JUDY ANNE L. SANTOS VS. PEOPLE OF THE PHIL et.al. GR No.

173176, August 26, 2008 FACTS: On 19 May 2005, then Bureau of Internal Revenue (BIR) Commissioner Guillermo L. Parayno, Jr. wrote to the Department of Justice (DOJ) Secretary Raul M. Gonzales a letter regarding the possible filing of criminal charges against petitioner. In said letter, BIR Commissioner Parayno summarized the findings of the investigating BIR officers that petitioner, in her Annual Income Tax Return for taxable year 2002 filed with the BIR, declared an income of P8,033,332.70 derived from her talent fees solely from ABS-CBN; initial documents gathered from the BIR offices and those given by petitioners accountant and third parties, however, confirmed that petitioner received in 2002 income in the amount of at least P14,796,234.70, not only from ABS-CBN, but also from other sources, such as movies and product endorsements; the estimated tax liability arising from petitioners underdeclaration amounted to P1,718,925.52, including incremental penalties; the non-declaration by petitioner of an amount equivalent to at least 84.18% of the income declared in her return was considered a substantial underdeclaration of income, which constituted prima facie evidence of false or fraudulent return under Section 248(B) of the NIRC, as amended; and petitioners failure to account as part of her income the professional fees she received from sources other than ABSCBN and her underdeclaration of the income she received from ABS-CBN amounted to manifest violations of Sections 254 and 255, as well as Section 248(B) of the NIRC, as amended. After an exchange of affidavits and other pleadings by the parties, Prosecution Attorney Olivia Laroza-Torrevillas issued a Resolution dated 21 October 2005 finding probable cause and recommending the filing of a criminal information against petitioner for violation of Section 255 in relation to Sections 254 and 248(B) of the NIRC, as amended. The said Resolution was approved by Chief State Prosecutor Jovencito R. Zuno. Pursuant to the 21 October 2005 DOJ Resolution, an Information for violation of Section 255 in relation to Sections 254 and 248(B) of the NIRC, as amended, was filed with the CTA on 3 November 2005 and docketed as C.T.A. Crim. Case No. 0-012. However, the CTA First Division, after noting several discrepancies in the Information filed, required the State Prosecutor to clarify and explain the same, and to submit the original copies of the parties affidavits, memoranda, and all other evidence on record. Consequently, Prosecution Attorney Torrevillas, on behalf of respondent People, submitted on 1 December 2005 a Compliance with Ex Parte Motion to Admit Attached Information. Prosecution Attorney Torrevillas moved that the documents submitted be admitted as part of the record of the case and the first Information be substituted by the attached second Information. The second Information addressed the discrepancies noted by the CTA in the first Information, by now reading thus: In a Resolution dated 8 December 2005, the CTA First Division granted the Peoples Ex Parte Motion and admitted the second Information. The CTA First Division then issued on 9 December 2005 a warrant for the arrest of petitioner. The tax court lifted and recalled the warrant of arrest on 21 December 2005 after

petitioner voluntarily appeared and submitted herself to its jurisdiction and filed the required bail bond in the amount of P20,000.00. In a Resolution dated 23 February 2006, the CTA First Division denied petitioners Motion to Quash and accordingly scheduled her arraignment on 2 March 2006 at 9:00 a.m. Petitioner filed a Motion for Reconsideration and/or Reinvestigation, which was again denied by the CTA First Division in a Resolution dated 11 May 2006. Petitioner received a copy of the 11 May 2006 Resolution of the CTA First Division on 17 May 2006. On 1 June 2006, petitioner filed with the CTA en banc a Motion for Extension of Time to File Petition for Review, docketed as C.T.A. EB. CRIM. No. 001. She filed her Petition for Review with the CTA en bancon 16 June 2006. However, in its Resolution dated 19 June 2006, the CTA en banc denied petitioners Motion for Extension of Time to File Petition for Review, ratiocinating that: ISSUE: WHETHER A RESOLUTION OF A CTA DIVISION DENYING A MOTION TO QUASH IS A PROPER SUBJECT OF AN APPEAL TO THE CTA EN BANC UNDER SECTION 11 OF REPUBLIC ACT NO. 9282, AMENDING SECTION 18 OF REPUBLIC ACT NO. 1125.

HELD: The Court finds no merit in the petitioners assertion. The petition for review under Section 18 of Republic Act No. 1125, as amended, may be new to the CTA, but it is actually a mode of appeal long available in courts of general jurisdiction. Petitioner is invoking a very narrow and literal reading of Section 18 of Republic Act No. 1125, as amended. Indeed, the filing of a petition for review with the CTA en banc from a decision, resolution, or order of a CTA Division is a remedy newly made available in proceedings before the CTA, necessarily adopted to conform to and address the changes in the CTA. There was no need for such rule under Republic Act No. 1125, prior to its amendment, since the CTA then was composed only of one Presiding Judge and two Associate Judges. Any two Judges constituted a quorum and the concurrence of two Judges was necessary to promulgate any decision thereof. The amendments introduced by Republic Act No. 9282 to Republic Act No. 1125 elevated the rank of the CTA to a collegiate court, with the same rank as the Court of Appeals, and increased the number of its members to one Presiding Justice and five Associate Justices. The CTA is now allowed to sit en bancor in two Divisions with each Division consisting of three Justices. Four Justices shall constitute a quorum for sessions en banc, and the affirmative votes of four members of the Court en banc are necessary for the rendition of a decision or resolution; while two Justices shall constitute a quorum for sessions of a Division and the affirmative votes of two members of the Division shall be necessary for the rendition of a decision or resolution.

In A.M. No. 05-11-07-CTA, the Revised CTA Rules, this Court delineated the jurisdiction of the CTA en banc and in Divisions. Section 2, Rule 4 of the Revised CTA Rules recognizes the exclusive appellate jurisdiction of the CTA en banc to review by appeal the following decisions, resolutions, or orders of the CTA Division: SEC. 2. Cases within the jurisdiction of the Court en banc. The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal the following: (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture; (2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction; and (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and penalties claimed is less than one million pesos; xxxx (f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs. (g) Decisions, resolutions or order on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; x x x. Although the filing of a petition for review with the CTA en banc from a decision, resolution, or order of the CTA Division, was newly made available to the CTA, such mode of appeal has long been available in Philippine courts of general jurisdiction. Hence, the Revised CTA Rules no longer elaborated on it but merely referred to existing rules of procedure on petitions for review and appeals. Given the foregoing, the petition for review to be filed with the CTA en banc as the mode for appealing a decision, resolution, or order of the CTA Division, under Section 18 of Republic Act No. 1125, as amended, is not a totally new remedy, unique to the CTA, with a special application or use therein. To the contrary, the CTA merely adopts the procedure for petitions for review and appeals long established and practiced in other Philippine courts. Accordingly, doctrines, principles, rules, and precedents laid down in jurisprudence by this Court as regards petitions for review and appeals in courts of general jurisdiction should likewise bind the CTA, and it cannot depart therefrom.

CIR vs. PASCOR REALTY & DEVT CORP. GR NO. 128315, June 29, 1999 FACTS: It appears that by virtue of Letter of Authority No. 001198, then BIR Commissioner Jose U. Ong authorized Revenue Officers Thomas T. Que, Sonia T. Estorco and Emmanuel M. Savellano to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation. (PRDC) for the years ending 1986, 1987 and 1988. The said examination resulted in a recommendation for the issuance of an assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively. On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of Justice against the PRDC, its President Rogelio A. Dio, and its Treasurer Virginia S. Dio, alleging evasion of taxes in the total amount of P10,513,671.00. Private respondents PRDC, et. al. filed an Urgent Request for Reconsideration/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 filed by the Commissioner of Internal Revenue (BIR) against them. In a letter dated May 17, 1995, the CIR denied the urgent request for reconsideration/reinvestigation of the private respondents on the ground that no formal assessment has as yet been issued by the Commissioner. Private respondents then elevated the Decision of the CIR dated May 17, 1995 to the Court of Tax Appeals on a petition for review docketed as CTA Case No. 5271 on July 21, 1995. On September 6, 1995, the CIR filed a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over the subject matter of the petition, as there was no formal assessment issued against the petitioners. The CTA denied the said motion to dismiss in a Resolution dated January 25, 1996 and ordered the CIR to file an answer within thirty (30) days from receipt of said resolution. The CIR received the resolution on January 31, 1996 but did not file an answer nor did she move to reconsider the resolution.

Issues Petitioners submit for the consideration of this Court the following 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. (3) Whether or not the CTA can take cognizance of the case in the absence of an assessment.[9]

In the main, the Court will resolve whether the revenue officers Affidavit-Report, which was attached to the criminal Complaint filed with the Department of Justice, constituted an assessment that could be questioned before the Court of Tax Appeals. HELD: The petition is meritorious.

Main Issue: Assessment Petitioner argues that the filing of the criminal complaint with the Department of Justice cannot in any way be construed as a formal assessment of private respondents tax liabilities. This position is based on Section 205 of the National Internal Revenue Code (NIRC), which provides that remedies for the collection of deficient taxes may be by either civil or criminal action. Likewise, petitioner cites Section 223(a) of the same Code, which states that in case of failure to file a return, the tax may be assessed or a proceeding in court may be begun without assessment. Respondents, on the other hand, maintain that an assessment is not an action or proceeding for the collection of taxes, but merely a notice that the amount stated therein is due as tax and that the taxpayer is required to pay the same. Thus, qualifying as an assessment was the BIR examiners Joint Affidavit, which contained the details of the supposed taxes due from respondent for taxable years ending 1987 and 1988, and which was attached to the tax evasion Complaint filed with the DOJ. Consequently, the denial by the BIR of private respondents request for reinvestigation of the disputed assessment is properly appealable to the CTA. We agree with petitioner. Neither the NIRC nor the revenue regulations governing the protest of assessments provide a specific definition or form of an assessment. However, the NIRC defines the specific functions and effects of an assessment. To consider the affidavit attached to the Complaint as a proper assessment is to subvert the nature of an assessment and to set a bad precedent that will prejudice innocent taxpayers. True, as pointed out by the private respondents, an assessment informs the taxpayer that he or she has tax liabilities. But not all documents coming from the BIR containing a computation of the tax liability can be deemed assessments. To start with, an assessment must be sent to and received by a taxpayer, and must demand payment of the taxes described therein within a specific period. Thus, the NIRC imposes a 25 percent penalty, in addition to the tax due, in case the taxpayer fails to pay the deficiency tax within the time prescribed for its payment in the notice of assessment. Likewise, an interest of 20 percent per annum, or such higher rate as may be prescribed by rules and regulations, is to be collected from the date prescribed for its payment until the full payment. The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. Section 203[13]of the NIRC provides that internal revenue taxes must be assessed within three years from the last day within which to file the return. Section 222, on the other hand, specifies a period of ten years in case a fraudulent return with intent to evade was submitted or in case of failure to file a return. Also, Section 228 of the same law states that said assessment may be protested only within thirty days from receipt thereof. Necessarily, the taxpayer must be certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which

to make an assessment or to protest the same, or whether interest and penalty may accrue thereon. It should also be stressed that the said document is a notice duly sent to the taxpayer. Indeed, an assessment is deemed made only when the collector of internal revenue releases, mails or sends such notice to the taxpayer. In the present case, the revenue officers Affidavit merely contained a computation of respondents tax liability. It did not state a demand or a period for payment. Worse, it was addressed to the justice secretary, not to the taxpayers. Respondents maintain that an assessment, in relation to taxation, is simply understood to mean: A notice to the effect that the amount therein stated is due as tax and a demand for payment thereof. Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls. Even these definitions fail to advance private respondents case. That the BIR examiners Joint Affidavit attached to the Criminal Complaint contained some details of the tax liabilities of private respondents does not ipso facto make it an assessment. The purpose of the Joint Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. Clearly, it was not meant to be a notice of the tax due and a demand to the private respondents for payment thereof. The fact that the Complaint itself was specifically directed and sent to the Department of Justice and not to private respondents shows that the intent of the commissioner was to file a criminal complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion. What private respondents received was a notice from the DOJ that a criminal case for tax evasion had been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment. In addition, what private respondents sent to the commissioner was a motion for a reconsideration of the tax evasion charges filed, not of an assessment, as shown thus: This is to request for reconsideration of the tax evasion charges against my client, PASCOR Realty and Development Corporation and for the same to be referred to the Appellate Division in order to give my client the opportunity of a fair and objective hearing[

Additional Issues: Assessment Not Necessary Before Filing of Criminal Complaint Private respondents maintain that the filing of a criminal complaint must be preceded by an assessment. This is incorrect, because Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is submitted or in cases of failure to file a return such as this case, proceedings in court may be commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, petitioner therein sought the dismissal of the

criminal Complaints for being premature, since his protest to the CTA had not yet been resolved. The Court held that such protests could not stop or suspend the criminal action which was independent of the resolution of the protest in the CTA. This was because the commissioner of internal revenue 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. Private respondents insist that Section 222 should be read in relation to Section 255 of the NIRC,[21] which penalizes failure to file a return. They add that a tax assessment should precede a criminal indictment. We disagree. To reiterate, said Section 222 states that an assessment is not necessary before a criminal charge can be filed. This is the general rule. Private respondents failed to show that they are entitled to an exception. Moreover, the criminal charge need only be supported by a prima facie showing of failure to file a required return. This fact need not be proven by an assessment. The issuance of an assessment must be distinguished from the filing of a complaint. Before an assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer is then given a chance to submit position papers and documents to prove that the assessment is unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the taxpayer informing the latter specifically and clearly that an assessment has been made against him or her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not that the commissioner has issued an assessment. It must be stressed that a criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

CIR vs. AZUCENA T. REYES; GR No. 159694, January 27, 2006 The Facts On July 8, 1993, Maria C. Tancinco (or decedent) died, leaving a 1,292 square-meter residential lot and an old house thereon (or subject property) located at 4931 Pasay Road, Dasmarias Village, Makati City.

On the basis of a sworn information-for-reward filed on February 17, 1997 by a certain Raymond Abad (or Abad), Revenue District Office No. 50 (South Makati) conducted an investigation on the decedents estate (or estate). Subsequently, it issued a Return Verification Order. But without the required preliminary findings being submitted, it issued Letter of Authority No. 132963 for the regular investigation of the estate tax case. Azucena T. Reyes (or [Reyes]), one of the decedents heirs, received the Letter of Authority on March 14, 1997.

On February 12, 1998, the Chief, Assessment Division, Bureau of Internal Revenue (or BIR), issued a preliminary assessment notice against the estate in the amount of P14,580,618.67. On May 10, 1998, the heirs of the decedent (or heirs) received a final estate tax assessment notice and a demand letter, both

dated April 22, 1998, for the amount of P14,912,205.47, inclusive of surcharge and interest.

On June 1, 1998, a certain Felix M. Sumbillo (or Sumbillo) protested the assessment [o]n behalf of the heirs on the ground that the subject property had already been sold by the decedent sometime in 1990.

On November 12, 1998, the Commissioner of Internal Revenue (or [CIR]) issued a preliminary collection letter to [Reyes], followed by a Final Notice Before Seizure dated December 4, 1998.

On January 5, 1999, a Warrant of Distraint and/or Levy was served upon the estate, followed on February 11, 1999 by Notices of Levy on Real Property and Tax Lien against it.

On March 2, 1999, [Reyes] protested the notice of levy. However, on March 11, 1999, the heirs proposed a compromise settlement of P1,000,000.00.

In a letter to [the CIR] dated January 27, 2000, [Reyes] proposed to pay 50% of the basic tax due, citing the heirs inability to pay the tax assessment. On March 20, 2000, [the CIR] rejected [Reyess] offer, pointing out that since the estate tax is a charge on the estate and not on the heirs, the latters financial incapacity is immaterial as, in fact, the gross value of the estate amounting to P32,420,360.00 is more than sufficient to settle the tax liability. Thus, [the CIR] demanded payment of the amount of P18,034,382.13 on or before April 15, 2000[;] otherwise, the notice of sale of the subject property would be published. On April 11, 2000, [Reyes] again wrote to [the CIR], this time proposing to pay 100% of the basic tax due in the amount of P5,313,891.00. She reiterated the proposal in a letter dated May 18, 2000. As the estate failed to pay its tax liability within the April 15, 2000 deadline, the Chief, Collection Enforcement Division, BIR, notified [Reyes] on June 6, 2000 that the subject property would be sold at public auction on August 8, 2000. On June 13, 2000, [Reyes] filed a protest with the BIR Appellate Division. Assailing the scheduled auction sale, she asserted that x x x the assessment, letter of demand[,] and the whole tax proceedings against the estate are void ab initio. She offered to file the corresponding estate tax return and pay the correct amount of tax without surcharge [or] interest. Without acting on [Reyess] protest and offer, [the CIR] instructed the Collection Enforcement Division to proceed with the August 8, 2000 auction

sale. Consequently, on June 28, 2000, [Reyes] filed a [P]etition for [R]eview with the Court of Tax Appeals (or CTA), docketed as CTA Case No. 6124. On July 17, 2000, [Reyes] filed a Motion for the Issuance of a Writ of Preliminary Injunction or Status Quo Order, which was granted by the CTA on July 26, 2000. Upon [Reyess] filing of a surety bond in the amount of P27,000,000.00, the CTA issued a [R]esolution dated August 16, 2000 ordering [the CIR] to desist and refrain from proceeding with the auction sale of the subject property or from issuing a [W]arrant of [D]istraint or [G]arnishment of [B]ank [A]ccount[,] pending determination of the case and/or unless a contrary order is issued. [The CIR] filed a [M]otion to [D]ismiss the petition on the grounds (i) that the CTA no longer has jurisdiction over the case[,] because the assessment against the estate is already final and executory; and (ii) that the petition was filed out of time. In a [R]esolution dated November 23, 2000, the CTA denied [the CIRs] motion. During the pendency of the [P]etition for [R]eview with the CTA, however, the BIR issued Revenue Regulation (or RR) No. 6-2000 and Revenue Memorandum Order (or RMO) No. 42-2000 offering certain taxpayers with delinquent accounts and disputed assessments an opportunity to compromise their tax liability. On November 25, 2000, [Reyes] filed an application with the BIR for the compromise settlement (or compromise) of the assessment against the estate pursuant to Sec. 204(A) of the Tax Code, as implemented by RR No. 6-2000 and RMO No. 42-2000. On December 26, 2000, [Reyes] filed an Ex-Parte Motion for Postponement of the hearing before the CTA scheduled on January 9, 2001, citing her pending application for compromise with the BIR. The motion was granted and the hearing was reset to February 6, 2001. On January 29, 2001, [Reyes] moved for postponement of the hearing set on February 6, 2001, this time on the ground that she had already paid the compromise amount of P1,062,778.20 but was still awaiting approval of the National Evaluation Board (or NEB). The CTA granted the motion and reset the hearing to February 27, 2001. On February 19, 2001, [Reyes] filed a Motion to Declare Application for the Settlement of Disputed Assessment as a Perfected Compromise. In said motion, she alleged that [the CIR] had not yet signed the compromise[,] because of procedural red tape requiring the initials of four Deputy Commissioners on relevant documents before the compromise is signed by the [CIR]. [Reyes] posited that the absence of the requisite initials and signature[s] on said documents does not vitiate the perfected compromise. Commenting on the motion, [the CIR] countered that[,] without the approval of the NEB, [Reyess] application for compromise with the BIR cannot be considered a perfected or consummated compromise.

ISSUE: The foregoing issues can be simplified as follows: first, whether the assessment against the estate is valid; and, second, whether the compromise entered into is also valid. HELD: The Petition is unmeritorious. First Issue: Validity of the Assessment Against the Estate The second paragraph of Section 228 of the Tax Code[12] is clear and mandatory. It provides as follows: Sec. 228. Protesting of Assessment. -xxx xxx xxx

The taxpayers shall be informed in writing of the law and the facts on which the assessment is made: otherwise, the assessment shall be void.

In the present case, Reyes was not informed in writing of the law and the facts on which the assessment of estate taxes had been made. She was merely notified of the findings by the CIR, who had simply relied upon the provisions of former Section 229[ prior to its amendment by Republic Act (RA) No. 8424, otherwise known as the Tax Reform Act of 1997. First, RA 8424 has already amended the provision of Section 229 on protesting an assessment. The old requirement of merely notifying the taxpayer of the CIRs findings was changed in 1998 to informing the taxpayer of not only the law, but also of the facts on which an assessment would be made; otherwise, the assessment itself would be invalid. It was on February 12, 1998, that a preliminary assessment notice was issued against the estate. On April 22, 1998, the final estate tax assessment notice, as well as demand letter, was also issued. During those dates, RA 8424 was already in effect. The notice required under the old law was no longer sufficient under the new law. To be simply informed in writing of the investigation being conducted and of the recommendation for the assessment of the estate taxes due is nothing but a perfunctory discharge of the tax function of correctly assessing a taxpayer. The act cannot be taken to mean that Reyes already knew the law and the facts on which the assessment was based. It does not at all conform to the compulsory requirement under Section 228. Moreover, the Letter of Authority received by respondent on March 14, 1997 was for the sheer purpose of investigation and was not even the requisite notice under the law. The procedure for protesting an assessment under the Tax Code is found in Chapter III of Title VIII, which deals with remedies. Being procedural in nature, can its provision then be applied retroactively? The answer is yes.

Second Issue: Validity of Compromise

It would be premature for this Court to declare that the compromise on the estate tax liability has been perfected and consummated, considering the earlier determination that the assessment against the estate was void. Nothing has been settled or finalized. Under Section 204(A) of the Tax Code, where the basic tax involved exceeds one million pesos or the settlement offered is less than the prescribed minimum rates, the compromise shall be subject to the approval of the NEB composed of the petitioner and four deputy commissioners. Finally, as correctly held by the appellate court, this provision applies to all compromises, whether government-initiated or not. Ubi lex non distinguit, nec nos distinguere debemos. Where the law does not distinguish, we should not distinguish. LASCONA LAND CO., INC, Pet., vs CIR, Respondent GR No. 171251 March 5, 2012 FACTS: In 1998, the CIR issued an Assessment Notice against herein petitioner informing the latter of its alleged deficiency income tax for the year 1993. Petitioner filed a letter protest, but was denied by the OIC, Regional Director, BIR, Makati City, informing the former that the Notice had become

1. Under Section 228, in case of the inaction of the CIR on the protested assessment, the taxpayer has two options, either: (1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessment and appeal such final decision to the CTA within 30 days from the receipt of a copy of such decision. Taxpayer filed a letter protest against the Assessment Notice issued alleging deficiency income tax for the year 1993. The protest was denied by the Regional Director of the BIR for the reason that the case was not elevated to the Court of Tax Appeals as mandated by the provisions of the last paragraph of Section 228 of the Tax Code. By virtue thereof, the said assessment notice has become final, executor and demandable. The Supreme Court held that it is not correct to say that the assessment became final and executory by the sole reason that the taxpayer failed to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period because in effect, it limited the remedy of the taxpayer under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period. CIR v. Metro Star Superama, Inc. Sending of a PAN (pre-assessment notice) as required by Section 228 of NIRC is part of due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorties. Failure to send the PAN makes CIR tax assessment VOID.

Facts: CIR filed before the Supreme Court a petition for review on certiorari against the CTA-En bancs decision that the assessment made by CIR is Void due to non-service of PAN. CIR assessed Metro Star Superama, Inc (Metrostar) ofdeficiency in value-added tax and withholding tax for 1999. The following are previous events: On Jan 2001 Regional Director of BIR issued letter of Authority for Revenue Officer to examine Metrostars book of account. Due to failure of the latter to present the records a subpoena duces tecum was issued by BIR. On Nov 2001, a preliminary 15-day letter was issued to Metrostar wherein BIR stated that a post audit review was held and that it was found that there was a deficiency in value-added and withholding taxes of around P292,000. On April 11, 2002, Metrostar received Formal Letter of Demand Assessing from Rev. district assessing them P292,000 for deficiency value added and withholding taxes for 1999. With this, Metro star filed a petition for review with CTA wherein the corporation denied that it received a PAN thus claiming that such assessment made by BIR was not accorded due process. Issues: 1. W/N Metro Star complied with due process requirement of serving PAN before assessment 2. W/N deficiency assessment issued by respondent are void for failure to send PAN Held/Ratio: 1. YES. The Court held that the failure of the respondent to prove receipt of the assessment by the Petitioner leads to the conclusion that no assessment was issued. Based on jurisprudence, if the taxpayer denies ever having received an assessment from the BIR, it is incumbent upon the latter to prove by competent evidence that such notice was indeed received by the addressee. The onus probandi was shifted to respondent to prove by contrary evidence that the Petitioner received the assessment in the due course of mail. It is essential to prove the fact of mailing is the registry receipt issued by the Bureau of Posts or the Registry return card which would have been signed by the Petitioner or its authorized representative. In this case, CIR only stated that since FAN (final assessment notice) was served then the PAN should have also been served. CIR, however, failed to support its claim with substantial evidence. With this, the Court held that there was no clear showing that Metrostar actually received the alleged PAN. 2. YES, Section 228 of NIRC clearly requires that taxpayer must first be informed that he is liable for deficiency of taxes through send of PAN and to proceed heedlessly with tax collection without first establishing a valid assessment is violative of ones right for due process. The Court held that the sending of PAN to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of deficiency tax assessment the absence of which renders nugatory any assessment made by the tax authority. It is clearly stated in sec 228, that failure to send PAN stating the facts and the law on which the assessment was made, renders the assessment made by CIR void.

CIR v. FIRST EXPRESS PAWNSHOP (2009) Facts: On December 2001, the CIR assessed several tax deficiencies income tax, VAT, documentary stamp tax and DST along with surcharges against First Express Pawnshop. First Express received the notices on January 3, 2001. It filed its written protests to the assessments on February 1, 2001 attaching thereto its General Information Sheet and Balance Sheet. (Relevant fact shown in later part of decision: Apparently, the CIR requested several other documents loan agreement with lender banks, official receipts of interests received, documentary evidence of donations made, proof of DST payment on subscriptions from First Express after it filed its protest but the latter failed to present them.) The CIR not having responded to the written protests with the 180 days as prescribed by the NIRC, First Express filed petition before the CTA. In its petition, First Express maintained that it was not a lending investor (subject to VAT), its documents were not among those subject to the DST and the pawn tickets it issued were pledges which are subject to tax under section 195. The CIR made a general opposition that its opposition was valid and binding. First Express in the meantime paid the income tax deficiency. The CTA partially affirmed the assessment of the DST. The CTA en banc affirmed the CTA first division ruling. Issue: Has the assessment reached finality when First Express failed to present the documents demanded by the CIR within 60 days from filing of its protest as prescribed by Section 228 of the NIRC? (The CIR insists that the CTA should not have entertained the petition of First Express because the latter did not submit relevant supporting documents as a requisite to remedy of filing of petition before the said court pursuant to section 228.) Held: First Express complied with the requirement of submitting relevant supporting documents prescribed in section 228 of the NIRC. Hence, the petition was validly entertained by the CTA. Ratio: The SC said that First Express did not fail to file the necessary relevant supporting documents referred to in section 228 of the NIRC. The Court said that First Express attached its GIS and Balance Sheet upon filing of its protest. Also, It said that the CIR cannot insist on requiring First Express to present proof of payment of the DST because the said document does not exist pursuant to the latters claims that it was not liable to pay such in the first place. Finally, the Court said that in referring to relevant supporting documents it must be understood to mean those necessary to support the legal basis in disputing an assessment. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot specify what particular kind of documents the taxpayer has to present otherwise, the taxpayer may be required to present documents that /she cannot submit. First Express having complied with the requirement of section 228 as to submission of relevant supporting documents, the assessment against it did not become final and executor.

CIR v. Hantex Trading Co., Inc. (2005) Doctrine: The law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The standard is not the form of the record but where it might shed light on the accuracy of the taxpayers return. As a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such assessment was based on sufficient evidence. Facts: Hantex Trading Co., Inc. is a corporation engaged in the sale of plastic products and importation of synthetic resin and other chemicals for the manufacture of its products. It is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs. In October 1989, Lt. Amoto, Acting Chief of the Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that Hantex had imported synthetic resin amounting to P115,599,018.00 but only declared P45,538,694.97 for the year 1987. The informer based it on the photocopies of 77 Consumption Entries furnished by another informer. The EIIB failed to secure certified copies since the custodian in the Bureau of Customs told them that the original copies had been eaten by termites. The Chief of the Collection Division Merlita Tomas of the Port of Manila could also not authenticate the copies since she did not have the originals. She wrote a letter, merely indicating the entry numbers and the date of release of the imports made by Hantex. The Bureau of Customs Chief of Collection Division Augusto Danganan also could not authenticate the import entries since the originals had also been eaten by termites. He just issued a certification of the entries filed by Hantex. Thus, the EIIB relied on the photocopies and the certifications of Tomas and Danganan and recommended the collection of the tax assessment to the BIR. The BIR conducted an investigation and found out that there was a prima facie case of fraud against Hantex, based on the report of the EIIB. The BIR Commissioner sent a letter dated April 15, 1991 to demand payment of the deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest. Hantex made a protest and stated that since the officers failed to present the original or authenticated copies of the Consumption and Import Entry Accounts. However, the CIR denied the request. The CTA ruled in favor of the BIR and Hantex was ordered to pay. However, the CA reversed the decision and ruled that the assessments were unlawful and baseless since the photocopies were not duly authenticated nor verified under oath by the investigators. Issue: 1. W/N the BIRs assessment against Hantex for deficiency income tax and sales tax for the was based on actual facts

Held/Ratio: 1. NO. The best evidence envisaged in Section 16 of the 1977 NIRC, as amended, includes the corporate and accounting records of the taxpayer who is the subject of the assessment process, the accounting records of other taxpayers engaged in the same line of business, including their gross profit and net profit sales. The court stated that the law allows the BIR access to all relevant or material records and data in the person of the taxpayer. It places no limit or condition on the type or form of the medium by which the record subject to the order of the BIR is kept. The purpose is to enable the BIR to get at the taxpayers records in whatever form they may be kept. The BIR Commissioner was correct in saying that the best evidence may consist of hearsay evidence. The general rule is that administrative agencies such as the BIR are not bound by the technical rules of evidence. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The BIR, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer. The Court in Collector of Internal Revenue v. Benipayo ruled that the assessment must be based on actual facts. The rule assumes more importance in this case since the xerox copies of the Consumption Entries furnished by the informer of the EIIB were furnished by another informer. The BIR or the EIIB could have gotten hold of the originals since these are accomplished in several copies. The BIR acted arbitrarily and capriciously in relying on the machine copies of the Consumption Entries. Also, it should not have considered the certifications made by Tomas and Danganan because they did not authenticate the copies of the Consumption Entries. They just indicated in their letters the numbers of the entries and the dates of release of the imports. CIR v. Kudos Metal Corporation (2010) Facts: Pursuant to a Letter of Authority dated September 7, 1999, the BIR served upon Kudos Metal Corp Notices of Presentation of Records. Kudos failed to comply with these notices. Hence, the BIR issued a Subpeona Duces Tecum dated September 21, 2006. On December 10, 2001, Kudos accountant, executed a Waiver of the Defense of Prescription. This was followed by a second Waiver of Defense of Prescription on February 18, 2003. On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices. Right to assess has prescribed. Issues of the first waiver: Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more than P1,000,000. The waiver failed to indicate the date of acceptance. The fact of receipt by the taxpayer of his file copy was not indicated on the original copy.

CTA En Banc Agreed only to the second and third grounds. Issue: 1. Whether the right of the government to assess has expired. Held/Ratio: 1. Yes. An assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222of the NIRC. The period to assess and collect taxes may only be extended upon a written agreement between the CIR and thetaxpayer executed before the expiration of the three-year period. RMO 20-90 issued on April 4, 1990 and RDAO 05-01issued on August 2, 2001 lay down the procedure for the proper execution of the waiver. The first waiver had the following infirmities: 7. 1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase but not after ______ 19 ___, which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. 2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of theagreement.

1. The waivers were executed without the notarized written authority of Pasco to sign the waiver in behalf of respondent. 2. The waivers failed to indicate the date of acceptance. 3. The fact of receipt by the respondent of its file copy was not indicated in the original copies of the waivers. Estoppel does not apply in this case. In another case8, estoppel was applied as an exception to the statute of limitations on collection of taxes and not on the assessment of taxes. There was a finding that the taxpayer made several requests or positive acts to convince the government to postpone the collection of taxes. In this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments. The BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 2090 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayers right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed.

COMMISSIONER OF INTERNAL REVENUE v. PHILIPPINE GLOBAL COMMUNICATIONS, INC. 499 SCRA 53 (2006), THIRD DIVISION The wordings of the Temporary Restraining Order suspended the implementation of the E-VAT law in its entirety, but not the collection of 10% VAT on service under the National Internal Revenue Code. By reason of a legislative franchise, Respondent Philippine Global Communications, Inc. (PGCI) constructs, maintains and operates communications system subject to 3% franchise tax under the Tax Code. However, the said provision of the Tax Code on franchise tax was amended by Section 12 of the Expanded Value Added Tax Law (E-VAT Law) which omitted the 3% franchise tax imposed upon a telecommunications company. A Temporary Restraining Order (TRO) was subsequently issued by the Court in the consolidated cases of Tolentino et al. v. Secretary of Finance, et al., ordering all the respondents to cease and desist from enforcing and/or implementing the E-VAT Law. By reason of the suspension of the E-VAT Law, PGCI filed a claim for tax refund before Respondent Commission of Internal Revenue (CIR) stating therein that upon the effectivity of the E-VAT Law, it was no longer required to pay the 3% franchise tax. Due to the inaction of CIR, PGCI filed a case against it before the Court of Tax Appeals (CTA). CTA ruled that BIR should refund the 3% to PGCI. ISSUE:

Whether or not PGCI was exempted from paying franchise taxes during the effectivity of the TRO suspending the enforcement of the E-VAT Law

HELD: Under Section 12 of the E-VAT Law, the 3% franchise tax on telephone and/or telegraph systems and radio broadcasting stations to which category PGCI belongs was omitted. Under Section 3 of the E-VAT Law, however, PGCIs sale of services is subject to VAT, thus, under the E-VAT Law, PGCI ceased to be liable to pay the 3% franchise tax. It instead is made liable to pay 10% VAT on sale of services. The effectivity of the E-VAT Law was, however, suspended, by this Court when it issued a TRO pending the resolution of the Tolentino et al. cases challenging the constitutionality of the law. The wording of the order leaves no doubt that what was restrained by the TRO was the implementation of the E-VAT law in its entirety. That the provisions of the Tax Code, prior to their amendment by the E-VAT Law, were to apply in the interim, that is, while the TRO in Tolentino et al. was effective, is clearly reflected in Revenue Memorandum Circular No. 27-94 issued by CIR which directed all internal revenue officers to comply with the following directives, to wit: 3. All VAT and non-VAT persons shall be governed by the provisions of the National Internal Revenue Code prior to its amendment by Republic Act No. 7716 x x x x 5. All other amendments of the NIRC made by RA 7716 shall be considered ineffective until the Supreme Court has declared otherwise. With the issuance of the TRO, the enforcement and/or implementation of the entire EVAT law was stopped. The abolition of the 3% franchise tax on telecommunications companies, and its replacement by the 10% VAT, was effective and implemented only on January 1, 1996. Thus, PGCIs claim for refund of the franchise tax must fail. To grant a refund of the franchise tax it paid prior to the effectivity and implementation of the VAT would create a vacuum and thereby deprive the government from collecting either the VAT or the franchise tax

PROTECTORS SERVICES, INC., V CA ET. AL. G.R. No 118176, April 12, 2000 Facts: Petition Protectors Services, Inc., (PSI) is a contractor engaged in recruiting security guards for clients. After an audit investigation, the BIR assessed PSI deficiency percentage taxes including surcharges, penalties and interests of P503,564.39, P831,464.30 and P1,514,047.86 for 1983, 1984 and 1985, respectively. On December 7, 1987, respondent CIR sent demand letters for payment of said assessments for 1983 and 1984 on December 10, 1987, but denied receiving the notice of deficiency tax for1985. Petitioner PSI, sent a protest letter dated January 12, 1988 regarding the 1983 and 1984 assessments, claiming that gross receipts subject to percentage tax should exclude salaries of the security guards, employers share of SSS, SIF and Medicare contributions. Without formally

acting thereon, the BIR sent a follow-up letter dated July 12, 1988 for the settlement of the taxes based on its computation, plus additional documentary stamp taxes of P2,025 on PSIs capitalization for 1983 and 1984 and as deficiency expanded withholding tax of P703.41, thereby bringing the total unsettled tax to P2,851,805.16. On July 12, 1988, petition paid the P2,025 documentary stamp tax and P703.41 deficiency expanded withholding tax. The following day, PSI filed its second protest for the 1983 and 1984 assessments and included for the first time its protest against the 1985 assessment. On November 9, 1990, the BIR denied the protests stating that salaries of security guards are part of taxable gross receipts for determination of contractors tax. PSI filed a petition for review on December 5, 1990 with the CTA averring that assessments for documentary stamp and expanded withholding taxes and without basis having been paid on July 22, 1988; the period for collection of the 1985 assessment letter therefore, the period to collect the percentage taxes for the first, second and third quarter of 1984 has lapsed, the assessment letter therefore having been sent on December 10, 1987, or beyond 3 years from filing of the quarterly returns, and that the base amount was erroneous since salaries of security guards, employers share of SSS, SIF and medicare contributions should not form part of taxable gross receipts. The CTA dismissed the petition stating that: (1) the assessments were made within the 3-year prescriptive period which should be reckoned from January 20, 1985, the date of filing the final return; (2) receipt of the 1985 assessment cannot be denied as all assessments were sent in 1 envelope, as testified to by BIR personal; and (3) the protest letter having filed only on January 12, 1988, or 33 days from December 10, 1987, the request for reinvestigation was filed out of time. On review by the CA, the CTAs decision was affirmed.

Issues: Whether or not the CTA has jurisdiction to act on the petition for review filed before it. Whether or not the assessments against PSI for deficiency percentage tax for 1983 and 1984 were made within the prescriptive period. Whether or not the period for collection of taxes for taxable years 1983, 1984 and 1985 has already prescribed. Whether or not the assessments are correct.

Held: An assessment maybe administratively protested within 30 days from receipt thereof; otherwise, the assessment shall become final and unappealable. In this case, PSI received the assessments on December 10, 1987 and protested the 1983 and 1984 assessments on January 12, 1988, or 33 days thereafter. Hence, the protests were filed out of time and PSI can no longer dispute the correctness of assessment. The CTA correctly dismissed the appeal for lack of jurisdiction. Petitioners contention that the Governments right to assess and collect the 1983, 1984 and 1985 assessments had already prescribed in view of BP700, which reduced the prescriptive period for assessment and collection of internal revenue taxes to 3 yrs, lacks merit BP700 was

approved on April 5, 1984. The 3-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the par 1983 was still covered by the 5-year statutory prescriptive period. The 3-year prescriptive period for assessment of contractors tax should be computed at the time of filing of the final annual percentage tax return, when it can be finally acclaimed if the taxpayer still has an unpaid tax, and not from the tentative quarterly payments. As to the contention that for failure of the BIR to commence collection of the 1983, 1984 and 1985 deficiency taxes either by judicial action or by distraint and levy, the governments right to collect the tax has prescribed, the court ruled that the suspension of the running of the statute of limitations for tax collection for the period during which the commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and 60 days thereafter. In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner elevated the case to the SC, hoping for a review in the favor. The actions taken by petitioner before the CTA and the SC suspended the running of the statute of limitation. As to the correctness of the assessment, it was held that contractors tax on gross receipts imposed on business agents including private detective watchman agencies, was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term gross receipts means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under the subcontract arrangement. Hence, gross receipts could not be diminished by employers SSS, SIF and medicare contributions. Furthermore, it has been consistently ruled by the BIR that thesalaries paid to security guards should form part of the gross receipts subject to tax.

REPUBLIC OF THE PHILS. VS. FERDINAND MARCOS II et.al. GR Nos. 130371 and 130855 August 4, 2009 FACTS: On January 11, 1996, the Regional Trial Court (RTC) of Pasig City Branch 156, acting as a probate court, in Special Proceeding No. 10279, issued an Order[4] granting letters testamentary in solidum to respondents Ferdinand R. Marcos II and Imelda Trinidad Romualdez-Marcos as executors of the last will and testament of the late Ferdinand E. Marcos.

On February 5, 1996, respondent Ferdinand Marcos II filed a Compliance stating that he already filed a bond in the amount ofP50,000.00 as directed by the January 11, 1996 RTC Order and that he took his oath as named executor of the will on January 30, 1996. On March 13, 1996, the RTC issued Letters of Administration[7] to BIR Commissioner Liwayway Vinzons-Chato in accordance with an earlier Order dated September 9, 1994, appointing her as Special Administratrix of the Marcos Estate.

ISSUE:

WHETHER RESPONDENTS IMELDA R. MARCOS AND FERDINAND R. MARCOS II SHOULD BE DISQUALIFIED TO ACT AND SERVE AS EXECUTORS. HELD: The petition is without merit. The failure to file an income tax return is not a crime involving moral turpitude as the mere omission is already a violation regardless of the fraudulent intent or willfulness of the individual. This conclusion is supported by the provisions of the NIRC as well as previous Court decisions which show that with regard to the filing of an income tax return, the NIRC considers three distinct violations: (1) a false return, (2) a fraudulent return with intent to evade tax, and (3) failure to file a return. The same is illustrated in Section 51(b) of the NIRC which reads: (b) Assessment and payment of deficiency tax xxx In case a person fails to make and file a return or list at the time prescribed by law, or makes willfully or otherwise, false or fraudulent return or list x x x. (Emphasis Supplied)

Likewise, in Aznar v. Court of Tax Appeals,[ this Court observed:

To our minds we can dispense with these controversial arguments on facts, although we do not deny that the findings of facts by the Court of Tax Appeals, supported as they are by very substantial evidence, carry great weight, by resorting to a proper interpretation of Section 332 of the NIRC. We believe that the proper and reasonable interpretation of said provision should be that in the three different cases of (1) false return, (2) fraudulent return with intent to evade tax, (3) 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 (1) falsity, (2) fraud, and (3) omission. Our stand that the law should be interpreted to mean a separation of the three different situations of false return, fraudulent return with intent to evade tax, and failure to file a return is strengthened immeasurably by the last portion of the provision which segregates the situations into three different classes, namely, "falsity," "fraud" and "omission."[] (Emphasis Supplied) Applying the foregoing considerations to the case at bar, the filing of a fraudulent return with intent to evade tax is a crime involving moral turpitude as it entails willfulness and fraudulent intent on the part of the individual. The same, however, cannot be said for failure to file a return where the mere omission already constitutes a violation. Thus, this Court holds that even if the conviction of respondent Marcos II is affirmed, the same not being a crime involving moral turpitude cannot serve as a ground for his disqualification.

BELLE CORP vs. CIR GR No. 181298, January 10, 2011

Factual Antecedents Petitioner Belle Corporation is a domestic corporation engaged in the real estate and property business.[4] On May 30, 1997, petitioner filed with the Bureau of Internal Revenue (BIR) its Income Tax Return (ITR) for the first quarter of 1997, showing a gross income ofP741,607,495.00, a deduction of P65,381,054.00, a net taxable income of P676,226,441.00 and an income tax due of P236,679,254.00, which petitioner paid on even date through PCI Bank, Tektite Tower Branch, an Authorized Agent Bank of the BIR.[5] On August 14, 1997, petitioner filed with the BIR its second quarter ITR, declaring an overpayment of income taxes in the amount of P66,634,290.00. In view of the overpayment, no taxes were paid for the second and third quarters of 1997.[7] Petitioners ITR for the taxable year ending December 31, 1997 thereby reflected an overpayment of income taxes in the amount of P132,043,528.00, Instead of claiming the amount as a tax refund, petitioner decided to apply it as a tax credit to the succeeding taxable year by marking the tax credit option box in its 1997 ITR.[9] For the taxable year 1998, petitioners amended ITR showed an overpayment of P106,447,318.00, On April 12, 2000, petitioner filed with the BIR an administrative claim for refund of its unutilized excess income tax payments for the taxable year 1997 in the amount ofP106,447,318.00.[11] Notwithstanding the filing of the administrative claim for refund, petitioner carried over the amount of P106,447,318.00 to the taxable year 1999 and applied a portion thereof to its 1999 Minimum Corporate Income Tax (MCIT) liability, as evidenced by its 1999 ITR.

On April 14, 2000, due to the inaction of the respondent Commissioner of Internal Revenue (CIR) and in order to toll the running of the two-year prescriptive period, petitioner appealed its claim for refund of unutilized excess income tax payments for the taxable year 1997 in the amount of P106,447,318.00 with the CTA via a Petition for Review,[14] docketed as CTA Case No. 6070.

Issues

In a nutshell, the issue boils down to whether petitioner is entitled to a refund of its excess income tax payments for the taxable year 1997 in the amount ofP106,447,318.00.

The petition has no merit.

Both the CTA and the CA erred in applying Section 69[52] of the old NIRC. The law applicable is Section 76 of the NIRC. Unutilized excess income tax payments may be refunded within two years from the date of payment under Section 69 of the old NIRC

Under Section 69 of the old NIRC, in case of overpayment of income taxes, a corporation may either file a claim for refund or carry-over the excess payments to the succeeding taxable year. Availment of one remedy, however, precludes the other.[53] Although these remedies are mutually exclusive, we have in several cases allowed corporations, which have previously availed of the tax credit option, to file a claim for refund of their unutilized excess income tax payments. In BPI-Family Savings Bank,[54] the bank availed of the tax credit option but since it suffered a net loss the succeeding year, the tax credit could not be applied; thus, the bank filed a claim for refund to recover its excess creditable taxes. Brushing aside technicalities, we granted the claim for refund.

Thus, under Section 69 of the old NIRC, unutilized tax credits may be refunded as long as the claim is filed within the two-year prescriptive period. The option to carry over excess income tax payments is irrevocable under Section 76 of the 1997 NIRC

Under the new law, in case of overpayment of income taxes, the remedies are still the same; and the availment of one remedy still precludes the other. But unlike Section 69 of the old NIRC, the carry-over of excess income tax payments is no longer limited to the succeeding taxable year. Unutilized excess income tax payments may now be carried over to the succeeding taxable years until fully utilized. In addition, the option to carry-over excess income tax payments is now irrevocable. Hence, unutilized excess income tax payments may no longer be refunded.

To repeat, under the new law, once the option to carry-over excess income tax payments to the succeeding years has been made, it becomes irrevocable. Thus, applications for refund of the unutilized excess income tax payments may no longer be allowed.

PANASONIC COMMUNICATIONS IMAGING CORPORATION OF THE PHILS. Vs. CIR GR No. 178090, February 8, 2010

The Facts and the Case From April 1 to September 30, 1998 and from October 1, 1998 to March 31, 1999, petitioner Panasonic generated export sales amounting to US$12,819,475.15 and US$11,859,489.78, respectively, for a total of US$24,678,964.93. Believing that these export sales were zero-rated for VAT under Section 106(A)(2)(a)(1) of the 1997 National Internal Revenue Code as amended by Republic Act (R.A.) 8424 (1997 NIRC),[2] Panasonic paid input VAT of P4,980,254.26 and P4,388,228.14 for the two periods or a total of P9,368,482.40 attributable to its zero-rated sales. Claiming that the input VAT it paid remained unutilized or unapplied, on March 12, 1999 and July 20, 1999 petitioner Panasonic filed with the Bureau of Internal Revenue (BIR) two separate applications for refund or tax credit of what it paid. When the BIR did not act on the same, Panasonic filed on December 16, 1999 a petition for review with the CTA, averring the inaction of the respondent Commissioner of Internal Revenue (CIR) on its applications. After trial or on August 22, 2006 the CTAs First Division rendered judgment,[3] denying the petition for lack of merit. The First Division said that, while petitioner Panasonics export sales were subject to 0% VAT under Section 106(A)(2)(a)(1) of the 1997 NIRC, the same did not qualify for zero-rating because the word zero-rated was not printed on Panasonics export invoices. This omission, said the First Division, violates the invoicing requirements of Section 4.108-1 of Revenue Regulations (RR) 7-95.[4]

The Issue Presented The sole issue presented in this case is whether or not the CTA en banc correctly denied petitioner Panasonics claim for refund of the VAT it paid as a zero-rated taxpayer on the ground that its sales invoices did not state on their faces that its sales were zero-rated. The Courts Ruling The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on to his customers. Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT charged on its sales or outputs the VAT it paid on its purchases, inputs and imports.[6] For example, when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT he charged. For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the invoice issued to him by his supplier to get a reduction of his own VAT liability. The difference in tax shown on invoices passed and invoices received is the tax paid to the government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may be claimed. Under the 1997 NIRC, if at the end of a taxable quarter the seller charges output taxes[7] equal to the input taxes[8] that his suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his input taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes, however, the excess payment shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or

effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer.[9] Zero-rated transactions generally refer to the export sale of goods and services. The tax rate in this case is set at zero. When applied to the tax base or the selling price of the goods or services sold, such zero rate results in no tax chargeable against the foreign buyer or customer. But, although the seller in such transactions charges no output tax, he can claim a refund of the VAT that his suppliers charged him. The seller thus enjoys automatic zero rating, which allows him to recover the input taxes he paid relating to the export sales, making him internationally competitive.[10] For the effective zero rating of such transactions, however, the taxpayer has to be VATregistered and must comply with invoicing requirements.[11] Interpreting these requirements, respondent CIR ruled that under Revenue Memorandum Circular (RMC) 42-2003, the taxpayers failure to comply with invoicing requirements will result in the disallowance of his claim for refund. This Court will not set aside lightly the conclusions reached by the CTA which, by the very nature of its functions, is dedicated exclusively to the resolution of tax problems and has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.[17] Besides, statutes that grant tax exemptions are construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Tax refunds in relation to the VAT are in the nature of such exemptions. The general rule is that claimants of tax refunds bear the burden of proving the factual basis of their claims. Taxes are the lifeblood of the nation. Therefore, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government.[18]

CIR vs. AICHI FORGING COMPANY OF ASIA INC. GR No. 184823, October 6, 2010

THE FACTS:

A taxpayer is entitled to a refund either by authority of a statute expressly granting such right, privilege, or incentive in his favor, or under the principle of solutio indebiti requiring the return of taxes erroneously or illegally collected. In both cases, a taxpayer must prove not only his entitlement to a refund but also his compliance with the procedural due process as non-observance of the prescriptive periods within which to file the administrative and the judicial claims would result in the denial of his claim. Respondent Aichi Forging Company of Asia, Inc., a corporation duly organized and existing under the laws of the Republic of thePhilippines, is engaged in the manufacturing, producing, and processing of steel and its by-products.[3] It is registered with the Bureau of Internal Revenue (BIR) as a Value-Added Tax (VAT) entity[4] and its products, close impression die steel forgings and tool and dies, are registered with the Board of Investments (BOI) as a pioneer status.[5] On September 30, 2004, respondent filed a claim for refund/credit of input VAT for the period July 1, 2002 to September 30, 2002 in the total amount of P3,891,123.82 with the petitioner Commissioner of Internal Revenue (CIR), through the Department of Finance (DOF) One-Stop Shop Inter-Agency Tax Credit and Duty Drawback Center.[6] Issue Hence, the present recourse where petitioner interposes the issue of whether respondents judicial and administrative claims for tax refund/credit were filed within the two-year prescriptive period provided in Sections 112(A) and 229 of the NIRC.[24] Petitioners Arguments Petitioner maintains that respondents administrative and judicial claims for tax refund/credit were filed in violation of Sections 112(A) and 229 of the NIRC.[25] He posits that pursuant to Article 13 of the Civil Code,[26] since the year 2004 was a leap year, the filing of the claim for tax refund/credit on September 30, 2004 was beyond the two-year period, which expired on September 29, 2004.[27] Petitioner further argues that the CTA En Banc erred in applying Section 114(A) of the NIRC in determining the start of the two-year period as the said provision pertains to the compliance requirements in the payment of VAT.[28] He asserts that it is Section 112, paragraph (A), of the same Code that should apply because it specifically provides for the period within which a claim for tax refund/ credit should be made.[29] Petitioner likewise puts in issue the fact that the administrative claim with the BIR and the judicial claim with the CTA were filed on the same day.[30] He opines that the simultaneous filing of the administrative and the judicial claims contravenes Section 229 of the NIRC, which requires the prior filing of an administrative claim.[31] He insists that such procedural requirement is based on the doctrine of exhaustion of administrative remedies and the fact that the CTA is an appellate body exercising judicial review over administrative actions of the CIR.[32] HELD

The petition has merit. Unutilized input VAT must be claimed within two years after the close of the taxable quarter when the sales were made In computing the two-year prescriptive period for claiming a refund/credit of unutilized input VAT, the Second Division of the CTA applied Section 112(A) of the NIRC, The pivotal question of when to reckon the running of the two-year prescriptive period, however, has already been resolved inCommissioner of Internal Revenue v. Mirant Pagbilao Corporation,[44] where we ruled that Section 112(A) of the NIRC is the applicable provision in determining the start of the two-year period for claiming a refund/credit of unutilized input VAT, and that Sections 204(C) and 229 of the NIRC are inapplicable as both provisions apply only to instances of erroneous payment or illegal collection of internal revenue taxes.[45]

In view of the foregoing, we find that the CTA En Banc erroneously applied Sections 114(A) and 229 of the NIRC in computing the two-year prescriptive period for claiming refund/credit of unutilized input VAT. To be clear, Section 112 of the NIRC is the pertinent provision for the refund/credit of input VAT. Thus, the two-year period should be reckoned from the close of the taxable quarter when the sales were made.

G.R. No. 178788 United Airlines vs. Commissioner of Internal Revenue September 29, 2010

Facts: International airline, petitioner United Airlines, filed a claim for income tax refund. Petitioner sought to be refunded the erroneously collected income tax from in the amount of P5,028,813.23 on passenger revenue from tickets sold in the Philippines, the uplifts of which did not originate in the Philippines. The airlines ceased operation originating form the Philippines since February 21, 1998. Court of tAx appeals ruled the petitioner is not entitled to a refund because under the NIRC, income tax on GPB also includes gross revenue from carriage of cargoes from the Philippines. And upon assessment by the CTA, it was found out that petitioner deducted items from its cargo revenues which should have entitled the government to an amount of P 31.43 million, which is obviously higher than the amount the petitioner prayed to be refunded. Petitioner argued that the petitioners supposed underpayment cannot offset his claim to a refund as established by well-settled jurisprudence. Issue: Whether or not petitioner is entitled to a refund? HELd: Petitioner was correct in averring that his claim to a refund cannot be subject to offsetting or, as it claimed the offsetting to be, a legal compensation under Sec. 28(A)(3)(a) Petitioners (similar) tax refund claim assumes that the tax return that it filed was correct. Given, however, the finding of the CTA that petitioner, although not liable under Sec. 28(A)(3)(a) of the 1997 NIRC, is liable under Sec. 28(A)(1), the correctness of the return filed by petitioner is now put in doubt. As such, we(the court) cannot grant the prayer for a refund. The court held that the petitioner is not entitled to a refund, Having underpaid the GPB tax due on its cargo revenues for 1999, the amount of the former being even much higher (P31.43 million) than the tax refund sought (P5.2 million). Relevant note: The Court have consistently ruled that there can be no off-setting [or compensation] of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.(francia vs Intermediate appellate court)

The grant of a refund is founded on the assumption that the tax return is valid, that is, the facts stated therein are true and correct. The deficiency assessment, although not yet final, created a doubt as to and constitutes a challenge against the truth and accuracy of the facts stated in said return which, by itself and without unquestionable evidence, cannot be the basis for the grant of the refund. (CIR vs CTA)

Filinvest vs. CIR/CTA5. G.R. No 146941 August 9, 2007 FACTS: Petitioner claimed for a refund or in the alternative, issuance of a tax creditcertificate (TCC) in the amount of P 4,178,134.00 representing excess creditablewithholding taxes for taxable years 1994,1995 and 1996. CTA dismissed the case for insufficiency of evidence its 1997 income tax return. CA assailed the decision of CTAand denied petition of Filinvest. The SC initially denied petition for review but on April 3,2002, case was re-filed on a petition for reconsideration. ISSUE:Whether petitioner is entitled to the tax credit anent insufficient evidence.

RULING: CA erred in ruling that petitioner failed to discharge the burden of proving that itis entitled to the refund beca use of the latters failure to attach its 1997 ITR. It is worth nothing that under Section 230 of NIRC and Section 10 of RevenueRegulation No. 12-84, the CIR is given the power to grant a tax credit or refund evenwithout a written claim therefore, if the former determines from the face of the return that payment had clearly been erroneously made. The CIRs function is not merely to receive the claims for refund but it is also given the positive duty to determine theveracity of such claim.Simply by exe rcising the CIRs power to examine and verify petitioners claim for tax exemption are granted by law, respondent CIR could have easily verified petitionersclaim by representing the latters 1997 ITR, the original of which it has in its files. Hence, under solutio indebiti, the Government has to restore to petitioners th he sumsrepresenting erroneous payments of taxes.

BPI vs. CIR, G.R. No. 139736, October 17, 2005

Facts: Petitioner BPI is a commercial banking corporation organized and existing under the laws of the Philippines. On two separate occasions, particularly on June 6, 1985 and June 14, 1985, it sold United States (US) $500,000.00 to the Central Bank of the Philippines (Central

Bank), for the total sales amount of US$1,000,000.00. On October 10, 1989, the Bureau of Internal Revenue (BIR) issued Assessment No. FAS-5-85-89-002054, finding petitioner BPI liable for deficiency DST on its afore-mentioned sales of foreign bills of exchange to the Central Bank in the amount of P 28, 020.00. Petitioner received the assessment, together with the attached assessment notice, on October 20, 1989. Petitioner, through its counsel, filed a protest with the BIR on November 17,1989. However, petitioner did not receive any immediate reply to its protest letter. On October 15, 1992, the BIR issued a Warrant of Distraint and/or Levy against petitioner for the assessed deficiency DST for taxable year 1985, in the amount of P27,720.00 (excluding the compromise penalty of P300.00). It served the Warrant on petitioner only on October 23, 1992. On September 11, 1997, petitioners counsel received a letter, dated August 13, 1997, from the BIR denying its "request for reconsideration," and addressing the points raised it its protest. Upon receipt thereof, petitioner filed a Petition for Review with the CTA on October 10, 1997. On February 2, 1999, the CTA rendered a decision holding that the right of the BIR to collect on the assessment had not yet prescribed and that the sales of the US$1,000,000.00 by petitioner to the Central Bank were not subject to DST. Petitioner then appealed the Decision of the CTA to the Court of Appeals. The latter however sustained the finding of the CTA that the running of the prescriptive period for collection on Assessment No. FAS-5-85-89-002054 was suspended when herein petitioner BPI filed a protest on November 17, 1989 and, therefore, the prescriptive period for collection on the Assessment had not yet lapsed. However, it ruled that sales of foreign currency by petitioner BPI to the Central Bank in taxable year 1985 were subject to DST. Hence, this petition. Issues: 1. Whether or not the right of respondent BIR Commissioner to collect from petitioner BPI the alleged deficiency DST for taxable year 1985 had prescribed; and 2. Whether or not the sales of US$1,000,000.00 on 06 June 1985 and 14 June 1985 by petitioner BPI to the Central Bank were subject to DST.

Ruling: Respondent is already barred by prescription from collecting the assessed tax deficiency. Under Section 203 of the Tax Code of 1977, the BIR has three years, counted from the date of actual filing of the return or from the last date prescribed by law for the filing of such return, whichever comes later, to assess a national internal revenue tax or to begin a court proceeding for the collection thereof without an assessment. Section 223 thereof however provides that in case of a false or fraudulent return with intent to evade tax or the failure to file any return at all, the prescriptive period for assessment of the tax due shall be 10 years from discovery by the BIR of the falsity, fraud, or omission. When the BIR validly issues an assessment, within either the three-year or ten-year period, whichever is appropriate, then the BIR has another three years after the assessment within which to collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding. The assessment of the tax is deemed made and the three-year period for collection of the assessed tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR to the taxpayer.

In this instant case, there is no controversy on the timeliness of the issuance of the Assessment, only on the prescription of the period to collect the deficiency DST following its assessment. The earliest attempt of the BIR to collect on Assessment No. FAS-5-85-89002054 was its issuance and service of a Warrant of Distraint and/or Levy on petitioner BPI although the Warrant was issued on October 15, 1992, previous to the expiration of the period for collection on October 19, 1992, the same was served on petitioner BPI only on October 23, 1992. Under Section 223(c) of the Tax Code of 1977, as amended, it is not essential that the Warrant of Distraint and/or Levy be fully executed so that it can suspend the running of the statute of limitations on the collection of the tax. It is enough that the proceedings have validly began or commenced and that their execution has not been suspended by reason of the voluntary desistance of the respondent BIR Commissioner. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or commenced by the issuance of the Warrant and service thereof on the taxpayer. It is only logical to require that the Warrant of Distraint and/or Levy be, at the very least, served upon the taxpayer in order to suspend the running of the prescriptive period for collection of an assessed tax, because it may only be upon the service of the Warrant that the taxpayer is informed of the denial by the BIR of any pending protest of the said taxpayer, and the resolute intention of the BIR to collect the tax assessed. There is no valid ground for the suspension of the running of the prescriptive period for the collection of the assessed DST under the Tax Code of 1977, as amended. Though the statute of limitations on assessment and collection of national internal revenue taxes benefits both the Government and the taxpayer, it principally intends to afford protection to the taxpayer against unreasonable investigation. The indefinite extension of the period for assessment is unreasonable because it deprives the said taxpayer of the assurance that he will no longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. This is a simple case wherein respondent BIR Commissioner and other BIR officials failed to act promptly in resolving and denying the request for reconsideration filed by petitioner BPI and in enforcing collection on the assessment. They presented no reason or explanation as to why it took them almost eight years to address the protest of petitioner BPI. The statute on limitations imposed by the Tax Code precisely intends to protect the taxpayer from such prolonged and unreasonable assessment and investigation by the BIR. Considering that the right of the respondent BIR Commissioner to collect from petitioner BPI the deficiency DST in Assessment No. FAS-5-85-89-002054 had already prescribed, then, there is no more need for this Court to make a determination on the validity and correctness of the said Assessment for the latter would only be unenforceable.

CIR vs. First Express Pawnshop Company, Inc., G.R. Nos. 172045-46, June 16, 2009

Facts: On 28 December 2001, petitioner issued several assessment notices against First Express Pawnshop Company, Inc. for deficiency income tax, value-added tax (VAT) with compromise penalty and documentary stamp tax (DST) on deposit on subscription with compromise penalty and on pawn tickets with compromise penalty. Respondent received the assessment notices on January 3, 2002. On February 1, 2002, respondent filed its written protest on the above assessments. Since petitioner did not act on the protest during the 180-day period, respondent filed a petition before the CTA on August 28, 2002. In its Answer filed before the CTA, petitioner alleged that the assessment was valid and correct and the taxpayer had the burden of proof to impugn its validity or correctness. Petitioner maintained that respondent is subject to 10% VAT based on its gross receipts pursuant to Republic Act No. 7716, or the Expanded Value-Added Tax Law (EVAT). Petitioner also cited BIR Ruling No. 221-91 which provides that pawnshop tickets are subject to DST. On July 1, 2003, respondent paid P27,744.88 as deficiency income tax inclusive of interest. After trial on the merits, the CTA First Division partially granted the petition cancelling and setting aside Assessment No. 31-1-000053-98 for deficiency documentary stamp tax in the amount of Sixty-Two Thousand One Hundred Twenty-Eight Pesos and 87/100 (P62,128.87) and Assessment No. 31-14-000053-98 for deficiency documentary stamp tax on deposits on subscription in the amount of Twelve Thousand Three Hundred Twenty-Eight Pesos and 45/100 (P12,328.45). However, Assessment No. 31-14-000053-98 was affirmed except the imposition of compromise penalty in the absence of showing that petitioner consented thereto. Accordingly, First Express Pawnshop was ordered to pay the deficiency value added tax in the amount of Six Hundred One Thousand Two Hundred Twenty Pesos and 18/100 (P601,220.18) inclusive of deficiency interest for the year 1998 and in addition pay 25% surcharge and 20% delinquency interest per annum from February 12, 2002 until fully paid pursuant to Sections 248 and 249 of the 1997 Tax Code. Both parties filed their Motions for Reconsideration which were

denied by the CTA First Division for lack of merit. Thereafter, both parties filed their respective Petitions for Review under Section 11 of Republic Act No. 9282 (RA 9282) with the CTA En Banc. On 24 March 2006, the CTA En Banc promulgated a Decision affirming respondents liability to pay the VAT and ordering it to pay DST on its pawnshop tickets. However, the CTA En Banc found that respondents deposit on subscription was not subject to DST. Aggrieved by the CTA En Bancs Decision which ruled that respondents deposit on subscription was not subject to DST, petitioner elevated the case before the Supreme Court. Issue: Whether or not the CTA erred on a question of law in disregarding the rule on finality of assessments prescribed under Section 228 of the Tax Code in holding respondent liable to pay P12,328.45 as DST on deposit on subscription of capital stock? Ruling: DST is a tax on documents, instruments, loan agreements, and papers evidencing the acceptance, assignment, sale or transfer of an obligation, right or property incident thereto. DST is actually an excise tax because it is imposed on the transaction rather than on the document. DST is also levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. In Section 175 of the Tax Code, DST is imposed on the original issue of shares of stock. The DST, as an excise tax, is levied upon the privilege, the opportunity and the facility of issuing shares of stock. The documentary stamp tax under this provision of the law may be levied only once, that is upon the original issue of the certificate. In Section 176 of the Tax Code, DST is imposed on the sales, agreements to sell, memoranda of sales, deliveries or transfer of shares or certificates of stock in any association, company, or corporation, or transfer of such securities by assignment in blank, or by delivery, or by any paper or agreement, or memorandum or other evidences of transfer or sale whether entitling the holder in any manner to the benefit of such certificates of stock, or to secure the future payment of money, or for the future transfer of certificates of stock. Sections 175 and 176 of the Tax Code contemplate a subscription agreement in order for a taxpayer to be liable to pay the DST. A subscription contract is defined as any contract for the acquisition of unissued stocks in an existing corporation or a corporation still to be formed. A stock subscription is a contract by which the subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same or expressly or impliedly promising to pay for the same. Clearly, the deposit on stock subscription as reflected in respondents Balance Sheet as of 1998 is not a subscription agreement subject to the payment of DST. The deposit on stock subscription is merely an amount of money received by a corporation with a view of applying the same as payment for additional issuance of shares in the future, an event which may or may not happen. The person making a deposit on stock subscription does not have the standing of a stockholder and he is not entitled to dividends, voting rights or other prerogatives and attributes of a stockholder. Hence, respondent is not liable for the payment of DST on its deposit on subscription for the reason that there is yet no subscription that creates rights and obligations between the subscriber and the corporation.

On the finality of assessment, as prescribed under Section 228 of the Tax Code, the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable. In this case, respondent received the tax assessment on January 3, 2002 and it had until February 2, 2002 to submit its protest. On February 1, 2002, respondent submitted its protest and attached the GIS and Balance Sheet as of December 31, 1998. Within 60 days from the filing of protest or until 2 April 2002, respondent should submit relevant supporting documents. Respondent, having submitted the supporting documents together with its protest, did not present additional documents anymore. The term "relevant supporting documents" should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Section 228 states that if the protest is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the inaction may appeal to the CTA within 30 days from the lapse of the 180-day period. Respondent, having submitted its supporting documents on the same day the protest was filed, had until 31 July 2002 to wait for petitioners reply to its protest. On 28 August 2002 or within 30 days after the lapse of the 180-day period counted from the filing of the protest as the supporting documents were simultaneously filed, respondent filed a petition before the CTA. Respondent has complied with the requisites in disputing an assessment pursuant to Section 228 of the Tax Code. Hence, the tax assessment cannot be considered as final, executory and demandable. Further, respondents deposit on subscription is not subject to the payment of DST. Consequently, respondent is not liable to pay the deficiency DST of P12,328.45.

Protector Services, Inc. vs CA and CIR, G.R. No. 118176, April 12, 2000 Facts: Petitioner Protector's Services, Inc. (PSI) is a contractor engaged in recruiting security guards for clients. After an audit investigation conducted by the Bureau of Internal Revenue (BIR), petitioner was assessed for deficiency percentage taxes including surcharges, penalties and interests thereon, corresponding to the year 1983, 1984 and 1985. On December 7, 1987, Respondent CIR sent by registered mail, demand letters for payment of the aforesaid assessments. However, petitioner alleged that on December 10, 1987, it only received the demand letters for the years 1983 and 1984 and denied receiving any notice of deficiency percentage tax for the year 1985. Petitioner sent a protest letter dated January 02, 1988, to the BIR regarding the 1983 and 1984 assessments. Without formally acting on the petitioner's protest, the BIR sent a follow-up letter dated July 12, 1988, ordering the settlement of taxes based on its computation, including additional documentary stamp taxes petitioner's capitalization for 1983 and 1984, and deficiency expanded withholding tax. On July 21, 1988, petitioner paid the P2,025.00 documentary stamp tax and the P703.41 deficiency expanded withholding tax. On the following day, July 22, 1988, petitioner filed its second protest on the 1983 and 1984 percentage taxes, and included, for the first time, its protest against the 1985 assessment. On November 9, 1990, the BIR denied with finality the petitioners protests. On December 5, 1990, petitioner filed a petition for review before the CTA. The CTA dismissed the petition on the grounds that the three-year period of limitation for assessment of taxes did not prescribe. Petitioner appealed to the Court of Appeals, which affirmed the decision of the CTA. Hence, the present petition.

Issues: Whether or not the government's right to assess and collect the 1983, 1984 and 1985 petitioners taxes had already prescribed? Ruling: No. Under the Sections 1 of BP 700, it provides that internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. B.P. 700 was approved on April 5, 1984. The three-year prescriptive period for assessment and collection of revenue taxes applied to taxes paid beginning 1984. Clearly, the tax assessment made on December 10, 1987, for the year 1983 was still covered by the five-year statutory prescriptive period. The petitioner further contends that since the CIR failed to commence the collection of the 1983, 1984, and 1985 deficiency tax, the right to collect had, likewise, prescribed. However, Section 271 of the 1986 Tax Code provides that the running of the statute of limitations provided in Sections 268 and 269 on the making of assessment and the beginning of distraint or levy or a proceeding in court for collection, in respect of any deficiency, shall be suspended for the period

during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for sixty days thereafter; when the taxpayer request for a reinvestigation which is granted by the Commissioner. In the instant case, PSI filed a petition before the CTA to prevent the collection of the assessed deficiency tax. When the CTA dismissed the case, petitioner further elevated the case before the Supreme Court, hoping for a review in its favor. The actions taken by the petitioner before the CTA and the Supreme Court, suspended the running of the statute of limitation. As to the tax assessments against petitioner is concerned, the BIR has consistently ruled that salaries of security guards form part of the taxable gross receipts of a security agency for purposes of the 4% [formerly 3%] contractors tax under Section 205 of the Tax Code, as amended. The reason is that the salaries of the security guards are actually the liability of the agency and that the guards are considered their employees; hence, for percentage tax purposes, the salaries of the security guards are includible in its gross receipts. These rulings were made by the CIR in the exercise of his power to "make judgments or opinions in connection with the implementation of the provisions of the internal revenue code." The opinions and rulings of officials of the government called upon to execute or implement administrative laws, command respect and weight. 16 We see no compelling reason in this case to rule otherwise.

CIR vs. Philippine Global Communication, Inc., G.R. No. 167146, October 31, 2006 Facts: Respondent, a corporation engaged in telecommunications, filed its Annual Income Tax Return for taxable year 1990 on April 15, 1991. On April 13, 1992, the CIR issued Letter of Authority No. 0002307, authorizing the appropriate BIR officials to examine the books of account and other accounting records of respondent, in connection with the investigation of respondents 1990 income tax liability. On April 22, 1992, the BIR sent a letter to respondent requesting the latter to present for examination certain records and documents, but respondent failed to present any document. On April 21, 1994, respondent received a Preliminary Assessment Notice dated 13 April 1994 for deficiency income tax in the amount of

P118,271,672.00, inclusive of surcharge, interest, and compromise penalty, arising from deductions that were disallowed for failure to pay the withholding tax and interest expenses that were likewise disallowed. On the following day, April 22, 1994, respondent received a Formal Assessment Notice with Assessment Notice No. 000688-80-7333, dated April 14, 1994, for deficiency income tax in the total amount of P118,271,672.00. On May 6, 1994, respondent, through its counsel Ponce Enrile Cayetano Reyes and Manalastas Law Offices, filed a formal protest letter against the said assessment. Respondent filed another protest letter on May 23, 1994, through another counsel Siguion Reyna Montecillo & Ongsiako Law Offices. In both letters, respondent requested for the cancellation of the said tax assessment. On October 16, 2002, more than eight years after the assessment was presumably issued, the Ponce Enrile Cayetano Reyes and Manalastas Law Offices received from the CIR a Final Decision dated October 8, 2002 denying the respondents protest against Assessment Notice No. 000688-80-7333, and affirming the said assessment in toto. On November 15, 2002, respondent filed a Petition for Review with the CTA. The CTA rendered a decision in favor of respondent on June 9, 2004. The CIR moved for reconsideration of the aforesaid Decision but was denied by the CTA. Thereafter, the CIR filed a Petition for Review with the CTA en banc. In its en banc Decision, the CTA affirmed the Decision and Resolution in CTA Case No. 6568. Issue: Whether or not CIRs right to collect respondents alleged deficiency income tax is barred by prescription under Section 269(c) of the Tax Code of 1977? Ruling: In this case, the assessment was issued on April 14, 1994 since the respondent did not dispute the CIRs claim. Therefore, the BIR had until April 13, 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 January 9, 2003, which was several years beyond the three-year prescriptive period. Thus, the CIR is now prescribed from collecting the assessed tax. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interest of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of common good, may be achieved. Thus, the three-year statute of limitations on the collection of an assessed tax provided under Section 269(c) of the Tax Code of 1977, a law enacted to protect the interests of the taxpayer, must be given effect. In providing for exceptions to such rule in Section 271, the law strictly limits the suspension of the running of the prescription period to, among other instances, protests wherein the taxpayer requests for a reinvestigation. In this case, where the taxpayer merely filed two protest letters requesting for reconsideration, and where the BIR could not have conducted a reinvestigation because no new or additional evidence was submitted, the running of statute of limitations cannot be interrupted. The tax which is the subject of the Decision issued by the CIR on 8 October 2002 affirming the Formal Assessment issued on April 14, 1994

can no longer be the subject of any proceeding for its collection. Consequently, the right of the government to collect the alleged deficiency tax is barred by prescription.

City of Iriga vs. CASURECO III, G.R. No. 192945, September 5, 2012 Facts: CASURECO III is an electric cooperative duly organized and existing by virtue of Presidential Decree (PD) 269, as amended, and registered with the National Electrification Administration (NEA). It is engaged in the business of electric power distribution to various endusers and consumers within the City of Iriga and the municipalities of Nabua, Bato, Baao, Buhi, Bula and Balatan of the Province of Camarines Sur, otherwise known as the "Rinconada area." Sometime in 2003, Petitioner required CASURECO III to submit a report of its gross receipts for the period 1997-2002 to serve as the basis for the computation of franchise taxes, fees and other charges. The latter complied and was subsequently assessed taxes. On January 7, 2004, petitioner made a final demand on CASURECO III to pay the franchise taxes due for the period 1998-2003 and real property taxes due for the period 1995-2003. CASURECO III, however, refused to pay said taxes on the ground that it is an electric cooperative provisionally registered with the Cooperative Development Authority (CDA), and therefore exempt from the payment of local taxes. On March 15, 2004, petitioner filed a complaint for collection of local taxes against CASURECO III before the RTC. The RTC ruled that the real property taxes due for the years 1995-1999 had already prescribed in accordance with Section 194 of the LGC but it found CASURECO III liable for franchise taxes for the years 2000-2003 based on its gross receipts from Iriga City and the Rinconada area. Only CASURECO III appealed the decision to the CA questioning its liability for franchise taxes. On appeal, the CA relieved CASURECO III of its franchise taxes being a non-profit entity, not falling within the purview of "businesses enjoying a

franchise" pursuant to Section 137 of the LGC. Petitioner moved for reconsideration, but was denied by CA. Hence, the petition. Issues: 1. Whether or not an electric cooperative registered under PD 269 but not under RA 6938 is liable for the payment of local franchise taxes; and 2. Whether or not the situs of taxation is the place where the franchise holder exercises its franchise regardless of the place where its services or products are delivered. Ruling: On the first issue. CASURECO is not exempt from payment of franchise tax. In Philippine Rural Electric Cooperatives Association, Inc. (PHILRECA) v. The Secretary, Department of Interior and Local Government (G.R. No. 143076, June 10, 2003, 403 SCRA 558), the Court held that the tax privileges granted to electric cooperatives registered with NEA under PD 269 were validly withdrawn and only those registered with the CDA under RA 6938 may continue to enjoy the tax privileges under the Cooperative Code. Therefore, CASURECO III can no longer invoke PD 269 to evade payment of local taxes. Moreover, its provisional registration with the CDA which granted it exemption for the payment of local taxes was extended only until May 4, 1992. Thereafter, it can no longer claim any exemption from the payment of local taxes, including the subject franchise tax. CASURECO III cannot likewise claim exemption from payment of franchise tax because of its nature as a non-profit cooperative, as contemplated in PD 269. A franchise tax is tax on the privilege of transacting business in the state and exercising corporate franchises granted by the state. It is not levied on the corporation simply for existing as a corporation, upon its property or its income, but on its exercise of the rights or privileges granted to it by the government. It is within this context that the phrase tax on businesses enjoying a franchise in Section 137 of the LGC should be interpreted and understood. Thus, to be liable for local franchise tax, the following requisites should concur: (1) that one has a "franchise" in the sense of a secondary or special franchise; and (2) that it is exercising its rights or privileges under this franchise within the territory of the pertinent local government unit. There is a confluence of these requirements in the case at bar. By virtue of PD 269, NEA granted CASURECO III a franchise to operate an electric light and power service for a period of fifty (50) years from June 6, 1979, and it is undisputed that CASURECO III operates within Iriga City and the Rinconada area. It is, therefore, liable to pay franchise tax notwithstanding its non-profit nature. On the second issue. Respondent is also liable for franchise tax on gross receipts within Iriga City and Rinconada area. It should be stressed that what the petitioner seeks to collect from CASURECO III is a franchise tax, which as defined, is a tax on the exercise of a privilege. As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely because it is a tax on business, rather than on persons or property. Since it partakes of the nature of an excise tax, the situs of taxation is the place where the privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal office and from where it operates, regardless of the place where its services or products are delivered. Hence, franchise tax covers all gross receipts from Iriga City and the Rinconada area.

AUF vs. City of Angeles et al., G.R. No. 189999, June 27, 2012 Facts: Petitioner Angeles University Foundation (AUF) is an educational institution established on May 25, 1962 and was converted into a non-stock, non-profit education foundation under the provisions of Republic Act (R.A.) No. 6055 on December 4, 1975. Sometime in August 2005, petitioner filed with the Office of the City Building Official an application for a building permit for the construction of an 11-storey building of the Angeles University Foundation Medical Center in its main. However, the latter issued petitioner a Building Permit Fee Assessment in the amount of P126,839.20. An Order of Payment was also issued by the City Planning and Development Office, Zoning Administration Unit requiring petitioner to pay the sum of P238,741.64 as Locational Clearance Fee. Petitioner then sent separate letters to the City Treasurer and Building Officer claiming that it is exempted from the payment of the building permit and locational clearance fees and was previously issued building permits acknowledging such exemption from payment of building permit fees. Despite petitioners plea, however, respondents refused to issue the building permits for the construction of the AUF Medical Center in the main campus and renovation of a school building located at Marisol Village. Petitioner then appealed the matter to City Mayor Carmelo F. Lazatin but no written response was received by petitioner. Consequently, petitioner paid under protest the amount of P 826, 662.99. By reason of the above payments, petitioner was issued the corresponding Building Permit, Wiring Permit, Electrical Permit and Sanitary Building Permit. On June 9, 2006, petitioner formally requested the respondents to refund the fees it paid under protest. The City Treasurer however denied the claim for refund. On August 31, 2006, petitioner filed a Complaint before the trial court seeking the refund of the amount it paid plus interest, attorneys fees and other. On September 21, 2007, the trial court rendered judgment in favor of the petitioner. On appeal, the CA reversed the ruling of the trial court holding that while petitioner is a tax-free entity, it is not exempt from the payment of regulatory fees. Petitioner filed a motion for reconsideration which was denied by the CA. Hence, this petition. Issues: 1. Whether petitioner is exempt from the payment of building permit and related fees imposed under the National Building Code; and 2. Whether the parcel of land owned by petitioner which has been assessed for real property tax is likewise exempt?

Ruling: On the first issue. Under the National Building Code, only public buildings and traditional indigenous family dwellings are exempted from the payment of building permit. Thus, not being expressly included in the enumeration of structures to which the building permit fees do not apply, petitioners claim for exemption rests solely on its interpretation of the term "other charges imposed by the National Government" in the tax exemption clause of R.A. No. 6055. A "charge" is broadly defined as the "price of, or rate for, something," while the word "fee" pertains to a "charge fixed by law for services of public officers or for use of a privilege under control of government." As used in the Local Government Code of 1991 (R.A. No. 7160), charges refers to pecuniary liability, as rents or fees against persons or property, while fee means a charge fixed by law or ordinance for the regulation or inspection of a business or activity. Therefore, since building permit fees are not charges on property, they are not impositions from which petitioner is exempt. The petitioners argument that the building permit fees collected by respondents are in reality taxes because the primary purpose is to raise revenues for the local government unit, the same does not hold water. Nevertheless, a charge of a fixed sum which bears no relation at all to the cost of inspection and regulation may be held to be a tax rather than an exercise of the police power. But, petitioner failed to demonstrate that the above bases of assessment were arbitrarily determined or unrelated to the activity being regulated. Neither has petitioner adduced evidence to show that the rates of building permit fees imposed and collected by the respondents were unreasonable or in excess of the cost of regulation and inspection. . On the second issue. Petitioner failed to discharge its burden to prove that its real property is actually, directly and exclusively used for educational purposes. While there is no allegation or proof that petitioner leases the land to its present occupants, still there is no compliance with the constitutional and statutory requirement that said real property is actually, directly and exclusively used for educational purposes. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160, in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are actually, directly and exclusively used for charitable purposes. "Exclusive" is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and "exclusively" is defined, "in a manner to exclude; as enjoying a privilege exclusively." If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words "dominant use" or "principal use" cannot be substituted for the words "used exclusively" without doing violence to the Constitutions and the law. Solely is synonymous with exclusively.

Accenture, Inc. vs. CIR, G.R. No. 190102, July 11, 2012

Facts: Accenture, Inc. (Accenture) is a corporation engaged in the business of providing management consulting, business strategies development, and selling and/or licensing of software. It is duly registered with the Bureau of Internal Revenue (BIR) as a Value Added Tax (VAT) taxpayer or enterprise in accordance with Section 236 of the National Internal Revenue Code (Tax Code) On July 1, 2004, Accenture filed with the DOF a claim for the refund or the issuance of a Tax Credit Certificate (TCC). But, the DOF did not act on the claim of Accenture. Hence, on August 31, 2004, the latter filed a Petition for Review with the First Division of the Court of Tax Appeals (Division), praying for the issuance of a TCC in its favor in the amount of P35,178,844.21. The CTA however denied the petition of Accenture for failing to prove that the latters sale of services to the alleged foreign clients qualified for zero percent VAT. Accenture filed an MR but was denied. When it filed an appeal before the CTA En Banc, it was also denied. The CTA En Banc concluded that Accenture failed to discharge the burden of proving the latters allegation that its clients were foreign-based. Resolute, Accenture filed a Petition for Review with the CTA En Banc, but the latter affirmed the Divisions Decision and Resolution. A subsequent MR was also denied. Hence, this Petition for Review under Rule 45. Issue: Is the claim of Accenture for tax refund or credit tenable? Ruling: No. The Court ruled that the recipient of the service must be doing business outside the Philippines for the transaction to qualify for zero-rating under Section 108(B) of the Tax Code. The evidence presented by Accenture may have established that its clients are foreign. This fact does not automatically mean, however, that these clients were doing business outside the Philippines. Consequently, to come within the purview of Section 108(B)(2), it is not enough that the recipient of the service be proven to be a foreign corporation; rather, it must be specifically proven to be a nonresident foreign corporation. A taxpayer claiming a tax credit or refund has the burden of proof to establish the factual basis of that claim. Tax refunds, like tax exemptions, are construed strictly against the taxpayer. Unfortunately, Accenture failed to discharge this burden. It alleged and presented evidence to prove only that its clients were foreign entities. However, as found by both the CTA Division and the CTA En Banc, no evidence was presented by Accenture to prove the fact that the foreign clients to whom petitioner rendered its services were clients doing business outside the Philippines. As ruled by the CTA En Banc, the Official Receipts, Intercompany Payment Requests, Billing Statements, Memo Invoices-Receivable, Memo Invoices-Payable, and Bank Statements presented by Accenture merely substantiated the existence of sales, receipt of foreign currency payments, and inward remittance of the proceeds of such sales duly accounted for in accordance with BSP rules, all of these were devoid of any evidence that the clients were doing business outside of the Philippines.

CIR vs. Pilipinas Shell Petroleum Corporation, G.R. No. 188497, April 25, 2012 Facts: Respondent is engaged in the business of processing, treating and refining petroleum for the purpose of producing marketable products and the subsequent sale thereof. On July 18, 2002, respondent filed with the Large Taxpayers Audit & Investigation Division II of the Bureau of Internal Revenue (BIR) a formal claim for refund or tax credit in the total amount of P28,064,925.15, representing excise taxes it allegedly paid on sales and deliveries of gas and fuel oils to various international carriers during the period October to December 2001. Subsequently, on October 21, 2002, a similar claim for refund or tax credit was filed by respondent with the BIR covering the period January to March 2002 in the amount of P41,614,827.99. Again, on July 3, 2003, respondent filed another formal claim for refund or tax credit in the amount of P30,652,890.55 covering deliveries from April to June 2002. Since no action was taken by the petitioner on its claims, respondent filed petitions for review before the CTA on September 19, 2003 and December 23, 2003. In its decision on the consolidated cases, the CTAs First Division ruled that respondent is entitled to the refund of excise taxes in the reduced amount of P95,014,283.00. Petitioner moved to reconsider but was denied by the CTA First Division. Petitioner thus case to the CTA En Banc which also upheld the ruling of the First Division. Petitioners motion for reconsideration was likewise denied. Hence, this petition.

Issue: Whether respondent as manufacturer or producer of petroleum products is exempt from the payment of excise tax on such petroleum products it sold to international carriers, hence claim for tax refund or credit? Ruling: Respondents locally manufactured petroleum products are subject to excise tax under Sec. 148 of the NIRC. Hence, its claim for tax refund may not be predicated on Sec. 229 of the NIRC allowing a refund of erroneous or excess payment of tax. Respondents claim is premised on what it determined as a tax exemption "attaching to the goods themselves," which must be based on a statute granting tax exemption, or "the result of legislative grace." Such a claim is to be construed strictissimi juris against the taxpayer, meaning that the claim cannot be made to rest on vague inference. Where the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption, the claimant must show that he clearly falls under the exempting statute. In Maceda v. Macaraig, Jr. [G.R. No. 88291, May 31, 1991, 197 SCRA 771, 791, cited in Silkair (Singapore) Pte. Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 171383 & 172379, November 14, 2008, supra note 15, at 155-156], the Court specifically mentioned excise tax as an example of an indirect tax where the tax burden can be shifted to the buyer. On the other hand, "indirect taxes are taxes primarily paid by persons who can shift the burden upon someone else". For example, the excise and ad valorem taxes that the oil companies pay to the Bureau of Internal Revenue upon removal of petroleum products from its refinery can be shifted to its buyer, like the NPC, by adding them to the "cash" and/or "selling price." An excise tax is basically an indirect tax. Indirect taxes are those that are demanded, in the first instance, from, or are paid by, one person in the expectation and intention that he can shift the burden to someone else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls on one person but the burden thereof can be shifted or passed on to another person, such as when the tax is imposed upon goods before reaching the consumer who ultimately pays for it. When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the liability to pay it, to the purchaser as part of the price of goods sold or services rendered. Thus, because of the tax exemptions privileges being enjoyed by NPC under existing laws, the tax burden may not be shifted to it by the oil companies who shall pay for fuel oil taxes on oil they supplied to NPC. Tax refunds are in the nature of tax exemptions which result to loss of revenue for the government. Upon the person claiming an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted; it is never presumed nor be allowed solely on the ground of equity. These exemptions, therefore, must not rest on vague, uncertain or indefinite inference, but should be granted only by a clear and unequivocal provision of law on the basis of language too plain to be mistaken. Such exemptions must be strictly construed against the taxpayer, as taxes are the lifeblood of the government.

Lascona Land Co., Inc. vs CIR, G.R. No. 171251, March 5, 2012 Facts: On March 27, 1998, respondent issued an Assessment Notice against petitioner for the alleged deficiency income tax for the year 1993 in the amount of P753,266.56. On April 20, 1998, the latter filed a protest but was denied by the Regional Director of the BIR Makati City on the ground that the case was not elevated to the CTA as mandated by the provisions of the last paragraph of Section 228 of the Tax Code. Thus, the said assessment notice has become final, executory and demandable. On April 12, 1999, petitioner then appealed the decision before the CTA. On January 4, 2000, the CTA nullified the subject assessment. CIR filed a motion for reconsideration but was denied. Dissatisfied, the CIR filed an appeal before the CA. on appeal, the CA set aside the decision of the CTA and declared the subject Assessment Notice against petitioner as final, executory and demandable. Hence, this petition. Issue: Whether the subject assessment has become final, executory and demandable due to the failure of petitioner to file an appeal before the CTA within thirty (30) days from the lapse of the One Hundred Eighty (180)-day period pursuant to Section 228 of the NIRC? Ruling: No. As held in RCBC v. CIR (G.R. No. 168498, April 24, 2007, 522 SCRA 144), in case the Commissioner failed to act on the disputed assessment within the 180-day period from date of submission of documents, a taxpayer can either: (1) file a petition for review with the Court of Tax Appeals within 30 days after the expiration of the 180-day period; or (2) await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the Court of Tax Appeals within 30 days after receipt of a copy of such decision. In arguing that the assessment became final and executory by the sole reason that petitioner failed to appeal the inaction of the Commissioner within 30 days after the 180-day reglementary period, respondent, in effect, limited the remedy of Lascona, as a taxpayer, under Section 228 of the NIRC to just one, that is - to appeal the inaction of the Commissioner on its protested assessment after the lapse of the 180-day period. When the law provided for the

remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180-day prescribed period. Precisely, when a taxpayer protested an assessment, he naturally expects the CIR to decide either positively or negatively. A taxpayer cannot be prejudiced if he chooses to wait for the final decision of the CIR on the protested assessment. More so, because the law and jurisprudence have always contemplated a scenario where the CIR will decide on the protested assessment. Accordingly, considering that Lascona opted to await the final decision of the Commissioner on the protested assessment, it then has the right to appeal such final decision to the Court by filing a petition for review within thirty days after receipt of a copy of such decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of Internal Revenue to act on the disputed assessments. Thus, Lascona, when it filed an appeal on April 12, 1999 before the CTA, after its receipt of the Letter dated March 3, 1999 on March 12, 1999, the appeal was timely made as it was filed within 30 days after receipt of the copy of the decision. Taxpayers cannot be left in quandary by its inaction on the protested assessment. It is imperative that the taxpayers are informed of its action in order that the taxpayer should then at least be able to take recourse to the tax court at the opportune time. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Thus, 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.

CIR vs Petron Corporation, G.R. No. 185568, March 21, 2012 Facts: Respondent Petron is a corporation engaged in the production of petroleum products and is a Board of Investment (BOI) registered enterprise in accordance with the provisions of the Omnibus Investments Code of 1987 (E.O. 226) under Certificate of Registration Nos. 891037 and D95-136. During the period covering the taxable years 1995 to 1998, Petron had been an assignee of several Tax Credit Certificates (TCCs) from various BOI-registered entities for which it utilized in the payment of its excise tax liabilities for the taxable years 1995 to 1998. The transfers and assignments of the said TCCs were approved by the Department of Finances One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (DOF Center) composed of representatives from the appropriate government agencies. Taking ground on a BOI letter issued on May 15, 1998 which states that hydraulic oil, penetrating oil, diesel fuels and industrial gases are classified as supplies and considered the suppliers thereof as qualified transferees of tax credit, Petron acknowledged and accepted the transfers of the TCCs from the various BOI-registered entities. Such acceptance and use of the TCCs as payment of its excise tax liabilities for the taxable years 1995 to 1998 had been continuously approved by the DOF as well as the BIRs Collection Program Division. On January 30, 2002, Petitioner CIR issued an Assessment against petitioner for deficiency excise taxes for the taxable years 1995 to 1998 in the total amount of P

739,003,036.32, inclusive of surcharges and interests on the ground that the TCCs utilized by petitioner in the payment of excise taxes have been cancelled by the DOF for having been fraudulently issued and transferred. Thus, petitioner, through letters dated August 31, 1999 and September 1, 1999, was required by the DOF Center to submit copies of its sales invoices and delivery receipts showing the consummation of the sale transaction to certain TCC transferors. Instead of submitting the said documents, Petron filed a protest on February 27, 2002. On March 27, 2002, CIR served a Warrant of Distraint and/or Levy on petitioner to enforce payment of the tax deficiencies without first acting on its letter-protest. Construing the Warrant of Distraint and/or Levy as the final adverse decision of the BIR on its protest of the assessment, Petron filed the petition before the CTA Second Division on April 2, 2002. On May 4, 2007, the CTA Second Division promulgated a Decision ordering Petron to pay the reduced amount of P600,769,353.95 representing deficiency excise taxes for the taxable years 1995 to 1998 and 25% late payment surcharge and 20% delinquency interest per annum on the said amount, computed from June 27, 2002 until the amount is fully paid. Petron filed a motion for reconsideration but was denied. Aggrieved, Petron appealed the Decision to the CTA En Banc through a Petition for Review. The CTA en banc reversed and set aside the CTA Second Division and absolved Petron from any deficiency excise tax liability for taxable years 1995 to 1998. The CIR moved for the reconsideration of the CTA En Banc Decision, but the motion was denied. Issue: Did CTA commit reversible error in holding that Petron is not liable for its excise tax liabilities from 1995 to 1998? Ruling: No. Petron is a transferee in good faith and for value of the subject TCCs since the CIR had no allegation that there was a deviation from the process for the approval of the TCCs, which Petron used as payment to settle its excise tax liabilities for the years 1995 to 1998. The CIRs claim that Petron have participated in the fraudulent issuance and transfer of the TCCs is negated by the Joint Stipulation it entered into with Petron in the proceedings before the CTA which states that Petron did not participate in the procurement and issuance of the TCCs, which TCCs were transferred to Petron and later utilized by Petron in payment of its excise taxes. This stipulation of fact by the CIR amounts to an admission and, having been made by the parties in a stipulation of facts at pretrial, is treated as a judicial admission. The joint stipulation made by the parties consequently obviated the opportunity of the CIR to present evidence on this matter, as no proof is required for an admission made by a party in the course of the proceedings. Thus, the CIR cannot be allowed to change its stand and renege on that admission. Further, the post-audit report on which the CIR based its allegations does not have the effect of a suspensive condition that would determine the validity of the TCCs. As held in Petron v. CIR (G.R. No. 180385, 28 July 2010, 626 SCRA 100), which is on all fours with the instant case, TCCs are valid and effective from their issuance and are not subject to a postaudit as a suspensive condition for their validity. The implication on the instant case of the said earlier ruling is that Petron has the right to rely on the validity and effectivity of the TCCs that were assigned to it. The validity of those TCCs should not depend on the results of the DOFs post-audit findings.

Taxes are the nations lifeblood through which government agencies continue to operate and with which the State discharges its functions for the welfare of its constituents. As an exception, however, this general rule cannot be applied if it would work injustice against an innocent party. Petron, in this case, was not proven to have had any participation in or knowledge of the CIRs allegation of the fraudulent transfer and utilization of the subject TCCs. Respondents status as a transferee in good faith and for value of these TCCs has been established and even stipulated upon by petitioner. Respondent was thereby provided ample protection from the adverse findings subsequently made by the Center. Given the circumstances, the CIRs invocation of the non-applicability of estoppel in this case is misplaced. CIR vs. Hon. Raul M. Gonzales, et.al. GR No. 177279, October 13, 2010

FACTS:

Pursuant to Letter of Authority (LA) No. 00009361 dated August 25, 2000 issued by then Commissioner of Internal Revenue (petitioner) Dakila B. Fonacier, Revenue Officers Remedios C. Advincula, Jr., Simplicio V. Cabantac, Jr., Ricardo L. Suba, Jr. and Aurelio Agustin T. Zamora supervised by Section Chief Sixto C. Dy, Jr. of the Tax Fraud Division (TFD), National Office, conducted a fraud investigation for all internal revenue taxes to ascertain/determine the tax liabilities of respondent L. M. Camus Engineering Corporation (LMCEC) for the taxable years 1997, 1998 and 1999.[4] The audit and investigation against LMCEC was precipitated by the information provided by an informer that LMCEC had substantial underdeclared income for the said period. For failure to comply with the subpoena duces tecum issued in connection with the tax fraud investigation, a criminal complaint was instituted by the Bureau of Internal Revenue (BIR) against LMCEC on January 19, 2001 for violation of Section 266 of the NIRC (I.S. No. 00956 of the Office of the City Prosecutor of Quezon City).[5] Based on data obtained from an informer and various clients of LMCEC, [6] it was discovered that LMCEC filed fraudulent tax returns with substantial underdeclarations of taxable income for the years 1997, 1998 and 1999. Petitioner thus assessed the company of total deficiency taxes amounting to P430,958,005.90 (income tax - P318,606,380.19 and valueadded tax [VAT] - P112,351,625.71) covering the said period. The Preliminary Assessment Notice (PAN) was received by LMCEC on February 22, 2001.[7] In view of the above findings, assessment notices together with a formal letter of demand dated August 7, 2002 were sent to LMCEC through personal service on October 1, 2002.[9] Since the company and its representatives refused to receive the said notices and demand letter, the revenue officers resorted to constructive service[10] in accordance with Section 3, Revenue Regulations (RR) No. 12-99[11]. On May 21, 2003, petitioner, through then Commissioner Guillermo L. Parayno, Jr., referred to the Secretary of Justice for preliminary investigation its complaint against LMCEC,

Luis M. Camus and Lino D. Mendoza, the latter two were sued in their capacities as President and Comptroller, respectively. The case was docketed as I.S. No. 2003-774. In the Joint Affidavit executed by the revenue officers who conducted the tax fraud investigation, it was alleged that despite the receipt of the final assessment notice and formal demand letter on October 1, 2002, LMCEC failed and refused to pay the deficiency tax assessment in the total amount ofP630,164,631.61, inclusive of increments, which had become final and executory as a result of the said taxpayers failure to file a protest thereon within the thirty (30)-day reglementary period.[12] Camus and Mendoza filed a Joint Counter-Affidavit contending that LMCEC cannot be held liable whatsoever for the alleged tax deficiency which had become due and demandable. Considering that the complaint and its annexes all showed that the suit is a simple civil action for collection and not a tax evasion case, the Department of Justice (DOJ) is not the proper forum for BIRs complaint. They also assail as invalid the assessment notices which bear no serial numbers and should be shown to have been validly served by an Affidavit of Constructive Service executed and sworn to by the revenue officers who served the same. As stated in LMCECs letter-protest dated December 12, 2002 addressed to Revenue District Officer (RDO) Clavelina S. Nacar of RD No. 40, Cubao, Quezon City, the company had already undergone a series of routine examinations for the years 1997, 1998 and 1999; under the NIRC, only one examination of the books of accounts is allowed per taxable year.[13] LMCEC further asserted that it filed on April 20, 2001 a protest on the PAN issued by petitioner for having no basis in fact and law. However, until now the said protest remains unresolved. As to the alleged informant who purportedly supplied the confidential information, LMCEC believes that such person is fictitious and his true identity and personality could not be produced. Hence, this case is another form of harassment against the company as what had been found by the Office of the City Prosecutor of Quezon City in I.S. No. 00-956. Said case and the present case both have something to do with the audit/examination of LMCEC for taxable years 1997, 1998 and 1999 pursuant to LA No. 00009361.[18] ISSUE:

The core issue to be resolved is whether LMCEC and its corporate officers may be prosecuted for violation of Sections 254 (Attempt to Evade or Defeat Tax) and 255 (Willful Failure to Supply Correct and Accurate Information and Pay Tax).

HELD:

We do not agree. A notice of assessment is:

[A] declaration of deficiency taxes issued to a [t]axpayer who fails to respond to a Pre-Assessment Notice (PAN) within the prescribed period of time, or whose reply to the PAN was found to be without merit. The Notice of Assessment shall inform the [t]axpayer of this fact, and that the report of investigation submitted by the Revenue Officer conducting the audit shall be given due course. The formal letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, otherwise the formal letter of demand and the notice of assessment shall be void.[44] As it is, the formality of a control number in the assessment notice is not a requirement for its validity but rather the contents thereof which should inform the taxpayer of the declaration of deficiency tax against said taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under Section 228 of the NIRC. Section 228 of the NIRC 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 provisions of Section 228 of the NIRC, RR No. 12-99 was enacted. Section 3.1.4 of the revenue regulation reads: 3.1.4. Formal Letter of Demand and Assessment Notice. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. The letter of demand calling for payment of the taxpayers deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void. The same shall be sent to the taxpayer only by registered mail or by personal delivery. x x x.[45] (Emphasis supplied.) The Formal Letter of Demand dated August 7, 2002 contains not only a detailed computation of LMCECs tax deficiencies but also details of the specified discrepancies, explaining the legal and factual bases of the assessment. It also reiterated that in the absence of accounting records and other documents necessary for the proper determination of the companys internal revenue tax liabilities, the investigating revenue officers resorted to the Best Evidence Obtainable as provided in Section 6(B) of the NIRC (third party information) and in accordance with the procedure laid down in RMC No. 23-2000 dated November 27, 2000. Tax amnesty is a general pardon to taxpayers who want to start a clean tax slate. It also gives the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case.[51] Even assuming arguendo that the issuance of RR No. 2-99 is in the nature of tax amnesty, it bears noting that a tax amnesty, much like a tax exemption, is never favored nor presumed in law and if granted by statute, the terms of the amnesty like that of a tax exemption must be construed strictly against the taxpayer and liberally in favor of the taxing authority.[52]

Tax assessments by tax examiners are presumed correct and made in good faith, and all presumptions are in favor of the correctness of a tax assessment unless proven otherwise.[58] We have held that a taxpayers failure to file a petition for review with the Court of Tax Appeals within the statutory period rendered the disputed assessment final, executory and demandable, thereby precluding it from interposing the defenses of legality or validity of the assessment and prescription of the Governments right to assess.[59] Indeed, any objection against the assessment should have been pursued following the avenue paved in Section 229 (now Section 228) of the NIRC on protests on assessments of internal revenue taxes.[60] Records bear out that the assessment notice and Formal Letter of Demand dated August 7, 2002 were duly served on LMCEC onOctober 1, 2002. Private respondents did not file a motion for reconsideration of the said assessment notice and formal demand; neither did they appeal to the Court of Tax Appeals. Section 228 of the NIRC[61] provides the remedy to dispute a tax assessment within a certain period of time. It states that an assessment may be protested by filing a request for reconsideration or reinvestigation within 30 days from receipt of the assessment by the taxpayer. No such administrative protest was filed by private respondents seeking reconsideration of the August 7, 2002 assessment notice and formal letter of demand. Private respondents cannot belatedly assail the said assessment, which they allowed to lapse into finality, by raising issues as to its validity and correctness during the preliminary investigation after the BIR has referred the matter for prosecution under Sections 254 and 255 of the NIRC. CIR vs. KUDOS METAL CORPORATION GR No. 178087, May 5, 2010

FACTS:

On April 15, 1999, respondent Kudos Metal Corporation filed its Annual Income Tax Return (ITR) for the taxable year 1998. Pursuant to a Letter of Authority dated September 7, 1999, the Bureau of Internal Revenue (BIR) served upon respondent three Notices of Presentation of Records. Respondent failed to comply with these notices, hence, the BIR issued a Subpeona Duces Tecumdated September 21, 2006, receipt of which was acknowledged by respondents President, Mr. Chan Ching Bio, in a letter dated October 20, 2000. A review and audit of respondents records then ensued. On December 10, 2001, Nelia Pasco (Pasco), respondents accountant, executed a Waiver of the Defense of Prescription,[4] which was notarized on January 22, 2002, received by the BIR Enforcement Service on January 31, 2002 and by the BIR Tax Fraud Division on February 4, 2002, and accepted by the Assistant Commissioner of the Enforcement Service, Percival T. Salazar (Salazar). This was followed by a second Waiver of Defense of Prescription[5] executed by Pasco on February 18, 2003, notarized onFebruary 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its Protest on Various Tax Assessments on December 3, 2003 and its Legal Arguments and Documents in Support of Protests against Various Assessments on February 2, 2004. On June 22, 2004, the BIR rendered a final Decision[6] on the matter, requesting the immediate payment of defendants tax liabilities:

ISSUE:

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

HELD: Respondents Arguments Respondent maintains that prescription had set in due to the invalidity of the waivers executed by Pasco, who executed the same without any written authority from it, in clear violation of RDAO No. 501. As to the doctrine of estoppel by acquiescence relied upon by petitioner, respondent counters that the principle of equity comes into play only when the law is doubtful, which is not present in the instant case.

The petition is bereft of merit. Section 203[15] of the National Internal Revenue Code of 1997 (NIRC) mandates the government to assess internal revenue taxes within three years from the last day prescribed by law for the filing of the tax return or the actual date of filing of such return, whichever comes later. Hence, an assessment notice issued after the three-year prescriptive period is no longer valid and effective. Exceptions however are provided under Section 222[16] of the NIRC. The waivers executed by respondents accountant did not extend the period within which the assessment can be made

Petitioner does not deny that the assessment notices were issued beyond the three-year prescriptive period, but claims that the period was extended by the two waivers executed by respondents accountant. We do not agree.

Section 222 (b) of the NIRC provides that the period to assess and collect taxes may only be extended upon a written agreement between the CIR and the taxpayer executed before the expiration of the three-year period. RMO 20-90[17] issued on April 4, 1990 and RDAO 05-01[18] issued on August 2, 2001 lay down the procedure for the proper execution of the waiver Due to the defects in the waivers, the period to assess or collect taxes was not extended. Consequently, the assessments were issued by the BIR beyond the three-year period and are void.

Conversely, in this case, the assessments were issued beyond the prescribed period. Also, there is no showing that respondent made any request to persuade the BIR to postpone the issuance of the assessments. The doctrine of estoppel cannot be applied in this case as an exception to the statute of limitations on the assessment of taxes considering that there is a detailed procedure for the proper execution of the waiver, which the BIR must strictly follow. As we have often said, the doctrine of estoppel is predicated on, and has its origin in, equity which, broadly defined, is justice according to natural law and right.[22] As such, the doctrine of estoppel cannot give validity to an act that is prohibited by law or one that is against public policy.[23] It should be resorted to solely as a means of preventing injustice and should not be permitted to defeat the administration of the law, or to accomplish a wrong or secure an undue advantage, or to extend beyond them requirements of the transactions in which they originate.[24] Simply put, the doctrine of estoppel must be sparingly applied. Moreover, the BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with RMO 20-90 and RDAO 05-01, which the BIR itself issued. As stated earlier, the BIR failed to verify whether a notarized written authority was given by the respondent to its accountant, and to indicate the date of acceptance and the receipt by the respondent of the waivers. Having caused the defects in the waivers, the BIR must bear the consequence. It cannot shift the blame to the taxpayer. To stress, a waiver of the statute of limitations, being a derogation of the taxpayers right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed.[25] As to the alleged delay of the respondent to furnish the BIR of the required documents, this cannot be taken against respondent. Neither can the BIR use this as an excuse for issuing the assessments beyond the three-year period because with or without the required documents, the CIR has the power to make assessments based on the best evidence obtainable.[26]

SECOND DIVISION [G.R. No. 136975. March 31, 2005] COMMISSION OF INTERNAL REVENUE, petitioner, vs. HANTEX TRADING CO., INC., respondent.

THE FACTS:

The respondent is a corporation duly organized and existing under the laws of the Philippines. Being engaged in the sale of plastic products, it imports synthetic resin and other

chemicals for the manufacture of its products. For this purpose, it is required to file an Import Entry and Internal Revenue Declaration (Consumption Entry) with the Bureau of Customs under Section 1301 of the Tariff and Customs Code. Sometime in October 1989, Lt. Vicente Amoto, Acting Chief of Counter-Intelligence Division of the Economic Intelligence and Investigation Bureau (EIIB), received confidential information that the respondent had imported synthetic resin amounting to P115,599,018.00 but only declaredP45,538,694.57.[ 3 ] According to the informer, based on photocopies of 77 Consumption Entries furnished by another informer, the 1987 importations of the respondent were understated in its accounting records.[ 4 ] Amoto submitted a report to the EIIB Commissioner recommending that an inventory audit of the respondent be conducted by the Internal Inquiry and Prosecution Office (IIPO) of the EIIB.[ 5 ] Acting on the said report, Jose T. Almonte, then Commissioner of the EIIB, issued Mission Order No. 398-89[ 6 ] dated November 14, 1989 for the audit and investigation of the importations of Hantex for 1987. The IIPO issued subpoena duces tecum and ad testificandum for the president and general manager of the respondent to appear in a hearing. However, the respondents president and general manager refused to comply with the subpoena, contending that its books of accounts and records of importation of synthetic resin and calcium bicarbonate had been investigated repeatedly by the Bureau of Internal Revenue (BIR) on prior occasions.[ 8 ] The IIPO explained that despite such previous investigations, the EIIB was still authorized to conduct an investigation pursuant to Section 26-A of Executive Order No. 127. Still, the respondent refused to comply with the subpoena issued by the IIPO. The latter forthwith secured certified copies of the Profit and Loss Statements for 1987 filed by the respondent with the Securities and Exchange Commission (SEC). [ 9 ] However, the IIPO failed to secure certified copies of the respondents 1987 Consumption Entries from the Bureau of Customs since, according to the custodian thereof, the original copies had been eaten by termites.[ 1 0 ] Based on the documents/records on hand, inclusive of the machine copies of the Consumption Entries, the EIIB found that for 1987, the respondent had importations totaling P105,716,527.00 (inclusive of advance sales tax). Compared with the declared sales based on the Profit and Loss Statements filed with the SEC, the respondent had unreported sales in the amount of P63,032,989.17, and its corresponding income tax liability was P41,916,937.78, inclusive of penalty charge and interests. EIIB Commissioner Almonte transmitted the entire docket of the case to the BIR and recommended the collection of the total tax assessment from the respondent.[ 1 3 ] On February 12, 1991, Deputy Commissioner Deoferio, Jr. issued a Memorandum to the BIR Assistant Commissioner for Special Operations Service, directing the latter to prepare a conference letter advising the respondent of its deficiency taxes.[ 1 4 ] Meanwhile, as ordered by the Regional Director, Revenue Enforcement Officers Saturnino D. Torres and Wilson Filamor conducted an investigation on the 1987 importations of the respondent, in the light of the records elevated by the EIIB to the BIR, inclusive of the photocopies of the Consumption Entries. They were to ascertain the respondents liability for deficiency sales and income taxes for 1987, if any. Per Torres and Filamors Report dated March 6, 1991 which was based on the report of the EIIB and the documents/records appended thereto, there was a prima facie case of fraud against the respondent in filing its 1987 Consumption Entry reports with the Bureau of Customs. They found that the respondent had

unrecorded importation in the total amount of P70,661,694.00, and that the amount was not declared in its income tax return for 1987. The District Revenue Officer and the Regional Director of the BIR concurred with the report.[ 1 5 ] Based on the said report, the Acting Chief of the Special Investigation Branch wrote the respondent and invited its representative to a conference at 10:00 a.m. of March 14, 1991 to discuss its deficiency internal revenue taxes and to present whatever documentary and other evidence to refute the same.[ 1 6 ] Appended to the letter was a computation of the deficiency income and sales tax due from the respondent, inclusive of increments: The invitation was reiterated in a Letter dated March 15, 1991. In his Reply dated March 15, 1991, Mariano O. Chua, the President and General Manager of the respondent, requested that the report of Torres and Filamor be set aside on the following claim: Invoking Section 235[ 1 9 ] of the 1977 National Internal Revenue Code (NIRC), as amended, Chua requested that the inquiry be set aside. The petitioner, the Commissioner of Internal Revenue, through Assistant Commissioner for Collection Jaime M. Maza, sent a Letter dated April 15, 1991 to the respondent demanding payment of its deficiency income tax of P13,414,226.40 and deficiency sales tax of P14,752,903.25, inclusive of surcharge and interest.[ 2 0 ] Appended thereto were the Assessment Notices of Tax Deficiency Nos. FAS-1-87-91-001654 and FAS-4-87-91-001655.[ 2 1 ] On February 12, 1992, the Chief of the Accounts Receivables/Billing Division of the BIR sent a letter to the respondent demanding payment of its tax liability due for 1987 within ten (10) days from notice, on pain of the collection tax due via a warrant of distraint and levy and/or judicial action.[ 2 2 ] The Warrant of Distraint and/or Levy[ 2 3 ] was actually served on the respondent on January 21, 1992. In view of the impasse, administrative hearings were conducted on the respondents protest to the assessment. During the hearing of August 20, 1993, the IIPO representative presented the photocopies of the Consumption and Import Entries and the Certifications issued by Tomas and Danganan of the Bureau of Customs. The IIPO representative testified that the Bureau of Customs failed to furnish the EIIB with certified copies of the Consumption and Import Entries; hence, the EIIB relied on the machine copies from their informer.[ 2 7 ] The respondent wrote the BIR Commissioner on July 12, 1993 questioning the assessment on the ground that the EIIB representative failed to present the original, or authenticated, or duly certified copies of the Consumption and Import Entry Accounts, or excerpts thereof if the original copies were not readily available; or, if the originals were in the official custody of a public officer, certified copies thereof as provided for in Section 12, Chapter 3, Book VII, Administrative Procedure, Administrative Order of 1987. It stated that the only copies of the Consumption Entries submitted to the Hearing Officer were mere machine copies furnished by an informer of the EIIB. It asserted that the letters of Tomas and Danganan were unreliable The respondent requested anew that the income tax deficiency assessment and the sales tax deficiency assessment be set aside for lack of factual and legal basis. The BIR Commissioner[ 3 0 ] wrote the respondent on December 10, 1993, denying its letterrequest for the dismissal of the assessments.[ 3 1 ] The BIR Commissioner admitted, in the said letter, the possibility that the figures appearing in the photocopies of the Consumption Entries had been tampered with. She averred, however, that she was not proscribed from relying on other admissible evidence, namely, the Letters of Torres and Filamor dated August 7 and 22, 1990 on their investigation of the respondents tax liability. The Commissioner emphasized that her decision was final.[ 3 2 ]

ISSUE:

As gleaned from the pleadings of the parties, the threshold issues for resolution are the following: (a) whether the petition at bench is proper and complies with Sections 4 and 5, Rule 7 of the Rules of Court; (b) whether the December 10, 1991 final assessment of the petitioner against the respondent for deficiency income tax and sales tax for the latters 1987 importation of resins and calcium bicarbonate is based on competent evidence and the law; and (c) the total amount of deficiency taxes due from the respondent for 1987, if any.

HELD: Central to the second issue is Section 16 of the NIRC of 1977, as amended, [ 6 4 ] which provides that the Commissioner of Internal Revenue has the power to make assessments and prescribe additional requirements for tax administration and enforcement. In case a person fails to file a required return or other document at the time prescribed by law, or willfully or otherwise files a false or fraudulent return or other document, the Commissioner shall make or amend the return from his own knowledge and from such information as he can obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all legal purposes.[ 6 5 ] This provision applies when the Commissioner of Internal Revenue undertakes to perform her administrative duty of assessing the proper tax against a taxpayer, to make a return in case of a taxpayers failure to file one, or to amend a return already filed in the BIR. The petitioner may avail herself of the best evidence or other information or testimony by exercising her power or authority under paragraphs (1) to (4) of Section 7 of the NIRC: We agree with the contention of the petitioner that the best evidence obtainable may consist of hearsay evidence, such as the testimony of third parties or accounts or other records of other taxpayers similarly circumstanced as the taxpayer subject of the investigation, hence, inadmissible in a regular proceeding in the regular courts.[ 7 2 ] Moreover, the general rule is that administrative agencies such as the BIR are not bound by the technical rules of evidence. It can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court are strictly observed. It can choose to give weight or disregard such evidence, depending on its trustworthiness. However, the best evidence obtainable under Section 16 of the 1977 NIRC, as amended, does not include mere photocopies of records/documents. The petitioner, in making a preliminary and final tax deficiency assessment against a taxpayer, cannot anchor the said assessment on mere machine copies of records/documents. Mere photocopies of the Consumption Entries have no probative weight if offered as proof of the contents thereof. The reason for this is that such copies are mere scraps of paper and are of no probative value as basis for any deficiency income or business taxes against a taxpayer. The original copies of the Consumption Entries were of prime importance to the BIR. This is so because such entries are under oath and are presumed to be true and correct under

penalty of falsification or perjury. Admissions in the said entries of the importers documents are admissions against interest and presumptively correct.[ 7 7 ] In fine, then, the petitioner acted arbitrarily and capriciously in relying on and giving weight to the machine copies of the Consumption Entries in fixing the tax deficiency assessments against the respondent. The rule is that in the absence of the accounting records of a taxpayer, his tax liability may be determined by estimation. The petitioner is not required to compute such tax liabilities with mathematical exactness. Approximation in the calculation of the taxes due is justified. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. However, the rule does not apply where the estimation is arrived at arbitrarily and capriciously. We agree with the contention of the petitioner that, as a general rule, tax assessments by tax examiners are presumed correct and made in good faith. All presumptions are in favor of the correctness of a tax assessment. It is to be presumed, however, that such assessment was based on sufficient evidence. Upon the introduction of the assessment in evidence, a prima facie case of liability on the part of the taxpayer is made. If a taxpayer files a petition for review in the CTA and assails the assessment, the prima facie presumption is that the assessment made by the BIR is correct, and that in preparing the same, the BIR personnel regularly performed their duties. This rule for tax initiated suits is premised on several factors other than the normal evidentiary rule imposing proof obligation on the petitioner-taxpayer: the presumption of administrative regularity; the likelihood that the taxpayer will have access to the relevant information; and the desirability of bolstering the record-keeping requirements of the NIRC. However, the prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation, meaning it is arbitrary and capricious. Where the BIR has come out with a naked assessment, i.e., without any foundation character, the determination of the tax due is without rational basis.[ 8 2 ] In such a situation, the U.S. Court of Appeals ruled[ 8 3 ] that the determination of the Commissioner contained in a deficiency notice disappears. Hence, the determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence.