Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

154068 August 3, 2007

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado, respondent. DECISION

QUISUMBING, J.:

Assailed in this petition for review are the Decision1 and Resolution2 dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 which had reversed the Resolution3 dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 and ordered the latter to resolve respondents petition for review. The facts are as follows: Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period January 1, 1996 to December 31, 1996, respondent was assigned in a foreign country. During that period, Intel withheld the taxes due on respondents compensation income and remitted to the Bureau of Internal Revenue (BIR) the amount of P308,084.56. On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual Income Tax Return for the year 1996. Later, on June 17, 1997, respondent, through her representative, filed an amended return and a Non-Resident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in the amount of P14,455.76. On October 8, 1997, she filed another amended return indicating an overpayment of P358,274.63. Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment of P340,918.92,4 respondent filed on April 15, 1999 a petition for review docketed as C.T.A. Case No. 5828 with the Court of Tax Appeals (CTA). The Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of respondent to file the mandatory written claim for refund before the CIR.

In its Resolution dated August 4, 1999, the CTA dismissed respondents petition. For one, the CTA ruled that respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing of a petition for review before the CTA.5 Second, the CTA noted that respondents omission, inadvertently or otherwise, to allege in her petition the date of filing the final adjustment return, deprived the court of its jurisdiction over the subject matter of the case.6 The decretal portion of the CTAs resolution states:

WHEREFORE, in view of all the foregoing, Respondents Motion to Dismiss is GRANTED. Accordingly*,+ the Petition for Review is hereby DISMISSED.

SO ORDERED.7

Upon review, the Court of Appeals reversed the CTA and directed the latter to resolve respondents petition for review. Applying Section 204(c)8 of the 1997 National Internal Revenue Code (NIRC), the Court of Appeals ruled that respondents filing of an amended return indicating an overpayment was sufficient compliance with the requirement of a written claim for refund.9 The decretal portion of the Court of Appeals decision reads:

WHEREFORE, finding the petition to be meritorious, this Court GRANTS it due course and REVERSES the appealed Resolutions and DIRECTS the Court of Tax Appeal[s] to resolve the petition for review on the merits.

SO ORDERED.10

Petitioner sought reconsideration, but it was denied. Hence, the instant petition raising the following questions of law:

I.

WHETHER OR NOT THE 1997 TAX REFORM ACT CAN BE APPLIED RETROACTIVELY.

II. WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE *COGNIZANCE+ OF RESPONDENTS PETITION FOR REVIEW.11 While the main concern in this controversy is the CTAs jurisdiction, we must first resolve two issues. First, does the amended return filed by respondent indicating an overpayment constitute the written claim for refund required by law, thereby vesting the CTA with jurisdiction over this case? Second, can the 1997 NIRC be applied retroactively? Petitioner avers that an amended return showing an overpayment does not constitute the written claim for refund required under Section 23012 of the 1993 NIRC13 (old Tax Code). He claims that an actual written claim for refund is necessary before a suit for its recovery may proceed in any court. On the other hand, respondent contends that the filing of an amended return indicating an overpayment of P358,274.63 constitutes a written claim for refund pursuant to the clear proviso stated in the last sentence of Section 204(c) of the 1997 NIRC (new Tax Code), to wit: xxxx Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund. xxxx Along the same vein, respondent invokes the liberal application of technicalities in tax refund cases, conformably with our ruling in BPI-Family Savings Bank, Inc. v. Court of Appeals.14 We are, however, unable to agree with respondents submission on this score. The applicable law on refund of taxes pertaining to the 1996 compensation income is Section 230 of the old Tax Code, which was the law then in effect, and not Section 204(c) of the new Tax Code, which was effective starting only on January 1, 1998. Noteworthy, the requirements under Section 230 for refund claims are as follows: 1. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner; 2. The claim for refund must be a categorical demand for reimbursement; 3. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be commenced in court within two (2) years from date of payment of the tax or penalty regardless of any supervening cause.15 (Emphasis ours.) In our view, the law is clear. A claimant must first file a written claim for refund, categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in court. This obviously is intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and

second, to notify the government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure.16 Thus, on the first issue, we rule against respondents contention. Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government. As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or inference17 nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund.18 To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction.19 Under the circumstances of this case, we cannot agree that the amended return filed by respondent constitutes the written claim for refund required by the old Tax Code, the law prevailing at that time. Neither can we apply the liberal interpretation of the law based on our pronouncement in the case of BPI-Family Savings Bank, Inc. v. Court of Appeals, as the taxpayer therein filed a written claim for refund aside from presenting other evidence to prove its claim, unlike this case before us. On the second issue, petitioner argues that the 1997 NIRC cannot be applied retroactively as the instant case involved refund of taxes withheld on a 1996 income. Respondent, however, points out that when the petition was filed with the CTA on April 15, 1999, the 1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the fact that the refund being sought pertains to a 1996 income tax. Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough consideration of this matter, we find that we cannot give retroactive application to Section 204(c) abovecited. We have to stress that tax laws are prospective in operation, unless the language of the statute clearly provides otherwise.20 Moreover, it should be emphasized that a party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action.21 This the respondent did not follow through. Additionally, it could not escape notice that at the time respondent filed her amended return, the 1997 NIRC was not yet in effect. Hence, respondent had no reason at that time to think that the filing of an amended return would constitute the written claim for refund required by applicable law. Furthermore, as the CTA stressed, even the date of filing of the Final Adjustment Return was omitted, inadvertently or otherwise, by respondent in her petition for review. This omission was fatal to respondents claim, for it deprived the CTA of its jurisdiction over the subject matter of the case. Finally, we cannot agree with the Court of Appeals finding that the nature of the instant case calls for the application of remedial laws. Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws. As well said in a prior case, revenue laws are not

intended to be liberally construed.22 Considering that taxes are the lifeblood of the government and in Holmess memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented. WHEREFORE, the petition is GRANTED. Both the assailed Decision and Resolution dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 are REVERSED and SET ASIDE. The Resolution dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 is hereby REINSTATED. No pronouncement as to costs. SO ORDERED.

G.R. Nos. 141104 & 148763

June 8, 2007

ATLAS CONSOLIDATED MINING AND DEVELOPMENT CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL REVENUE, respondent. DECISION CHICO-NAZARIO, J.: Before this Court are the consolidated cases involving the unsuccessful claims of herein petitioner Atlas Consolidated Mining and Development Corporation (petitioner corporation) for the refund/credit of the input Value Added Tax (VAT) on its purchases of capital goods and on its zero-rated sales in the taxable quarters of the years 1990 and 1992, the denial of which by the Court of Tax Appeals (CTA), was affirmed by the Court of Appeals. Petitioner corporation is engaged in the business of mining, production, and sale of various mineral products, such as gold, pyrite, and copper concentrates. It is a VAT-registered taxpayer. It was initially issued VAT Registration No. 32-A-6-002224, dated 1 January 1988, but it had to register anew with the appropriate revenue district office (RDO) of the Bureau of Internal Revenue (BIR) when it moved its principal place of business, and it was re-issued VAT Registration No. 32-0-004622, dated 15 August 1990.1 G.R. No. 141104 Petitioner corporation filed with the BIR its VAT Return for the first quarter of 1992.2 It alleged that it likewise filed with the BIR the corresponding application for the refund/credit of its input VAT on its purchases of capital goods and on its zero-rated sales in the amount of P26,030,460.00.3 When its application for refund/credit remained unresolved by the BIR, petitioner corporation filed on 20 April 1994 its Petition for Review with the CTA, docketed as CTA Case No. 5102. Asserting that it was a "zerorated VAT person," it prayed that the CTA order herein respondent Commissioner of Internal Revenue (respondent Commissioner) to refund/credit petitioner corporation with the amount of P26,030,460.00, representing the input VAT it had paid for the first quarter of 1992. The respondent Commissioner opposed and sought the dismissal of the petition for review of petitioner corporation for failure to state a cause of action. After due trial, the CTA promulgated its Decision4 on 24 November 1997 with the following disposition WHEREFORE, in view of the foregoing, the instant claim for refund is hereby DENIED on the ground of prescription, insufficiency of evidence and failure to comply with Section 230 of the Tax Code, as amended. Accordingly, the petition at bar is hereby DISMISSED for lack of merit.

The CTA denied the motion for reconsideration of petitioner corporation in a Resolution5 dated 15 April 1998.

When the case was elevated to the Court of Appeals as CA-G.R. SP No. 47607, the appellate court, in its Decision,6 dated 6 July 1999, dismissed the appeal of petitioner corporation, finding no reversible error in the CTA Decision, dated 24 November 1997. The subsequent motion for reconsideration of petitioner corporation was also denied by the Court of Appeals in its Resolution,7 dated 14 December 1999.

Thus, petitioner corporation comes before this Court, via a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assigning the following errors committed by the Court of Appeals

I THE COURT OF APPEALS ERRED IN AFFIRMING THE REQUIREMENT OF REVENUE REGULATIONS NO. 2-88 THAT AT LEAST 70% OF THE SALES OF THE [BOARD OF INVESTMENTS (BOI)]-REGISTERED FIRM MUST CONSIST OF EXPORTS FOR ZERO-RATING TO APPLY. II THE COURT OF APPEALS ERRED IN AFFIRMING THAT PETITIONER FAILED TO SUBMIT SUFFICIENT EVIDENCE SINCE FAILURE TO SUBMIT PHOTOCOPIES OF VAT INVOICES AND RECEIPTS IS NOT A FATAL DEFECT. III THE COURT OF APPEALS ERRED IN RULING THAT THE JUDICIAL CLAIM WAS FILED BEYOND THE PRESCRIPTIVE PERIOD SINCE THE JUDICIAL CLAIM WAS FILED WITHIN TWO (2) YEARS FROM THE FILING OF THE VAT RETURN. IV THE COURT OF APPEALS ERRED IN NOT ORDERING CTA TO ALLOW THE RE-OPENING OF THE CASE FOR PETITIONER TO PRESENT ADDITIONAL EVIDENCE.8

G.R. No. 148763

G.R. No. 148763 involves almost the same set of facts as in G.R. No. 141104 presented above, except that it relates to the claims of petitioner corporation for refund/credit of input VAT on its purchases of capital goods and on its zero-rated sales made in the last three taxable quarters of 1990.

Petitioner corporation filed with the BIR its VAT Returns for the second, third, and fourth quarters of 1990, on 20 July 1990, 18 October 1990, and 20 January 1991, respectively. It submitted separate applications to the BIR for the refund/credit of the input VAT paid on its purchases of capital goods and on its zero-rated sales, the details of which are presented as follows

Date of Application Period Covered Amount Applied For 21 August 1990 2nd Quarter, 1990 P 54,014,722.04 21 November 1990 3rd Quarter, 1990 75,304,774.77 19 February 1991 4th Quarter, 1990 43,829,766.10

When the BIR failed to act on its applications for refund/credit, petitioner corporation filed with the CTA the following petitions for review

Date Filed Period Covered

CTA Case No. 20 July 1992 2nd Quarter, 1990 4831 9 October 1992 3rd Quarter, 1990 4859 14 January 1993 4th Quarter, 1990 4944 which were eventually consolidated. The respondent Commissioner contested the foregoing Petitions and prayed for the dismissal thereof. The CTA ruled in favor of respondent Commissioner and in its Decision,9 dated 30 October 1997, dismissed the Petitions mainly on the ground that the prescriptive periods for filing the same had expired. In a Resolution,10 dated 15 January 1998, the CTA denied the motion for reconsideration of petitioner corporation since the latter presented no new matter not already discussed in the court's prior Decision. In the same Resolution, the CTA also denied the alternative prayer of petitioner corporation for a new trial since it did not fall under any of the grounds cited under Section 1, Rule 37 of the Revised Rules of Court, and it was not supported by affidavits of merits required by Section 2 of the same Rule. Petitioner corporation appealed its case to the Court of Appeals, where it was docketed as CA-G.R. SP No. 46718. On 15 September 2000, the Court of Appeals rendered its Decision,11 finding that although petitioner corporation timely filed its Petitions for Review with the CTA, it still failed to substantiate its claims for the refund/credit of its input VAT for the last three quarters of 1990. In its Resolution,12 dated 27 June 2001, the appellate court denied the motion for reconsideration of petitioner corporation, finding no cogent reason to reverse its previous Decision. Aggrieved, petitioner corporation filed with this Court another Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, docketed as G.R. No. 148763, raising the following issues A. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER'S CLAIM IS BARRED UNDER REVENUE REGULATIONS NOS. 2-88 AND 3-88 I.E., FOR FAILURE TO PTOVE [sic] THE 70% THRESHOLD FOR ZERO-RATING TO APPLY AND FOR FAILURE TO ESTABLISH THE FACTUAL BASIS FOR THE INSTANT CLAIM.

B. WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT THERE IS NO BASIS TO GRANT PETITIONER'S MOTION FOR NEW TRIAL.

There being similarity of parties, subject matter, and issues, G.R. Nos. 141104 and 148763 were consolidated pursuant to a Resolution, dated 4 September 2006, issued by this Court. The ruling of this Court in these cases hinges on how it will resolve the following key issues: (1) prescription of the claims of petitioner corporation for input VAT refund/credit; (2) validity and applicability of Revenue Regulations No. 2-88 imposing upon petitioner corporation, as a requirement for the VAT zero-rating of its sales, the burden of proving that the buyer companies were not just BOI-registered but also exporting 70% of their total annual production; (3) sufficiency of evidence presented by petitioner corporation to establish that it is indeed entitled to input VAT refund/credit; and (4) legal ground for granting the motion of petitioner corporation for re-opening of its cases or holding of new trial before the CTA so it could be given the opportunity to present the required evidence. Prescription The prescriptive period for filing an application for tax refund/credit of input VAT on zero-rated sales made in 1990 and 1992 was governed by Section 106(b) and (c) of the Tax Code of 1977, as amended, which provided that SEC. 106. Refunds or tax credits of input tax. x x x. (b) Zero-rated or effectively zero-rated sales. Any person, except those covered by paragraph (a) above, whose sales are zero-rated may, within two years after the close of the quarter when such sales were made, apply for the issuance of a tax credit certificate or refund of the input taxes attributable to such sales to the extent that such input tax has not been applied against output tax. xxxx (e) Period within which refund of input taxes may be made by the Commissioner. The Commissioner shall refund input taxes within 60 days from the date the application for refund was filed with him or his duly authorized representative. No refund of input taxes shall be allowed unless the VAT-registered person files an application for refund within the period prescribed in paragraphs (a), (b) and (c) as the case may be. By a plain reading of the foregoing provision, the two-year prescriptive period for filing the application for refund/credit of input VAT on zero-rated sales shall be determined from the close of the quarter when such sales were made.

Petitioner contends, however, that the said two-year prescriptive period should be counted, not from the close of the quarter when the zero-rated sales were made, but from the date of filing of the quarterly VAT return and payment of the tax due 20 days thereafter, in accordance with Section 110(b) of the Tax Code of 1977, as amended, quoted as follows SEC. 110. Return and payment of value-added tax. x x x. (b) Time for filing of return and payment of tax. The return shall be filed and the tax paid within 20 days following the end of each quarter specifically prescribed for a VAT-registered person under regulations to be promulgated by the Secretary of Finance: Provided, however, That any person whose registration is cancelled in accordance with paragraph (e) of Section 107 shall file a return within 20 days from the cancellation of such registration. It is already well-settled that the two-year prescriptive period for instituting a suit or proceeding for recovery of corporate income tax erroneously or illegally paid under Section 23013 of the Tax Code of 1977, as amended, was to be counted from the filing of the final adjustment return. This Court already set out in ACCRA Investments Corporation v. Court of Appeals,14 the rationale for such a rule, thus Clearly, there is the need to file a return first before a claim for refund can prosper inasmuch as the respondent Commissioner by his own rules and regulations mandates that the corporate taxpayer opting to ask for a refund must show in its final adjustment return the income it received from all sources and the amount of withholding taxes remitted by its withholding agents to the Bureau of Internal Revenue. The petitioner corporation filed its final adjustment return for its 1981 taxable year on April 15, 1982. In our Resolution dated April 10, 1989 in the case of Commissioner of Internal Revenue v. Asia Australia Express, Ltd. (G.R. No. 85956), we ruled that the two-year prescriptive period within which to claim a refund commences to run, at the earliest, on the date of the filing of the adjusted final tax return. Hence, the petitioner corporation had until April 15, 1984 within which to file its claim for refund. Considering that ACCRAIN filed its claim for refund as early as December 29, 1983 with the respondent Commissioner who failed to take any action thereon and considering further that the non-resolution of its claim for refund with the said Commissioner prompted ACCRAIN to reiterate its claim before the Court of Tax Appeals through a petition for review on April 13, 1984, the respondent appellate court manifestly committed a reversible error in affirming the holding of the tax court that ACCRAIN's claim for refund was barred by prescription. It bears emphasis at this point that the rationale in computing the two-year prescriptive period with respect to the petitioner corporation's claim for refund from the time it filed its final adjustment return is the fact that it was only then that ACCRAIN could ascertain whether it made profits or incurred losses in its business operations. The "date of payment", therefore, in ACCRAIN's case was when its tax liability, if any, fell due upon its filing of its final adjustment return on April 15, 1982. In another case, Commissioner of Internal Revenue v. TMX Sales, Inc.,15 this Court further expounded on the same matter

A re-examination of the aforesaid minute resolution of the Court in the Pacific Procon case is warranted under the circumstances to lay down a categorical pronouncement on the question as to when the twoyear prescriptive period in cases of quarterly corporate income tax commences to run. A full-blown decision in this regard is rendered more imperative in the light of the reversal by the Court of Tax Appeals in the instant case of its previous ruling in the Pacific Procon case. Section 292 (now Section 230) of the National Internal Revenue Code should be interpreted in relation to the other provisions of the Tax Code in order to give effect the legislative intent and to avoid an application of the law which may lead to inconvenience and absurdity. In the case of People vs. Rivera (59 Phil. 236 [1933]), this Court stated that statutes should receive a sensible construction, such as will give effect to the legislative intention and so as to avoid an unjust or an absurd conclusion. INTERPRETATIO TALIS IN AMBIGUIS SEMPER FRIENDA EST, UT EVITATUR INCONVENIENS ET ABSURDUM. Where there is ambiguity, such interpretation as will avoid inconvenience and absurdity is to be adopted. Furthermore, courts must give effect to the general legislative intent that can be discovered from or is unraveled by the four corners of the statute, and in order to discover said intent, the whole statute, and not only a particular provision thereof, should be considered. (Manila Lodge No. 761, et al. vs. Court of Appeals, et al. 73 SCRA 162 [1976) Every section, provision or clause of the statute must be expounded by reference to each other in order to arrive at the effect contemplated by the legislature. The intention of the legislator must be ascertained from the whole text of the law and every part of the act is to be taken into view. (Chartered Bank vs. Imperial, 48 Phil. 931 [1921]; Lopez vs. El Hoger Filipino, 47 Phil. 249, cited in Aboitiz Shipping Corporation vs. City of Cebu, 13 SCRA 449 [1965]). Thus, in resolving the instant case, it is necessary that we consider not only Section 292 (now Section 230) of the National Internal Revenue Code but also the other provisions of the Tax Code, particularly Sections 84, 85 (now both incorporated as Section 68), Section 86 (now Section 70) and Section 87 (now Section 69) on Quarterly Corporate Income Tax Payment and Section 321 (now Section 232) on keeping of books of accounts. All these provisions of the Tax Code should be harmonized with each other. xxxx Therefore, the filing of a quarterly income tax returns required in Section 85 (now Section 68) and implemented per BIR Form 1702-Q and payment of quarterly income tax should only be considered mere installments of the annual tax due. These quarterly tax payments which are computed based on the cumulative figures of gross receipts and deductions in order to arrive at a net taxable income, should be treated as advances or portions of the annual income tax due, to be adjusted at the end of the calendar or fiscal year. This is reinforced by Section 87 (now Section 69) which provides for the filing of adjustment returns and final payment of income tax. Consequently, the two-year prescriptive period provided in Section 292 (now Section 230) of the Tax Code should be computed from the time of filing the Adjustment Return or Annual Income Tax Return and final payment of income tax. In the case of Collector of Internal Revenue vs. Antonio Prieto (2 SCRA 1007 [1961]), this Court held that when a tax is paid in installments, the prescriptive period of two years provided in Section 306 (Section 292) of the National Internal Revenue Code should be counted from the date of the final payment. This

ruling is reiterated in Commissioner of Internal Revenue vs. Carlos Palanca (18 SCRA 496 [1966]), wherein this Court stated that where the tax account was paid on installment, the computation of the two-year prescriptive period under Section 306 (Section 292) of the Tax Code, should be from the date of the last installment. In the instant case, TMX Sales, Inc. filed a suit for a refund on March 14, 1984. Since the two-year prescriptive period should be counted from the filing of the Adjustment Return on April 15,1982, TMX Sales, Inc. is not yet barred by prescription. The very same reasons set forth in the afore-cited cases concerning the two-year prescriptive period for claims for refund of illegally or erroneously collected income tax may also apply to the Petitions at bar involving the same prescriptive period for claims for refund/credit of input VAT on zero-rated sales. It is true that unlike corporate income tax, which is reported and paid on installment every quarter, but is eventually subjected to a final adjustment at the end of the taxable year, VAT is computed and paid on a purely quarterly basis without need for a final adjustment at the end of the taxable year. However, it is also equally true that until and unless the VAT-registered taxpayer prepares and submits to the BIR its quarterly VAT return, there is no way of knowing with certainty just how much input VAT16 the taxpayer may apply against its output VAT;17 how much output VAT it is due to pay for the quarter or how much excess input VAT it may carry-over to the following quarter; or how much of its input VAT it may claim as refund/credit. It should be recalled that not only may a VAT-registered taxpayer directly apply against his output VAT due the input VAT it had paid on its importation or local purchases of goods and services during the quarter; the taxpayer is also given the option to either (1) carry over any excess input VAT to the succeeding quarters for application against its future output VAT liabilities, or (2) file an application for refund or issuance of a tax credit certificate covering the amount of such input VAT.18 Hence, even in the absence of a final adjustment return, the determination of any output VAT payable necessarily requires that the VAT-registered taxpayer make adjustments in its VAT return every quarter, taking into consideration the input VAT which are creditable for the present quarter or had been carried over from the previous quarters. Moreover, when claiming refund/credit, the VAT-registered taxpayer must be able to establish that it does have refundable or creditable input VAT, and the same has not been applied against its output VAT liabilities information which are supposed to be reflected in the taxpayer's VAT returns. Thus, an application for refund/credit must be accompanied by copies of the taxpayer's VAT return/s for the taxable quarter/s concerned. Lastly, although the taxpayer's refundable or creditable input VAT may not be considered as illegally or erroneously collected, its refund/credit is a privilege extended to qualified and registered taxpayers by the very VAT system adopted by the Legislature. Such input VAT, the same as any illegally or erroneously collected national internal revenue tax, consists of monetary amounts which are currently in the hands of the government but must rightfully be returned to the taxpayer. Therefore, whether claiming refund/credit of illegally or erroneously collected national internal revenue tax, or input VAT, the taxpayer must be given equal opportunity for filing and pursuing its claim.

For the foregoing reasons, it is more practical and reasonable to count the two-year prescriptive period for filing a claim for refund/credit of input VAT on zero-rated sales from the date of filing of the return and payment of the tax due which, according to the law then existing, should be made within 20 days from the end of each quarter. Having established thus, the relevant dates in the instant cases are summarized and reproduced below

Period Covered

Date of Filing (Return w/ BIR)

Date of Filing (Application w/ BIR) Date of Filing (Case w/ CTA) 2nd Quarter, 1990 20 July 1990 21 August 1990 20 July 1992 3rd Quarter, 1990 18 October 1990

21 November 1990

9 October 1992

4th Quarter, 1990

20 January 1991

19 February 1991

14 January 1993

1st Quarter, 1992

20 April 1992

--

20 April 1994

The above table readily shows that the administrative and judicial claims of petitioner corporation for refund of its input VAT on its zero-rated sales for the last three quarters of 1990 were all filed within the prescriptive period.

However, the same cannot be said for the claim of petitioner corporation for refund of its input VAT on its zero-rated sales for the first quarter of 1992. Even though it may seem that petitioner corporation filed in time its judicial claim with the CTA, there is no showing that it had previously filed an administrative claim with the BIR. Section 106(e) of the Tax Code of 1977, as amended, explicitly provided that no refund of input VAT shall be allowed unless the VAT-registered taxpayer filed an application for refund with respondent Commissioner within the two-year prescriptive period. The application of petitioner corporation for refund/credit of its input VAT for the first quarter of 1992 was not only unsigned by its supposed authorized representative, Ma. Paz R. Semilla, Manager-Finance and Treasury, but it was not dated, stamped, and initialed by the BIR official who purportedly received the same. The CTA, in its Decision,19 dated 24 November 1997, in CTA Case No. 5102, made the following observations

This Court, likewise, rejects any probative value of the Application for Tax Credit/Refund of VAT Paid (BIR Form No. 2552) [Exhibit "B'] formally offered in evidence by the petitioner on account of the fact

that it does not bear the BIR stamp showing the date when such application was filed together with the signature or initial of the receiving officer of respondent's Bureau. Worse still, it does not show the date of application and the signature of a certain Ma. Paz R. Semilla indicated in the form who appears to be petitioner's authorized filer.

A review of the records reveal that the original of the aforecited application was lost during the time petitioner transferred its office (TSN, p. 6, Hearing of December 9, 1994). Attempt was made to prove that petitioner exerted efforts to recover the original copy, but to no avail. Despite this, however, We observe that petitioner completely failed to establish the missing dates and signatures abovementioned. On this score, said application has no probative value in demonstrating the fact of its filing within two years after the [filing of the VAT return for the quarter] when petitioner's sales of goods were made as prescribed under Section 106(b) of the Tax Code. We believe thus that petitioner failed to file an application for refund in due form and within the legal period set by law at the administrative level. Hence, the case at bar has failed to satisfy the requirement on the prior filing of an application for refund with the respondent before the commencement of a judicial claim for refund, as prescribed under Section 230 of the Tax Code. This fact constitutes another one of the many reasons for not granting petitioner's judicial claim.

As pointed out by the CTA, in serious doubt is not only the fact of whether petitioner corporation timely filed its administrative claim for refund of its input VAT for the first quarter of 1992, but also whether petitioner corporation actually filed such administrative claim in the first place. For failing to prove that it had earlier filed with the BIR an application for refund/credit of its input VAT for the first quarter of 1992, within the period prescribed by law, then the case instituted by petitioner corporation with the CTA for the refund/credit of the very same tax cannot prosper.

Revenue Regulations No. 2-88 and the 70% export requirement

Under Section 100(a) of the Tax Code of 1977, as amended, a 10% VAT was imposed on the gross selling price or gross value in money of goods sold, bartered or exchanged. Yet, the same provision subjected the following sales made by VAT-registered persons to 0% VAT

(1) Export sales; and

(2) Sales to persons or entities whose exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero-rate.

"Export Sales" means the sale and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, or foreign currency denominated sales. "Foreign currency denominated sales", means sales to nonresidents of goods assembled or manufactured in the Philippines, for delivery to residents in the Philippines and paid for in convertible foreign currency remitted through the banking system in the Philippines.

These are termed zero-rated sales. A zero-rated sale is still considered a taxable transaction for VAT purposes, although the VAT rate applied is 0%. A sale by a VAT-registered taxpayer of goods and/or services taxed at 0% shall not result in any output VAT, while the input VAT on its purchases of goods or services related to such zero-rated sale shall be available as tax credit or refund.20

Petitioner corporation questions the validity of Revenue Regulations No. 2-88 averring that the said regulations imposed additional requirements, not found in the law itself, for the zero-rating of its sales to Philippine Smelting and Refining Corporation (PASAR) and Philippine Phosphate, Inc. (PHILPHOS), both of which are registered not only with the BOI, but also with the then Export Processing Zone Authority (EPZA).21

The contentious provisions of Revenue Regulations No. 2-88 read

SEC. 2. Zero-rating. (a) Sales of raw materials to BOI-registered exporters. Sales of raw materials to export-oriented BOI-registered enterprises whose export sales, under rules and regulations of the Board of Investments, exceed seventy percent (70%) of total annual production, shall be subject to zero-rate under the following conditions:

"(1) The seller shall file an application with the BIR, ATTN.: Division, applying for zero-rating for each and every separate buyer, in accordance with Section 8(d) of Revenue Regulations No. 5-87. The application should be accompanied with a favorable recommendation from the Board of Investments."

"(2) The raw materials sold are to be used exclusively by the buyer in the manufacture, processing or repacking of his own registered export product;

"(3) The words "Zero-Rated Sales" shall be prominently indicated in the sales invoice. The exporter (buyer) can no longer claim from the Bureau of Internal Revenue or any other government office tax credits on their zero-rated purchases;

(b) Sales of raw materials to foreign buyer. Sales of raw materials to a nonresident foreign buyer for delivery to a resident local export-oriented BOI-registered enterprise to be used in manufacturing, processing or repacking of the said buyer's goods and paid for in foreign currency, inwardly remitted in accordance with Central Bank rules and regulations shall be subject to zero-rate.

It is the position of the respondent Commissioner, affirmed by the CTA and the Court of Appeals, that Section 2 of Revenue Regulations No. 2-88 should be applied in the cases at bar; and to be entitled to the zero-rating of its sales to PASAR and PHILPHOS, petitioner corporation, as a VAT-registered seller, must be able to prove not only that PASAR and PHILPHOS are BOI-registered corporations, but also that more than 70% of the total annual production of these corporations are actually exported. Revenue Regulations No. 2-88 merely echoed the requirement imposed by the BOI on export-oriented corporations registered with it.

While this Court is not prepared to strike down the validity of Revenue Regulations No. 2-88, it finds that its application must be limited and placed in the proper context. Note that Section 2 of Revenue Regulations No. 2-88 referred only to the zero-rated sales of raw materials to export-oriented BOIregistered enterprises whose export sales, under BOI rules and regulations, should exceed seventy percent (70%) of their total annual production.

Section 2 of Revenue Regulations No. 2-88, should not have been applied to the zero-rating of the sales made by petitioner corporation to PASAR and PHILPHOS. At the onset, it must be emphasized that PASAR and PHILPHOS, in addition to being registered with the BOI, were also registered with the EPZA and located within an export-processing zone. Petitioner corporation does not claim that its sales to PASAR and PHILPHOS are zero-rated on the basis that said sales were made to export-oriented BOIregistered corporations, but rather, on the basis that the sales were made to EPZA-registered enterprises operating within export processing zones. Although sales to export-oriented BOI-registered enterprises and sales to EPZA-registered enterprises located within export processing zones were both deemed export sales, which, under Section 100(a) of the Tax Code of 1977, as amended, shall be subject

to 0% VAT distinction must be made between these two types of sales because each may have different substantiation requirements.

The Tax Code of 1977, as amended, gave a limited definition of export sales, to wit: "The sale and shipment or exportation of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported, or foreign currency denominated sales." Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987 - which, in the years concerned (i.e., 1990 and 1992), governed enterprises registered with both the BOI and EPZA, provided a more comprehensive definition of export sales, as quoted below:

"ART. 23. "Export sales" shall mean the Philippine port F.O.B. value, determined from invoices, bills of lading, inward letters of credit, landing certificates, and other commercial documents, of export products exported directly by a registered export producer or the net selling price of export product sold by a registered export producer or to an export trader that subsequently exports the same: Provided, That sales of export products to another producer or to an export trader shall only be deemed export sales when actually exported by the latter, as evidenced by landing certificates of similar commercial documents: Provided, further, That without actual exportation the following shall be considered constructively exported for purposes of this provision: (1) sales to bonded manufacturing warehouses of export-oriented manufacturers; (2) sales to export processing zones; (3) sales to registered export traders operating bonded trading warehouses supplying raw materials used in the manufacture of export products under guidelines to be set by the Board in consultation with the Bureau of Internal Revenue and the Bureau of Customs; (4) sales to foreign military bases, diplomatic missions and other agencies and/or instrumentalities granted tax immunities, of locally manufactured, assembled or repacked products whether paid for in foreign currency or not: Provided, further, That export sales of registered export trader may include commission income; and Provided, finally, That exportation of goods on consignment shall not be deemed export sales until the export products consigned are in fact sold by the consignee.

Sales of locally manufactured or assembled goods for household and personal use to Filipinos abroad and other non-residents of the Philippines as well as returning Overseas Filipinos under the Internal Export Program of the government and paid for in convertible foreign currency inwardly remitted through the Philippine banking systems shall also be considered export sales. (Underscoring ours.)

The afore-cited provision of the Omnibus Investments Code of 1987 recognizes as export sales the sales of export products to another producer or to an export trader, provided that the export products are

actually exported. For purposes of VAT zero-rating, such producer or export trader must be registered with the BOI and is required to actually export more than 70% of its annual production.

Without actual exportation, Article 23 of the Omnibus Investments Code of 1987 also considers constructive exportation as export sales. Among other types of constructive exportation specifically identified by the said provision are sales to export processing zones. Sales to export processing zones are subjected to special tax treatment. Article 77 of the same Code establishes the tax treatment of goods or merchandise brought into the export processing zones. Of particular relevance herein is paragraph 2, which provides that "Merchandise purchased by a registered zone enterprise from the customs territory and subsequently brought into the zone, shall be considered as export sales and the exporter thereof shall be entitled to the benefits allowed by law for such transaction."

Such tax treatment of goods brought into the export processing zones are only consistent with the Destination Principle and Cross Border Doctrine to which the Philippine VAT system adheres. According to the Destination Principle,22 goods and services are taxed only in the country where these are consumed. In connection with the said principle, the Cross Border Doctrine23 mandates that no VAT shall be imposed to form part of the cost of the goods destined for consumption outside the territorial border of the taxing authority. Hence, actual export of goods and services from the Philippines to a foreign country must be free of VAT, while those destined for use or consumption within the Philippines shall be imposed with 10% VAT.24 Export processing zones25 are to be managed as a separate customs territory from the rest of the Philippines and, thus, for tax purposes, are effectively considered as foreign territory. For this reason, sales by persons from the Philippine customs territory to those inside the export processing zones are already taxed as exports.

Plainly, sales to enterprises operating within the export processing zones are export sales, which, under the Tax Code of 1977, as amended, were subject to 0% VAT. It is on this ground that petitioner corporation is claiming refund/credit of the input VAT on its zero-rated sales to PASAR and PHILPHOS.

The distinction made by this Court in the preceding paragraphs between the zero-rated sales to exportoriented BOI-registered enterprises and zero-rated sales to EPZA-registered enterprises operating within export processing zones is actually supported by subsequent development in tax laws and regulations. In Revenue Regulations No. 7-95, the Consolidated VAT Regulations, as amended,26 the BIR defined with more precision what are zero-rated export sales

(1) The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(2) The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer's goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

(3) The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production;

Any enterprise whose export sales exceed 70% of the total annual production of the preceding taxable year shall be considered an export-oriented enterprise upon accreditation as such under the provisions of the Export Development Act (R.A. 7844) and its implementing rules and regulations;

(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP); and

(5) Those considered export sales under Articles 23 and 77 of Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws, e.g. Republic Act No. 7227, otherwise known as the Bases Conversion and Development Act of 1992.

The Tax Code of 1997, as amended,27 later adopted the foregoing definition of export sales, which are subject to 0% VAT.

This Court then reiterates its conclusion that Section 2 of Revenue Regulations No. 2-88, which applied to zero-rated export sales to export-oriented BOI-registered enterprises, should not be applied to the applications for refund/credit of input VAT filed by petitioner corporation since it based its applications on the zero-rating of export sales to enterprises registered with the EPZA and located within export processing zones.

Sufficiency of evidence

There can be no dispute that the taxpayer-claimant has the burden of proving the legal and factual bases of its claim for tax credit or refund, but once it has submitted all the required documents, it is the function of the BIR to assess these documents with purposeful dispatch.28 It therefore falls upon herein petitioner corporation to first establish that its sales qualify for VAT zero-rating under the existing laws (legal basis), and then to present sufficient evidence that said sales were actually made and resulted in refundable or creditable input VAT in the amount being claimed (factual basis).

It would initially appear that the applications for refund/credit filed by petitioner corporation cover only input VAT on its purportedly zero-rated sales to PASAR and PHILPHOS; however, a more thorough perusal of its applications, VAT returns, pleadings, and other records of these cases would reveal that it is also claiming refund/credit of its input VAT on purchases of capital goods and sales of gold to the Central Bank of the Philippines (CBP).

This Court finds that the claims for refund/credit of input VAT of petitioner corporation have sufficient legal bases.

As has been extensively discussed herein, Section 106(b)(2), in relation to Section 100(a)(2) of the Tax Code of 1977, as amended, allowed the refund/credit of input VAT on export sales to enterprises operating within export processing zones and registered with the EPZA, since such export sales were deemed to be effectively zero-rated sales.29 The fact that PASAR and PHILPHOS, to whom petitioner corporation sold its products, were operating inside an export processing zone and duly registered with EPZA, was never raised as an issue herein. Moreover, the same fact was already judicially recognized in the case Atlas Consolidated Mining & Development Corporation v. Commissioner of Internal Revenue.30 Section 106(c) of the same Code likewise permitted a VAT-registered taxpayer to apply for refund/credit of the input VAT paid on capital goods imported or locally purchased to the extent that such input VAT has not been applied against its output VAT. Meanwhile, the effective zero-rating of sales of gold to the CBP from 1989 to 199131 was already affirmed by this Court in Commissioner of Internal Revenue v. Benguet Corporation,32 wherein it ruled that

At the time when the subject transactions were consummated, the prevailing BIR regulations relied upon by respondent ordained that gold sales to the Central Bank were zero-rated. The BIR interpreted

Sec. 100 of the NIRC in relation to Sec. 2 of E.O. No. 581 s. 1980 which prescribed that gold sold to the Central Bank shall be considered export and therefore shall be subject to the export and premium duties. In coming out with this interpretation, the BIR also considered Sec. 169 of Central Bank Circular No. 960 which states that all sales of gold to the Central Bank are considered constructive exports. x x x.

This Court now comes to the question of whether petitioner corporation has sufficiently established the factual bases for its applications for refund/credit of input VAT. It is in this regard that petitioner corporation has failed, both in the administrative and judicial level.

Applications for refund/credit of input VAT with the BIR must comply with the appropriate revenue regulations. As this Court has already ruled, Revenue Regulations No. 2-88 is not relevant to the applications for refund/credit of input VAT filed by petitioner corporation; nonetheless, the said applications must have been in accordance with Revenue Regulations No. 3-88, amending Section 16 of Revenue Regulations No. 5-87, which provided as follows

SECTION 16. Refunds or tax credits of input tax.

xxxx

(c) Claims for tax credits/refunds. Application for Tax Credit/Refund of Value-Added Tax Paid (BIR Form No. 2552) shall be filed with the Revenue District Office of the city or municipality where the principal place of business of the applicant is located or directly with the Commissioner, Attention: VAT Division.

A photocopy of the purchase invoice or receipt evidencing the value added tax paid shall be submitted together with the application. The original copy of the said invoice/receipt, however, shall be presented for cancellation prior to the issuance of the Tax Credit Certificate or refund. In addition, the following documents shall be attached whenever applicable:

xxxx

"3. Effectively zero-rated sale of goods and services.

"i) photo copy of approved application for zero-rate if filing for the first time.

"ii) sales invoice or receipt showing name of the person or entity to whom the sale of goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered.

"iii) evidence of actual receipt of goods or services.

"4. Purchase of capital goods.

"i) original copy of invoice or receipt showing the date of purchase, purchase price, amount of valueadded tax paid and description of the capital equipment locally purchased.

"ii) with respect to capital equipment imported, the photo copy of import entry document for internal revenue tax purposes and the confirmation receipt issued by the Bureau of Customs for the payment of the value-added tax.

"5. In applicable cases,

where the applicant's zero-rated transactions are regulated by certain government agencies, a statement therefrom showing the amount and description of sale of goods and services, name of persons or entities (except in case of exports) to whom the goods or services were sold, and date of transaction shall also be submitted.

In all cases, the amount of refund or tax credit that may be granted shall be limited to the amount of the value-added tax (VAT) paid directly and entirely attributable to the zero-rated transaction during the period covered by the application for credit or refund.

Where the applicant is engaged in zero-rated and other taxable and exempt sales of goods and services, and the VAT paid (inputs) on purchases of goods and services cannot be directly attributed to any of the aforementioned transactions, the following formula shall be used to determine the creditable or refundable input tax for zero-rated sale:

Amount of Zero-rated Sale Total Sales

X Total Amount of Input Taxes = Amount Creditable/Refundable

In case the application for refund/credit of input VAT was denied or remained unacted upon by the BIR, and before the lapse of the two-year prescriptive period, the taxpayer-applicant may already file a Petition for Review before the CTA. If the taxpayer's claim is supported by voluminous documents, such as receipts, invoices, vouchers or long accounts, their presentation before the CTA shall be governed by CTA Circular No. 1-95, as amended, reproduced in full below

In the interest of speedy administration of justice, the Court hereby promulgates the following rules governing the presentation of voluminous documents and/or long accounts, such as receipts, invoices and vouchers, as evidence to establish certain facts pursuant to Section 3(c), Rule 130 of the Rules of Court and the doctrine enunciated in Compania Maritima vs. Allied Free Workers Union (77 SCRA 24), as well as Section 8 of Republic Act No. 1125:

1. The party who desires to introduce as evidence such voluminous documents must, after motion and approval by the Court, present:

(a) a Summary containing, among others, a chronological listing of the numbers, dates and amounts covered by the invoices or receipts and the amount/s of tax paid; and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary

after making an examination, evaluation and audit of the voluminous receipts and invoices. The name of the accountant or partner of the firm in charge must be stated in the motion so that he/she can be commissioned by the Court to conduct the audit and, thereafter, testify in Court relative to such summary and certification pursuant to Rule 32 of the Rules of Court.

2. The method of individual presentation of each and every receipt, invoice or account for marking, identification and comparison with the originals thereof need not be done before the Court or Clerk of Court anymore after the introduction of the summary and CPA certification. It is enough that the receipts, invoices, vouchers or other documents covering the said accounts or payments to be introduced in evidence must be pre-marked by the party concerned and submitted to the Court in order to be made accessible to the adverse party who desires to check and verify the correctness of the summary and CPA certification. Likewise, the originals of the voluminous receipts, invoices or accounts must be ready for verification and comparison in case doubt on the authenticity thereof is raised during the hearing or resolution of the formal offer of evidence.

Since CTA Cases No. 4831, 4859, 4944,33 and 5102,34 were still pending before the CTA when the said Circular was issued, then petitioner corporation must have complied therewith during the course of the trial of the said cases.

In Commissioner of Internal Revenue v. Manila Mining Corporation,35 this Court denied the claim of therein respondent, Manila Mining Corporation, for refund of the input VAT on its supposed zero-rated sales of gold to the CBP because it was unable to substantiate its claim. In the same case, this Court emphasized the importance of complying with the substantiation requirements for claiming refund/credit of input VAT on zero-rated sales, to wit

For a judicial claim for refund to prosper, however, respondent must not only prove that it is a VAT registered entity and that it filed its claims within the prescriptive period. It must substantiate the input VAT paid by purchase invoices or official receipts.

This respondent failed to do.

Revenue Regulations No. 3-88 amending Revenue Regulations No. 5-87 provides the requirements in claiming tax credits/refunds.

xxxx

Under Section 8 of RA1125, the CTA is described as a court of record. As cases filed before it are litigated de novo, party litigants should prove every minute aspect of their cases. No evidentiary value can be given the purchase invoices or receipts submitted to the BIR as the rules on documentary evidence require that these documents must be formally offered before the CTA.

This Court thus notes with approval the following findings of the CTA:

x x x [S]ale of gold to the Central Bank should not be subject to the 10% VAT-output tax but this does not ipso fact mean that [the seller] is entitled to the amount of refund sought as it is required by law to present evidence showing the input taxes it paid during the year in question. What is being claimed in the instant petition is the refund of the input taxes paid by the herein petitioner on its purchase of goods and services. Hence, it is necessary for the Petitioner to show proof that it had indeed paid the input taxes during the year 1991. In the case at bar, Petitioner failed to discharge this duty. It did not adduce in evidence the sales invoice, receipts or other documents showing the input value added tax on the purchase of goods and services.

xxx

Section 8 of Republic Act 1125 (An Act Creating the Court of Tax Appeals) provides categorically that the Court of Tax Appeals shall be a court of record and as such it is required to conduct a formal trial (trial de novo) where the parties must present their evidence accordingly if they desire the Court to take such evidence into consideration. (Emphasis and italics supplied)

A "sales or commercial invoice" is a written account of goods sold or services rendered indicating the prices charged therefor or a list by whatever name it is known which is used in the ordinary course of business evidencing sale and transfer or agreement to sell or transfer goods and services.

A "receipt" on the other hand is a written acknowledgment of the fact of payment in money or other settlement between seller and buyer of goods, debtor or creditor, or person rendering services and client or customer.

These sales invoices or receipts issued by the supplier are necessary to substantiate the actual amount or quantity of goods sold and their selling price, and taken collectively are the best means to prove the input VAT payments.36

Although the foregoing decision focused only on the proof required for the applicant for refund/credit to establish the input VAT payments it had made on its purchases from suppliers, Revenue Regulations No. 3-88 also required it to present evidence proving actual zero-rated VAT sales to qualified buyers, such as (1) photocopy of the approved application for zero-rate if filing for the first time; (2) sales invoice or receipt showing the name of the person or entity to whom the goods or services were delivered, date of delivery, amount of consideration, and description of goods or services delivered; and (3) the evidence of actual receipt of goods or services.

Also worth noting in the same decision is the weight given by this Court to the certification by the independent certified public accountant (CPA), thus

Respondent contends, however, that the certification of the independent CPA attesting to the correctness of the contents of the summary of suppliers' invoices or receipts which were examined, evaluated and audited by said CPA in accordance with CTA Circular No. 1-95 as amended by CTA Circular No. 10-97 should substantiate its claims.

There is nothing, however, in CTA Circular No. 1-95, as amended by CTA Circular No. 10-97, which either expressly or impliedly suggests that summaries and schedules of input VAT payments, even if certified by an independent CPA, suffice as evidence of input VAT payments.

xxxx

The circular, in the interest of speedy administration of justice, was promulgated to avoid the timeconsuming procedure of presenting, identifying and marking of documents before the Court. It does not relieve respondent of its imperative task of pre-marking photocopies of sales receipts and invoices and

submitting the same to the court after the independent CPA shall have examined and compared them with the originals. Without presenting these pre-marked documents as evidence from which the summary and schedules were based, the court cannot verify the authenticity and veracity of the independent auditor's conclusions.

There is, moreover, a need to subject these invoices or receipts to examination by the CTA in order to confirm whether they are VAT invoices. Under Section 21 of Revenue Regulation, No. 5-87, all purchases covered by invoices other than a VAT invoice shall not be entitled to a refund of input VAT.

xxxx

While the CTA is not governed strictly by technical rules of evidence, as rules of procedure are not ends in themselves but are primarily intended as tools in the administration of justice, the presentation of the purchase receipts and/or invoices is not mere procedural technicality which may be disregarded considering that it is the only means by which the CTA may ascertain and verify the truth of the respondent's claims.

The records further show that respondent miserably failed to substantiate its claims for input VAT refund for the first semester of 1991. Except for the summary and schedules of input VAT payments prepared by respondent itself, no other evidence was adduced in support of its claim.

As for respondent's claim for input VAT refund for the second semester of 1991, it employed the services of Joaquin Cunanan & Co. on account of which it (Joaquin Cunanan & Co.) executed a certification that:

We have examined the information shown below concerning the input tax payments made by the Makati Office of Manila Mining Corporation for the period from July 1 to December 31, 1991. Our examination included inspection of the pertinent suppliers' invoices and official receipts and such other auditing procedures as we considered necessary in the circumstances. x x x

As the certification merely stated that it used "auditing procedures considered necessary" and not auditing procedures which are in accordance with generally accepted auditing principles and standards, and that the examination was made on "input tax payments by the Manila Mining Corporation," without

specifying that the said input tax payments are attributable to the sales of gold to the Central Bank, this Court cannot rely thereon and regard it as sufficient proof of the respondent's input VAT payments for the second semester.37

As for the Petition in G.R. No. 141104, involving the input VAT of petitioner corporation on its zero-rated sales in the first quarter of 1992, this Court already found that the petitioner corporation failed to comply with Section 106(b) of the Tax Code of 1977, as amended, imposing the two-year prescriptive period for the filing of the application for refund/credit thereof. This bars the grant of the application for refund/credit, whether administratively or judicially, by express mandate of Section 106(e) of the same Code.

Granting arguendo that the application of petitioner corporation for the refund/credit of the input VAT on its zero-rated sales in the first quarter of 1992 was actually and timely filed, petitioner corporation still failed to present together with its application the required supporting documents, whether before the BIR or the CTA. As the Court of Appeals ruled

In actions involving claims for refund of taxes assessed and collected, the burden of proof rests on the taxpayer. As clearly discussed in the CTA's decision, petitioner failed to substantiate its claim for tax refunds. Thus:

"We note, however, that in the cases at bar, petitioner has relied totally on Revenue Regulations No. 288 in determining compliance with the documentary requirements for a successful refund or issuance of tax credit. Unmentioned is the applicable and specific amendment later introduced by Revenue Regulations No. 3-88 dated April 7, 1988 (issued barely after two months from the promulgation of Revenue Regulations No. 2-88 on February 15, 1988), which amended Section 16 of Revenue Regulations No. 5-87 on refunds or tax credits of input tax. x x x.

xxxx

"A thorough examination of the evidence submitted by the petitioner before this court reveals outright the failure to satisfy documentary requirements laid down under the above-cited regulations. Specifically, petitioner was not able to present the following documents, to wit:

"a) sales invoices or receipts;

"b) purchase invoices or receipts;

"c) evidence of actual receipt of goods;

"d) BOI statement showing the amount and description of sale of goods, etc.

"e) original or attested copies of invoice or receipt on capital equipment locally purchased; and

"f) photocopy of import entry document and confirmation receipt on imported capital equipment.

"There is the need to examine the sales invoices or receipts in order to ascertain the actual amount or quantity of goods sold and their selling price. Without them, this Court cannot verify the correctness of petitioner's claim inasmuch as the regulations require that the input taxes being sought for refund should be limited to the portion that is directly and entirely attributable to the particular zero-rated transaction. In this instance, the best evidence of such transaction are the said sales invoices or receipts.

"Also, even if sales invoices are produced, there is the further need to submit evidence that such goods were actually received by the buyer, in this case, by CBP, Philp[h]os and PASAR.

xxxx

"Lastly, this Court cannot determine whether there were actual local and imported purchase of capital goods as well as domestic purchase of non-capital goods without the required purchase invoice or receipt, as the case may be, and confirmation receipts.

"There is, thus, the imperative need to submit before this Court the original or attested photocopies of petitioner's invoices or receipts, confirmation receipts and import entry documents in order that a full ascertainment of the claimed amount may be achieved.

"Petitioner should have taken the foresight to introduce in evidence all of the missing documents abovementioned. Cases filed before this Court are litigated de novo. This means that party litigants should endeavor to prove at the first instance every minute aspect of their cases strictly in accordance with the Rules of Court, most especially on documentary evidence." (pp. 37-42, Rollo)

Tax refunds are in the nature of tax exemptions. It is regarded as in derogation of the sovereign authority, and should be construed in strictissimi juris against the person or entity claiming the exemption. The taxpayer who claims for exemption must justify his claim by the clearest grant of organic or statute law and should not be permitted to stand on vague implications (Asiatic Petroleum Co. v. Llanes, 49 Phil. 466; Northern Phil. Tobacco Corp. v. Mun. of Agoo, La Union, 31 SCRA 304; Reagan v. Commissioner, 30 SCRA 968; Asturias Sugar Central, Inc. v. Commissioner of Customs, 29 SCRA 617; Davao Light and Power Co., Inc. v. Commissioner of Customs, 44 SCRA 122).

There is no cogent reason to fault the CTA's conclusion that the SGV's certificate is "self-destructive", as it finds comfort in the very SGV's stand, as follows:

"It is our understanding that the above procedure are sufficient for the purpose of the Company. We make no presentation regarding the sufficiency of these procedures for such purpose. We did not compare the total of the input tax claimed each quarter against the pertinent VAT returns and books of accounts. The above procedures do not constitute an audit made in accordance with generally accepted auditing standards. Accordingly, we do not express an opinion on the company's claim for input VAT refund or credit. Had we performed additional procedures, or had we made an audit in accordance with generally accepted auditing standards, other matters might have come to our attention that we would have accordingly reported on."

The SGV's "disclaimer of opinion" carries much weight as it is petitioner's independent auditor. Indeed, SGV expressed that it "did not compare the total of the input tax claimed each quarter against the VAT returns and books of accounts."38

Moving on to the Petition in G.R. No. 148763, concerning the input VAT of petitioner corporation on its zero-rated sales in the second, third, and fourth quarters of 1990, the appellate court likewise found that petitioner corporation failed to sufficiently establish its claims. Already disregarding the declarations made by the Court of Appeals on its erroneous application of Revenue Regulations No. 288, quoted hereunder is the rest of the findings of the appellate court after evaluating the evidence submitted in accordance with the requirements under Revenue Regulations No. 3-88

The Secretary of Finance validly adopted Revenue Regulations [No.] x x x 3-98 pursuant to Sec. 245 of the National Internal Revenue Code, which recognized his power to "promulgate all needful rules and regulations for the effective enforcement of the provisions of this Code." Thus, it is incumbent upon a taxpayer intending to file a claim for refund of input VATs or the issuance of a tax credit certificate with the BIR x x x to prove sales to such buyers as required by Revenue Regulations No. 3-98. Logically, the same evidence should be presented in support of an action to recover taxes which have been paid.

x x x Neither has [herein petitioner corporation] presented sales invoices or receipts showing sales of gold, copper concentrates, and pyrite to the CBP, [PASAR], and [PHILPHOS], respectively, and the dates and amounts of the same, nor any evidence of actual receipt by the said buyers of the mineral products. It merely presented receipts of purchases from suppliers on which input VATs were allegedly paid. Thus, the Court of Tax Appeals correctly denied the claims for refund of input VATs or the issuance of tax credit certificates of petitioner [corporation]. Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.39

This Court is, therefore, bound by the foregoing facts, as found by the appellate court, for well-settled is the general rule that the jurisdiction of this Court in cases brought before it from the Court of Appeals, by way of a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, is limited to reviewing or revising errors of law; findings of fact of the latter are conclusive.40 This Court is not a trier of facts. It is not its function to review, examine and evaluate or weigh the probative value of the evidence presented.41

The distinction between a question of law and a question of fact is clear-cut. It has been held that "[t]here is a question of law in a given case when the doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact when the doubt or difference arises as to the truth or falsehood of alleged facts."42

Whether petitioner corporation actually made zero-rated sales; whether it paid input VAT on these sales in the amount it had declared in its returns; whether all the input VAT subject of its applications for refund/credit can be attributed to its zero-rated sales; and whether it had not previously applied the input VAT against its output VAT liabilities, are all questions of fact which could only be answered after reviewing, examining, evaluating, or weighing the probative value of the evidence it presented, and which this Court does not have the jurisdiction to do in the present Petitions for Review on Certiorari under Rule 45 of the revised Rules of Court.

Granting that there are exceptions to the general rule, when this Court looked into questions of fact under particular circumstances,43 none of these exist in the instant cases. The Court of Appeals, in both cases, found a dearth of evidence to support the claims for refund/credit of the input VAT of petitioner corporation, and the records bear out this finding. Petitioner corporation itself cannot dispute its noncompliance with the requirements set forth in Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended. It concentrated its arguments on its assertion that the substantiation requirements under Revenue Regulations No. 2-88 should not have applied to it, while being conspicuously silent on the evidentiary requirements mandated by other relevant regulations.

Re-opening of cases/holding of new trial before the CTA

This Court now faces the final issue of whether the prayer of petitioner corporation for the re-opening of its cases or holding of new trial before the CTA for the reception of additional evidence, may be granted. Petitioner corporation prays that the Court exercise its discretion on the matter in its favor, consistent with the policy that rules of procedure be liberally construed in pursuance of substantive justice.

This Court, however, cannot grant the prayer of petitioner corporation.

An aggrieved party may file a motion for new trial or reconsideration of a judgment already rendered in accordance with Section 1, Rule 37 of the revised Rules of Court, which provides

SECTION 1. Grounds of and period for filing motion for new trial or reconsideration. Within the period for taking an appeal, the aggrieved party may move the trial court to set aside the judgment or final

order and grant a new trial for one or more of the following causes materially affecting the substantial rights of said party:

(a) Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or

(b) Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial, and which if presented would probably alter the result.

Within the same period, the aggrieved party may also move fore reconsideration upon the grounds that the damages awarded are excessive, that the evidence is insufficient to justify the decision or final order, or that the decision or final order is contrary to law.

In G.R. No. 148763, petitioner corporation attempts to justify its motion for the re-opening of its cases and/or holding of new trial before the CTA by contending that the "[f]ailure of its counsel to adduce the necessary evidence should be construed as excusable negligence or mistake which should constitute basis for such re-opening of trial as for a new trial, as counsel was of the belief that such evidence was rendered unnecessary by the presentation of unrebutted evidence indicating that respondent [Commissioner] has acknowledged the sale of [sic] PASAR and [PHILPHOS] to be zero-rated." 44 The CTA denied such motion on the ground that it was not accompanied by an affidavit of merit as required by Section 2, Rule 37 of the revised Rules of Court. The Court of Appeals affirmed the denial of the motion, but apart from this technical defect, it also found that there was no justification to grant the same.

On the matter of the denial of the motion of the petitioner corporation for the re-opening of its cases and/or holding of new trial based on the technicality that said motion was unaccompanied by an affidavit of merit, this Court rules in favor of the petitioner corporation. The facts which should otherwise be set forth in a separate affidavit of merit may, with equal effect, be alleged and incorporated in the motion itself; and this will be deemed a substantial compliance with the formal requirements of the law, provided, of course, that the movant, or other individual with personal knowledge of the facts, take oath as to the truth thereof, in effect converting the entire motion for new trial into an affidavit.45 The motion of petitioner corporation was prepared and verified by its counsel, and since the ground for the motion was premised on said counsel's excusable negligence or mistake, then the obvious conclusion is that he had personal knowledge of the facts relating to such negligence or mistake. Hence, it can be said that the motion of petitioner corporation for the re-opening of its cases

and/or holding of new trial was in substantial compliance with the formal requirements of the revised Rules of Court.

Even so, this Court finds no sufficient ground for granting the motion of petitioner corporation for the re-opening of its cases and/or holding of new trial.

In G.R. No. 141104, petitioner corporation invokes the Resolution,46 dated 20 July 1998, by the CTA in another case, CTA Case No. 5296, involving the claim of petitioner corporation for refund/credit of input VAT for the third quarter of 1993. The said Resolution allowed the re-opening of CTA Case No. 5296, earlier dismissed by the CTA, to give the petitioner corporation the opportunity to present the missing export documents.

The rule that the grant or denial of motions for new trial rests on the discretion of the trial court,47 may likewise be extended to the CTA. When the denial of the motion rests upon the discretion of a lower court, this Court will not interfere with its exercise, unless there is proof of grave abuse thereof.48

That the CTA granted the motion for re-opening of one case for the presentation of additional evidence and, yet, deny a similar motion in another case filed by the same party, does not necessarily demonstrate grave abuse of discretion or arbitrariness on the part of the CTA. Although the cases involve identical parties, the causes of action and the evidence to support the same can very well be different. As can be gleaned from the Resolution, dated 20 July 1998, in CTA Case No. 5296, petitioner corporation was claiming refund/credit of the input VAT on its zero-rated sales, consisting of actual export sales, to Mitsubishi Metal Corporation in Tokyo, Japan. The CTA took into account the presentation by petitioner corporation of inward remittances of its export sales for the quarter involved, its Supply Contract with Mitsubishi Metal Corporation, its 1993 Annual Report showing its sales to the said foreign corporation, and its application for refund. In contrast, the present Petitions involve the claims of petitioner corporation for refund/credit of the input VAT on its purchases of capital goods and on its effectively zero-rated sales to CBP and EPZA-registered enterprises PASAR and PHILPHOS for the second, third, and fourth quarters of 1990 and first quarter of 1992. There being a difference as to the bases of the claims of petitioner corporation for refund/credit of input VAT in CTA Case No. 5926 and in the Petitions at bar, then, there are resulting variances as to the evidence required to support them.

Moreover, the very same Resolution, dated 20 July 1998, in CTA Case No. 5296, invoked by petitioner corporation, emphasizes that the decision of the CTA to allow petitioner corporation to present evidence "is applicable pro hac vice or in this occasion only as it is the finding of [the CTA] that petitioner

[corporation] has established a few of the aforementioned material points regarding the possible existence of the export documents together with the prior and succeeding returns for the quarters involved, x x x" [Emphasis supplied.] Therefore, the CTA, in the present cases, cannot be bound by its ruling in CTA Case No. 5296, when these cases do not involve the exact same circumstances that compelled it to grant the motion of petitioner corporation for re-opening of CTA Case No. 5296.

Finally, assuming for the sake of argument that the non-presentation of the required documents was due to the fault of the counsel of petitioner corporation, this Court finds that it does not constitute excusable negligence or mistake which would warrant the re-opening of the cases and/or holding of new trial.

Under Section 1, Rule 37 of the Revised Rules of Court, the "negligence" must be excusable and generally imputable to the party because if it is imputable to the counsel, it is binding on the client. To follow a contrary rule and allow a party to disown his counsel's conduct would render proceedings indefinite, tentative, and subject to re-opening by the mere subterfuge of replacing the counsel. What the aggrieved litigant should do is seek administrative sanctions against the erring counsel and not ask for the reversal of the court's ruling.49

As elucidated by this Court in another case,50 the general rule is that the client is bound by the action of his counsel in the conduct of his case and he cannot therefore complain that the result of the litigation might have been otherwise had his counsel proceeded differently. It has been held time and again that blunders and mistakes made in the conduct of the proceedings in the trial court as a result of the ignorance, inexperience or incompetence of counsel do not qualify as a ground for new trial. If such were to be admitted as valid reasons for re-opening cases, there would never be an end to litigation so long as a new counsel could be employed to allege and show that the prior counsel had not been sufficiently diligent, experienced or learned.

Moreover, negligence, to be "excusable," must be one which ordinary diligence and prudence could not have guarded against.51 Revenue Regulations No. 3-88, which was issued on 15 February 1988, had been in effect more than two years prior to the filing by petitioner corporation of its earliest application for refund/credit of input VAT involved herein on 21 August 1990. CTA Circular No. 1-95 was issued only on 25 January 1995, after petitioner corporation had filed its Petitions before the CTA, but still during the pendency of the cases of petitioner corporation before the tax court. The counsel of petitioner corporation does not allege ignorance of the foregoing administrative regulation and tax court circular, only that he no longer deemed it necessary to present the documents required therein because of the presentation of alleged unrebutted evidence of the zero-rated sales of petitioner corporation. It was a

judgment call made by the counsel as to which evidence to present in support of his client's cause, later proved to be unwise, but not necessarily negligent.

Neither is there any merit in the contention of petitioner corporation that the non-presentation of the required documentary evidence was due to the excusable mistake of its counsel, a ground under Section 1, Rule 37 of the revised Rules of Court for the grant of a new trial. "Mistake," as it is referred to in the said rule, must be a mistake of fact, not of law, which relates to the case.52 In the present case, the supposed mistake made by the counsel of petitioner corporation is one of law, for it was grounded on his interpretation and evaluation that Revenue Regulations No. 3-88 and CTA Circular No. 1-95, as amended, did not apply to his client's cases and that there was no need to comply with the documentary requirements set forth therein. And although the counsel of petitioner corporation advocated an erroneous legal position, the effects thereof, which did not amount to a deprivation of his client's right to be heard, must bind petitioner corporation. The question is not whether petitioner corporation succeeded in establishing its interests, but whether it had the opportunity to present its side.53

Besides, litigation is a not a "trial and error" proceeding. A party who moves for a new trial on the ground of mistake must show that ordinary prudence could not have guarded against it. A new trial is not a refuge for the obstinate.54 Ordinary prudence in these cases would have dictated the presentation of all available evidence that would have supported the claims for refund/credit of input VAT of petitioner corporation. Without sound legal basis, counsel for petitioner corporation concluded that Revenue Regulations No. 3-88, and later on, CTA Circular No. 1-95, as amended, did not apply to its client's claims. The obstinacy of petitioner corporation and its counsel is demonstrated in their failure, nay, refusal, to comply with the appropriate administrative regulations and tax court circular in pursuing the claims for refund/credit, now subject of G.R. Nos. 141104 and 148763, even though these were separately instituted in a span of more than two years. It is also evident in the failure of petitioner corporation to address the issue and to present additional evidence despite being given the opportunity to do so by the Court of Appeals. As pointed out by the appellate court, in its Decision, dated 15 September 2000, in CA-G.R. SP No. 46718

x x x Significantly, in the resolution, dated 7 June 2000, this Court directed the parties to file memoranda discussing, among others, the submission of proof for "its [petitioner's] sales of gold, copper concentrates, and pyrite to buyers." Nevertheless, the parties, including the petitioner, failed to address this issue, thereby necessitating the affirmance of the ruling of the Court of Tax Appeals on this point.55

Summary

Hence, although this Court agreed with the petitioner corporation that the two-year prescriptive period for the filing of claims for refund/credit of input VAT must be counted from the date of filing of the quarterly VAT return, and that sales to EPZA-registered enterprises operating within economic processing zones were effectively zero-rated and were not covered by Revenue Regulations No. 2-88, it still denies the claims of petitioner corporation for refund of its input VAT on its purchases of capital goods and effectively zero-rated sales during the second, third, and fourth quarters of 1990 and the first quarter of 1992, for not being established and substantiated by appropriate and sufficient evidence. Petitioner corporation is also not entitled to the re-opening of its cases and/or holding of new trial since the non-presentation of the required documentary evidence before the BIR and the CTA by its counsel does not constitute excusable negligence or mistake as contemplated in Section 1, Rule 37 of the revised Rules of Court.

WHEREFORE, premises considered, the instant Petitions for Review are hereby DENIED, and the Decisions, dated 6 July 1999 and 15 September 2000, of the Court of Appeals in CA-G.R. SP Nos. 47607 and 46718, respectively, are hereby AFFIRMED. Costs against petitioner.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. 154068

August 3, 2007

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. ROSEMARIE ACOSTA, as represented by Virgilio A. Abogado, respondent.

DECISION

QUISUMBING, J.:

Assailed in this petition for review are the Decision1 and Resolution2 dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 which had reversed the Resolution3 dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 and ordered the latter to resolve respondents petition for review.

The facts are as follows:

Respondent is an employee of Intel Manufacturing Phils., Inc. (Intel). For the period January 1, 1996 to December 31, 1996, respondent was assigned in a foreign country. During that period, Intel withheld the taxes due on respondents compensation income and remitted to the Bureau of Internal Revenue (BIR) the amount of P308,084.56.

On March 21, 1997, respondent and her husband filed with the BIR their Joint Individual Income Tax Return for the year 1996. Later, on June 17, 1997, respondent, through her representative, filed an amended return and a Non-Resident Citizen Income Tax Return, and paid the BIR P17,693.37 plus interests in the amount of P14,455.76. On October 8, 1997, she filed another amended return indicating an overpayment of P358,274.63.

Claiming that the income taxes withheld and paid by Intel and respondent resulted in an overpayment of P340,918.92,4 respondent filed on April 15, 1999 a petition for review docketed as C.T.A. Case No. 5828 with the Court of Tax Appeals (CTA). The Commissioner of Internal Revenue (CIR) moved to dismiss the petition for failure of respondent to file the mandatory written claim for refund before the CIR.

In its Resolution dated August 4, 1999, the CTA dismissed respondents petition. For one, the CTA ruled that respondent failed to file a written claim for refund with the CIR, a condition precedent to the filing of a petition for review before the CTA.5 Second, the CTA noted that respondents omission, inadvertently or otherwise, to allege in her petition the date of filing the final adjustment return, deprived the court of its jurisdiction over the subject matter of the case.6 The decretal portion of the CTAs resolution states:

WHEREFORE, in view of all the foregoing, Respondents Motion to Dismiss is GRANTED. Accordingly[,] the Petition for Review is hereby DISMISSED.

SO ORDERED.7

Upon review, the Court of Appeals reversed the CTA and directed the latter to resolve respondents petition for review. Applying Section 204(c)8 of the 1997 National Internal Revenue Code (NIRC), the Court of Appeals ruled that respondents filing of an amended return indicating an overpayment was sufficient compliance with the requirement of a written claim for refund.9 The decretal portion of the Court of Appeals decision reads:

WHEREFORE, finding the petition to be meritorious, this Court GRANTS it due course and REVERSES the appealed Resolutions and DIRECTS the Court of Tax Appeal[s] to resolve the petition for review on the merits.

SO ORDERED.10

Petitioner sought reconsideration, but it was denied. Hence, the instant petition raising the following questions of law:

I.

WHETHER OR NOT THE 1997 TAX REFORM ACT CAN BE APPLIED RETROACTIVELY.

II.

WHETHER OR NOT THE CTA HAS JURISDICTION TO TAKE *COGNIZANCE+ OF RESPONDENTS PETITION FOR REVIEW.11

While the main concern in this controversy is the CTAs jurisdiction, we must first resolve two issues. First, does the amended return filed by respondent indicating an overpayment constitute the written claim for refund required by law, thereby vesting the CTA with jurisdiction over this case? Second, can the 1997 NIRC be applied retroactively?

Petitioner avers that an amended return showing an overpayment does not constitute the written claim for refund required under Section 23012 of the 1993 NIRC13 (old Tax Code). He claims that an actual written claim for refund is necessary before a suit for its recovery may proceed in any court.

On the other hand, respondent contends that the filing of an amended return indicating an overpayment of P358,274.63 constitutes a written claim for refund pursuant to the clear proviso stated in the last sentence of Section 204(c) of the 1997 NIRC (new Tax Code), to wit:

xxxx

Provided, however, That a return filed showing an overpayment shall be considered as a written claim for credit or refund.

xxxx

Along the same vein, respondent invokes the liberal application of technicalities in tax refund cases, conformably with our ruling in BPI-Family Savings Bank, Inc. v. Court of Appeals.14 We are, however, unable to agree with respondents submission on this score.

The applicable law on refund of taxes pertaining to the 1996 compensation income is Section 230 of the old Tax Code, which was the law then in effect, and not Section 204(c) of the new Tax Code, which was effective starting only on January 1, 1998.

Noteworthy, the requirements under Section 230 for refund claims are as follows:

1. A written claim for refund or tax credit must be filed by the taxpayer with the Commissioner;

2. The claim for refund must be a categorical demand for reimbursement;

3. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must be commenced in court within two (2) years from date of payment of the tax or penalty regardless of any supervening cause.15 (Emphasis ours.)

In our view, the law is clear. A claimant must first file a written claim for refund, categorically demanding recovery of overpaid taxes with the CIR, before resorting to an action in court. This obviously is intended, first, to afford the CIR an opportunity to correct the action of subordinate officers; and second, to notify the government that such taxes have been questioned, and the notice should then be borne in mind in estimating the revenue available for expenditure.16

Thus, on the first issue, we rule against respondents contention. Entrenched in our jurisprudence is the principle that tax refunds are in the nature of tax exemptions which are construed strictissimi juris against the taxpayer and liberally in favor of the government. As tax refunds involve a return of revenue from the government, the claimant must show indubitably the specific provision of law from which her right arises; it cannot be allowed to exist upon a mere vague implication or inference17 nor can it be extended beyond the ordinary and reasonable intendment of the language actually used by the legislature in granting the refund.18 To repeat, strict compliance with the conditions imposed for the return of revenue collected is a doctrine consistently applied in this jurisdiction.19

Under the circumstances of this case, we cannot agree that the amended return filed by respondent constitutes the written claim for refund required by the old Tax Code, the law prevailing at that time. Neither can we apply the liberal interpretation of the law based on our pronouncement in the case of BPI-Family Savings Bank, Inc. v. Court of Appeals, as the taxpayer therein filed a written claim for refund aside from presenting other evidence to prove its claim, unlike this case before us.

On the second issue, petitioner argues that the 1997 NIRC cannot be applied retroactively as the instant case involved refund of taxes withheld on a 1996 income. Respondent, however, points out that when the petition was filed with the CTA on April 15, 1999, the 1997 NIRC was already in effect, hence, Section 204(c) should apply, despite the fact that the refund being sought pertains to a 1996 income tax. Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC arose because the last paragraph of Section 204(c) was not found in Section 230 of the old Code. After a thorough consideration of this matter, we find that we cannot give retroactive application to Section 204(c) abovecited. We have to stress that tax laws are prospective in operation, unless the language of the statute clearly provides otherwise.20

Moreover, it should be emphasized that a party seeking an administrative remedy must not merely initiate the prescribed administrative procedure to obtain relief, but also pursue it to its appropriate conclusion before seeking judicial intervention in order to give the administrative agency an opportunity to decide the matter itself correctly and prevent unnecessary and premature resort to court action.21 This the respondent did not follow through. Additionally, it could not escape notice that at the time respondent filed her amended return, the 1997 NIRC was not yet in effect. Hence, respondent had no reason at that time to think that the filing of an amended return would constitute the written claim for refund required by applicable law.

Furthermore, as the CTA stressed, even the date of filing of the Final Adjustment Return was omitted, inadvertently or otherwise, by respondent in her petition for review. This omission was fatal to respondents claim, for it deprived the CTA of its jurisdiction over the subject matter of the case.

Finally, we cannot agree with the Court of Appeals finding that the nature of the instant case calls for the application of remedial laws. Revenue statutes are substantive laws and in no sense must their application be equated with that of remedial laws. As well said in a prior case, revenue laws are not intended to be liberally construed.22 Considering that taxes are the lifeblood of the government and in Holmess memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented.

WHEREFORE, the petition is GRANTED. Both the assailed Decision and Resolution dated February 13, 2002 and May 29, 2002, respectively, of the Court of Appeals in CA-G.R. SP No. 55572 are REVERSED and SET ASIDE. The Resolution dated August 4, 1999 of the Court of Tax Appeals in C.T.A. Case No. 5828 is hereby REINSTATED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 129130 December 9, 2005

FAR EAST BANK AND TRUST COMPANY, Petitioner, vs. COURT OF APPEALS, COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL REVENUE, Respondents.

DECISION

AZCUNA, J.:

This is a Petition for Review on Certiorari assailing the decision of the Court of Appeals (CA) dated May 7, 1997 in CA-G.R. SP No. 41666.

The CA affirmed in toto the decision of the Court of Tax Appeals (CTA) dated January 24, 1996 and its resolution of July 31, 1996, dismissing petitioner Far East Bank and Trust Companys claim for refund of excess creditable withholding taxes in the aggregate amount of Seven Hundred Fifty-Five Thousand Seven Hundred and Fifteen Pesos (P755,715) allegedly paid and remitted to the Bureau of Internal Revenue (BIR) sometime in 1990 and 1991.

The antecedent facts are as follows:

Petitioner is a domestic banking corporation duly organized and existing under and by virtue of Philippine laws. In the early part of 1992, the Cavite Development Bank [CDB], also a domestic banking corporation, was merged with Petitioner with the latter as its surviving entity [under] the merger. Petitioner being the surviving entity[, it] acquired all [the] assets of CDB.

During the period from 1990 to 1991, CDB sold some acquired assets in the course of which it allegedly withheld the creditable tax from the sales proceeds which amounted to P755,715.00.

In said years, CDB filed income tax returns which reflected that CDB incurred negative taxable income or losses for both years. Since there was no tax against which to credit or offset the taxes withheld by CDB, the result was that CDB, according to petitioner, had excess creditable withholding tax.

Thus, petitioner, being the surviving entity of the merger, filed this Petition for Review after its administrative claim for refund was not acted upon.1

In denying petitioners claim, the CA held that the evidence presented by petitioner consisting of (1) confirmation receipts, payment orders, and official receipts issued by the Central Bank and the BIR with CDB as the payor; 2 (2) Income Tax Returns for 1990 and 1991 with attached financial statements filed by petitioner with the BIR;3 and, (3) a list prepared by the Accounting Department of petitioner purportedly showing the CDB schedule of creditable withholding tax applied for refund for 1990 and 1991,4 all failed to clearly establish that the taxes arising from the sale of its acquired assets sometime in 1990 and 1991 were properly withheld and remitted to the BIR. The CA likewise ruled that it was incumbent upon petitioner to present BIR Form No. 1743.1 as required under Revenue Regulation 6-85 to conclusively prove its right to the refund. It held that petitioners failure to do so was fatal to its cause.

Hence, this Petition.

Petitioner anchors its arguments on the following grounds:

1. THE DECISION OF MAY 7,1997 WHEREBY RESPONDENT CA DISMISSED PETITIONERS APPEAL, AND RESPONDENT CTAS DECISION DATED JANUARY 24, 1996 AND RESOLUTION OF JULY 31,1996, ARE NOT BASED ON THE FACTS AND THE LAW.

2. PETITIONER HAS ADDUCED EVIDENCE A QUO WHICH SUFFICIENTLY AND SUBSTANTIALLY ESTABLISH[ES] THE FACT THAT THE CREDITABLE WITHHOLDING TAX ON THE SALE OF ACQUIRED ASSETS WAS WITHHELD AND THEN REMITTED TO THE BUREAU OF INTERNAL REVENUE; AND,

3. THE DISMISSAL OF THE CLAIM FOR REFUND BEFORE RESPONDENT CTA ARISES FROM AN UNDULY STRICT APPLICATION OF THE REGULATIONS WHICH IS NOT WARRANTED IN VIEW OF THE CLEAR PROOFS ADDUCED BY PETITIONER WHICH ESTABLISH THE BASIS FOR THE RELIEFS SOUGHT.5

Petitioner contends that the confirmation receipts presented by it constitute "competent and irrefutable proof of the fact that taxes were withheld and remitted to the BIR."6 It is admitted that the taxes reflected on the confirmation receipts as well as on the payment orders and official receipts issued by the BIR were withheld by CDB. Petitioner maintains that these pertained to the proceeds of the sale of its acquired assets in 1990 and 1991. According to petitioner, CDB took the initiative of paying the withholding tax accruing thereon notwithstanding the fact that it was the recipient of the income, to ensure that the correct taxes were remitted to the BIR. Petitioner further argues that the list prepared by its Accounting Department identifying the persons to whom the various sales were made and indicating the amount of taxes withheld for each transaction should have been given more weight by the court a quo as this document, when taken with the tax withholding forms, indubitably establishes the fact of withholding and the basis for the claims for refund.7 Considering, therefore, that petitioner had adequately established by other evidence the basis for the grant of the claim for tax refund, petitioner asserts that its failure to submit BIR Form No. 1743.1 is not fatal to its cause.

The crucial issue in this case turns on a question of fact, that is, whether petitioner adduced sufficient evidence to prove its entitlement to a refund.

The findings of fact of the CTA, a special court exercising particular expertise on the subject of tax, are generally regarded as final, binding and conclusive8 upon this Court, especially if these are substantially similar to the findings of the CA which is normally the final arbiter of questions of fact.9 The findings shall not be reviewed nor disturbed on appeal10 unless a party can show that these are not supported by evidence,11 or when the judgment is premised on a misapprehension of facts, or when the lower courts failed to notice certain relevant facts which if considered would justify a different conclusion.12

Petitioner has not sufficiently presented a case for the application of an exception from the rule.

Firstly, the CA cannot be faulted for not lending credence to petitioners contention that it withheld, for its own account, the creditable withholding taxes on the sale of its acquired assets. In our withholding tax system, possession of the amount that is used to settle the tax liability is acquired by the payor as the withholding agent of the government.13 For this reason, the Tax Code imposes, among others, certain obligations upon the withholding agent to monitor its compliance with this duty. These include

the filing of the quarterly withholding tax returns,14 the submission to the payee, in respect of his or its receipts during the calendar quarter or year, of a written statement showing the income or other payments made by the withholding agent during such quarter or year and the amount of the tax deducted and withheld therefrom,15 and the filing with the BIR of a reconciliation statement of quarterly payments and a list of payees and income payments.16 Codal provisions on withholding tax are mandatory and must be complied with by the withholding agent. This is significant in that a taxpayer cannot be compelled to answer for the non-performance by the withholding agent of its legal duty to withhold unless there is collusion or bad faith. In addition, the former could not be deemed to have evaded the tax had the withholding agent performed its duty. 17

On the other hand, it is incumbent upon the payee to reflect in his or its own return the income upon which any creditable tax is required to be withheld at the source. Only when there is an excess of the amount of tax so withheld over the tax due on the payees return can a refund become possible.

A taxpayer must thus do two things to be able to successfully make a claim for the tax refund: (a) declare the income payments it received as part of its gross income and (b) establish the fact of withholding.18 On this score, the relevant revenue regulation provides as follows:

Section 10. Claims for tax credit or refund. -- Claims for tax credit or refund of income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received was declared as part of the gross income and the fact of withholding is established by a copy of the statement duly issued by the payor to the payee (BIR Form No. 1743.1) showing the amount paid and the amount of tax withheld therefrom.19

As mentioned, petitioner relies heavily on the confirmation receipts with the corresponding official receipts and payment orders to support its case. Standing alone, however, these documents only establish that CDB withheld certain amounts in 1990 and 1991. It does not follow that the payments reflected in the confirmation receipts relate to the creditable withholding taxes arising from the sale of the acquired properties. The claim that CDB had excess creditable withholding taxes can only be upheld if it were clearly and positively shown that the amounts on the various confirmation receipts were the amounts withheld by virtue of the sale of the acquired assets. On this point, the CA correctly pronounced:

The confirmation receipts alone, by themselves, will not suffice to prove that the taxes reflected in the income tax returns are the same taxes withheld from CDBs income payments from the sale of its

acquired assets. This is because a cursory examination of the said Confirmation Receipts, Payment Orders and Official Receipts will show that what are reflected therein are merely the names of the payors and the amount of tax. The nature of the tax paid, or at the very least, the income payments from which the taxes paid were withheld are not reflected therein. If these are the only entries that are found on these proferred documents, We cannot begrudge the Respondent Court from nurturing veritable doubts on the nature and identity of the taxes withheld, when it declared, in part, in its Decision (Annex "A" of the Petition) that, It can not well be said that the amounts paid and remitted to the BIR were for CDBs account and not for the other possible payees of withholding taxes which CDB may also be liable to remit as a withholding agent x x x . 20

Petitioner, apparently aware of the foregoing deficiency, offered into evidence a CDB Schedule of Creditable Withholding Tax for the period 1990 to 199121 prepared by petitioners representative to show that the taxes CDB withheld did, indeed, pertain to the taxes accruing on the sale of the acquired assets. The CA, however, found the same to be "self-serving and unverifiable" and therefore "barren of evidentiary weight."22 We accord this finding on an issue of fact the highest respect and we will not set it aside lightly.

It bears emphasis that questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious, or whether the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are without doubt questions of fact. This is true regardless of whether the body of proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by the adverse party, may be said to be strong, clear and convincing. Whether certain documents presented by one side should be accorded full faith and credit in the face of protests as to their spurious character by the other side; whether inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weightall these are issues of fact. Questions like these are not reviewable by us. As a rule, we confine our review of cases decided by the CA only to questions of law raised in the petition and therein distinctly set forth.23 We note that without the CDB Schedule, no evidence links the Confirmation Receipts, Payment Orders and Official Receipts to the taxes allegedly withheld by CDB on the sale of the acquired assets.

As to the annual income tax returns for 1990 and 1991 24 presented by petitioner, we must stress that the mere admission into the records of these returns does not automatically make their contents or entries undisputed and binding facts. Mere allegations by petitioner of the figures in its returns are not a sufficient proof of the amount of its refund entitlement. They do not even constitute evidence adverse to respondent, against whom these are being presented.25

Furthermore, we note that in the proceedings below, respondent Commissioner of Internal Revenue (CIR) raised the fact that there was a discrepancy in the excess creditable withholding tax reflected in the returns with the amounts sought to be refunded by petitioner. Whereas the 1990 and 1991 Income Tax Returns indicated that CDB had excess creditable withholding tax in the amounts of P535,310 and P357,511, respectively, the amounts claimed by petitioner as indicated in the CDB Schedule were P512,940.50 for 1990 and P242,774.50 for 1991.26 The records are bereft of any explanation for such discrepancy. This further undermines petitioners contentions, and its reliance on the CDB Schedule.

Petitioner also asserts that the confusion or difficulty in the implementation of Revenue Memorandum Circular 7-9027 was the reason why CDB took upon itself the task of withholding the taxes arising from the sale, to ensure accuracy. Assuming this were true, CDB should have, nevertheless, accomplished the necessary returns to clearly identify the nature of the payments made and file the same with the BIR. Section 2 of the circular clearly provides that the amount of withholding tax paid by a corporation to the BIR during the quarter on sales or exchanges of property and which are creditable against the corporations tax liability are evidenced by Confirmation/Official Receipts and covered by BIR Form Nos. 1743W and 1743-B. On the other hand, Revenue Regulation 6-85 states that BIR Form No. 1743.1 establishes the fact of withholding. Since no competent evidence was adduced by petitioner, the failure to offer these returns as evidence of the amount of petitioners entitlement during the trial phase of this case is fatal to its cause. For its negligence, petitioner "cannot be allowed to seek refuge in a liberal application of the [r]ules."28 The liberal interpretation and application of rules apply only in proper cases of demonstrable merit and under justifiable causes and circumstances.29

We must emphasize that tax refunds, like tax exemptions, are construed strictly against the taxpayer and liberally in favor of the taxing authority.30 In the event, petitioner has not met its burden of proof in establishing the factual basis for its claim for refund and we find no reason to disturb the ruling of the lower courts.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals dated May 7, 1997 in CAG.R. SP No. 41666 is AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. 179617

January 19, 2011

COMMISSIONER OF INTERNAL REVENUE, Petitioner, vs. ASIAN TRANSMISSION CORPORATION, Respondent.

DECISION

MENDOZA, J.:

This case is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner Commissioner of Internal Revenue (CIR) seeking to reverse and set aside the July 16, 2007 Decision1 of the Court of Tax Appeals En Banc (CTA-En Banc), in C.T.A. EB No. 205 and its September 11, 2007 Resolution2 denying its motion for reconsideration.

Through the assailed issuances, the CTA-En Banc affirmed in toto the Decision3 and the Amended Decision4 of its First Division (CTA-First Division) in CTA Case No. 9282 ordering the CIR to refund or issue a tax credit certificate in favor of respondent Asian Transmission Corporation (ATC) for unutilized creditable withholding taxes for the taxable year 2001.

From the records, it appears that ATC is a domestic corporation engaged in the manufacture of automotive parts. It filed its annual Income Tax Return (ITR) for the year 20005 on April 10, 2001 where it declared a gross income of P370,532,082.00, a net loss of P279,926,225.00 and a minimum corporate income tax (MCIT) of P7,410,642.00. The MCIT due was offset against the P38,301,198.00 existing tax credits and creditable taxes withheld of the ATC, thereby leaving an excess tax credit or overpayment of P30,890,556.00, as shown below:

MCIT

P 7,410,642.00

Less: Tax Credits/Payments

a. Prior Year's Excess Credits

P23,250,734.00 11,868,132.00 3,121,256.00

b. Creditable Tax Withheld for First Three Quarters c. Creditable Tax Withheld for the Fourth Quarter d. Foreign Tax Credits Total Overpayment 61,076.00 P30,890,556.00 38,301,198.00

For the P30,890,556.00 overpayment, ATC opted "To be issued a Tax Credit Certificate."

In its ITR for the year 2001,6 ATC declared a gross income of P322,839,802.00, a net loss of P37,869,455.00, and MCIT of P6,456,796.00. After deducting its MCIT due against its existing tax credits and creditable taxes, ATC was left with a total tax credit of P51,760,312.00 detailed as follows:

MCIT

P 6,456,796.00

Less: Tax Credit/Payments

a.Prior Year's Excess Credits

P 30,890,556.00 12,405,573.00 14,920,979.00 58,217,108.00

b. Creditable Tax Withheld for First Three Quarters c. Creditable Tax Withheld for the Fourth Quarter Total Overpayment P51,760,312.00

ATC, however, applied part of its unutilized creditable taxes for the year 2000 amounting to P7,639,822.00 to its MCIT due of P6,456,796.00 for the year 2001. Left unapplied of its 2000 creditable taxes, therefore, was the amount of P1,183,026.00 as shown in the following computation:

Creditable Tax Withheld for the First Three Quarters of 2000

P 11,868,132.00

Creditable Tax Withheld for the Fourth Quarter of 2000 P 3,121,256.00 Foreign Tax Credits for 2000 Total P 15,050,464.00 7,410,642.00 61,076.00

Less: 2000 MCIT

Unutilized 2000 Creditable Taxes Withheld Less: 2001 MCIT P 6,456,796.00

P 7,639,822.00

Remaining Unutilized 2000 Creditable Taxes Withheld

P 1,183,026.00

Again, ATC opted "To be issued a Tax Credit Certificate" for the excess income tax payment.

On April 9, 2003, ATC filed with CIRs Large Taxpayers Service an administrative claim7 for the issuance of tax credit certificate or cash refund in the amount of P28,509,578.00, representing excess/unutilized creditable income taxes withheld as of December 31, 2001, to wit:

Remaining Unutilized 2000 Creditable Taxes Withheld Unapplied 2001 Creditable Taxes Withheld:

P1,183,026.00

a. Creditable Tax Withheld for the First Three Quarters of 2001 P 12,405,573.00 b. Creditable Tax Withheld for the Fourth Quarter of 2001 Total P28,509,578.00 14,920,979.00 27,326,552.00

The next day, on April 10, 2003, ATC filed a petition for review8 with the CTA without waiting for an action from the CIR to avoid the prescriptive period under Section 229 of the Tax Code.

On July 30, 2003, both parties filed a Joint Stipulation of Facts and Issues with the CTA-First Division, submitting the following issues for consideration of the tax tribunal:

1. Whether petitioners claim for refund was filed within the two-year prescriptive period as prescribed under Section 204 and 229 of the NIRC;

2. Whether the income upon which the creditable taxes withheld were included and reported as income in the income tax returns of petitioner for both years;

3. Whether the creditable taxes are duly substantiated by the necessary statement issued by the withholding agent to the petitioner, showing the amount paid and the amount of the tax withheld therefrom;

4. Whether petitioner incurred a net loss of P279,926,225.00 and P37,869,455.00 during the taxable years 2000 and 2001, respectively; and

5. Whether petitioner is entitled to the refund and/or credit of the amount of 28,509,578.00 representing its excess/unutilized creditable income taxes as of December 31, 2001.

After the CTA-First Division approved the Joint Stipulation of Facts and Issues, the case was submitted for decision.9

On March 20, 2006, the CTA-First Division rendered its Decision partially granting ATCs claim for refund on its unutilized creditable withholding taxes for the taxable year 2001, viz:

WHEREFORE, the instant petition for review is hereby PARTIALLY GRANTED. Respondent is ordered to ISSUE A TAX CREDIT CERTIFICATE in favor of petitioner in the reduced amount of P24,325,856.58 representing the unutilized creditable withholding taxes for the taxable year 2001.

The CTA-First Division found that, contrary to the contentions of the CIR, ATC was able to establish the factual basis for its claim for refund or for the issuance of a tax credit certificate, and that the same was filed within the period prescribed under Section 229 of the Tax Code. Thus, it was written:

In the case of Citibank N.A. vs. Court of Appeals, the Supreme Court emphasized that the burden of proving the factual basis of his claim for tax credit or refund is upon the claimant. Thus, for a claim [for] tax credit or refund be granted, the taxpayer must establish that:

(i) The claim for refund was filed within two years as prescribed in Sec. 230 (now 229) of the Tax Code;

(ii) The income upon which the taxes were withheld were included in the return of the recipient; and

(iii) The fact of withholding is established by a copy of statement (BIR Form 1743-A) duly issued by the payer (withholding agent) to the payee showing the amount paid and the amount of tax withheld therefrom.

Applying the above rule, the following are evident:

One, the petitioner complied with the first requirement. The claim for refund of petitioner for the calendar years ended December 31, 2000 and December 31, 2001 were filed within the two-year prescriptive period reckoned from the date of payment of the tax. The phrase "date of payment of tax" is construed to mean the dates of the filing of the 2000 and 2001 annual income tax returns. Petitioner filed its 2000 and 2001 original annual income tax return on April 10, 2001 and April 15, 2002, respectively. The administrative and judicial claims for refund were filed on April 9, 2003 and April 10, 2003, respectively. Both filings of claim for refund and Petition for Review were made within the tw0year prescriptive period.

Two, petitioner was able to establish its qualified compliance with requirement numbers two and three. In the admitted 2000 and 2001 Certificates of Creditable Withholding at Source, the following amounts of income payments and withholding taxes were reflected

xxx

xxx

xxx

We have traced the income payments in the 2000 and 2001 income tax returns and found out that petitioner declared the same. It should be noted though that the substantiated 2000 and 2001 creditable taxes amounted only to P14,986,640.75 (instead of P15,050,464.00) and P24,325,856.58 (instead of P27,326,552.00) respectively. Hence we recomputed the supported unapplied creditable taxes withheld as of December 31, 2001, to wit:

Amount 2000 Supported Creditable Taxes Withheld Less: 2000 MCIT 7,410,642.00 P14,986,640.75

Unutilized 2000 Creditable Taxes Withheld Less: 2001 MCIT 6,456,796.00

P 7,575,998.75

Remaining Unutilized 2000 Creditable Taxes Withheld P 1,119.202.75 Add: 2001 Supported and Unapplied Creditable Taxes Withheld 24,325,856.58

Supported Unapplied Creditable Taxes Withheld as of December 31, 2001 P25,445,059.33

As to the losses declared by ATC for the years 2000 and 2001, the CTA-First Division opined that ATC was not required to prove them. It explained:

Lastly, we do not agree with the respondent that petitioner is required to prove that it incurred a net loss for the years 2000 and 2001. The implied allegation of irregularity in the declared operational losses is a matter which must be proven by competent evidence. And the burden of proof as to whether petitioner incurred net losses from its operations rests on the respondent. This is the reason why respondent is authorized by law to examine the books and accounting records to ascertain the truthfulness of petitioners declaration in its income tax return. In the absence of any showing that there is irregularity in claimed losses for 2000 and 2001 business operations and taking into account that income tax returns are prepared under penalty of perjury, We consider the returns of petitioner to be accurate and regular. 10

The CTA-First Division, however, noted that ATC could not be issued a tax credit certificate for the remaining 2000 unutilized creditable taxes pursuant to Section 78 of the Tax Code, considering that ATC initially declared that it would opt "To be Issued a Tax Credit Certificate" for its 2000 creditable taxes, but never really exercised this option. Instead, it made use of the option to carry-over its excess income tax payments, when it applied the same in reducing its 2001 MCIT.

Thus, the CTA-First Division ordered the CIR to issue a tax credit certificate in favor of ATC in the reduced amount of P24,325,856.58 representing the unutilized creditable withholding taxes for the taxable year 2001 based on its own computation, to wit:

Income Payment Tax Withheld Withholding Agent Exh. P 300,603,978.00 195,263.12 P 3,006,039.78 Mitsubishi Motors Phils. Corp. S Nidec-Shimpo Philippines Corp. T Mitsubishi Motors Phils. Corp. U Nidec-Shimpo Philippines Corp. V Mitsubishi Motors Phils. Corp. W Nidec-Shimpo Philippines Corp. X Mitsubishi Motors Phils. Corp. Y Nidec-Shimpo Philippines Corp. Z MMC Sittipol Co. Ltd. MMC Sittipol Co. Ltd. AA BB

1,952.63

363,266,839.00 3,632,668.39 137,659.10 1,376.59

576,146,311.00 5,761,463.11 137,659.10 1,376.59

488,449,635.00 4,884,496.35 103,611.44 2,072.23

44,663,912.73 6,702,586.91 22,212,158.06 331,824.00 P1,795,937,026.55 P24,325,856.58

Both parties sought reconsideration. On one hand, CIR insisted that ATC failed to establish the net loss it incurred and the tax credits due it.11 On the other hand, ATC averred that the CTA-First Division erred in: a) crediting only the amount of P331,824.00 as the amount withheld by MMC Sittipol Co. Ltd. instead of the P3,831,824.00 it actually withheld from ATC; and b) in ordering the issuance of a Tax Credit Certificate in the amount of P24,325,856.58.12

Finding merit only in the motion for reconsideration of ATC, the CTA-First Division issued the Amended Decision13 on August 4, 2006, disposing the case in the following manner: WHEREFORE, petitioners Motion is hereby GRANTED while respondents Motion is hereby DENIED for lack of merit. Accordingly, respondent is ORDERED TO REFUND or in the alternative, ISSUE A TAX CREDIT CERTIFICATE in favor of the petitioner the amount of TWENTY SEVEN MILLION THREE HUNDRED

TWENTY FIVE THOUSAND EIGHT HUNDRED FIFTY SIX & 58/100 PESOS (P27,325,856.58) representing unutilized creditable withholding taxes for taxable year 2001.

On appeal, the CTA-En Banc was convinced that ATC was able to provide sufficient evidence to establish its claim for refund or issuance of a tax credit certificate.14 Thus, it rendered its July 16, 2007 Decision, the decretal portion of which states:

WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE, and, accordingly, DISMISSED for lack of merit.

Hence this petition .

The CIR raises the sole issue of:

WHETHER OR NOT RESPONDENT IS ENTITLED TO REFUND IN THE AMOUNT OF P27,325,856.58 REPRESENTING THE ALLEGED UNUTILIZED CREDITABLE WITHHOLDING TAXES FOR THE TAXABLE YEAR 2001.15

The petition has no merit.

The CIR argues that while the certificates of withholding taxes and the annual income tax returns for the years 2000 and 2001 submitted by ATC may prove the inclusion of income payments which were the bases of the withholding taxes and the fact of withholding, they are not sufficient to prove entitlement to the tax refund requested. According to the CIR, since Section 2.58.3 (B) of Revenue Regulation provides that "claims for refund or tax credit shall be given due course upon showing that income payment has been declared as part of gross income and the fact of withholding is established," the mere submission of the withholding tax statements shall only mean that ATCs claim shall be given due course, i.e., heard or considered. Accordingly, the CIR posits that ATC still has to show that it is entitled to the refund requested by proving not only the income payments made but also the reported losses.

It should be pointed out that the arguments raised by the CIR in support of its position have already been thoroughly discussed both by the CTA-First Division and the CTA-En Banc. Notwithstanding, the CIR comes to this Court insisting that the same be once again reviewed. Oft-repeated is the rule that the Court will not lightly set aside the conclusions reached by the CTA which, by the very nature of its function of being dedicated exclusively to the resolution of tax problems, has accordingly developed an expertise on the subject, unless there has been an abuse or improvident exercise of authority.16 In Barcelon, Roxas Securities, Inc. (now known as UBP Securities, Inc.) v. Commissioner of Internal Revenue,17 this Court more explicitly pronounced:

Jurisprudence has consistently shown that this Court accords the findings of fact by the CTA with the highest respect. In Sea-Land Service Inc. v. Court of Appeals [G.R. No. 122605, 30 April 2001, 357 SCRA 441, 445-446], this Court recognizes that the Court of Tax Appeals, which by the very nature of its function is dedicated exclusively to the consideration of tax problems, has necessarily developed an expertise on the subject, and its conclusions will not be overturned unless there has been an abuse or improvident exercise of authority. Such findings can only be disturbed on appeal if they are not supported by substantial evidence or there is a showing of gross error or abuse on the part of the Tax Court. In the absence of any clear and convincing proof to the contrary, this Court must presume that the CTA rendered a decision which is valid in every respect.

At any rate, the CIR is correct in stating that the taxpayer bears the burden of proof to establish not only that a refund is justified under the law but also that the amount that should be refunded is correct. In this case, however, the CTA-First Division and the CTA-En Banc uniformly found that from the evidence submitted, ATC has established its claim for refund or issuance of a tax credit certificate for unutilized creditable withholding taxes for the taxable year 2001 in the amount of P27,325,856.58. The Court finds no cogent reason to rule differently. As correctly noted by the CTA-En Banc:

x x x proof of actual remittance by the respondent is not needed in order to prove withholding and remittance of taxes to petitioner. Section 2.58.3 (B) of Revenue Regulation No. 2-98 clearly provides that proof of remittance is the responsibility of the withholding agent and not of the taxpayer-refund claimant. It should be borne in mind by the petitioner that payors of withholding taxes are by themselves constituted as withholding agents of the BIR. The taxes they withhold are held in trust for the government. In the event that the withholding agents commit fraud against the government by not remitting the taxes so withheld, such act should not prejudice herein respondent who has been duly withheld taxes by the withholding agents acting under government authority. Moreover, pursuant to Section 57 and 58 of the NIRC of 1997, as amended, the withholding of income tax and the remittance thereof to the BIR is the responsibility of the payor and not the payee. Therefore, respondent, x x x has no control over the remittance of the taxes withheld from its income by the withholding agent or payor who is the agent of the petitioner. The Certificates of Creditable Tax Withheld at Source issued by the

withholding agents of the government are prima facie proof of actual payment by herein respondentpayee to the government itself through said agents. We stress that the pertinent provisions of law and the established jurisprudence evidently demonstrate that there is no need for the claimant, respondent in this case, to prove actual remittance by the withholding agent (payor) to the BIR.

In this regard, We do not agree with petitioners allegation that respondent failed to prove that creditable withholding taxes were duly supported by valid Certificates of Creditable Tax Withheld at Source. As aptly ruled by the Court in Division, and We reiterate, the evidence on record in which petitioner interposed no objection to its admission and was subsequently admitted by the Court in Division, show that respondent was able to substantiate its claim through the presentation of Exhibits "J" to "P" and "R" to "Z", the Certificates of Creditable Tax Withheld At Source. The documentary evidence presented were sufficient to establish that respondent was withheld taxes and that there was an excess which remain unutilized and now subject of refund.

With respect to the losses incurred by the ATC, it is true that the taxpayer bears the burden to establish the losses, but it is quite clear from the evidence presented that ATC has fulfilled its duty. Moreover, other than the bare assertion that ATC must establish its losses, the CIR fails to point to any circumstance or evidence that would cast doubt on ATCs sworn declaration that it incurred losses in 2000 and 2001.

Curiously, in its petition, the CIR further adds that ATC cannot claim a cash refund or tax credit for the unutilized withholding tax for the year 2000 as this would be violative of Section 76 of the Tax Code. This matter, however, was already acted upon in favor of the CIR, when the CTA-First Division only partially granted ATCs petition by disallowing its claim for cash refund or tax credit for the unutilized withholding tax for the year 2000. This reiteration by the CIR of this argument despite the fact that it has already been acted favorably by the tax court below, only shows that the appeal has not been thoroughly studied.

WHEREFORE, the petition is DENIED.

SO ORDERED.

FIRST DIVISION

LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES, in their capacities as President, Treasurer and Secretary of Adamson Management Corporation, Petitioners,

G.R. No. 120935

- versus -

COURT OF APPEALS and LIWAYWAY VINZONS-CHATO, in her capacity as Commissioner of the Bureau of Internal Revenue, Respondents. x-- - - - - - - - - - - - - - - - - - - - - - - - x COMMISSIONER OF INTERNAL REVENUE, Petitioner, Present: G.R. No. 124557

-versus-

PUNO, C.J., Chairperson,

CARPIO, CORONA, COURT OF APPEALS, COURT OF TAX APPEALS, ADAMSON MANAGEMENT CORPORATION, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES, Respondents. May 21, 2009 Promulgated: LEONARDO-DE CASTRO, and BERSAMIN, JJ.

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

DECISION

PUNO, C.J.:

Before the Court are the consolidated cases of G.R. No. 120935 and G.R. No. 124557.

G.R. No. 120935 involves a petition for review on certiorari filed by petitioners LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON, and SARA S. DE LOS REYES (private respondents), in their respective capacities as president, treasurer and secretary of Adamson Management Corporation (AMC) against then Commissioner of Internal Revenue Liwayway Vinzons-Chato (COMMISSIONER), under Rule 45 of the Revised Rules of Court. They seek to review and reverse the Decision promulgated on March 21, 1995 and Resolution issued on July 6, 1995 of the Court of Appeals in CA-G.R. SP No. 35488 (Liwayway Vinzons-Chato, et al. v. Hon. Judge Erna Falloran-Aliposa, et al.).

G.R. No. 124557 is a petition for review on certiorari filed by the Commissioner, assailing the Decision dated March 29, 1996 of the Court of Appeals in CA-G.R. SP No. 35520, titled Commissioner of Internal Revenue v. Court of Tax Appeals, Adamson Management Corporation, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes. In the said Decision, the Court of Appeals upheld the Resolution promulgated on September 19, 1994 by the Court of Tax Appeals (CTA) in C.T.A. Case No. 5075 (Adamson Management Corporation, Lucas G. Adamson, Therese Adamson and Sara de los Reyes v. Commissioner of Internal Revenue).

The facts, as culled from the findings of the appellate court, follow:

On June 20, 1990, Lucas Adamson and AMC sold 131,897 common shares of stock in Adamson and Adamson, Inc. (AAI) to APAC Holding Limited (APAC). The shares were valued at P7,789,995.00.[1] On June 22, 1990, P159,363.21 was paid as capital gains tax for the transaction.

On October 12, 1990, AMC sold to APAC Philippines, Inc. another 229,870 common shares of stock in AAI for P17,718,360.00. AMC paid the capital gains tax of P352,242.96.

On October 15, 1993, the Commissioner issued a Notice of Taxpayer to AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, informing them of deficiencies on their payment of capital gains tax and Value Added Tax (VAT). The notice contained a schedule for preliminary conference.

The events preceding G.R. No. 120935 are the following:

On October 22, 1993, the Commissioner filed with the Department of Justice (DOJ) her Affidavit of Complaint[2] against AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes for violation of Sections 45 (a) and (d)[3], and 110[4], in relation to Section 100[5], as penalized under Section 255,[6] and for violation of Section 253[7], in relation to Section 252 (b) and (d) of the National Internal Revenue Code (NIRC).[8]

AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed with the DOJ a motion to suspend proceedings on the ground of prejudicial question, pendency of a civil case with the Supreme Court, and pendency of their letter-request for re-investigation with the Commissioner. After the

preliminary investigation, State Prosecutor Alfredo P. Agcaoili found probable cause. The Motion for Reconsideration against the findings of probable cause was denied by the prosecutor.

On April 29, 1994, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes were charged before the Regional Trial Court (RTC) of Makati, Branch 150 in Criminal Case Nos. 94-1842 to 94-1846. They filed a Motion to Dismiss or Suspend the Proceedings. They invoked the grounds that there was yet no final assessment of their tax liability, and there were still pending relevant Supreme Court and CTA cases. Initially, the trial court denied the motion. A Motion for Reconsideration was however filed, this time assailing the trial courts lack of jurisdiction over the nature of the subject cases. On August 8, 1994, the trial court granted the Motion. It ruled that the complaints for tax evasion filed by the Commissioner should be regarded as a decision of the Commissioner regarding the tax liabilities of Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes, and appealable to the CTA. It further held that the said cases cannot proceed independently of the assessment case pending before the CTA, which has jurisdiction to determine the civil and criminal tax liability of the respondents therein.

On October 10, 1994, the Commissioner filed a Petition for Review with the Court of Appeals assailing the trial courts dismissal of the criminal cases. She averred that it was not a condition prerequisite that a formal assessment should first be given to the private respondents before she may file the aforesaid criminal complaints against them. She argued that the criminal complaints for tax evasion may proceed independently from the assessment cases pending before the CTA.

On March 21, 1995, the Court of Appeals reversed the trial courts decision and reinstated the criminal complaints. The appellate court held that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and willfully filed a fraudulent return with intent to evade the tax.[9] It ruled that private respondents filed false and fraudulent returns with intent to evade taxes, and acting thereupon, petitioner filed an Affidavit of Complaint with the Department of Justice, without an accompanying assessment of the tax deficiency of private respondents, in order to commence criminal action against the latter for tax evasion.[10]

Private respondents filed a Motion for Reconsideration, but the trial court denied the motion on July 6, 1995. Thus, they filed the petition in G.R. No. 120935, raising the following issues: 1. WHETHER OR NOT THE RESPONDENT HONORABLE COURT OF APPEALS ERRED IN APPLYING THE DOCTRINE IN UNGAB V. CUSI (Nos. L-41919-24, May 30, 1980, 97 SCRA 877) TO THE CASE AT BAR.

2. WHETHER OR NOT AN ASSESSMENT IS REQUIRED UNDER THE SECOND CATEGORY OF THE OFFENSE IN SECTION 253 OF THE NIRC.

3. WHETHER OR NOT THERE WAS A VALID ASSESSMENT MADE BY THE COMMISSIONER IN THE CASE AT BAR.

4. WHETHER OR NOT THE FILING OF A CRIMINAL COMPLAINT SERVES AS AN IMPLIED ASSESSMENT ON THE TAX LIABILITY OF THE TAXPAYER.

5. WHETHER OR NOT THE FILING OF THE CRIMINAL INFORMATION FOR TAX EVASION IN THE TRIAL COURT IS PREMATURE BECAUSE THERE IS YET NO BASIS FOR THE CRIMINAL CHARGE OF WILLFULL INTENT TO EVADE THE PAYMENT OF A TAX.

6. WHETHER OR NOT THE DOCTRINES LAID DOWN IN THE CASES OF YABES V. FLOJO (No. L46954, July 20, 1982, 115 SCRA 286) AND CIR V. UNION SHIPPING CORP. (G.R. No. 66160, May 21, 1990, 185 SCRA 547) ARE APPLICABLE TO THE CASE AT BAR.

7. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION OVER THE DISPUTE ON WHAT CONSTITUTES THE PROPER TAXES DUE FROM THE TAXPAYER.

In parallel circumstances, the following events preceded G.R. No. 124557:

On December 1, 1993, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a letter request for re-investigation with the Commissioner of the Examiners Findings earlier issued by the Bureau of Internal Revenue (BIR), which pointed out the tax deficiencies.

On March 15, 1994 before the Commissioner could act on their letter-request, AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes filed a Petition for Review with the CTA. They assailed the Commissioners finding of tax evasion against them. The Commissioner moved to dismiss the petition, on the ground that it was premature, as she had not yet issued a formal assessment of the tax liability of therein petitioners. On September 19, 1994, the CTA denied the Motion to Dismiss. It

considered the criminal complaint filed by the Commissioner with the DOJ as an implied formal assessment, and the filing of the criminal informations with the RTC as a denial of petitioners protest regarding the tax deficiency.

The Commissioner repaired to the Court of Appeals on the ground that the CTA acted with grave abuse of discretion. She contended that, with regard to the protest provided under Section 229 of the NIRC, there must first be a formal assessment issued by the Commissioner, and it must be in accord with Section 6 of Revenue Regulation No. 12-85. She maintained that she had not yet issued a formal assessment of tax liability, and the tax deficiency amounts mentioned in her criminal complaint with the DOJ were given only to show the difference between the tax returns filed and the audit findings of the revenue examiner.

The Court of Appeals sustained the CTAs denial of the Commissioners Motion to Dismiss. Thus, the Commissioner filed the petition for review under G.R. No. 124557, raising the following issues:

1. WHETHER OR NOT THE INSTANT PETITION SHOULD BE DISMISSED FOR FAILURE TO COMPLY WITH THE MANDATORY REQUIREMENT OF A CERTIFICATION UNDER OATH AGAINST FORUM SHOPPING;

2. WHETHER OR NOT THE CRIMINAL CASE FOR TAX EVASION IN THE CASE AT BAR CAN PROCEED WITHOUT AN ASSESSMENT;

3. WHETHER OR NOT THE COMPLAINT FILED WITH THE DEPARTMENT OF JUSTICE CAN BE CONSTRUED AS AN IMPLIED ASSESSMENT; and

4. WHETHER OR NOT THE COURT OF TAX APPEALS HAS JURISDICTION TO ACT ON PRIVATE RESPONDENTS PETITION FOR REVIEW FILED WITH THE SAID COURT.

The issues in G.R. No. 124557 and G.R. No. 120935 can be compressed into three:

1. WHETHER THE COMMISSIONER HAS ALREADY RENDERED AN ASSESSMENT (FORMAL OR OTHERWISE) OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES;

2. WHETHER THERE IS BASIS FOR THE CRIMINAL CASES FOR TAX EVASION TO PROCEED AGAINST AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES; and

3. WHETHER THE COURT OF TAX APPEALS HAS JURISDICTION TO TAKE COGNIZANCE OF BOTH THE CIVIL AND THE CRIMINAL ASPECTS OF THE TAX LIABILITY OF AMC, LUCAS G. ADAMSON, THERESE JUNE D. ADAMSON AND SARA S. DE LOS REYES.

The case of CIR v. Pascor Realty, et al.[11] is relevant. In this case, then BIR Commissioner Jose U. Ong authorized revenue officers to examine the books of accounts and other accounting records of Pascor Realty and Development Corporation (PRDC) for 1986, 1987 and 1988. This 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 filed a criminal complaint before the DOJ against 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 filed an Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.

The Commissioner denied the urgent request for reconsideration/reinvestigation because she had not yet issued a formal assessment.

Private respondents then elevated the Decision of the Commissioner to the CTA on a petition for review. The Commissioner 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 yet no formal assessment issued against the petitioners. The CTA denied the said motion to dismiss and ordered the Commissioner to file an answer within thirty (30) days. The Commissioner did not file an answer nor did she move to reconsider the resolution. Instead, the Commissioner filed a petition for review of the CTA decision with the Court of Appeals. The Court of Appeals upheld the CTA order. However, this Court reversed the Court of Appeals decision and the CTA order, and ordered the dismissal of the petition. We held:

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals. Neither the NIRC nor the revenue regulations governing the protest of assessments[12] 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.[13]

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[14] 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,[15] 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[16] 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.[17]

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.*18+

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls.*19+

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.

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,[20] 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.

In the cases at bar, the Commissioner denied that she issued a formal assessment of the tax liability of AMC, Lucas G. Adamson, Therese June D. Adamson and Sara S. de los Reyes. She admits though that she wrote the recommendation letter[22] addressed to the Secretary of the DOJ recommending the filing of criminal complaints against AMC and the aforecited persons for fraudulent returns and tax evasion. The first issue is whether the Commissioners recommendation letter can be considered as a formal assessment of private respondents tax liability.

In the context in which it is used in the NIRC, an assessment is a written notice and demand made by the BIR on the taxpayer for the settlement of a due tax liability that is there definitely set and fixed. A written communication containing a computation by a revenue officer of the tax liability of a taxpayer and giving him an opportunity to contest or disprove the BIR examiners findings is not an assessment since it is yet indefinite.[23]

We rule that the recommendation letter of the Commissioner cannot be considered a formal assessment. Even a cursory perusal of the said letter would reveal three key points: 1. It was not addressed to the taxpayers.

2. There was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein. 3. The letter was never mailed or sent to the taxpayers by the Commissioner.

In fine, the said recommendation letter served merely as the prima facie basis for filing criminal informations that the taxpayers had violated Section 45 (a) and (d), and 110, in relation to Section 100, as penalized under Section 255, and for violation of Section 253, in relation to Section 252 9(b) and (d) of the Tax Code.[24]

The next issue is whether the filing of the criminal complaints against the private respondents by the DOJ is premature for lack of a formal assessment.

Section 269 of the NIRC (now Section 222 of the Tax Reform Act of 1997) provides:

Sec. 269. Exceptions as to period of limitation of assessment and collection of taxes.-(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return, the tax may be assessed, or a proceeding in court after the collection of such tax may be begun without assessment, at any time within ten years after the discovery of the falsity, fraud or omission: Provided, That in a fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for collection thereof

The law is clear. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment. Here, the private respondents had already filed the capital gains tax return and the VAT returns, and paid the taxes they have declared due therefrom. Upon investigation of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the sale of two lots of AAI shares, first to APAC and then to APAC Philippines, Limited. The examiners also found that the VAT had not been paid for VAT-liable sale of services for the third and fourth quarters of 1990. Arguably, the gross

disparity in the taxes due and the amounts actually declared by the private respondents constitutes badges of fraud.

Thus, the applicability of Ungab v. Cusi[25] is evident to the cases at bar. In this seminal case, this Court ruled that there was no need for precise computation and formal assessment in order for criminal complaints to be filed against him. It quoted Mertens Law of Federal Income Taxation, Vol. 10, Sec. 55A.05, p. 21, thus: An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to defeat and evade the income tax. A crime is complete when the violator has knowingly and willfully filed a fraudulent return, with intent to evade and defeat the tax. The perpetration of the crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, and the governments failure to discover the error and promptly to assess has no connections with the commission of the crime. This hoary principle still underlies Section 269 and related provisions of the present Tax Code.

We now go to the issue of whether the CTA has no jurisdiction to take cognizance of both the criminal and civil cases here at bar.

Under Republic Act No. 1125 (An Act Creating the Court of Tax Appeals) as amended, the rulings of the Commissioner are appealable to the CTA, thus: SEC. 7. Jurisdiction. The Court of Tax Appeals shall exercise exclusive appellate jurisdiction to review by appeal, as herein provided (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under the National Internal Revenue Code or other laws or part of law administered by the Bureau of Internal Revenue;

Republic Act No. 8424, titled An Act Amending the National Internal Revenue Code, As Amended, And For Other Purposes, later expanded the jurisdiction of the Commissioner and, correspondingly, that of the CTA, thus:

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance. The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

The latest statute dealing with the jurisdiction of the CTA is Republic Act No. 9282.[26] It provides: SEC. 7. Section 7 of the same Act is hereby amended to read as follows:

Sec. 7. Jurisdiction. The CTA shall exercise: (a) Exclusive appellate jurisdiction to review by appeal, as herein provided: (1) Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue or other laws administered by the Bureau of Internal Revenue; (2) Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue, where the National Internal Revenue Code provides a specific period of action, in which case the inaction shall be deemed a denial; (3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction; xxx (b) Jurisdiction over cases involving criminal offenses as herein provided: (1) Exclusive original jurisdiction over all criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided, however, That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) or where there is no specified amount claimed shall be tried by the regular courts and the jurisdiction of the CTA shall be appellate. Any provision of law or the Rules of Court to the contrary notwithstanding, the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with,

and jointly determined in the same proceeding by the CTA, the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action, and no right to reserve the filling of such civil action separately from the criminal action will be recognized. (2) Exclusive appellate jurisdiction in criminal offenses: (a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax cases originally decided by them, in their respected territorial jurisdiction. (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. (c) Jurisdiction over tax collection cases as herein provided: (1) Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes, fees, charges and penalties: Provided, however, That collection cases where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than One million pesos (P1,000,000.00) shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional Trial Court. (2) Exclusive appellate jurisdiction in tax collection cases: (a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction. (b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction.

These laws have expanded the jurisdiction of the CTA. However, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision or assessment of the Commissioner, or in cases where the Commissioner has not acted within the period prescribed by the NIRC. In the cases at bar, the Commissioner has not issued an assessment of the tax liability of private respondents.

Finally, we hold that contrary to private respondents stance, the doctrines laid down in CIR v. Union Shipping Co. and Yabes v. Flojo are not applicable to the cases at bar. In these earlier cases, the Commissioner already rendered an assessment of the tax liabilities of the delinquent taxpayers, for which reason the Court ruled that the filing of the civil suit for collection of the taxes due was a final denial of the taxpayers request for reconsideration of the tax assessment.

IN VIEW WHEREOF, premises considered, judgment is rendered:

1. In G.R. No. 120935, AFFIRMING the CA decision dated March 21, 1995, which set aside the Regional Trial Courts Order dated August 8, 1994, and REINSTATING Criminal Case Nos. 94-1842 to 941846 for further proceedings before the trial court; and

2. In G.R. No. 124557, REVERSING and SETTING ASIDE the Decision of the Court of Appeals dated March 29, 1996, and ORDERING the dismissal of C.T.A. Case No. 5075.

No costs.

SO ORDERED.

FIRST DIVISION [G.R. No. 127777. October 1, 1999]

PETRONILA C. TUPAZ, petitioner, vs. HONORABLE BENEDICTO B. ULEP Presiding Judge of RTC Quezon City, Branch 105, and PEOPLE OF THE PHILIPPINES, respondents. DECISION PARDO, J.:

The case before us is a special civil action for certiorari with application for temporary restraining order seeking to enjoin respondent Judge Benedicto B. Ulep of the Regional Trial Court, Quezon City, Branch 105, from trying Criminal Case No. Q-91-17321, and to nullify respondent judges order reviving the information therein against petitioner, for violation of the Tax Code, as the offense charged has prescribed or would expose petitioner to double jeopardy.

The facts are as follows:

On June 8, 1990, State Prosecutor (SP) Esteban A. Molon, Jr. filed with the Metropolitan Trial Court (MeTC), Quezon City, Branch 33, an information against accused Petronila C. Tupaz and her late husband Jose J. Tupaz, Jr., as corporate officers of El Oro Engravers Corporation, for nonpayment of deficiency corporate income tax for the year 1979, amounting to P2,369,085.46, in violation of Section 51 (b) in relation to Section 73 of the Tax Code of 1977.[1] On September 11, 1990, the MeTC dismissed the information for lack of jurisdiction. On November 16, 1990, the trial court denied the prosecutions motion for reconsideration.

On January 10, 1991, SP Molon filed with the Regional Trial Court, Quezon City, two (2) informations, docketed as Criminal Case Nos. Q-91-17321[2] and Q-91-17322,[3] against accused and her late husband, for the same alleged nonpayment of deficiency corporate income tax for the year 1979. Criminal Case No. Q-91-17321 was raffled to Branch 105,[4] presided over by respondent Judge Benedicto B. Ulep; Q-91-17322 was raffled to Branch 86, then presided over by Judge Antonio P. Solano. The identical informations read as follows:

That in Quezon City, Metro Manila and within the jurisdiction of this Honorable Court and upon verification and audit conducted by the Bureau of Internal Revenue on the 1979 corporate annual income tax return and financial statements of El Oro Engravers Corp., with office address at 809 Epifanio delos Santos Avenue, Quezon City, Metro Manila, it was ascertained that said corporation was found liable to pay the amount of P2,369,085.46, as deficiency corporate income tax for the year 1979 and that, despite demand of the payment of the aforesaid deficiency tax by the Bureau of Internal Revenue and received by said corporation, which demand has already become final, said El Oro Engravers Corp., through above-named accused, the responsible corporate-officers of said corporation, failed and refused, despite repeated demands, and still fail and refuse to pay said tax liability.

CONTRARY TO LAW.*5+

On September 25, 1991, both accused posted bail bond in the sum of P1,000.00 each, for their provisional liberty.

On November 6, 1991, accused filed with the Regional Trial Court, Quezon City, Branch 86, a motion to dismiss/quash[6] information (Q-91-17322) for the reason that it was exactly the same as the information against the accused pending before RTC, Quezon City, Branch 105 (Q-91-17321). However, on November 11, 1991, Judge Solano denied the motion.[7]

In the meantime, on July 25, 1993, Jose J. Tupaz, Jr. died in Quezon City.

Subsequently, accused Petronila C. Tupaz filed with the Regional Trial Court, Quezon City, Branch 105, a petition for reinvestigation, which Judge Ulep granted in an order dated August 30, 1994.[8]

On September 5, 1994, Senior State Prosecutor Bernelito R. Fernandez stated that no new issues were raised in the request for reinvestigation, and no cogent reasons existed to alter, modify or reverse the findings of the investigating prosecutor. He considered the reinvestigation as terminated, and recommended the prompt arraignment and trial of the accused.[9]

On September 20, 1994, the trial court (Branch No. 105) arraigned accused Petronila C. Tupaz in Criminal Case No. Q-91-17321, and she pleaded not guilty to the information therein.

On October 17, 1994, the prosecution filed with the Regional Trial Court, Quezon City, Branch 105, a motion for leave to file amended information in Criminal Case No. Q91-17321 to allege expressly the date of the commission of the offense, to wit: on or about August 1984 or subsequently thereafter. Despite opposition of the accused, on March 2, 1995, the trial court granted the motion and admitted the amended information.[10] Petitioner was not re-arraigned on the amended information. However, the amendment was only on a matter of form.[11] Hence, there was no need to re-arraign the accused.[12]

On December 5, 1995, accused filed with the Regional Trial Court, Quezon City, Branch 105, a motion for leave to file and admit motion for reinvestigation. The trial court granted the motion in its order dated December 13, 1995.

Prior to this, on October 18, 1995, Judge Ulep issued an order directing the prosecution to withdraw the information in Criminal Case No. Q-91-17322, pending before Regional Trial Court, Quezon City, Branch 86, after discovering that said information was identical to the one filed with Regional Trial Court, Quezon City, Branch 105. On April 16, 1996, State Prosecutor Alfredo P. Agcaoili filed with the trial court a motion to withdraw information in Criminal Case No. Q-91-17321. Prosecutor Agcaoili thought that accused was charged in Criminal Case No. Q-91-17321, for nonpayment of deficiency contractors tax, but found that accused was exempted from paying said tax.

On May 15, 1996, Prosecutor Agcaoili filed with the Regional Trial Court, Quezon City, Branch 86, a motion for consolidation of Criminal Case No. Q-91-17322 with Criminal Case No. Q-91-17321 pending before the Regional Trial Court, Quezon City, Branch 105. On the same date, the court[13] granted the motion for consolidation.

On May 20, 1996, Judge Ulep of Regional Trial Court, Quezon City, Branch 105, granted the motion for withdrawal of the information in Criminal Case No. Q-91-17321 and dismissed the case, as prayed for by the prosecution.

On May 28, 1996, Prosecutor Agcaoili filed with the Regional Trial Court, Quezon City, Branch 105, a motion to reinstate information in Criminal Case Q-91-17321,[14] stating that the motion to withdraw information was made through palpable mistake, and was the result of excusable neglect. He thought

that Criminal Case No. Q-91-17321 was identical to Criminal Case No Q-90-12896, wherein accused was charged with nonpayment of deficiency contractors tax, amounting to P346,879.29.

Over the objections of accused, on August 6, 1996, the Regional Trial Court, Quezon City, Branch 105, granted the motion and ordered the information in Criminal Case No. Q-91-17321 reinstated.[15] On September 24, 1996, accused filed with the trial court a motion for reconsideration. On December 4, 1996, the trial court denied the motion.

Hence, this petition.

On July 9, 1997, we required respondents to comment on the petition within ten (10) days from notice. On October 10, 1997, the Solicitor General filed his comment.[16]

On October 26, 1998, the Court resolved to give due course to the petition and required the parties to file their respective memoranda within twenty (20) days from notice. The parties have complied.

Petitioner submits that respondent judge committed a grave abuse of discretion in reinstating the information in Criminal Case No. Q-91-17321 because (a) the offense has prescribed; or (b) it exposes her to double jeopardy.

As regards the issue of prescription, petitioner contends that: (a) the period of assessment has prescribed, applying the three (3) year period provided under Batas Pambansa No. 700; (b) the offense has prescribed since the complaint for preliminary investigation was filed with the Department of Justice only on June 8, 1989, and the offense was committed in April 1980 when she filed the income tax return covering taxable year 1979.

Petitioner was charged with nonpayment of deficiency corporate income tax for the year 1979, which tax return was filed in April 1980. On July 16, 1984, the Bureau of Internal Revenue (BIR) issued a notice of assessment. Petitioner contends that the July 16, 1984 assessment was made out of time.

Petitioner avers that while Sections 318 and 319 of the NIRC of 1977 provide a five (5) year period of limitation for the assessment and collection of internal revenue taxes, Batas Pambansa Blg. 700, enacted on February 22, 1984, amended the two sections and reduced the period to three (3) years. As provided under B.P. Blg. 700, the BIR has three (3) years to assess the tax liability, counted from the last day of filing the return, or from the date the return is filed, whichever comes later. Since the tax return was filed in April 1980, the assessment made on July 16, 1984 was beyond the three (3) year prescriptive period.

Petitioner submits that B.P. Blg. 700 must be given retroactive effect since it is favorable to the accused. Petitioner argues that Article 22 of the Revised Penal Code, regarding the allowance of retroactive application of penal laws when favorable to the accused shall apply in this case.

The Solicitor General, in his comment, maintains that the prescriptive period for assessment and collection of petitioners deficiency corporate income tax was five (5) years. The Solicitor General asserts that the shortened period of three (3) years provided under B.P. Blg. 700 applies to assessments and collections of internal revenue taxes beginning taxable year 1984. Since the deficiency corporate income tax was for taxable year 1979, then petitioner was still covered by the five (5) year period. Thus, the July 16, 1984 tax assessment was made within the prescribed period.

At the outset, it must be stressed that internal revenue taxes are self-assessing and no further assessment by the government is required to create the tax liability. An assessment, however, is not altogether inconsequential; it is relevant in the proper pursuit of judicial and extra judicial remedies to enforce taxpayer liabilities and certain matters that relate to it, such as the imposition of surcharges and interest, and in the application of statues of limitations and in the establishment of tax liens.*17+

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. The ultimate purpose of assessment is to ascertain the amount that each taxpayer is to pay.[18] An assessment is a notice to the effect that the amount therein stated is due as tax and a demand for payment thereof.[19] Assessments made beyond the prescribed period would not be binding on the taxpayer.[20]

We agree with the Solicitor General that the shortened period of three (3) years prescribed under B.P. Blg. 700 is not applicable to petitioner. B.P. Blg. 700, effective April 5, 1984, specifically states that the shortened period of three years shall apply to assessments and collections of internal revenue taxes beginning taxable year 1984. Assessments made on or after April 5, 1984 are governed by the five-year

period if the taxes assessed cover taxable years prior to January 1, 1984.[21] The deficiency income tax under consideration is for taxable year 1979. Thus, the period of assessment is still five (5) years, under the old law. The income tax return was filed in April 1980. Hence, the July 16, 1984 tax assessment was issued within the prescribed period of five (5) years, from the last day of filing the return, or from the date the return is filed, whichever comes later.

Article 22 of the Revised Penal Code finds no application in this case for the simple reason that the provisions on the period of assessment can not be considered as penal in nature.

Petitioner also asserts that the offense has prescribed. Petitioner invokes Section 340 (now 281 of 1997 NIRC) of the Tax Code which provides that violations of any provision of the Code prescribe in five (5) years. Petitioner asserts that in this case, it began to run in 1979, when she failed to pay the correct corporate tax due during that taxable year. Hence, when the BIR instituted criminal proceedings on June 8, 1989, by filing a complaint for violation of the Tax Code with the Department of Justice for preliminary investigation it was beyond the prescriptive period of five (5) years. At most, the BIR had until 1984 to institute criminal proceedings.

On the other hand, the Solicitor General avers that the information for violation of the Tax Code was filed within the prescriptive period of five (5) years provided in Section 340 (now 281 in 1997 NIRC) of the Code. It is only when the assessment has become final and unappealable that the five (5) year period commences to run. A notice of assessment was issued on July 16, 1984. When petitioner failed to question or protest the deficiency assessment thirty (30) days therefrom, or on August 16, 1984, it became final and unappealable. Consequently, it was from this period that the prescriptive period of five (5) years commenced. Thus, the complaint filed with the Department of Justice on June 8, 1989 was within the prescribed period.

We agree with the Solicitor General that the offense has not prescribed. Petitioner was charged with failure to pay deficiency income tax after repeated demands by the taxing authority. In Lim, Sr. v. Court of Appeals,[22] we stated that by its nature the violation could only be committed after service of notice and demand for payment of the deficiency taxes upon the taxpayer. Hence, it cannot be said that the offense has been committed as early as 1980, upon filing of the income tax return. This is so because prior to the finality of the assessment, the taxpayer has not committed any violation for nonpayment of the tax. The offense was committed only after the finality of the assessment coupled with taxpayers willful refusal to pay the taxes within the allotted period. In this case, when the notice of assessment was issued on July 16, 1984, the taxpayer still had thirty (30) days from receipt thereof to protest or question the assessment. Otherwise, the assessment would become final and unappealable.[23] As he

did not protest, the assessment became final and unappealable on August 16, 1984. Consequently, when the complaint for preliminary investigation was filed with the Department of Justice on June 8, 1989, the criminal action was instituted within the five (5) year prescriptive period.

Petitioner contends that by reinstating the information, the trial court exposed her to double jeopardy. Neither the prosecution nor the trial court obtained her permission before the case was dismissed. She was placed in jeopardy for the first time after she pleaded to a valid complaint filed before a competent court and the case was dismissed without her express consent. When the trial court reinstated the information charging the same offense, it placed her in double jeopardy.

Petitioner also asserts that the trial court gravely erred when, over her objections, it admitted the amended information. She submits that the amendment is substantial in nature, and would place her in double jeopardy.

On the other hand, the Solicitor General contends that reinstating the information does not violate petitioners right against double jeopardy. He asserts that petitioner induced the dismissal of the complaint when she sought the reinvestigation of her tax liabilities. By such inducement, petitioner waived or was estopped from claiming her right against double jeopardy.

The Solicitor General further contends that, assuming arguendo that the case was dismissed without petitioners consent, there was no valid dismissal of the case since Prosecutor Agcaoili was under a mistaken assumption that it was a charge of nonpayment of contractors tax.

We sustain petitioners contention. The reinstatement of the information would expose her to double jeopardy. An accused is placed in double jeopardy if he is again tried for an offense for which he has been convicted, acquitted or in another manner in which the indictment against him was dismissed without his consent. In the instant case, there was a valid complaint filed against petitioner to which she pleaded not guilty. The court dismissed the case at the instance of the prosecution, without asking for accused-petitioners consent. This consent cannot be implied or presumed.*24+ Such consent must be expressed as to have no doubt as to the accuseds conformity.*25+ As petitioners consent was not expressly given, the dismissal of the case must be regarded as final and with prejudice to the re-filing of the case.[26] Consequently, the trial court committed grave abuse of discretion in reinstating the information against petitioner in violation of her constitutionally protected right against double jeopardy.

WHEREFORE, we GRANT the petition. We enjoin the lower court, the Regional Trial Court of Quezon City, Branch 105, from trying Criminal Case No. Q-91-17321 and order its dismissal. Costs de oficio.

SO ORDERED.

THIRD DIVISION [G.R. No. 128315. June 29, 1999]

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. PASCOR REALTY AND DEVELOPMENT CORPORATION, ROGELIO A. DIO and VIRGINIA S. DIO, respondents. DECISION PANGANIBAN, J.:

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. Accordingly, an affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment that can be questioned before the Court of Tax Appeals.

Statement of the Case

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying for the nullification of the October 30, 1996 Decision[1] of the Court of Appeals[2] in CA-GR SP No. 40853, which effectively affirmed the January 25, 1996 Resolution[3] of the Court of Tax Appeals[4] in CTA Case No. 5271. The CTA disposed as follows:

WHEREFORE, finding *the herein petitioners+ Motion to Dismiss as UNMERITORIOUS, the same is hereby DENIED. [The CIR] is hereby given a period of thirty (30) days from receipt hereof to file her answer.

Petitioner also seeks to nullify the February 13, 1997 Resolution[5] of the Court of Appeals denying reconsideration.

The Facts

As found by the Court of Appeals, the undisputed facts of the case are as follows:

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.

Instead, the CIR filed this petition on June 7, 1996, alleging as grounds that:

Respondent Court of Tax Appeals acted with grave abuse of discretion and without jurisdiction in considering the affidavit/report of the revenue officer and the indorsement of said report to the secretary of justice as assessment which may be appealed to the Court of Tax Appeals;

Respondent Court of Tax Appeals acted with grave abuse of discretion in considering the denial by petitioner of private respondents Motion for Reconsideration as *a+ final decision which may be appealed to the Court of Tax Appeals.

In denying the motion to dismiss filed by the CIR, the Court of Tax Appeals stated:

We agree with petitioners contentions, that the criminal complaint for tax evasion is the assessment issued, and that the letter denial of May 17, 1995 is the decision properly appealable to [u]s. Respondents ground of denial, therefore, that there was no formal assessment issued, is untenable.

It is the Courts honest belief, that the criminal case for tax evasion is already an assessment. The complaint, more particularly, the Joint Affidavit of Revenue Examiners Lagmay and Savellano attached thereto, contains the details of the assessment like the kind and amount of tax due, and the period covered.

Petitioners are right, in claiming that the provisions of Republic Act No. 1125, relating to exclusive appellate jurisdiction of this Court, do not, make any mention of formal assessment. The law merely states, that this Court has exclusive appellate jurisdiction over decisions of the Commissioner of Internal Revenue on disputed assessments, and other matters arising under the National Internal Revenue Code, other law or part administered by the Bureau of Internal Revenue Code.

As far as this Court is concerned, the amount and kind of tax due, and the period covered, are sufficient details needed for an assessment. These details are more than complete, compared to the following definitions of the term as quoted hereunder. Thus:

Assessment is laying a tax. Johnson City v. Clinchfield R. Co., 43 S.W. (2d) 386, 387, 163 Tenn. 332. (Words and Phrases, Permanent Edition, Vol. 4, p. 446)

The word assessment when used in connection with taxation, may have more than one meaning. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay. More commonly, the word assessment means the official valuation of a taxpayers property for purpose of taxation. State v. New York, N.H. and H.R. Co. 22 A. 765, 768, 60 Conn. 326, 325. (Ibid. p. 445)

From the above, it can be gleaned that an assessment simply states how much tax is due from a taxpayer. Thus, based on these definitions, the details of the tax as given in the Joint Affidavit of respondents examiners, which was attached to the tax evasion complaint, more than suffice to qualify as an assessment. Therefore, this assessment having been disputed by petitioners, and there being a denial of their letter disputing such assessment, this Court unquestionably acquired jurisdiction over the instant petition for review.*6+

As earlier observed, the Court of Appeals sustained the CTA and dismissed the petition.

Hence, this recourse to this Court.[7]

Ruling of the Court of Appeals

The Court of Appeals held that the tax court committed no grave abuse of discretion in ruling that the Criminal Complaint for tax evasion filed by the Commissioner of Internal Revenue with the Department of Justice constituted an assessment of the tax due, and that the said assessment could be the subject of a protest. By definition, an assessment is simply the statement of the details and the amount of tax due from a taxpayer. Based on this definition, the details of the tax contained in the BIR examiners Joint Affidavit,[8] which was attached to the criminal Complaint, constituted an assessment. Since the assailed Order of the CTA was merely interlocutory and devoid of grave abuse of discretion, a petition for certiorari did not lie.

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.

The Courts Ruling

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[10] (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[11] 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.[12]

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,[14] 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[15] 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.[16]

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.*17+

Fixes the liability of the taxpayer and ascertains the facts and furnishes the data for the proper presentation of tax rolls.*18+

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*19+

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,[20] 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.

WHEREFORE, the petition is hereby GRANTED. The assailed Decision is REVERSED and SET ASIDE. CTA Case No. 5271 is likewise DISMISSED. No costs.

SO ORDERED.

SECOND DIVISION

COMMISSIONER OF INTERNAL

G.R. No. 178087 REVENUE,

Petitioner,

Present:

CARPIO, J., Chairperson,

BRION, - versus -

DEL CASTILLO,

ABAD, and

PEREZ, JJ.

KUDOS METAL CORPORATION,

Promulgated: Respondent.

May 5, 2010 x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The prescriptive period on when to assess taxes benefits both the government and the taxpayer.[1] Exceptions extending the period to assess must, therefore, be strictly construed.

This Petition for Review on Certiorari seeks to set aside the Decision[2] dated March 30, 2007 of the Court of Tax Appeals (CTA) affirming the cancellation of the assessment notices for having been issued beyond the prescriptive period and the Resolution[3] dated May 18, 2007 denying the motion for reconsideration. Factual Antecedents

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 Tecum dated 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 on February 19, 2003, received by the BIR Tax Fraud Division on February 28, 2003 and accepted by Assistant Commissioner Salazar.

On August 25, 2003, the BIR issued a Preliminary Assessment Notice for the taxable year 1998 against the respondent. This was followed by a Formal Letter of Demand with Assessment Notices for taxable year 1998, dated September 26, 2003 which was received by respondent on November 12, 2003. Respondent challenged the assessments by filing its Protest on 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 the following tax liabilities:

Kind of Tax Income Tax VAT EWT Withholding Tax-Compensation Penalties Total

Amount P 9,693,897.85 13,962,460.90 1,712,336.76 247,353.24 8,000.00 P25,624,048.76

Ruling of the Court of Tax Appeals, Second Division

Believing that the governments right to assess taxes had prescribed, respondent filed on August 27, 2004 a Petition for Review[7] with the CTA. Petitioner in turn filed his Answer.[8]

On April 11, 2005, respondent filed an Urgent Motion for Preferential Resolution of the Issue on Prescription.*9+

On October 4, 2005, the CTA Second Division issued a Resolution[10] canceling the assessment notices issued against respondent for having been issued beyond the prescriptive period. It found the first Waiver of the Statute of Limitations incomplete and defective for failure to comply with the provisions of Revenue Memorandum Order (RMO) No. 20-90. Thus: First, the Assistant Commissioner is not the revenue official authorized to sign the waiver, as the tax case involves more than P1,000,000.00. In this regard, only the Commissioner is authorized to enter into agreement with the petitioner in extending the period of assessment;

Secondly, the waiver failed to indicate the date of acceptance. Such date of acceptance is necessary to determine whether the acceptance was made within the prescriptive period;

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

The subject waiver is therefore incomplete and defective. As such, the three-year prescriptive period was not tolled or extended and continued to run. x x x[11]

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

Ruling of the Court of Tax Appeals, En Banc

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

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

A.

For National Office cases

Designated Revenue Official

1.

Assistant Commissioner (ACIR), cases

For tax fraud and policy

Enforcement Service

2.

ACIR, Large Taxpayers Service

For large taxpayers cases

other than those cases falling under Subsection B hereof

3.

ACIR, Legal Service

For cases pending verification and awaiting

resolution of certain legal issues prior to prescription and for issuance/compliance of Subpoena Duces Tecum

4.

ACIR, Assessment Service (AS) pending in or subject to

For cases which are

review or approval by the ACIR, AS

Based on the foregoing, the Assistant Commissioner, Enforcement Service is authorized to sign waivers in tax fraud cases. A perusal of the records reveals that the investigation of the subject deficiency taxes in this case was conducted by the National Investigation Division of the BIR, which was formerly named the Tax Fraud Division. Thus, the subject assessment is a tax fraud case.

Nevertheless, the first waiver is still invalid based on the second and third grounds stated by the Court in Division. Hence, it did not extend the prescriptive period to assess.

Moreover, assuming arguendo that the first waiver is valid, the second waiver is invalid for violating Section 222(b) of the 1997 Tax Code which mandates that the period agreed upon in a waiver of the statute can still be extended by subsequent written agreement, provided that it is executed prior to the expiration of the first period agreed upon. As previously discussed, the exceptions to the law on prescription must be strictly construed.

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

Petitioner sought reconsideration but the same was unavailing.

Issue

Hence, the present recourse where petitioner interposes that:

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

Petitioners Arguments

Petitioner argues that the governments right to assess taxes is not barred by prescription as the two waivers executed by respondent, through its accountant, effectively tolled or extended the period within which the assessment can be made. In disputing the conclusion of the CTA that the waivers are invalid, petitioner claims that respondent is estopped from adopting a position contrary to what it has previously taken. Petitioner insists that by acquiescing to the audit during the period specified in the waivers, respondent led the government to believe that the delay in the process would not be utilized against it. Thus, respondent may no longer repudiate the validity of the waivers and raise the issue of prescription.

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. 5-01. 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.

Our Ruling

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, to wit:

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 the agreement.[19]

A perusal of the waivers executed by respondents accountant reveals the following infirmities:

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.

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.

Estoppel does not apply in this case

We find no merit in petitioners claim that respondent is now estopped from claiming prescription since by executing the waivers, it was the one which asked for additional time to submit the required documents.

In Collector of Internal Revenue v. Suyoc Consolidated Mining Company,[20] the doctrine of estoppel prevented the taxpayer from raising the defense of prescription against the efforts of the government to collect the assessed tax. However, it must be stressed that in the said case, estoppel was applied as an exception to the statute of limitations on collection of taxes and not on the assessment of taxes, as the BIR was able to make an assessment within the prescribed period. More important, there was a finding that the taxpayer made several requests or positive acts to convince the government to postpone the collection of taxes, viz:

It appears that the first assessment made against respondent based on its second final return filed on November 28, 1946 was made on February 11, 1947. Upon receipt of this assessment respondent requested for at least one year within which to pay the amount assessed although it reserved its right to question the correctness of the assessment before actual payment. Petitioner granted an extension of only three months. When it failed to pay the tax within the period extended, petitioner sent respondent a letter on November 28, 1950 demanding payment of the tax as assessed, and upon receipt of the letter respondent asked for a reinvestigation and reconsideration of the assessment. When this request was denied, respondent again requested for a reconsideration on April 25, 1952, which was denied on May 6, 1953, which denial was appealed to the Conference Staff. The appeal was heard by the Conference Staff from September 2, 1953 to July 16, 1955, and as a result of these various negotiations, the assessment was finally reduced on July 26, 1955. This is the ruling which is now being questioned after a protracted negotiation on the ground that the collection of the tax has already prescribed.

It is obvious from the foregoing that petitioner refrained from collecting the tax by distraint or levy or by proceeding in court within the 5-year period from the filing of the second amended final return due to the several requests of respondent for extension to which petitioner yielded to give it every opportunity to prove its claim regarding the correctness of the assessment. Because of such requests, several reinvestigations were made and a hearing was even held by the Conference Staff organized in the collection office to consider claims of such nature which, as the record shows, lasted for several months. After inducing petitioner to delay collection as he in fact did, it is most unfair for respondent to now take advantage of such desistance to elude his deficiency income tax liability to the prejudice of the Government invoking the technical ground of prescription.

While we may agree with the Court of Tax Appeals that a mere request for reexamination or reinvestigation may not have the effect of suspending the running of the period of limitation for in such case there is need of a written agreement to extend the period between the Collector and the taxpayer, there are cases however where a taxpayer may be prevented from setting up the defense of prescription even if he has not previously waived it in writing as when by his repeated requests or positive acts the Government has been, for good reasons, persuaded to postpone collection to make him feel that the demand was not unreasonable or that no harassment or injustice is meant by the Government. And when such situation comes to pass there are authorities that hold, based on weighty reasons, that such an attitude or behavior should not be countenanced if only to protect the interest of the Government.

This case has no precedent in this jurisdiction for it is the first time that such has risen, but there are several precedents that may be invoked in American jurisprudence. As Mr. Justice Cardozo has said: The applicable principle is fundamental and unquestioned. He who prevents a thing from being done may not avail himself of the nonperformance which he has himself occasioned, for the law says to him in effect this is your own act, and therefore you are not damnified. (R. H. Stearns Co. vs. U.S., 78 L. ed., 647). Or, as was aptly said, The tax could have been collected, but the government withheld action at the specific request of the plaintiff. The plaintiff is now estopped and should not be permitted to raise the defense of the Statute of Limitations. *Newport Co. vs. U.S., (DC-WIS), 34 F. Supp. 588].[21]

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]

WHEREFORE, the petition is DENIED. The assailed Decision dated March 30, 2007 and Resolution dated May 18, 2007 of the Court of Tax Appeals are hereby AFFIRMED.

SO ORDERED.