to P50M represents the costs or expenses incurred by Benguet in connection with its gold production. Relying on the 1ST VAT RULING (sales of gold to the CB are considered export sales subject to 0%), Benguet sold gold to the CB without passing on CB its input VAT costs, obviously intending to obtain a refund or credit thereof from the BIR at the end of the taxable period. However, by the time Benguet applied for credit of its input VAT costs, the 2ND VAT RULING treated sales of gold to the CB as domestic sales subject to 10% VAT. And the 3RD VAT RULING retroactively applied the 2ND VAT RULING to such sales made from January 1, 1988 onwards. By reason of the denial of its claim for credit, Benguet has been precluded from recovering its input VAT costs. The CIRS remedies (set off with other transactions or income deduction) cannot be applied. (1) Benguet has clearly shown that it has no other transactions subject to 10% VAT and CIR has failed to prove the existence of such other transactions against which to set off Benguets input VAT. (2) Treating the input VAT as an income tax deduction will yield only to a partial benefit. The

use of input VAT as a tax deductions results in a loss of 65% of the input VAT which could have otherwise fully utilized as a tax credit. There is substantial difference between a tax credit and a tax deduction. A tax credit reduces tax liability, while a tax deduction only reduces taxable income (SEE P.70 OF THE CASE! It illustrates the difference between using the tax credit and tax deduction methods). Prejudice is all the more highlighted by the fact that it has been issued assessments for deficiency output VAT in the amounts of P252M (for 1988) and P244M (for 1989)! Benguet relied on the formal assurances of the BIRs 1ST VAT RULING. To retroact a later ruling revoking the grant of 0% rating status and applying a new and contrary position that such sales are now subject to 10% is inconsistent with justice and fair play.

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